e424b3
The
information in this preliminary prospectus supplement is not
complete and may be changed. This preliminary prospectus
supplement and the accompanying prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is
not permitted.
|
Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-165558
SUBJECT TO COMPLETION, DATED MAY
3, 2010
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus Dated March 24, 2010)
Shares
Common Stock
$ per
share
We are
selling shares
of our common stock.
We have granted the underwriters an option to purchase up
to additional
shares to cover over-allotments.
Our common stock is listed on the New York Stock Exchange under
the symbol FSS. The last reported sale price of our
common stock on the New York Stock Exchange on April 30,
2010 was $8.06 per share.
Investing in our common stock involves risks. See Risk
Factors beginning on
page S-8.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Per Share
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Total
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Public Offering Price
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$
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$
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Underwriting Discount
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$
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$
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Proceeds to Federal Signal (before expenses)
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$
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$
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The underwriters expect to deliver the shares to purchasers on
or
about ,
2010 through the book-entry facilities of The Depository
Trust Company.
Citi
, 2010
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not, and the underwriters have
not, authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in
this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference is accurate only as of their
respective dates.
TABLE OF
CONTENTS
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Page
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Prospectus Supplement
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S-ii
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S-ii
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S-1
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S-8
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S-16
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S-17
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S-17
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S-17
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S-18
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S-19
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S-21
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S-41
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S-47
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S-50
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S-54
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S-54
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S-54
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S-55
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F-1
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Prospectus
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About this Prospectus
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Prospectus Summary
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1
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Risk Factors
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3
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Forward-Looking Statements
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3
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Use of Proceeds
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3
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Ratio of Earnings to Fixed Charges
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3
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The Securities We May Offer
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4
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Description of Capital Stock
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4
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Description of Warrants
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5
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Description of Debt Securities
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6
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Description of Units
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12
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Plan of Distribution
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13
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Legal Matters
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14
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Experts
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14
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Where You Can Find More Information
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14
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Incorporation by Reference
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15
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S-i
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of the offering of common
stock and also adds to and updates information contained in the
accompanying prospectus as well as the documents incorporated by
reference into this prospectus supplement and the accompanying
prospectus. The second part, the accompanying prospectus, gives
more general information about securities we may offer from time
to time, some of which does not apply to the common stock we are
offering. To the extent any inconsistency or conflict exists
between the information included in this prospectus supplement
and the information included in the accompanying prospectus, the
information included or incorporated by reference in this
prospectus supplement updates and supersedes the information in
the accompanying prospectus. This prospectus supplement
incorporates by reference important business and financial
information about us that is not included in or delivered with
this prospectus supplement.
Unless the context requires otherwise, the terms Federal
Signal, Company, we,
our and us refer to Federal Signal
Corporation and its consolidated subsidiaries.
MARKET
AND INDUSTRY DATA
The market share, ranking and other data contained in this
prospectus supplement are based either on managements own
estimates, independent industry publications, reports by market
research firms or other published independent sources and, in
each case, are believed by management to be reasonable
estimates. However, such data is subject to change and cannot
always be verified with complete certainty due to limits on the
availability and reliability of raw data and the voluntary
nature of reporting such data. In addition, in some cases we
have not verified the assumptions underlying such data. As a
result, you should be aware that market share, ranking and other
similar data set forth herein, and estimates and beliefs based
on such data, may not be reliable
S-ii
SUMMARY
This summary highlights selected information about us and
this offering of our shares of common stock. It may not contain
all the information that may be important to you in deciding
whether to invest in our common stock. You should read this
entire prospectus supplement and the accompanying prospectus,
including the Risk Factors section and the financial
data and related notes included elsewhere in this prospectus
supplement, together with the information incorporated by
reference, before making an investment decision.
Overview
Federal Signal is a leading global manufacturer and supplier of
(i) safety, security and communication equipment,
(ii) street sweepers and other environmental vehicles and
equipment and (iii) vehicle-mounted, aerial platforms for
fire fighting, rescue, electric utility and industrial uses. We
also are a designer and supplier of technology-based products
and services for the public safety and Intelligent
Transportation Systems markets. In addition, we sell parts and
tooling and provide service and repair, equipment rentals and
training as part of a comprehensive offering to our customer
base. We operate 19 manufacturing facilities in
7 countries and provide our products and integrated
solutions to municipal, governmental, industrial and commercial
customers throughout the world.
We have historically operated our business in three operating
segments: Safety and Security Systems, Environmental Solutions
and Fire Rescue.
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Our Safety and Security Systems Group is a leading manufacturer
and supplier of comprehensive systems and products that law
enforcement, fire rescue, emergency medical services, campuses,
military facilities and industrial sites use to protect people
and property. Our key products include light bars, sirens, mass
alert warning systems and industrial safety products. In 2009,
this group had net sales of $293 million.
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Our Environmental Solutions Group is a leading manufacturer and
supplier of a full range of street sweeper and vacuum loader
vehicles and high-performance water blasting equipment for
municipal and industrial customers. We also manufacture products
for the newer markets of hydro-excavation, glycol recovery and
surface cleaning for utility and industrial customers. In 2009,
this group had net sales of $300 million.
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Our Fire Rescue Group is a leading manufacturer and supplier of
sophisticated, vehicle-mounted, aerial platforms for fire
fighting, rescue, electric utility and industrial uses. In 2009,
this group had net sales of $160 million.
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Recent
Developments
In March 2010, we acquired Sirit Inc., which designs, develops
and manufactures radio frequency identification device
technology for applications such as tolling, electronic vehicle
registration, parking and access control, cashless payments,
supply chain management and asset tracking solutions. Also in
March 2010, we acquired VESystems LLC, which designs, develops
and deploys advanced software applications and customer
management systems and services for the electronic toll
collection and port industries. We reported each of these
acquisitions in the Other segment for the first quarter of 2010.
During the second quarter of 2010, we expect to
form Federal Signal Technologies Group (FSTech), a new
operating segment that will focus on automated solutions for the
Intelligent Transportation Systems and public safety markets and
other applications that will leverage our technologies and
process and service expertise. FSTech will provide technology
platforms and services to customers in the areas of electronic
toll collection, automated license plate recognition, electronic
vehicle registration, parking and access control, cashless
payment solutions, congestion charging, traffic management, site
security solutions and supply chain systems.
S-1
According to an industry report by Global Industry Analysts, the
global market for Intelligent Transportation Systems is
estimated to reach over $12 billion in 2010, with the
U.S. representing the largest market. The electronic toll
collection market, which represents approximately
$3 billion by 2010, is the fastest growing product segment,
estimated to have grown in excess of 17% per year over the past
decade. We believe that trends in the transportation and safety
markets will provide FSTech significant global growth
opportunities.
We expect FSTech to consist of the following businesses:
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Sirit: a leading designer and supplier of
radio frequency identification device products used in
electronic toll collection, electronic vehicle registration,
parking and access control, cashless payment, supply chain
management and asset tracking solutions;
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VESystems: a leading designer and integrator
of transaction processing and account management software and
services that process high volume transactions occurring in
electronic toll and port congestion management environments;
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PIPS Technologies: a leading designer and
manufacturer of automated license plate recognition technology
that is used in public safety and transportation environments.
PIPStm
cameras are used to automate and increase the efficiency of open
road tolling, parking revenue collection, stolen vehicle
recovery and criminal identification, among other uses
(previously part of our Safety and Security Systems Group);
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Diamond Consulting: a leading designer and
integrator of sensors and software for open road tolling and
traffic flow detection, which we acquired in December 2009. We
believe Diamonds
Idris®
brand software is the premier technology for classifying
vehicles for electronic toll collection (previously part of our
Safety and Security Systems Group); and
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Federal Automatic Parking Devices (FAPD): a
leading designer and integrator of parking, access and revenue
control systems. FAPD is a pioneer of integrated facility
management systems for the parking industry, including software
that enables variable-rate self-parking (previously part of our
Safety and Security Systems Group).
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The businesses that we expect will be part of FSTech have a
history of working together to jointly deliver integrated client
solutions. We believe our integrated solutions differentiate our
products and services from our competitors offerings.
Our
Competitive Strengths
Premier Brands. We have widely recognized
brands of safety and security, street sweeper and environmental
vehicle, fire rescue and intelligent transportation products and
offerings. We believe these brands enhance our credibility with
potential customers and promote confidence in the on-going
quality of our products, thereby strengthening product
recognition and customer relationships. We believe there is an
increasing trend among our customers to consolidate their global
supplier base and turn to established brands and vendors. Select
premier brands include Federal
Signaltm
light bars, sirens and warning systems,
Elgin®
street sweepers,
Vactor®
sewer cleaners,
Guzzler®
industrial vacuum trucks,
Jetstreamtm
water blasters,
Brontotm
aerial platforms,
PIPStm
automated license plate recognition cameras,
Idris®
vehicle classification software,
Sirit®
radio frequency identification device technologies and
VESystemstm
transaction processing software and services. We generated
approximately 83% of our 2009 net sales from products that
we believe have either a #1 or #2 share of their
markets.
Comprehensive Offering of Products and
Services. We offer a wide range of high quality
products with the flexibility to meet our customers
diverse and growing needs. In addition, we sell parts and
tooling and provide service and repair, equipment rentals and
training as part of a comprehensive offering to our customer
base. We believe that our breadth of products and services and
differentiated capabilities enhance our customer relationships
and provide opportunities for future growth with existing and
new customers.
S-2
Established Distribution Networks with Long Standing
Customer Relationships. We have been in business
for over 100 years and have developed strong sales and
distribution networks. We sell our products through our direct
sales force, our exclusive dealerships and a network of
wholesalers and independent representatives. Our extensive
product and customer base encourages our dealers and independent
representatives to continue to sell and service our products,
while providing us with opportunities to increase recurring
revenue through sales of parts and services. Additionally, our
distribution networks have fostered long standing relationships
that allow us to partner with our municipal, governmental and
industrial customers and understand their current and future
needs.
Innovative Technology, Design and Engineering
Capabilities. We believe our strong design and
engineering capabilities enable us to use our technologies and
processes to develop innovative products that meet our
customers evolving needs. For example, our technologies
are used in a variety of applications designed to reduce traffic
congestion and, in turn, vehicle emissions. Our PIPS technology
is used in the London congestion charging project and
technologies from PIPS, Sirit and Diamond are combined in an
integrated solution for one of the first all-electronic toll
collection systems in the U.S. Our FAPD technologies are
deployed as part of the web-based parking management system at
the new Yankee Stadium in New York as well as the parking
management systems at the New York City metropolitan area
airports. In addition, our Federal Signal technologies are used
in warning systems that provide detailed, localized and timely
notification of emergency situations on campuses, military
facilities and industrial sites. These technology-based
solutions deliver increased efficiencies and lower costs for our
customers.
Our
Growth Strategy
Focus on Growth Opportunities in Higher Margin
Businesses. Since 2008, we have implemented a
strategy of capitalizing on growth opportunities in higher
margin, less asset intensive businesses that leverage our
technology capabilities. As part of this strategy, our new
management team, which joined us in 2008, has divested slower
growth, non-core businesses in order to focus on higher margin
businesses that we believe provide more attractive growth
opportunities. In 2008 and 2009, we divested non-core businesses
for over $100 million as well as, our municipal leasing
portfolio for $94 million. In 2009 and 2010, we completed
three strategic acquisitions that have broadened the portfolio
of technology-based products and services that we expect to
offer through our FSTech segment. Due to increasing growth
opportunities in Intelligent Transportation Systems and safety
and security, we believe that FSTech and our Safety and Security
Systems Group will represent an increasing portion of our
business over time.
Expand Product and Service Offerings. We
intend to leverage our customer relationships and understanding
of their markets and businesses to expand our portfolio of
products and services. We continue to invest in research and
development to create new products and services for our
customers evolving needs. Our technology, design and
process expertise enables us to adapt our solutions for
customers, which we believe will allow us to capture a larger
share of our customers business and the overall market.
For example, we have incorporated compressed natural gas and
liquefied natural gas capabilities into the
Elgin®
and
Vactor®
product lines in response to increasing municipal customer
demands for alternative fuel vehicles.
Leverage Global Capabilities. Our global
brands and customer relationships provide us with opportunities
to increase our market share and benefit from international
economic growth. Our significant global footprint is
demonstrated by the fact that we generated 44% of our net sales
in 2009 outside the U.S. We believe we are well positioned
to realize growth from both developed and developing economies.
For example, we recently entered the Chinese market for water
blasters by adapting our
Jetstreamtm
product line for local customer requirements.
Increase Operating Margins and Improve Cash
Flow. We continue to pursue cost reductions and
operating efficiencies through numerous initiatives. We
continually seek ways to increase our productivity, reduce our
fixed cost structure, rationalize capacity and efficiently
manage working capital and capital spending. During 2009, these
initiatives resulted in annual cost savings of approximately
$30 million and reduced working capital by
$28 million. We believe our improved cost structure will
enable us to realize higher margins in an improving revenue
environment.
S-3
Capitalize on FSTech Growth Opportunities. We
believe that the businesses that we expect will be part of the
FSTech segment are well positioned to deliver growth by offering
innovative products and solutions to the Intelligent
Transportation Systems and public safety markets. We believe
FSTech will have significant growth opportunities for a variety
of reasons, including:
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the increasing focus of governments, municipalities and private
operators on technology-based solutions that address
transportation and safety needs;
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the global growth in electronic toll collection and electronic
vehicle registration resulting from an increased focus on
traffic congestion and related environmental concerns, vehicle
registration and associated revenues. For example, Brazil and
Mexico have recently mandated deployment of electronic vehicle
registration systems in those countries;
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our comprehensive and integrated product and service offerings.
For example, we offer electronic toll collection systems that
include the technologies used from the time the toll is reported
in the lane to the time the transaction is processed and the
vehicle owners account is charged; and
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our proven capabilities in Intelligent Transportation Systems
and public safety applications as demonstrated by successful
deployments in numerous domestic and international locations. A
history of specific system installations is a key criteria for
the qualification and selection processes for many potential
customers and projects.
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Corporate
Information
Our company was founded in 1901 and was reincorporated as a
Delaware corporation in 1969. Our principal executive office is
located at 1415 West
22nd
Street, Oak Brook, Illinois 60523. Our telephone number is
(630) 954-2000.
Our website is located at www.federalsignal.com. Other than as
described in Where You Can Find More Information
below, the information on, or that can be accessed through, our
website is not incorporated by reference in this prospectus
supplement, and you should not consider it to be a part of this
prospectus supplement.
S-4
The
Offering
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Issuer |
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Federal Signal Corporation |
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Common stock offered |
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shares |
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Over-allotment option |
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shares |
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Shares outstanding after this offering(1) |
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shares |
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Use of proceeds |
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We estimate that our net proceeds from this offering, without
exercise of the over-allotment option, will be approximately
$ million. We intend to use
these net proceeds to repay amounts outstanding under our
revolving credit facility. |
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Listing |
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Our common stock is listed on the New York Stock Exchange under
the symbol FSS. |
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Risk factors |
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See Risk Factors beginning on
page S-8
of this prospectus supplement and other information included or
incorporated by reference in this prospectus supplement and the
accompanying prospectus for a discussion of factors you should
carefully consider before deciding to invest in our common stock. |
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Conflicts of Interest |
|
We intend to use the net proceeds of this offering to repay
amounts outstanding under our revolving credit facility. See
Use of Proceeds. Certain of the underwriters or
their affiliates may receive proceeds of this offering if they
are lenders under our credit facility. Because more than 5% of
the net proceeds of this offering, not including underwriting
compensation, may be received by affiliates of the underwriters
in this offering, this offering is being conducted in compliance
with NASD Rule 2720, as administered by the Financial
Industry Regulatory Authority. Pursuant to such rule, the
appointment of a qualified independent underwriter is not
necessary in connection with this offering, as the offering is
of a class of securities having a bona fide public market as
contemplated by such rule. See Underwriting
Conflicts of Interest. |
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(1) |
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The number of shares of common stock outstanding after this
offering is based on the number of shares outstanding at
April 27, 2010 and the issuance
of shares
in this offering. This number
excludes shares
of common stock that may be sold by us if the underwriters
exercise their over-allotment option in full,
1,857,466 shares of common stock underlying awards
outstanding as of April 27, 2010 granted under our stock
option, equity incentive and executive performance plans, and
4,660,537 shares of common stock reserved and available for
future issuance as of April 27, 2010 under our stock
option, equity incentive and executive performance plans. |
S-5
Summary
Consolidated Financial Data
The following table sets forth our summary consolidated
financial data. You should read the following summary
consolidated financial data in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and notes included elsewhere in this
prospectus supplement.
Our summary historical consolidated financial data as of and
for the years ended December 31, 2007, 2008 and 2009, has
been derived from our audited historical consolidated financial
statements. Our summary unaudited historical consolidated
financial data as of and for the three months ended
March 31, 2009 and 2010 has been derived from our unaudited
historical consolidated financial statements.
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Three Months
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Ended March 31,
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Year Ended December 31,
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2010
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2009
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2009
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2008
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2007
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(Unaudited)
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Operating Results ($ in millions):
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Net sales(a)
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$
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166.6
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$
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184.7
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$
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752.5
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$
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879.0
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$
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854.8
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Income (loss) before income taxes(a)
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(4.6
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)
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22.3
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20.7
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47.1
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Income (loss) from continuing operations(a)
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(3.2
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)
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0.2
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17.7
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27.2
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35.1
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Operating margin(a)
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(0.5
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)%
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2.3
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%
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4.4
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%
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5.7
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%
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8.0
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%
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Return on average common shareholders equity
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(1.1
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)%
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0.3
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%
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7.5
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%
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(25.9
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)%
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13.1
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%
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Common Stock Data (per share):
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Income (loss) from continuing operations diluted
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$
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(0.06
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)
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$
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$
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0.36
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$
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0.57
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$
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0.73
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Cash dividends per share
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0.06
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0.06
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0.24
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0.24
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0.24
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Market price range:
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High
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$
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9.50
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$
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9.28
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$
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9.30
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$
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17.50
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$
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17.00
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Low
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6.02
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3.73
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3.73
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5.10
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10.82
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Average common shares outstanding (in millions)
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49.2
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47.9
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|
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48.6
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47.7
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47.9
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Financial Position at Period-End (dollars in millions):
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Working capital(a)(b)
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97.4
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143.7
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$
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113.0
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$
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148.0
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$
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83.4
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Current ratio(a)(b)
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1.5
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1.9
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1.7
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1.9
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1.4
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Total assets
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846.5
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819.5
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744.9
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839.0
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1,172.9
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Long-term debt, net of current portion
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252.5
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|
|
239.8
|
|
|
|
159.7
|
|
|
|
241.2
|
|
|
|
240.7
|
|
Shareholders equity
|
|
|
327.8
|
|
|
|
288.8
|
|
|
|
328.7
|
|
|
|
287.1
|
|
|
|
447.3
|
|
Debt-to-capitalization
ratio(c)
|
|
|
48.0
|
%
|
|
|
48.1
|
%
|
|
|
38.0
|
%
|
|
|
49.3
|
%
|
|
|
39.2
|
%
|
Net
debt-to-capitalization
ratio(d)
|
|
|
47.0
|
%
|
|
|
46.1
|
%
|
|
|
35.4
|
%
|
|
|
46.1
|
%
|
|
|
38.2
|
%
|
Other (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orders(a)
|
|
$
|
198.3
|
|
|
$
|
159.4
|
|
|
$
|
639.7
|
|
|
$
|
860.9
|
|
|
$
|
920.1
|
|
Backlog(a)
|
|
|
222.7
|
|
|
|
261.5
|
|
|
|
170.5
|
|
|
|
290.2
|
|
|
|
319.9
|
|
Net cash provided by operating activities
|
|
|
(9.6
|
)
|
|
|
7.8
|
|
|
|
62.4
|
|
|
|
123.7
|
|
|
|
65.4
|
|
Net cash provided by (used for) investing activities
|
|
|
(99.8
|
)
|
|
|
(0.9
|
)
|
|
|
31.0
|
|
|
|
54.6
|
|
|
|
(106.6
|
)
|
Net cash (used for) provided by financing activities
|
|
|
97.8
|
|
|
|
(20.6
|
)
|
|
|
(96.5
|
)
|
|
|
(166.7
|
)
|
|
|
36.8
|
|
Capital expenditures(a)
|
|
|
3.2
|
|
|
|
3.9
|
|
|
|
14.6
|
|
|
|
28.0
|
|
|
|
19.5
|
|
Depreciation and amortization(a)
|
|
|
4.2
|
|
|
|
3.8
|
|
|
|
15.3
|
|
|
|
14.9
|
|
|
|
13.3
|
|
Employees(a)
|
|
|
2,892
|
|
|
|
2,827
|
|
|
|
2,614
|
|
|
|
3,034
|
|
|
|
3,198
|
|
|
|
|
(a) |
|
Continuing operations only, prior year amounts have been
reclassified for discontinued operations as discussed in Note 13
to the audited consolidated financial statements and
Note 15 to the unaudited consolidated financial statements
included elsewhere in this prospectus supplement. |
S-6
|
|
|
(b) |
|
Working capital: current assets less current liabilities;
current ratio: current assets divided by current liabilities. |
|
(c) |
|
Total debt divided by the sum of total debt plus equity. |
|
(d) |
|
Net debt to capitalization ratio: debt less cash and cash
equivalents and short-term investments divided by equity plus
debt less cash and cash equivalents and short-term investments. |
The 2009 and 2008 income before income taxes includes
restructuring costs of $1.5 million and $2.7 million,
respectively. The 2008 income before income taxes was impacted
by a $6.5 million loss incurred to settle a dispute and
write off assets associated with a large parking systems
contract and a $13.0 million loss associated with our
decision to terminate funding of a joint venture in China. 2009
operating income benefitted from $5.8 million in lower
legal and trial costs associated with our ongoing firefighter
hearing loss litigation.
S-7
RISK
FACTORS
An investment in our common stock involves various material
risks. You should carefully consider the risks set forth below,
as well as all of the other information contained and
incorporated by reference in this prospectus supplement and the
accompanying prospectus, before deciding to invest in our common
stock. The occurrence of any of the following risks could
materially and adversely affect our business, financial
condition, prospects, results of operations and cash flows. In
such case, the trading price of our common stock could decline,
and you could lose all or part of your investment. Additional
risks and uncertainties not currently known to us or that we
currently deem to be immaterial may also materially adversely
affect our business, financial condition, prospects, results of
operations and cash flows.
Risks
Related to Our Business
Our
financial results are subject to considerable
cyclicality.
Our ability to be profitable depends heavily on varying
conditions in the United States government and municipal markets
and the overall United States economy. The industrial markets in
which we compete are subject to considerable cyclicality and
move in response to cycles in the overall business environment.
Many of our customers are municipal governmental agencies, and
as a result, we are dependent on municipal government spending.
Spending by our municipal customers can be affected by local
political circumstances, budgetary constraints, and other
factors. The United States government and municipalities depend
heavily on tax revenues as a source of their spending, and
accordingly, there is a historical correlation, of a one or two
year lag between the overall strength of the United States
economy and our sales to the United States government and
municipalities. Therefore, downturns in the United States
economy are likely to result in decreases in demand for our
products. During previous economic downturns, we experienced
decreases in sales and profitability, and we expect our business
to remain subject to similar economic fluctuations in the future.
The
execution of our growth strategy is dependent upon the continued
availability of credit and third-party financing arrangements
for our customers.
The economic downturn has resulted in tighter credit markets,
which could adversely affect our customers ability to
secure the financing necessary to proceed or continue with
purchases of our products and services. Our customers or
potential customers inability to secure financing for
projects could result in the delay, cancellation or down-sizing
of new purchases or the suspension of purchases already under
contract, which could cause a decline in the demand for our
products and services and negatively impact our revenues and
earnings.
Failure
to keep pace with technological developments may adversely
affect our operations.
We are engaged in an industry which will be affected by future
technological developments. The introduction of products or
processes utilizing new technologies could render our existing
products or processes obsolete or unmarketable. Our success will
depend upon our ability to develop and introduce on a timely and
cost-effective basis new products, applications and processes
that keep pace with technological developments and address
increasingly sophisticated customer requirements. We may not be
successful in identifying, developing and marketing new
products, applications and processes and product or process
enhancements. We may experience difficulties that could delay or
prevent the successful development, introduction and marketing
of product or process enhancements or new products, applications
or processes. Our products, applications or processes may not
adequately meet the requirements of the marketplace and achieve
market acceptance. Our business, operating results and financial
condition could be materially and adversely affected if we were
to incur delays in developing new products, applications or
processes or product or process enhancements or if our products
do not gain market acceptance.
S-8
Our
efforts to develop new products and services or enhance existing
products and services involve substantial research, development
and marketing expenses, and the resulting new or enhanced
products or services may not generate sufficient revenues to
justify the expense.
We place a high priority on developing new products and
services, as well as enhancing our existing products and
services. As a result of these efforts, we may be required to
expend substantial research, development and marketing
resources, and the time and expense required to develop a new
product or service or enhance an existing product or service are
difficult to predict. We cannot be certain that any new or
enhanced product or service will generate sufficient revenue to
justify the expense and resources devoted to this product
diversification effort.
We have international operations that are subject to
foreign economic and political uncertainties.
Our business is subject to fluctuations in demand and changing
international economic and political conditions which are beyond
our control. During 2009, approximately 44% of our net sales
were to customers outside the United States, with approximately
31% of our net sales being supplied from overseas operations. We
expect a significant and increasing portion of our revenues and
profits to come from international sales for the foreseeable
future. Operating in the international marketplace exposes us to
a number of risks, including abrupt changes in foreign
government policies and regulations, restrictive domestic and
international trade regulations, U.S. laws applicable to
foreign operations, such as the Foreign Corrupt Practices Act
(FCPA), political, religious and economic instability, local
labor market conditions, the imposition of foreign tariffs and
other trade barriers and, in some cases, international
hostilities. To the extent that our international operations are
affected by unexpected and adverse foreign economic and
political conditions, we may experience project disruptions and
losses which could significantly reduce our revenues and
profits. Additionally, penalties for non-compliance with laws
applicable to international business and trade, such as FCPA,
could negatively impact our business.
Some of our contracts are denominated in foreign currencies,
which result in additional risk of fluctuating currency values
and exchange rates, hard currency shortages and controls on
currency exchange. Although currency exposure is hedged in the
short term, over the longer term changes in the value of foreign
currencies could increase our U.S. dollar costs for, or
reduce our U.S. dollar revenues from, our foreign
operations. Any increased costs or reduced revenues as a result
of foreign currency fluctuations could adversely affect our
profits.
We
operate in highly competitive markets.
The markets in which we operate are highly competitive. The
intensity of this competition, which is expected to continue,
can result in price discounting and margin pressures throughout
the industry and adversely affects our ability to increase or
maintain prices for our products. In addition, certain of our
competitors may have lower overall labor or material costs. In
addition, our contracts with municipal and other governmental
customers are in some cases awarded and renewed through
competitive bidding. We may not be successful in obtaining or
renewing these contracts, which could be harmful to our business
and financial performance.
Our ability to operate effectively could be impaired if we
fail to attract and retain key personnel.
Our ability to operate our businesses and implement our
strategies depends, in part, on the efforts of our executive
officers and other key employees. In addition, our future
success will depend on, among other factors, our ability to
attract and retain qualified personnel, including finance
personnel, research professionals, technical sales professionals
and engineers. The loss of the services of any key employee or
the failure to attract or retain other qualified personnel could
have a material adverse effect on our business or business
prospects.
S-9
We
rely on access to financial markets to finance a portion of our
working capital requirements and support our liquidity needs.
Access to these markets may be adversely affected by factors
beyond our control, including turmoil in the financial services
industry, volatility in securities trading markets and general
economic downturns.
We draw upon our revolving credit facility and our operating
cash flow to fund working capital needs, capital expenditures,
strategic acquisitions, pension contributions, debt repayments,
share repurchases and dividends. Market disruptions such as
those recently experienced in the United States and abroad have
materially impacted liquidity in the credit and debt markets,
making financing terms for borrowers less attractive and in
certain cases resulting in the unavailability of certain types
of financing. Continued uncertainty in the financial markets may
negatively impact our ability to access additional financing or
to refinance our revolving credit facility or existing debt
arrangements on favorable terms or at all, which could
negatively affect our ability to fund current and future
operations as well as future acquisitions and development. These
disruptions may include turmoil in the financial services
industry, unprecedented volatility in the markets where our
outstanding securities trade, and general economic downturns in
the areas where we do business. If we are unable to access
financing at competitive rates, or if our short-term or
long-term borrowings costs dramatically increase, our ability to
finance our operations, meet our short-term debt obligations and
implement our operating strategy could be adversely affected.
We are
subject to a number of restrictive debt covenants.
Our revolving credit facility and other debt instruments contain
certain restrictive debt covenants and other customary events of
default that may hinder our ability to continue operating or to
take advantage of attractive business opportunities. These
restrictive covenants include, among other things, an interest
coverage ratio of 3.0:1.0 in all quarters and a maximum
debt-to-total-capitalization
ratio of 0.5:1.0. Our ability to comply with these restrictive
covenants may be affected by the other factors described in this
Risk Factors section and other factors outside our
control. Failure to comply with one or more of these restrictive
covenants may result in an event of default. Upon an event of
default, if not waived by our lenders, our lenders may declare
all amounts outstanding as due and payable. If we are unable to
comply with the restrictive covenants in the future, we would be
required to obtain further modifications from our lenders or
secure another source of financing. If our current lenders
accelerate the maturity of our indebtedness, we may not have
sufficient capital available at that time to pay the amounts due
to our lenders on a timely basis. In addition, these restrictive
covenants may prevent us from engaging in transactions that
benefit us, including responding to changing business and
economic conditions and taking advantage of attractive business
opportunities.
We may
incur material losses and costs as a result of product
liability, warranty, recall claims or other lawsuits or claims
that may be brought against us.
We are exposed to product liability and warranty claims in the
normal course of business in the event that our products
actually or allegedly fail to perform as expected or the use of
our products results, or is alleged to result, in bodily injury
and/or
property damage. Accordingly, we could experience material
warranty or product liability costs in the future and incur
significant costs to defend against these claims. We carry
insurance and maintain reserves for product liability claims.
However, we cannot assure you that our insurance coverage will
be adequate if such claims do arise, and any liability not
covered by insurance could have a material adverse impact on our
results of operations and financial position. A future claim
could involve the imposition of punitive damages, the award of
which, pursuant to state laws, may not be covered by insurance.
In addition, warranty or other claims are not typically covered
by insurance coverage. Any product liability or warranty issues
may adversely impact our reputation as a manufacturer of high
quality, safe products and may have a material adverse effect on
our business.
We have been sued by firefighters seeking damages claiming that
exposure to our sirens has impaired their hearing and that the
sirens are therefore defective. Currently, there are 94 cases
pending against us involving a total of over 2,000 plaintiffs.
The trial of the first of these plaintiffs claims occurred
in 2008 and the jury returned a unanimous verdict in our favor.
However, in two trials occurring in 2009 and 2010, verdicts were
returned against us and for the plaintiffs in varying amounts
totaling approximately $520,000. Plaintiffs
S-10
attorneys have threatened to file additional lawsuits. We are
appealing the unfavorable verdicts and intend to vigorously
defend all of these lawsuits. We are engaged in ongoing
negotiations with our insurance carrier over insurance coverage
on these claims. Our negotiations have resulted in reimbursement
of a portion, but not all, of our defense costs. In addition, we
are subject to other claims and litigation from time to time as
further described in the notes to our consolidated financial
statements.
We may
be unsuccessful in our future acquisitions, if any, which may
have an adverse effect on our business.
Our long-term strategy includes expanding into adjacent markets
through selective acquisitions of companies, complementary
technologies and organic growth in order to enhance our global
market position and broaden our product offerings. This strategy
may involve the acquisition of companies that, among other
things, enable us to build on our existing strength in a market
or that give us access to proprietary technologies that are
strategically valuable or allows us to leverage our distribution
channels. In connection with this strategy, we could face
certain risks and uncertainties in addition to those we face in
the
day-to-day
operations of our business. We also may be unable to identify
suitable targets for acquisition or make acquisitions at
favorable prices. If we identify a suitable acquisition
candidate, our ability to successfully implement the acquisition
would depend on a variety of factors, including our ability to
obtain financing on acceptable terms. In addition, our
acquisition activities could be disrupted by overtures from
competitors for the targeted companies, governmental regulation
and rapid developments in our industry that decrease the value
of a targets products or services.
Acquisitions involve risks, including those associated with the
following:
|
|
|
|
|
integrating the operations, financial reporting, disparate
technologies and personnel of acquired companies;
|
|
|
|
managing geographically dispersed operations;
|
|
|
|
diverting managements attention from other business
concerns;
|
|
|
|
entering markets or lines of business in which we have either
limited or no direct experience; and
|
|
|
|
potentially losing key employees, customers and strategic
partners of acquired companies.
|
We also may not achieve anticipated revenue and cost benefits.
Acquisitions may not be accretive to our earnings and may
negatively impact our results of operations as a result of,
among other things, the incurrence of debt, one time write-offs
of goodwill and amortization expenses of other intangible
assets. In addition, future acquisitions could result in
dilutive issuances of equity securities.
We may
not realize the expected benefits of our recent acquisitions
because of integration difficulties and other
challenges.
The success of our recent acquisitions of Sirit, Inc.,
VESystems, LLC and Diamond Consulting Services, Ltd. will
depend, in part, on our ability to timely and efficiently
realize the anticipated benefits from integrating those
businesses with our existing businesses. Factors that could
affect our ability to achieve the anticipated benefits from our
recent acquisitions include:
|
|
|
|
|
failure to implement our business plan for the combined
businesses;
|
|
|
|
unanticipated issues in integrating manufacturing, logistics,
information, communications and other systems;
|
|
|
|
failure of the acquired businesses to perform in accordance with
our expectations;
|
|
|
|
failure to achieve anticipated synergies between our existing
businesses and the acquired businesses;
|
|
|
|
unanticipated changes in applicable laws and regulations;
|
|
|
|
increased risk of litigation involving patents and other
intellectual property rights;
|
S-11
|
|
|
|
|
failure to retain key employees;
|
|
|
|
operating risks inherent in the respective businesses of Sirit,
VESystems and Diamond;
|
|
|
|
the impact on our internal controls and compliance with the
regulatory requirements under the Sarbanes-Oxley Act of 2002;
|
|
|
|
liabilities of the acquired businesses that were not known at
the time of the acquisition; and
|
|
|
|
other unanticipated issues, expenses and liabilities.
|
If we cannot successfully integrate the acquired businesses on a
reasonable timeframe, we may not be able to realize the
potential benefits anticipated from the acquisitions, and our
financial condition, results of operations, and cash flows could
be materially and adversely affected.
We
have substantially increased our leverage in order to finance
our recent acquisitions, and we are subject to restrictive
covenants that will affect our ability to engage in business
transactions.
To finance our recent acquisitions of Sirit and VESystems, we
borrowed $84.6 million of additional money and had
$304.6 million of indebtedness as of March 31, 2010.
Increased indebtedness may reduce our flexibility to respond to
changing business and economic conditions or fund capital
expenditures or working capital needs because we will require
additional funds to service our indebtedness. In addition,
financial and other covenants we have with our lenders will
limit our ability to incur additional indebtedness, make
investments, pay dividends and engage in other transactions, and
the leverage may cause potential lenders to be less willing to
loan funds to us in the future. Our failure to comply with these
covenants could result in an event of default that, if not
waived or cured, could result in the acceleration of all our
indebtedness.
Our
recently acquired businesses may have liabilities which are not
known to us.
As a result of our recent acquisitions, we have assumed
liabilities associated with the acquired businesses. There may
be liabilities that we failed, or were unable, to discover in
the course of performing due diligence investigations on the
acquired businesses. We cannot assure you that our rights to
indemnification from sellers of the acquired businesses to us
will be sufficient in amount, scope or duration to fully offset
the possible liabilities associated with the businesses or
property acquired. Any such liabilities, individually or in the
aggregate, could have a material adverse effect on our business.
We may
be required to recognize impairment charges for our goodwill and
other indefinite lived intangible assets.
In accordance with generally accepted accounting principles, we
periodically assess our goodwill and other indefinite lived
intangible assets to determine if they are impaired. Significant
negative industry or economic trends, disruptions to our
business, unexpected significant changes or planned changes in
the use of our assets and market capitalization declines may
result in impairments to goodwill and other long lived assets.
Future impairment charges could significantly affect our results
of operations in the periods recognized. Impairment charges
would also reduce our consolidated shareholders equity and
increase our
debt-to-total-capitalization
ratio, which may result in an event of default under our
revolving credit facility and other debt instruments. Upon an
event of default, if not waived by our lenders, our lenders may
declare all amounts outstanding as due and payable.
The
costs associated with complying with environmental and safety
regulations could lower our margins.
We, like other manufacturers, continue to face heavy
governmental regulation of our products, especially in the areas
of the environment and employee health and safety. Complying
with environmental and safety requirements has added and will
continue to add to the cost of our products, and could increase
the capital required. While we believe that we are in compliance
in all material respects with these laws and regulations, we may
be adversely impacted by costs, liabilities or claims with
respect to our operations under existing laws or those that may
be adopted. These requirements are complex, change frequently
and have tended to become
S-12
more stringent over time. Therefore, we could incur substantial
costs, including cleanup costs, fines and civil or criminal
sanctions as a result of violation of, or liabilities under,
environmental laws and safety regulations.
The
inability to obtain raw materials, component parts, and/or
finished goods in a timely and
cost-effective
manner from suppliers would adversely affect our ability to
manufacture and market our products.
We purchase raw materials and component parts from suppliers to
be used in the manufacturing of our products. In addition, we
purchase certain finished goods from suppliers. Changes in our
relationships with suppliers, shortages, production delays or
work stoppages by the employees of such suppliers could have a
material adverse effect on our ability to timely manufacture and
market products. In addition, increases in the costs of
purchased raw materials, component parts or finished goods could
result in manufacturing interruptions, delays, inefficiencies or
our inability to market products. In addition, our profit
margins would decrease if prices of purchased raw materials,
component parts or finished goods increase and we are unable to
pass on those increases to our customers.
Disruptions
within our dealer network could adversely affect our
business.
We rely on a national and global dealer network to market
certain of our products and services. A disruption in our dealer
network within a specific local market could temporarily have an
adverse impact on our business within the affected market. In
addition, the loss or termination of a significant number of
dealers could cause difficulties in marketing and distributing
our products and have an adverse effect on our business,
operating results or financial condition.
Risks
Related to Our Common Stock and this Offering
The
market price of our common stock is highly volatile and may
result in investors selling shares of our common stock at a
loss.
The trading price of our common stock is highly volatile and
subject to wide fluctuations in price in response to various
factors, many of which are beyond our control, including:
|
|
|
|
|
actual or anticipated variations in quarterly operating results;
|
|
|
|
changes in financial estimates by securities analysts that cover
our stock or our failure to meet these estimates;
|
|
|
|
reduction of municipal or other governmental spending due to a
decreasing tax base or inability to access capital;
|
|
|
|
changes in market valuations of other companies operating in our
industry;
|
|
|
|
announcements by us or our competitors of a significant
acquisition or divestiture; and
|
|
|
|
additions or departures of key personnel.
|
In addition, the stock market in general has experienced extreme
price and volume fluctuations that may be unrelated or
disproportionate to the operating performance of listed
companies. Industry factors may seriously harm the market price
of our common stock, regardless of our operating performance.
Such stock price volatility could result in investors selling
shares of our common stock at a loss.
Future
sales of our common stock or equity-linked securities in the
public market could adversely affect the trading price of our
common stock and our ability to raise funds in new stock
offerings.
We may issue equity securities in the future, including any
securities that are convertible into or exchangeable for, or
that represent the right to receive, common stock. Sales of a
substantial number of shares of our common stock or other equity
securities, including sales of shares in connection with any
future acquisitions, could be substantially dilutive to
shareholders of our common stock. These sales may have a harmful
effect on prevailing market prices for our common stock and our
ability to raise additional capital in
S-13
the financial markets at a time and price favorable to us.
Moreover, to the extent that we issue restricted stock units,
stock appreciation rights, options, or warrants to purchase our
common stock in the future and those stock appreciation rights,
options, or warrants are exercised or as the restricted stock
units vest, our shareholders may experience further dilution.
Holders of our shares of common stock have no preemptive rights
that entitle holders to purchase a pro rata share of any
offering of shares of any class or series and, therefore, such
sales or offerings could result in increased dilution to our
shareholders. We may issue equity securities in the future for a
number of reasons, including to finance our operations and
business strategy, to adjust our ratio of debt to equity, to
satisfy obligations upon exercise of outstanding warrants or
options or for other reasons. Our restated certificate of
incorporation, as amended, provides that we have authority to
issue 90,000,000 shares of common stock and
800,000 shares of preferred stock. As of April 27,
2010, 50,173,223 shares of common stock and no shares of
preferred or other capital stock were issued and outstanding.
We may
reduce or eliminate the dividend you receive on our common
stock.
Although we have during 2005 through 2009 paid an annual
dividend of $0.24 per share, the payment of future dividends is
at the discretion of our board of directors and will depend
upon, among other things, our future earnings, cash flows,
capital requirements, general financial condition, general
business condition and other factors that our board of directors
may deem relevant. Accordingly, our board of directors may at
any time reduce or eliminate our annual dividend. See
Dividend Policy.
Provisions
in our restated certificate of incorporation, as amended, could
make it more difficult for a third party to acquire us or could
adversely affect the rights of holders of our common stock or
the market price of our common stock.
Our restated certificate of incorporation, as amended, provides
that our board of directors has the authority, without any
action of our stockholders, to issue up to 800,000 shares
of preferred stock. Preferred stock may be issued upon such
terms and with such designations as our Board of Directors may
fix in its discretion, including with respect to: the rights of
the shares of preferred stock upon our liquidation, dissolution
or winding up; voting rights that dilute the voting power of our
common stock; dividend rates; or redemption or conversion rights.
Our restated certificate of incorporation, as amended, also
provides that approval of at least two-thirds of the outstanding
shares entitled to vote is required for the approval of certain
business combinations, such as a merger, consolidation or a sale
of substantially all of our assets, with a stockholder who owns
or controls more than 5% of the voting power of our common
stock. This requirement does not apply, however, if our Board of
Directors approved the business combination prior to the
stockholders acquisition of the ownership of control of
more than 5% of the voting power of our common stock.
Finally, our restated certificate of incorporation, as amended,
provides that approval of our board of Directors is required for
our stockholders to take action without a meeting or vote of
stockholders (i.e., by written consent).
These provisions could potentially be used to discourage
attempts by others to obtain control of us through merger,
tender offer, proxy, consent or otherwise by making such
attempts more difficult or more costly, even if the offer may be
considered beneficial by our stockholders. These provisions also
may make it more difficult for our stockholders to take action
opposed by our Board of Directors or otherwise adversely affect
the rights of holders of our common stock or the market price of
our common stock.
Our
deferred tax assets and other tax attributes could be
significantly limited if we experience an ownership
change as defined in Section 382 of the Internal
Revenue Code.
We have significant deferred tax assets that are generally
available to offset future taxable income or income tax. In the
event that we experience an ownership change for
federal income tax purposes under Internal Revenue Code (the
Code) Section 382
(Section 382), we may be restricted annually in
our ability to use our tax attributes to offset future taxable
income or income tax, including any deferred tax assets and
S-14
losses that are subsequently recognized with respect to assets
that had a
built-in-loss
on the date of the ownership change. In general, we would be
deemed to have an ownership change under
Section 382 if, immediately after any owner shift involving
a 5% shareholder or any equity structure shift, the percentage
of ownership by one or more 5% shareholders has increased by
more than 50% over the lowest percentage of ownership of our
company owned by such shareholders at any time during the
three-year testing period. While the complexity of
Section 382s provisions and the limited knowledge any
public company has about the ownership of its publicly traded
stock make it difficult to determine whether an ownership change
has occurred, as of April 27, 2010, we do not believe that
an ownership change has occurred that would restrict our ability
to use our current deferred tax assets under Section 382.
However, we believe that as a result of this offering, it is
more likely that an ownership change could occur in the future,
including as a result of trading in our stock or otherwise. If
an ownership change were to occur, our ability to use these tax
assets and other tax attributes would likely be limited, which
would have a significant negative impact on our financial
position and results of operations.
S-15
FORWARD-LOOKING
STATEMENTS
This prospectus supplement, the accompanying prospectus and the
information incorporated by reference herein and therein contain
certain statements that constitute forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The words anticipate,
expect, believe, goal,
plan, intend, estimate,
may, will, and similar expressions and
variations thereof are intended to identify forward-looking
statements, but are not the exclusive means of identifying such
statements. Those statements appear in this prospectus
supplement, the accompanying prospectus and the documents
incorporated herein and therein by reference, particularly in
the sections entitled Summary, Risk
Factors, Managements Discussion and Analysis
of Financial Condition and Results of Operations,
Business and Prospectus Summary, and
include statements regarding the intent, belief or current
expectations of us and our management that are subject to known
and unknown risks, uncertainties and assumptions.
These risks and uncertainties, some of which are beyond our
control, include the cyclical nature of our industrial,
municipal, government and commercial markets; the availability
of credit and third-party financing for customers; technological
advances by competitors; our ability to expand into new
geographic markets and to anticipate and meet customer demands
for new products and product enhancements; domestic and foreign
governmental policy change; changes in cost competitiveness
including those resulting from foreign currency movements;
general changes in the competitive environment; retention of key
employees; restrictive debt covenants; increased warranty and
product liability expenses; unforeseen developments in
contingencies such as litigation; our ability to achieve
expected savings from integration, synergy and other
cost-control initiatives; compliance with environmental and
safety regulations; risks associated with suppliers, dealers and
other partner alliances; disruptions in the supply of parts or
components from sole source suppliers and subcontractors;
protection and validity of patent and other intellectual
property rights; volatility in securities trading markets; and
economic downturns.
This prospectus supplement, the accompanying prospectus and the
information incorporated by reference herein and therein also
contain statements that are based on the current expectations of
us and our management. These statements are forward-looking
statements. You are cautioned that any such forward-looking
statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking
statements as a result of various factors.
Because forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or
quantified, you should not rely upon forward-looking statements
as predictions of future events. The events and circumstances
reflected in the forward-looking statements may not be achieved
or occur and actual results could differ materially from those
projected in the forward-looking statements. Except as required
by applicable law, including the securities laws of the United
States and the rules and regulations of the Securities and
Exchange Commission (the SEC), we do not plan to
publicly update or revise any forward-looking statements
contained herein after we distribute this prospectus supplement
and the accompanying prospectus, whether as a result of any new
information, future events or otherwise.
S-16
USE OF
PROCEEDS
We estimate that the proceeds from this offering will be
approximately $ million
($ million if the
underwriters exercise their over-allotment option), after
deducting fees and estimated expenses related to this offering.
We intend to use the net proceeds from this offering to repay
amounts outstanding under our revolving credit facility.
MARKET
PRICE OF OUR COMMON STOCK
The following table shows the high and low sales prices of our
common stock as reported on the New York Stock Exchange for the
periods indicated. Shares of our common stock are traded on the
New York Stock Exchange under the symbol FSS.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
2008
|
|
High
|
|
Low
|
|
Declared
|
|
First Quarter
|
|
$
|
14.37
|
|
|
$
|
9.10
|
|
|
$
|
0.06
|
|
Second Quarter
|
|
$
|
14.70
|
|
|
$
|
11.53
|
|
|
$
|
0.06
|
|
Third Quarter
|
|
$
|
17.50
|
|
|
$
|
10.91
|
|
|
$
|
0.06
|
|
Fourth Quarter
|
|
$
|
13.48
|
|
|
$
|
5.10
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
2009
|
|
High
|
|
Low
|
|
Declared
|
|
First Quarter
|
|
$
|
9.28
|
|
|
$
|
3.73
|
|
|
$
|
0.06
|
|
Second Quarter
|
|
$
|
9.17
|
|
|
$
|
4.93
|
|
|
$
|
0.06
|
|
Third Quarter
|
|
$
|
9.30
|
|
|
$
|
6.76
|
|
|
$
|
0.06
|
|
Fourth Quarter
|
|
$
|
7.55
|
|
|
$
|
5.43
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
2010
|
|
High
|
|
Low
|
|
Declared
|
|
First Quarter
|
|
$
|
9.50
|
|
|
$
|
6.02
|
|
|
$
|
0.06
|
|
Second Quarter (through April 30, 2010)
|
|
$
|
10.30
|
|
|
$
|
8.04
|
|
|
$
|
0.06
|
|
DIVIDENDS
During 2005 through 2009, we have paid an annual dividend of
$0.24 per share, payable in four equal installments. The payment
of cash dividends in the future will be at the discretion of our
board of directors and will depend, among other things, upon
future earnings and cash flows, capital requirements, our
general financial condition, general business conditions and
other factors as our board of directors may deem relevant.
Accordingly, our board of directors may at any time reduce or
eliminate our quarterly dividend based on these factors.
S-17
CAPITALIZATION
The following table sets forth our cash and cash equivalents,
long-term debt and shareholders equity as of
March 31, 2010:
|
|
|
|
|
on an actual basis; and
|
|
|
|
on an as adjusted basis to reflect the issuance
of shares
of common stock in this offering and the use of the net proceeds
therefrom, as described under Use of Proceeds.
|
You should read this table in conjunction with Use of
Proceeds and our consolidated financial statements and
notes thereto incorporated by reference in this prospectus
supplement and the accompanying prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010
|
|
|
|
Actual
|
|
|
As Adjusted(1)
|
|
|
|
(Dollars in millions)
|
|
|
Cash and cash equivalents
|
|
$
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
42.1
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
|
252.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
294.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common stock, $1.00 par shares authorized
90,000,000; shares issued and outstanding 50.8 million
(actual)
and (as
adjusted)
|
|
$
|
50.8
|
|
|
|
|
|
Capital in excess of par value
|
|
|
104.4
|
|
|
|
|
|
Retained earnings
|
|
|
233.8
|
|
|
|
|
|
Treasury stock, 0.9 million shares at cost
|
|
|
(15.8
|
)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(45.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
$
|
327.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Assumes no exercise of the underwriters option to purchase
up
to
additional shares of our common stock to cover over-allotments. |
S-18
SELECTED
CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated
financial data. You should read the following selected
consolidated financial data in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and notes thereto included elsewhere in
this prospectus supplement.
Our selected consolidated financial data as of for the years
ended December 31, 2005, 2006, 2007, 2008 and 2009 have
been derived from our audited consolidated financial statements.
The selected consolidated financial data as of and for the three
months ended March 31, 2009 and 2010 has been derived from
our unaudited consolidated financial statements and has been
prepared on the same basis as our audited consolidated financial
statements. In the opinion of our management, our unaudited
consolidated financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a
fair presentation of our results of operations and financial
position. Our historical results do not necessarily indicate
results that may be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(a)
|
|
$
|
166.6
|
|
|
$
|
184.7
|
|
|
$
|
752.5
|
|
|
$
|
879.0
|
|
|
$
|
854.8
|
|
|
$
|
720.8
|
|
|
$
|
636.2
|
|
Income (loss) before income taxes(a)
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
22.3
|
|
|
|
20.7
|
|
|
|
47.1
|
|
|
|
34.9
|
|
|
|
36.0
|
|
Income (loss) from continuing operations(a)
|
|
|
(3.2
|
)
|
|
|
0.2
|
|
|
|
17.7
|
|
|
|
27.2
|
|
|
|
35.1
|
|
|
|
26.8
|
|
|
|
38.6
|
|
Operating margin(a)
|
|
|
(0.5
|
)%
|
|
|
2.3
|
%
|
|
|
4.4
|
%
|
|
|
5.7
|
%
|
|
|
8.0
|
%
|
|
|
6.8
|
%
|
|
|
8.0
|
%
|
Return on average common shareholders equity
|
|
|
(1.1
|
)%
|
|
|
0.3
|
%
|
|
|
7.5
|
%
|
|
|
(25.9
|
)%
|
|
|
13.1
|
%
|
|
|
5.7
|
%
|
|
|
(1.2
|
)%
|
Common Stock Data (per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations diluted
|
|
$
|
(0.06
|
)
|
|
$
|
|
|
|
$
|
0.36
|
|
|
$
|
0.57
|
|
|
$
|
0.73
|
|
|
$
|
0.56
|
|
|
$
|
0.80
|
|
Cash dividends per share
|
|
|
0.06
|
|
|
|
0.06
|
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
Market price range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
9.50
|
|
|
$
|
9.28
|
|
|
$
|
9.30
|
|
|
$
|
17.50
|
|
|
$
|
17.00
|
|
|
$
|
19.75
|
|
|
$
|
17.95
|
|
Low
|
|
|
6.02
|
|
|
|
3.73
|
|
|
|
3.73
|
|
|
|
5.10
|
|
|
|
10.82
|
|
|
|
12.69
|
|
|
|
13.80
|
|
Average common shares outstanding (in millions)
|
|
|
49.2
|
|
|
|
47.9
|
|
|
|
48.6
|
|
|
|
47.7
|
|
|
|
47.9
|
|
|
|
48.0
|
|
|
|
48.2
|
|
Financial Position at Period-End (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital(a)(b)
|
|
|
97.4
|
|
|
|
143.7
|
|
|
$
|
113.0
|
|
|
$
|
148.0
|
|
|
$
|
83.4
|
|
|
$
|
42.9
|
|
|
$
|
52.0
|
|
Current ratio(a)(b)
|
|
|
1.5
|
|
|
|
1.9
|
|
|
|
1.7
|
|
|
|
1.9
|
|
|
|
1.4
|
|
|
|
1.2
|
|
|
|
1.2
|
|
Total assets
|
|
|
846.5
|
|
|
|
819.5
|
|
|
|
744.9
|
|
|
|
839.0
|
|
|
|
1,172.9
|
|
|
|
1,054.3
|
|
|
|
1,122.8
|
|
Long-term debt, net of current portion
|
|
|
252.5
|
|
|
|
239.8
|
|
|
|
159.7
|
|
|
|
241.2
|
|
|
|
240.7
|
|
|
|
160.3
|
|
|
|
203.7
|
|
Shareholders equity
|
|
|
327.8
|
|
|
|
288.8
|
|
|
|
328.7
|
|
|
|
287.1
|
|
|
|
447.3
|
|
|
|
388.6
|
|
|
|
378.4
|
|
Debt-to-capitalization
ratio(c)
|
|
|
48.0
|
%
|
|
|
48.1
|
%
|
|
|
38.0
|
%
|
|
|
49.3
|
%
|
|
|
39.2
|
%
|
|
|
36.7
|
%
|
|
|
42.2
|
%
|
Net
debt-to-capitalization
ratio(d)
|
|
|
47.0
|
%
|
|
|
46.1
|
%
|
|
|
35.4
|
%
|
|
|
46.1
|
%
|
|
|
38.2
|
%
|
|
|
35.0
|
%
|
|
|
32.8
|
%
|
Other (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orders(a)
|
|
$
|
198.3
|
|
|
$
|
159.4
|
|
|
$
|
639.7
|
|
|
$
|
860.9
|
|
|
$
|
920.1
|
|
|
$
|
782.5
|
|
|
$
|
632.2
|
|
Backlog(a)
|
|
|
222.7
|
|
|
|
261.5
|
|
|
|
170.5
|
|
|
|
290.2
|
|
|
|
319.9
|
|
|
|
237.2
|
|
|
|
168.8
|
|
Net cash provided by (used for) operating activities
|
|
|
(9.6
|
)
|
|
|
7.8
|
|
|
|
62.4
|
|
|
|
123.7
|
|
|
|
65.4
|
|
|
|
29.7
|
|
|
|
70.6
|
|
Net cash provided by (used for) investing activities
|
|
|
(99.8
|
)
|
|
|
(0.9
|
)
|
|
|
31.0
|
|
|
|
54.6
|
|
|
|
(106.6
|
)
|
|
|
(19.3
|
)
|
|
|
(0.7
|
)
|
Net cash (used for) provided by financing activities
|
|
|
97.8
|
|
|
|
(20.6
|
)
|
|
|
(96.5
|
)
|
|
|
(166.7
|
)
|
|
|
36.8
|
|
|
|
(83.0
|
)
|
|
|
7.1
|
|
Capital expenditures(a)
|
|
|
3.2
|
|
|
|
3.9
|
|
|
|
14.6
|
|
|
|
28.0
|
|
|
|
19.5
|
|
|
|
11.7
|
|
|
|
7.5
|
|
Depreciation and amortization(a)
|
|
|
4.2
|
|
|
|
3.8
|
|
|
|
15.3
|
|
|
|
14.9
|
|
|
|
13.3
|
|
|
|
8.8
|
|
|
|
9.0
|
|
Employees(a)
|
|
|
2,892
|
|
|
|
2,827
|
|
|
|
2,614
|
|
|
|
3,034
|
|
|
|
3,198
|
|
|
|
2,915
|
|
|
|
2,737
|
|
S-19
|
|
|
(a) |
|
Continuing operations only, prior year amounts have been
reclassified for discontinued operations as discussed in
Note 13 to the audited consolidated financial statements
and Note 15 to the unaudited consolidated financial statements
included elsewhere in this prospectus supplement. |
|
(b) |
|
Working capital: current assets less current liabilities;
current ratio: current assets divided by current liabilities. |
|
(c) |
|
Total debt divided by the sum of total debt plus equity. |
|
(d) |
|
Net debt to capitalization ratio: debt less cash and cash
equivalents and short-term investments divided by equity plus
debt less cash and cash equivalents and short-term investments. |
The 2009 and 2008 income before income taxes includes
restructuring costs of $1.5 million and $2.7 million,
respectively. The 2008 income before income taxes was impacted
by a $6.5 million loss incurred to settle a dispute and
write off assets associated with a large parking systems
contract and a $13.0 million loss associated with our
decision to terminate funding of a joint venture in China
(China Joint Venture). 2009 operating income
benefitted from $5.8 million in lower legal and trial costs
associated with our ongoing firefighter hearing loss litigation.
The 2005 loss before income taxes was impacted by a
$6.7 million gain on the sale of two industrial lighting
product lines.
S-20
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is managements discussion and analysis of
certain significant factors that have affected our financial
condition, results of operations and cash flows during the
periods included in the audited and unaudited consolidated
financial statements included elsewhere in this prospectus
supplement. This discussion should be read in conjunction with
those consolidated financial statements and the related notes.
Federal Signal is a leading global manufacturer and supplier of
(i) safety, security and communication equipment,
(ii) street sweepers and other environmental vehicles and
equipment and (iii) vehicle-mounted, aerial platforms for
fire fighting, rescue, electric utility and industrial uses. The
Company also designs and supplies technology-based products and
services for the public safety and Intelligent Transportation
Systems markets. In addition, the Company sells parts and
tooling and provides service and repair, equipment rentals and
training as part of a comprehensive offering to its customer
base. The Company operates 19 manufacturing facilities in
7 countries and provides its products and integrated
solutions to municipal, governmental, industrial and commercial
customers throughout the world.
Due to technology, marketing, distribution and product
application synergies, the Companys business units have
historically been organized and managed in three operating
segments: Safety and Security Systems, Fire Rescue and
Environmental Solutions. For the first quarter of 2010, the
Company reported its acquired businesses Sirit and VESystems in
a new Other segment.
The information concerning the Companys manufacturing
businesses included in Item 1 of the Companys Annual
Report on
Form 10-K
filed with the SEC on February 26, 2010 and Note 16 of
the audited consolidated financial statements are incorporated
herein by reference.
Results
of Operations
Operating results for the year ended December 31, 2009 have
been restated to exclude the following operations discontinued
during 2009: all RAVO businesses formerly reported within the
Environmental Solutions Group segment, and all Pauluhn
businesses formerly reported within the Safety and Security
Systems Group segment. Information relating to each of these
discontinued operations is presented in Note 13 of the
audited consolidated financial statements included elsewhere in
this prospectus supplement.
Orders
and Backlog
Three
months ended March 31, 2010 and 2009
Orders in 2010 increased 25% from the first quarter of 2009 as
the U.S. and global markets continue their recovery from the
recession. U.S. and
non-U.S. orders
increased from March 31, 2010 to March 31, 2009 by 22%
and 29%, respectively.
U.S. municipal and government orders in the first quarter
of 2010 increased 9% from the prior years quarter
primarily as a result of the increase in sewer cleaner trucks of
$4.9 million, street sweepers of $2.6 million and ALPR
cameras of $0.8 million.
U.S. industrial orders are up 44% or $14.7 million
over the prior year as markets begin to recover from the
recession. The primary drivers of the year over year increase
were vacuum trucks of $5.6 million, waterblasters of
$2.7 million, street sweepers of $1.6 million and the
addition of $2.2 million from the Sirit and VESystems
acquisitions. Safety and Security Systems Group orders were up
$1.6 million with amber and industrial products driving the
year over year increase.
Non-U.S. orders
increased $19.1 million over the prior year. Fire Rescue
Group orders were up $10.9 million with strength in the
fire-lift market. Safety and Security Group orders were up
$6.1 million primarily as a result of a large European
police order. Environmental Solutions Group orders were up
$2.1 million.
S-21
Backlog of $222.7 million at March 31, 2010 (including
backlog associated with the 2010 acquisitions) decreased 15% and
increased 31% from March 31, 2009 and December 31,
2009, respectively.
Years
ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Analysis of orders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total orders ($ in millions):
|
|
$
|
639.7
|
|
|
$
|
860.9
|
|
|
$
|
920.1
|
|
Change in orders year over year
|
|
|
(25.7
|
)%
|
|
|
(6.4
|
)%
|
|
|
17.6
|
%
|
Change in U.S. municipal and government orders year over year
|
|
|
(13.6
|
)%
|
|
|
(12.2
|
)%
|
|
|
5.4
|
%
|
Change in U.S. industrial and commercial orders year over year
|
|
|
(37.9
|
)%
|
|
|
(8.0
|
)%
|
|
|
11.4
|
%
|
Change in
non-U.S.
orders year over year
|
|
|
(27.6
|
)%
|
|
|
(0.7
|
)%
|
|
|
35.1
|
%
|
Orders in 2009 fell 26% compared to 2008 reflecting weakness
across all segments and most markets due to the global economic
recession. U.S. municipal and government orders decreased
14% in 2009 primarily as a result of decreased orders of sewer
cleaners of $16.8 million, first responder products of
$9.5 million, sweepers of $5.2 million, and a
$5.5 million decline in outdoor warning systems.
U.S. industrial and commercial orders decreased 38% driven
by a $51.5 million reduction in orders for vacuum trucks
and a $12.8 million reduction in orders for Safety and
Security Systems products.
Non-U.S. orders
decreased 28% as compared to prior year primarily due to a
decrease in Bronto aerial platforms of approximately
$63.1 million and a $26.0 million decline in Safety
and Security Systems products.
Non-U.S. orders
declined 26% when excluding the effect of unfavorable foreign
currency translation.
U.S. municipal and government orders decreased 12% in 2008
primarily as a result of decreased orders of sweepers of
$22.3 million, sewer cleaners of $13.1 million and a
$12.3 million decline in police products offset by an
increase in automated license plate recognition
(ALPR) cameras of $6.1 million.
U.S. industrial and commercial orders decreased 8% driven
by lower orders for sweepers and vacuum trucks of
$21.2 million and a reduction in parking system orders of
$6.1 million, offset by an increase in Bronto aerial
platforms of $4.7 million.
Non-U.S. orders
remained relatively flat as compared to prior year with
increases in ALPR cameras of $15.1 million and European
sweeper orders and water blasters of $1.3 million, offset
by a decrease in Bronto aerial platforms of $16.6 million.
S-22
Consolidated
Results of Operations
Three
months ended March 31, 2010 and 2009
The following information summarizes our consolidated statements
of operations and illustrates the key financial indicators used
to assess our consolidated financial results ($ in millions,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Net sales
|
|
$
|
166.6
|
|
|
$
|
184.7
|
|
|
$
|
(18.1
|
)
|
Cost of sales
|
|
|
(124.9
|
)
|
|
|
(138.1
|
)
|
|
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
41.7
|
|
|
|
46.6
|
|
|
|
(4.9
|
)
|
Operating expenses
|
|
|
(39.6
|
)
|
|
|
(42.3
|
)
|
|
|
2.7
|
|
Acquisition related costs
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
(2.6
|
)
|
Restructuring charges
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(0.8
|
)
|
|
|
4.3
|
|
|
|
(5.1
|
)
|
Interest expense
|
|
|
(2.9
|
)
|
|
|
(3.3
|
)
|
|
|
0.4
|
|
Other expense, net
|
|
|
(0.9
|
)
|
|
|
(1.0
|
)
|
|
|
0.1
|
|
Income tax benefit
|
|
|
1.4
|
|
|
|
0.2
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(3.2
|
)
|
|
|
0.2
|
|
|
|
(3.4
|
)
|
(Loss) gain from discontinued operations and disposal, net of tax
|
|
|
(0.4
|
)
|
|
|
0.8
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3.6
|
)
|
|
$
|
1.0
|
|
|
$
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
(0.5
|
)%
|
|
|
2.3
|
%
|
|
|
(2.8
|
)%
|
Loss per share continuing operations
|
|
$
|
(0.06
|
)
|
|
$
|
|
|
|
$
|
(0.06
|
)
|
Orders
|
|
$
|
198.3
|
|
|
$
|
159.4
|
|
|
$
|
38.9
|
|
Net sales decreased 10% or $18.1 million in the first
quarter of 2010 compared to the same quarter of 2009 as a direct
result of a decrease in volume related to a low order backlog at
the end of 2009, which resulted from the global economic
recession which reduced overall demand for the Companys
products across most market segments. Despite the significant
drop in volume, gross profit margins were virtually flat at
25.0% in 2010 versus 25.2% in 2009 due to the impact of
favorable product mix as well as cost reduction and other
initiatives.
Operating income in the first three months of 2010 declined by
$5.1 million compared to the same period in 2009. The
decline is primarily due to lower sales volume, direct
acquisition related costs of $2.6 million and restructuring
costs of $0.3 million, partially offset by lower spending
in manufacturing costs and operating expenses, as well as
favorable product mix.
Interest expense decreased $0.4 million in the first
quarter of 2010 compared to $3.3 million in the same
quarter of last year due to lower interest rates and lower
average borrowing levels in 2010.
The Companys effective tax rate on the loss from
continuing operations was a 30.4% benefit for the three month
period ended March 31, 2010. The 30.4% rate includes
benefits for foreign tax effects. In the comparable three month
period ended March 31, 2009, the Company recorded a
$0.2 million tax benefit primarily related to the
resolution of an IRS audit of the 2006 tax year and the benefit
of research and development tax credits.
The Companys unrecognized tax benefits were
$4.9 million at January 1, 2010 of which
$4.7 million are tax benefits that if recognized, would
reduce the annual effective tax rate. The Companys
continuing practice is to recognize interest and penalties
related to income tax matters in income tax expense. Interest
and penalties amounting to $0.8 million and
$0.1 million, respectively, are included in the
consolidated balance
S-23
sheet at March 31, 2010. The Company expects the
unrecognized tax benefits to decrease by $0.8 million over
the next 12 months. In the three months ended
March 31, 2010, the Companies unrecognized tax benefits did
not change.
Loss from continuing operations was $3.2 million for the
first quarter of 2010 versus income of $0.2 million for the
comparable period in 2009 due to lower operating income as
described above offset by the benefits of lower interest
expense, a higher tax benefit and slightly lower other expense,
net.
For the quarter ended March 31, 2010, a loss on
discontinued operations and disposals of $0.4 million was
recorded primarily relating to an additional expense from the
sale of Pauluhn. For the three month period ended March 31,
2009 a gain on discontinued operations and disposals of
$0.8 million was recorded which relates to income from the
Ravo and Pauluhn operations.
For the quarter ended March 31, 2010, diluted (loss)
earnings per share from continuing operations was $(0.06)
compared to $(0.00) for the first quarter of 2009. Diluted
(loss) earnings per share from discontinued operations decreased
to $(0.01) for the quarter ended March 31, 2010 from $0.02
in the comparable period in 2009.
Years
ended December 31, 2009, 2008 and 2007
The following table summarizes the Companys results of
operations and selected operating metrics for each of the three
years in the period ended December 31 ($ in millions, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
752.5
|
|
|
$
|
879.0
|
|
|
$
|
854.8
|
|
Cost of sales
|
|
|
(558.9
|
)
|
|
|
(643.6
|
)
|
|
|
(623.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
193.6
|
|
|
|
235.4
|
|
|
|
231.0
|
|
Operating expenses
|
|
|
(159.1
|
)
|
|
|
(182.9
|
)
|
|
|
(162.3
|
)
|
Restructuring charges
|
|
|
(1.5
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
33.0
|
|
|
|
49.8
|
|
|
|
68.7
|
|
Interest expense
|
|
|
(11.4
|
)
|
|
|
(15.3
|
)
|
|
|
(18.5
|
)
|
Gain (loss) on investment in joint venture
|
|
|
1.2
|
|
|
|
(13.0
|
)
|
|
|
(3.3
|
)
|
Other (expense) income
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
|
|
0.2
|
|
Income tax (expense) benefit
|
|
|
(4.6
|
)
|
|
|
6.5
|
|
|
|
(12.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
17.7
|
|
|
|
27.2
|
|
|
|
35.1
|
|
Gain (loss) from discontinued operations and disposal, net of tax
|
|
|
5.4
|
|
|
|
(122.2
|
)
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23.1
|
|
|
$
|
(95.0
|
)
|
|
$
|
54.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
4.4
|
%
|
|
|
5.7
|
%
|
|
|
8.0
|
%
|
Earnings per share continuing operations
|
|
$
|
0.36
|
|
|
$
|
0.57
|
|
|
$
|
0.73
|
|
Year
ended December 31, 2009 vs. December 31,
2008
Net sales decreased 14% or $126.5 million over 2008 as a
direct result of a decrease in volume as the global economic
recession reduced demand for the Companys products across
most market segments. Unfavorable foreign currency movement,
most notably a stronger U.S. dollar versus European
currencies in the comparable prior year periods reduced sales by
1%. Gross profit margins fell in 2009 to 25.7% from 26.7%.
Operating income decreased by 34% in 2009 due to lower sales
volumes offset in part by lower spending in both fixed
manufacturing and SG&A of $29.9 million. Included in
operating expenses in 2009 is a $0.7 million charge related
to an environmental remediation issue at the Companys
Pearland, Texas site. Operating income also benefitted from the
absence of $6.5 million in charges to settle a dispute and
write off
S-24
assets associated with a parking systems contract and
$5.8 million in lower legal and trial costs associated with
the Companys ongoing firefighter hearing loss litigation.
Interest expense decreased 25% from 2008, primarily due to lower
interest rates and lower average borrowings in 2009 from a
reduction in net debt of $64.9 million. The Company paid
down debt using net proceeds of $11.9 million from the sale
of RAVO and $34.0 million from the sale of its Pauluhn
business. For further discussion of the discontinued operations,
see Note 13 to the audited consolidated financial
statements included elsewhere in this prospectus supplement.
In 2009, the Company recorded a gain of $1.2 million
associated with the shutdown of the China Joint Venture which is
related to the sale of the remaining assets of the business. In
2008, losses on the Companys investment in the China Joint
Venture totaled $13.0 million. The Companys share of
operating losses was $0 in 2009 and $2.6 million in 2008. A
charge of $10.4 million was taken in 2008 to reflect the
Companys contingent obligations to guarantee the debt of
the joint venture and to guarantee the investment of one of its
joint venture partners. A review of the market and forecasts of
the joint ventures cash flows indicated its bank debt was
unlikely to be repaid and it was unlikely to provide a return to
the joint venture partners. In 2009, the partners agreed to
voluntarily liquidate the China Joint Venture.
Other expenses of $0.5 million include realized losses from
foreign currency transactions and on derivatives contracts.
The 2009 effective tax rate on income from continuing operations
increased to 20.6% from (31.4)% in the prior year. The 2008 rate
benefited from a capital loss utilization tax strategy on a
sale/leaseback of real estate properties, the China Joint
Venture shutdown tax benefits, and a higher mix of profits in
lower taxed countries.
The Companys 2009 effective rate of 20.6% reflects a
benefit for the reduction in FIN 48 reserves primarily due
to the completion of an audit of the Companys 2006
U.S. tax return in accordance with Accounting Standards
Codification (ASC) Topic 740, Income
Taxes (FIN 48). The Companys effective rate
also reflects benefits for the R&D tax credit and foreign
tax rate effects.
Income from continuing operations decreased 35% from 2008 due to
lower operating income as described above and a higher effective
tax rate, offset by the benefits of lower interest expense of
$3.9 million and other expense of $0.3 million.
Net income was $23.1 million in 2009 versus a net loss of
$95.0 million in 2008. In 2009, there was an after-tax gain
from discontinued operations of $5.4 million relating to
the sale of the Companys RAVO and Pauluhn businesses. Net
losses from discontinued operations totaled $122.2 million
in 2008 relating primarily to the impairment of assets and sale
of the Companys Die and Mold Operations and
E-ONE. The
Company also discontinued its financial services activities
during 2008 which generated income of $0.3 million. For
further discussion of the discontinued operations, see
Note 13 to the audited consolidated financial statements
included elsewhere in this prospectus supplement.
Year
ended December 31, 2008 vs. December 31,
2007
Net sales in 2008 increased 3% over 2007, or 2% after removing
the favorable effects of currency translation from a weaker
U.S. dollar. Sales volume increases at Fire Rescue were
largely offset by reductions at Environmental Solutions, Safety
and Security Systems were relatively flat (see segment
discussions below). Gross profit margins fell slightly in 2008
to 26.7% from 27.0% due largely to the absence of a favorable
$1.7 million excise tax settlement which occurred in 2007.
Operating income decreased by 28% in 2008 as the gross profit
increase of $4.4 million was more than offset by an
increase of $20.6 million of operating expenses due to
$9.9 million of higher legal costs associated with the
Companys ongoing firefighter hearing loss litigation,
$6.2 million of increased charges to settle a dispute and
write off assets associated with a parking systems contract and
$2.7 million of restructuring costs largely due to
severance associated with streamlining the management structure.
S-25
Interest expense decreased 17% from 2007 primarily due to lower
average borrowings in 2008 from a reduction in net debt of
$30.7 million. The Company paid down debt mostly by using
net proceeds of $59.9 million from the sale of its Tool
Group businesses and $35.8 million from the sale-leaseback
of its Elgin and University Park, Illinois plants. For further
discussion of the discontinued operations, see Note 13 to
the audited consolidated financial statements included elsewhere
in this prospectus supplement.
Losses on the Companys China Joint Venture totaled
$13.0 million in 2008. The Companys share of
operating losses was $2.6 million in 2008 versus
$3.3 million in 2007. A charge of $10.4 million was
taken in 2008 to reflect the Companys contingent
obligations to guaranty the debt of the joint venture and to
guaranty the investment of one of its joint venture partners.
Other expenses of $0.8 million include realized losses from
foreign currency transactions and on derivatives contracts.
The 2008 effective tax rate on income from continuing operations
decreased to (31.4)% from 25.4% in the prior year. The 2008 rate
benefited from a capital loss utilization tax strategy on a
sale/leaseback of real estate properties, the China Joint
Venture shutdown tax benefits, and a higher mix of profits in
lower taxed countries.
Income from continuing operations decreased 23% from 2007
primarily as a result of the aforementioned changes in operating
expenses, loss on joint venture and offsetting tax benefits.
Net loss was $95.0 million in 2008 versus net income of
$54.7 million in 2007. Net losses from discontinued
operations totaled $122.2 million in 2008 relating
primarily to the impairment of assets and sale of the
Companys Die and Mold Operations and
E-ONE. The
Company also discontinued its financial services activities
during 2008 which generated income of $0.3 million. A net
gain of $19.6 million on discontinued operations in 2007
resulted primarily from the sale of the Cutting Tool Operations
in that year. For further discussion of the discontinued
operations, see Note 13 to the audited consolidated
financial statements included elsewhere in this prospectus
supplement.
Safety
and Security Systems Operations
Three
months ended March 31, 2010 and 2009
The following table summarizes the Safety and Security Systems
Group operating results for the three month period ended
March 31, 2010 and 2009, respectively ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Orders
|
|
$
|
76.9
|
|
|
$
|
71.2
|
|
|
$
|
5.7
|
|
Net sales
|
|
|
68.3
|
|
|
|
70.8
|
|
|
|
(2.5
|
)
|
Operating income
|
|
|
4.1
|
|
|
|
4.9
|
|
|
|
(0.8
|
)
|
Operating margin
|
|
|
6.0
|
%
|
|
|
6.9
|
%
|
|
|
(0.9
|
%)
|
Orders increased 8% from the first quarter of 2009 as the
U.S. and global markets continue their recovery from the
recession.
Non-U.S. orders
increased 19% mainly attributed to a large European police
order. U.S. orders were essentially flat year over year,
with strong ALPR and industrial orders partially offset by lower
municipal orders
Net sales decreased 4% or $2.5 million compared to the
first quarter of 2009 resulting from a lower backlog at the end
of 2009 which was partially offset by a favorable foreign
currency translation of $1.2 million and strong ALPR demand.
Operating income and margins decreased in the first quarter of
2010 from the comparable period in 2009 primarily as a result of
lower sales volume and restructuring charges.
S-26
Years
ended December 31, 2009, 2008 and 2007
The following table presents the Safety and Security Systems
Groups results of operations for each of the three years
in the period ended December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total orders
|
|
$
|
277.7
|
|
|
$
|
341.3
|
|
|
$
|
339.8
|
|
Net sales
|
|
|
292.7
|
|
|
|
345.9
|
|
|
|
340.4
|
|
Operating income
|
|
|
27.5
|
|
|
|
35.2
|
|
|
|
44.0
|
|
Operating margin
|
|
|
9.4
|
%
|
|
|
10.2
|
%
|
|
|
12.9
|
%
|
Orders declined 19% as compared to the prior year period with
declines in most market segments with the exception of automated
license plate recognition (ALPR) cameras in the
U.S., primarily as a result of the economic recession.
U.S. orders decreased 15% due to softness in oil and gas
markets and decline in municipal spending due to the global
economic recession. 2009 orders in the U.S. decreased
$10.5 million for warning systems, $8.6 million for
police products, $8.3 million for industrial signal and
communication systems, and $4.5 million for parking
systems, offset by an increase of $5.4 million in ALPR
cameras.
Non-U.S. orders
decreased 23% compared to 2008 primarily due to a decline in
vehicular lighting and siren sales of $21.0 million.
Net sales decreased 15% as compared to 2008 with decreases
across all businesses except warning systems, which increased
$1.6 million driven by international and military segments,
and ALPR cameras in the U.S. Operating income in 2009
declined 22% as a result of lower sales volumes and a charge of
$0.7 million related to an environmental remediation issue
at the Companys Pearland, Texas site. Operating expenses
were lower than the prior year by $15.3 million driven by
cost management initiatives implemented in 2009 and the absence
of $5.3 million in charges in 2008 to settle a dispute and
write-off assets associated with a parking system contract.
Operating margins declined 8% compared to the prior year as a
result of the lower sales volumes.
Orders remained relatively flat in 2008 as compared to 2007.
U.S. orders decreased 6% due to weak municipal spending and
a relative softening in the industrial economy compared to 2007.
For 2008, orders in the U.S. fell $12.3 million for
police products, $6.1 million for parking systems, and
$0.7 million for hazardous area lighting products. Partly
offsetting these declines was an increase in orders of
$6.1 million for ALPR cameras made by PIPS Technologies,
which was acquired in the third quarter of 2007.
Non-U.S. orders
in 2008 increased 9% over the prior year or 6% when excluding
the favorable effects of currency translation due to strength in
outdoor warning systems and the addition of PIPS Technologies
acquired in 2007.
Net sales increased 2% in 2008. An increase in shipments of ALPR
cameras during 2008 of $19.2 million and industrial
communications systems of $2.4 million was offset by a
$17.7 million decrease in global vehicular lighting and
siren sales. Operating income in 2008 declined 20% and operating
margins fell, primarily due to $6.2 million of increased
charges to settle a dispute and write off assets associated with
a parking system contract, $1.8 million of employee
severance costs associated with restructuring initiatives, and
$0.8 million associated with other cost reduction
initiatives.
S-27
Fire
Rescue Operations
Three
months ended March 31, 2010 and 2009
The following table summarizes the Fire Rescue Groups
operating results for the three month periods ended
March 31, 2010 and 2009, respectively ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Orders
|
|
$
|
31.7
|
|
|
$
|
20.8
|
|
|
$
|
10.9
|
|
Net sales
|
|
|
24.8
|
|
|
|
32.5
|
|
|
|
(7.7
|
)
|
Operating income
|
|
|
0.8
|
|
|
|
2.4
|
|
|
|
(1.6
|
)
|
Operating margin
|
|
|
3.2
|
%
|
|
|
7.4
|
%
|
|
|
(4.2
|
%)
|
Orders increased 52% from the first quarter of 2009 with
increased demand in the Companys fire-lift market. Market
demand for the Companys products was recovering in all
regions. Demand for the industrial market continues to lag as a
result of the global economic recession.
Net sales decreased by 24% in the first quarter with declines in
both fire-lift and industrial products compared to the prior
year due to the combination of strong 2009 fourth quarter
shipments and weak backlog as of December 31, 2009.
Additionally, a Finnish port workers strike in March 2010
affected receiving of materials and delivery of units and
disrupted operations.
Operating income decreased $1.6 million from the first
quarter of 2009 as result of lower volumes and less favorable
mix offset by reduced operating expenses. The port workers
strike had approximately a $0.5 million negative effect on
operating income.
Years
ended December 31, 2009, 2008 and 2007
The following table presents the Fire Rescue Groups
results of operations for each of the three years in the period
ended December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Total orders
|
|
$
|
96.6
|
|
|
$
|
162.3
|
|
|
$
|
174.1
|
|
Net sales
|
|
|
160.0
|
|
|
|
145.5
|
|
|
|
117.9
|
|
Operating income
|
|
|
19.2
|
|
|
|
10.4
|
|
|
|
7.9
|
|
Operating margin
|
|
|
12.0
|
%
|
|
|
7.1
|
%
|
|
|
6.7
|
%
|
Orders in 2009 decreased 40% from the prior year as the global
economic recession reduced demand for the Companys
products in both fire-lift and industrial markets was weak in
all regions.
Net sales in 2009 increased 10% and 14% excluding currency
translation, compared to the prior year. Unusually high backlog
at the end of 2008 and the recent plant expansion enabled strong
shipment levels especially during the fourth quarter despite the
reduction in orders. Operating income and margin increased 85%
and 70% respectively, due to the increase in sales volumes and
also due to margin improvements related to the plant expansion
and process improvements.
Orders in 2008 decreased 7% compared to 2007 or 15% when
excluding the favorable effects of currency translation.
Brontos entire order decline existed within its industrial
markets, primarily with weakness in Europe.
Net sales in 2008 increased 23% from 2007 or 19% when excluding
the favorable effects of currency translation. Brontos
large backlog, which exceeded 12 months of shipments at the
end of 2007, allowed for strong shipments in 2008 despite a
reduction in orders during the year.
Operating income rose 32% in 2008 and operating margins improved
as a result of the increased sales volumes. Higher product costs
for steel and other components and inefficiencies caused by the
plant expansion offset some of the sales volume impact.
S-28
Environmental
Solutions Operations
Three
months ended March 31, 2010 and 2009
The following table summarizes the Environmental Solutions
Groups operating results for the three month periods ended
March 31, 2010 and 2009, respectively ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Total orders
|
|
$
|
87.7
|
|
|
$
|
67.4
|
|
|
$
|
20.3
|
|
Net sales
|
|
|
70.1
|
|
|
|
81.4
|
|
|
|
(11.3
|
)
|
Operating income
|
|
|
3.7
|
|
|
|
3.0
|
|
|
|
0.7
|
|
Operating margin
|
|
|
5.3
|
%
|
|
|
3.7
|
%
|
|
|
1.6
|
%
|
Orders of $87.7 million in the first quarter of 2010 were
30% above the prior year quarter driven by increased demand in
all markets and regions. Industrial orders were up 71%, or
$10.8 million driven primarily by an increase in vacuum
trucks of $5.6 million and waterblasters of
$2.7 million. Municipal and government orders were up
$7.3 million with sewer cleaner trucks up $4.9 million
and street sweepers up $2.6 million.
Non-U.S. orders
were up $2.1 million for the quarter.
Net sales decreased 14% compared to the first quarter in 2009.
The sales decrease is primarily the result of a lower backlog at
the end of 2009, which resulted in a decline in sales of sewer
cleaner trucks and street sweepers of $11.6 million and
$1.8 million, respectively, offset partially by sales of
waterblasters which were up $3.1 million for the quarter.
Operating income was up $0.7 million to $3.7 million
for the quarter as a result of sales of higher margin sweeper
units, higher volumes in the water blaster segment and reduced
operating expenses, offset by lower sewer cleaner volumes.
Years
ended December 31, 2009, 2008 and 2007
The following table presents the Environmental Solutions
Groups results of operations for each of the three years
in the period ended December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Total orders
|
|
$
|
265.4
|
|
|
$
|
357.3
|
|
|
$
|
406.2
|
|
Net sales
|
|
|
299.8
|
|
|
|
387.6
|
|
|
|
396.5
|
|
Operating income
|
|
|
14.9
|
|
|
|
34.9
|
|
|
|
37.9
|
|
Operating margin
|
|
|
5.0
|
%
|
|
|
9.0
|
%
|
|
|
9.6
|
%
|
Orders of $265.4 million in 2009 were 26% below the prior
year due to the global economic recession and reduced municipal
and industrial spending. U.S. orders decreased 30% in 2009
from the prior year driven by a $71.3 million reduction in
sewer cleaning and industrial vacuum trucks, a $9.0 million
reduction in water blasters and an $8.4 million reduction
in sweepers.
Non-U.S. orders
decreased 5% due to a weaker market environment for sweepers.
Net sales decreased 23% compared to the prior year period on
lower sales volume in sewer cleaning and industrial vacuum
trucks of $61.3 million, street sweepers of
$16.4 million and waterblasters of $9.7 million. The
flow through of the decline in sales volume resulted in a
$20.0 million reduction in operating income and a lower
operating margin.
In 2008, orders decreased 12% from 2007 as weak municipal and
industrial markets drove a $25.6 million reduction in
street sweepers and a $26.7 million reduction in sewer
cleaning and industrial vacuum trucks offset by an increase of
$5.8 million in waterblasters. Net sales in 2008 compared
to 2007 decreased 2% as a decline in U.S. street sweeper
shipments of $23.6 million more than offset a
$13.6 million increase in global shipments of sewer
cleaning and industrial vacuum trucks.
S-29
Operating income decreased 8% in 2008 due to lower sales volumes
and the absence of a favorable $1.7 million excise tax
settlement which occurred in 2007.
Other
In March 2010, the Company acquired all of the issued and
outstanding common shares of both Sirit and VESystems.
The following table summarizes the Sirit and VESystems operating
results for the three month period ended March 31, 2010
($ in millions):
|
|
|
|
|
|
|
Three Months
|
|
|
Ended March 31,
|
|
|
2010
|
|
Orders
|
|
$
|
2.2
|
|
Net sales
|
|
|
3.4
|
|
Operating loss
|
|
|
(1.2
|
)
|
Operating margin
|
|
|
(35.3
|
%)
|
2009 U.S.
and Non-U.S.
Net Sales by Segment
The following table presents the percentage representing
U.S. and
non-U.S. net
sales for each segment in 2009.
|
|
|
|
|
|
|
|
|
|
|
2009 Sales
|
|
|
% U.S.
|
|
% Non-U.S.
|
|
Safety and Security Group
|
|
|
57
|
%
|
|
|
43
|
%
|
Fire Rescue Group
|
|
|
8
|
%
|
|
|
92
|
%
|
Environmental Solutions Group
|
|
|
80
|
%
|
|
|
20
|
%
|
Corporate
Expense
Three
months ended March 31, 2010 and 2009
Corporate expenses were up $2.2 million over the prior year
primarily as a result of $2.6 million in costs related to
acquired businesses in the first quarter of 2010 and
$0.7 million of increased post-retirement expense.
Partially offsetting the increase was a decline in legal fees
associated with the Companys hearing loss litigation of
$0.7 million as a result of timing of trials and
$0.6 million associated with the costs for the 2009 proxy
contest initiated by an activist shareholder.
Years
ended December 31, 2009, 2008 and 2007
Corporate expenses totaled $28.6 million in 2009,
$30.7 million in 2008 and $21.1 million in 2007. The
7% decrease in 2009 is due to $5.8 million in lower legal
and trial costs associated with the Companys ongoing
firefighter hearing loss litigation offset by $2.6 million
associated with the costs for a proxy contest initiated by an
activist shareholder. Other offsetting amounts include higher
bonus costs of approximately $1.2 million.
The 45% increase in 2008 expense is primarily due to
$9.9 million of higher legal costs associated with the
Companys ongoing firefighter hearing loss litigation and
$1.5 million of costs associated with the hiring of a new
chief executive officer and chief financial officer, reduced by
lower bonus and stock-based compensation costs of
$1.8 million.
The hearing loss litigation has historically been managed by the
Companys legal staff resident at the corporate office and
not by management at any reporting segment. In accordance with
ASC Topic 280, Segment Reporting
(SFAS No. 131), which provides that segment reporting
should follow the management of the item and that some expenses
can be corporate expenses, these legal expenses (which are
unusual and not part of the normal operating activities of any
of our operating segments), are reported and managed as
S-30
corporate expenses. Only the Company, and no current or divested
subsidiaries is a named party to these lawsuits.
Seasonality
of Companys Business
Certain of the Companys businesses are susceptible to the
influences of seasonal buying or delivery patterns. The
Companys 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, fire rescue products,
outdoor warning, emergency signaling products and parking
systems.
Legal
Matters
The Company has been sued by over 2,500 firefighters in numerous
separate cases alleging that exposure to the Companys
sirens impaired their hearing. The Company contests the
allegations. Cases involving over 100 firefighter plaintiffs
have been dismissed in Cook County, including cases involving 27
firefighter plaintiffs by way of verdict. Additional cases are
pending in Philadelphia, Pennsylvania. The Company continues to
aggressively defend the matter. For further details regarding
this and other legal matters, refer to Note 15 to the
audited consolidated financial statements and Note 11 to
the unaudited consolidated financial statements included
elsewhere in this prospectus supplement.
Financial
Condition, Liquidity and Capital Resources
Three
months ended March 31, 2010 and 2009
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 following table summarizes the Companys cash flows for
the three month periods ended March 31, 2010 and 2009,
respectively ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Operating (use of) cash flow
|
|
$
|
(9.6
|
)
|
|
$
|
7.8
|
|
Proceeds from sale of properties, plant and equipment
|
|
|
0.7
|
|
|
|
|
|
Capital expenditures
|
|
|
(3.2
|
)
|
|
|
(3.9
|
)
|
Payments for acquisitions, net of cash acquired
|
|
|
(97.3
|
)
|
|
|
|
|
Proceeds from discontinued investing activities
|
|
|
|
|
|
|
3.0
|
|
Borrowing activity, net
|
|
|
101.1
|
|
|
|
(11.5
|
)
|
Payments for discontinued financing activities
|
|
|
(0.3
|
)
|
|
|
(6.4
|
)
|
Dividends
|
|
|
(3.0
|
)
|
|
|
(2.9
|
)
|
Other, net
|
|
|
2.8
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
$
|
(8.8
|
)
|
|
$
|
(13.7
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow used for operating activities for the first three
months of 2010 decreased $17.4 million from the prior year
period, primarily reflecting lower earnings on reduced sales
from continuing operations and a lower reduction in working
capital in the first quarter of 2010 compared to the same period
in 2009.
In the first quarter of 2010, the Company acquired two
businesses that will be key components to the continuing
development of the Companys Intelligent Transportation
Systems strategy. VESystems was acquired for $34.8 million,
of which $24.6 million was a cash payment. Sirit was
acquired for CDN $77.1 million (US $74.9 million), all
of which was cash. The acquisitions were funded with the
Companys existing cash balances and debt drawn against the
availability of the Companys $250 million of
revolving
S-31
credit facility. In addition to the use of cash and debt, the
Company issued 1.2 million shares of Federal Signal
Corporation common stock to fund a portion of the cost of
purchasing VESystems.
Debt, net of cash, as a percentage of capitalization was 47.0%
at March 31, 2010, versus 35.5% at the end of 2009. The
change was primarily due to the increase in debt drawn on the
Companys $250 million revolving credit facility to
fund the two acquisitions in the first quarter of 2010.
At March 31, 2010, $194.6 million was drawn against
the Companys revolving credit facility and matures
April 25, 2012. Borrowings under the facility bear
interest, at the Companys option, at the Base Rate or
LIBOR, plus an applicable margin. The applicable margin ranges
up to 0.75% for Base Rate borrowings and 1.00% to 2.00% for
LIBOR borrowings depending on the Companys total
indebtedness to capital ratio. At March 31, 2010, the
Companys applicable margins over LIBOR and Base Rate
borrowings were 1.50% and 0.25%, respectively.
The Companys revolving credit facility and private
placement notes contain certain financial covenants for each
fiscal quarter end. For the Second Amended Credit Agreement
(described below) and each of the Private Placement Note
Agreements, covenants include a maximum
debt-to-capitalization
ratio, an interest expense coverage ratio and a minimum net
worth requirement. At March 31, 2010, all of the
Companys retained earnings were free of any restrictions
and the Company was in compliance with the financial covenants
and agreements. The Company expects to be in compliance with its
covenants for the balance of the year.
As of March 31, 2010, 10.7 million (or
$14.5 million), was drawn on the Alternative Currency
Facility, a supplemental agreement under the Second Amended
Credit Agreement and $180.1 million was drawn directly
under the Second Amended Credit Agreement for a total of
$194.6 million drawn under the Second Amended Credit
Agreement leaving available borrowings of $55.4 million not
including $30.5 million of capacity used for existing
letters of credit.
At March 31, 2010, $7.4 million was drawn against the
Companys foreign lines of credit which provide for
borrowings up to $17.7 million.
Given the Companys cash position and debt structure, the
Company has not experienced any material liquidity issues. The
Company has $39.4 million of private placement principal
debt payments due over the next twelve months. The Company
expects that with its existing liquidity and the opportunities
available to raise capital in the near term, notwithstanding
adverse market conditions, it will meet all of its anticipated
needs for liquidity during the next twelve months and for the
foreseeable future.
The Company is required to assess on an on-going basis, events
or circumstances that may trigger an evaluation of goodwill for
impairment, and test for impairment annually should no
triggering event indicate the need for analysis in the interim.
The Companys practice is to group goodwill by operating
segment. There have been no events identified as a triggering
event since the Companys annual impairment testing was
performed in the fourth quarter of 2009.
Years
ended December 31, 2009, 2008 and 2007
During each of the three years in the period ended
December 31, 2009, the Company used its cash flows from
operations to pay cash dividends to shareholders, to fund
growth, and to make capital investments that both sustain and
reduce the cost of its operations. Beyond these uses, remaining
cash was used to fund acquisitions, pay down debt, repurchase
shares of common stock and make voluntary pension contributions.
S-32
The Companys cash and cash equivalents totaled
$21.1 million, $23.4 million and $12.5 million as
of December 31, 2009, 2008 and 2007, respectively. The
following table summarizes the Companys cash flows for
each of the three years in the period ended December 31 ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating cash flow
|
|
$
|
62.4
|
|
|
$
|
123.7
|
|
|
$
|
65.4
|
|
Proceeds from sale of properties, plant and equipment
|
|
|
4.0
|
|
|
|
38.0
|
|
|
|
0.6
|
|
Capital expenditures
|
|
|
(14.6
|
)
|
|
|
(28.0
|
)
|
|
|
(19.5
|
)
|
Payments for acquisitions, net of cash acquired
|
|
|
(13.5
|
)
|
|
|
|
|
|
|
(147.5
|
)
|
Gross proceeds from sale of discontinued businesses
|
|
|
47.1
|
|
|
|
65.9
|
|
|
|
65.4
|
|
Borrowing activity, net
|
|
|
(77.7
|
)
|
|
|
(20.1
|
)
|
|
|
59.6
|
|
Dividends
|
|
|
(11.7
|
)
|
|
|
(11.5
|
)
|
|
|
(11.5
|
)
|
Purchases of treasury stock
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
Payments for discontinued financing activities
|
|
|
(7.3
|
)
|
|
|
(129.3
|
)
|
|
|
(11.7
|
)
|
All other, net
|
|
|
9.0
|
|
|
|
(21.8
|
)
|
|
|
(4.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash
|
|
$
|
(2.3
|
)
|
|
$
|
10.9
|
|
|
$
|
(3.3
|
)
|
Operating cash flow decreased $61.3 million in 2009
compared to 2008. The decrease in 2009 was driven by a
$127.0 million decrease in cash from discontinued operating
activities offset by an increase of $65.7 million in cash
provided by continuing operating activities. In 2009, the
Company discontinued its RAVO and Pauluhn businesses and in
2008, the Company discontinued its Die and Mold Operations,
E-ONE
business and Financial Services activities which generated cash
of $126.2 million during the year. In 2008, approximately
92% of the Companys municipal leases were sold for net
cash proceeds of approximately $94.0 million. The increase
in cash provided by continuing operations of $65.7 million
in 2009 was caused primarily by a decrease in accounts
receivable and inventories, lower pension contributions and a
gain on the China Joint Venture due to the liquidation of assets.
Proceeds from the sale of properties, plant and equipment in
2008 are primarily the result of net cash proceeds of
$35.8 million received from a sale-leaseback of the
Companys Elgin and University Park, Illinois plants.
Capital expenditures decreased $13.4 million in 2009
compared to 2008 due primarily to the expansion of the
Companys plants in Pori, Finland and in Streator, Illinois
that occurred in 2008. Capital expenditures rose
$8.5 million in 2008 from 2007 again largely due to these
plant expansions.
In 2009, the Company acquired Diamond Consulting Services Ltd.
for $13.5 million in cash and deferred payments in future
years of up to $3.2 million. See Note 11 to the
audited consolidated financial statements included elsewhere in
this prospectus supplement for additional information on the
acquisition. The Company funded the acquisition through cash
provided by operations, and from proceeds received from the sale
of RAVO and Pauluhn businesses, included in discontinued
operations in 2009, and sold for net proceeds of
$45.1 million in cash. See Note 13 to the audited
consolidated financial statements included elsewhere in this
prospectus supplement for additional information on the sale of
RAVO and Pauluhn businesses.
In 2008, the Company divested its Die and Mold Operations and
E-ONE
business for net cash proceeds of $59.9 million and a
payment of $0.6 million, respectively. Gross proceeds from
the sale of
E-ONE were
$3.4 million, of which $0.5 million had been received
at December 31, 2008.
In 2009, net borrowings decreased $77.7 million, largely
upon paydowns upon the receipt of cash from the RAVO and Pauluhn
businesses included in discontinued operations in 2009. In 2008,
net borrowings decreased $20.1 million, largely upon
receipt of cash from the aforementioned sale of its municipal
leasing portfolio which was included in discontinued operations
in 2008 and the aforementioned sale leaseback transactions. In
2007, net borrowings increased $59.6 million due to the
acquisition of PIPS Technologies in the second half of the year.
S-33
Payments for discontinued financing activities of
$129.3 million in 2008 reflect the repayment of financial
service borrowings as a result of the Companys decision to
exit the municipal lease financing business.
On April 27, 2009, the Company executed the Global
Amendment to Note Purchase Agreements (the Global
Amendment) with the holders of its private placement debt
notes (the Notes). The Global Amendment included a
provision allowing the Company to prepay $50.0 million of
principal of the $173.4 million Notes outstanding at par
with no prepayment penalty. The prepayment was executed on
April 28, 2009, and included principal, related accrued
interest and a fee of $0.2 million totaling
$51.1 million. The prepayment was funded by the
Companys available capacity under its revolving credit
facility.
The Global Amendment included changes to the Notes coupon
interest rates. The coupon interest rates on the Notes were
increased by 100 basis points upon execution of the Global
Amendment. On January 1, 2010, the outstanding Notes
coupon interest rates will increase by an additional
100 basis points. On April 1, 2010, the outstanding
Notes coupon interest rates will increase an additional
200 basis points if the Companys private placement
debt rating does not improve by one rating level on or before
this date.
The Global Amendment also included changes and additions to
various covenants within the Note Agreements. Financial
covenants were modified to more closely align with those
included in the Companys revolving credit facility
agreement, which allows for the exclusion of various charges
when computing covenants for minimum net worth and maximum debt
to capitalization.
Aggregate maturities of total borrowings amount to approximately
$41.9 million in 2010, $10.5 million in 2011,
$144.6 million in 2012 and $7.1 million in 2013. The
fair values of these borrowings aggregated $204.9 million
and $286.3 million at December 31, 2009 and 2008,
respectively. Included in 2010 maturities is $2.5 million
of other foreign lines of credit and $39.4 million of
private placement debt.
In March 2008, the Company executed an amendment (the
Second Credit Amendment) to the Revolving Credit
Facility. The Second Credit Amendment modified the definitions
of Consolidated Net Worth and EBIT, reduced the Total
Indebtedness to Capital ratio maximum to 0.50, reduced the
minimum Interest Coverage Ratio requirement and reduced the
required minimum percentage of consolidated assets directly
owned by the Credit Agreements borrower and guarantors to
50%. The amendment also allowed for the unencumbered sale of the
E-One
business.
In April, 2007, the Company amended its Revolving Credit
Agreement. This Second Amended and Restated Credit Agreement
(Credit Agreement) provides for borrowings of
$250.0 million and matures April, 2012. It also allows the
Company to borrow up to $35 million in an alternative
currency under the swing line provision. As of December 31,
2009, $16.2 million was drawn on the Alternative Currency
Facility and $85.0 million was drawn on the Second Credit
Amendment for a total of $101.2 million drawn under the
Second Amended and Restated Credit Agreement leaving available
borrowings of $148.8 million.
Cash dividends paid to shareholders in 2009, 2008 and 2007 were
$11.7 million, $11.5 million and $11.5 million
respectively. The Company declared dividends of $0.24 per share
in 2009, 2008 and 2007.
During 2008, the Company completed repurchases totaling
$6.0 million of stock under share repurchase programs
approved by the Board of Directors to offset the dilutive
effects of stock-based compensation.
Total debt net of cash and short-term investments included in
continuing operations was $180.5 million representing 35%
of total capitalization at December 31, 2009 versus
$245.5 million or 46% of total capitalization at
December 31, 2008. The decrease in the percentage of debt
to total capitalization in 2009 was due to a reduction in debt
of $77.7 million and an increase in equity of
$41.6 million. The Company was in compliance with the
financial covenants throughout 2009 and 2008.
The Company anticipates that capital expenditures for 2010 will
approximate $16 million and that its financial resources
and major sources of liquidity, including cash flow from
operations and borrowing capacity, will be adequate to meet its
operating and capital needs in addition to its financial
commitments.
S-34
Contractual
Obligations and Commercial Commitments
Three
months ended March 31, 2010 and 2009
Short-term borrowings increased $7.9 million at
March 31, 2010 from $0 million at December 31,
2009 primarily due to partially fund the purchase of two
acquired businesses in the first quarter of 2010. Total
long-term borrowings increased to $295.5 million at
March 31, 2010 from $202.7 million at
December 31, 2009. See the Financial Condition, Liquidity
and Capital Resources section of this report for more
information.
Changes to the Companys accrual for product warranty
claims in the first three months of 2010 is discussed in
Note 10 of the unaudited consolidated financial statements
included elsewhere in this prospectus supplement.
Years
ended December 31, 2009, 2008 and 2007
The following table presents a summary of the Companys
contractual obligations and payments due by period as of
December 31, 2009 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Long-term debt*
|
|
$
|
204.1
|
|
|
$
|
41.9
|
|
|
$
|
155.1
|
|
|
$
|
7.1
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
70.9
|
|
|
|
10.4
|
|
|
|
13.6
|
|
|
|
10.6
|
|
|
|
36.3
|
|
Fair value of interest rate swaps
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on long term debt
|
|
|
13.1
|
|
|
|
5.6
|
|
|
|
7.4
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
288.6
|
|
|
$
|
58.4
|
|
|
$
|
176.1
|
|
|
$
|
17.8
|
|
|
$
|
36.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Long term debt includes financial service borrowings which are
reported in discontinued operations |
The Company is party to various interest rate swap agreements in
conjunction with the management of borrowing costs. As of
December 31, 2009, the fair value of the Companys net
position would result in cash payments of $0.5 million.
Future changes in the U.S. interest rate environment would
correspondingly affect the fair value and ultimate settlement of
the contracts.
The Company also enters into foreign currency forward contracts
to protect against the variability in exchange rates on cash
flows and intercompany transactions with its foreign
subsidiaries. As of December 31, 2009, there is
$0.1 million unrealized gains on the Companys foreign
exchange contracts. Volatility in the future exchange rates
between the U.S. dollar and Euro, Canadian dollar and
British pound will impact the final settlement of any of these
contracts.
The following table presents a summary of the Companys
commercial commitments and the notional amount by expiration
period as of December 31, 2009 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount by Expiration Period
|
|
|
|
|
|
|
Less than
|
|
|
2-3
|
|
|
4-5
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Financial standby letters of credit
|
|
$
|
29.3
|
|
|
$
|
29.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Performance standby letters of credit
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
Purchase obligations
|
|
|
30.5
|
|
|
|
24.9
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
63.8
|
|
|
$
|
58.0
|
|
|
$
|
5.7
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial standby letters of credit largely relate to casualty
insurance policies for the Companys workers
compensation, automobile, general liability and product
liability policies. Performance standby letters of credit
represent guarantees of performance by foreign subsidiaries that
engage in cross-border transactions with foreign customers.
Purchase obligations relate to commercial chassis.
S-35
As of December 31, 2009, the Company has a liability of
approximately $5.8 million for unrecognized tax benefits
(refer to Note 6 of the audited consolidated financial
statements included elsewhere in this prospectus supplement).
Due to the uncertainties related to these tax matters, the
Company cannot make a reasonably reliable estimate of the period
of cash settlement for this liability.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates. The Company considers the following
policies to be the most critical in understanding the judgments
that are involved in the preparation of the Companys
consolidated financial statements and the uncertainties that
could impact the Companys financial condition, results of
operations and cash flows.
Allowances
for Doubtful Accounts
The Company performs ongoing credit evaluations of its
customers. The Companys policy is to establish, on a
quarterly basis, allowances for doubtful accounts based on
factors such as historical loss trends, credit quality of the
present portfolio, collateral value and general economic
conditions. If the historical loss trend increased or decreased
10% in 2009, the Companys operating income would have
decreased or increased by $0.1 million, respectively.
Though management considers the valuation of the allowances
proper and adequate, changes in the economy
and/or
deterioration of the financial condition of the Companys
customers could affect the reserve balances required.
Inventory
Reserve
The Company performs ongoing evaluations to ensure that reserves
for excess and obsolete inventory are properly identified and
recorded. The reserve balance includes both specific and general
reserves. Specific reserves at 100% are established for
identifiable obsolete products and materials. General reserves
for materials and finished goods are established based upon
formulas which reference, among other things, the level of
current inventory relative to recent usage, estimated scrap
value and the level of estimated future usage. Historically,
this reserve policy has given a close approximation of the
Companys experience with excess and obsolete inventory.
The Company does not foresee a need to revise its reserve policy
in the future. However, from time to time unusual buying
patterns or shifts in demand may cause large movements in the
reserve balance.
Warranty
Reserve
The Companys products generally carry express warranties
that provide repairs at no cost to the customer. The length of
the warranty term depends on the product sold, but generally
extends from six months to five years based on terms that are
generally accepted in the Companys marketplaces. Certain
components necessary to manufacture the Companys vehicles
(including chassis, engines and transmissions) are covered under
an original manufacturers warranty. Such
manufacturers warranties are extended directly to end
customers.
The Company accrues its estimated exposure to warranty claims at
the time of sale based upon historical warranty claim costs as a
percentage of sales. Management reviews these estimates on a
quarterly basis and adjusts the warranty provisions as actual
experience differs from historical estimates. Infrequently, a
material warranty issue can arise which is outside the norm of
the Companys historical experience; costs related to such
issues, if any, are provided for when they become probable and
estimable.
The Companys warranty costs as a percentage of net sales
totaled 1.2% in 2009, 0.9% in 2008 and 0.8% in 2007. The
increase in the rate in 2009 is primarily due to increased costs
in the Environmental Solutions Group. Management believes the
reserve recorded at December 31, 2009 is appropriate. A 10%
increase or
S-36
decrease in the estimated warranty costs in 2009 would have
decreased or increased operating income by $0.9 million,
respectively.
Workers
Compensation and Product Liability Reserves
Due to the nature of the products manufactured, the Company is
subject to product liability claims in the ordinary course of
business. The Company is partially self-funded for workers
compensation and product liability claims with various retention
and excess coverage thresholds. After the claim is filed, an
initial liability is estimated, if any is expected, to resolve
the claim. This liability is periodically updated as more claim
facts become known. The establishment and update of liabilities
for unpaid claims, including claims incurred but not reported,
is based on the assessment by the Companys claim
administrator of each claim, an independent actuarial valuation
of the nature and severity of total claims and managements
estimate. The Company utilizes a third-party claims
administrator to pay claims, track and evaluate actual claims
experience and ensure consistency in the data used in the
actuarial valuation. Management believes that the reserve
established at December 31, 2009 appropriately reflects the
Companys risk exposure. The Company has not established a
reserve for potential losses resulting from hearing loss
litigation (see Note 15 to the audited consolidated
financial statements and Note 10 to the unaudited
consolidated financial statements included elsewhere in this
prospectus supplement). If the Company is not successful in its
defense after exhausting all appellate options, it will record a
charge for such claims, to the extent they exceed insurance
recoveries, at the appropriate time.
Goodwill
Goodwill represents the excess of the cost of an acquired
business over the amounts assigned to the net assets. Goodwill
is not amortized but is tested for impairment at a reporting
unit level on an annual basis or if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount.
Goodwill is tested for impairment based on a two-step test. The
first step, used to identify potential impairment, compares the
fair value of a reporting unit with its carrying amount,
including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired, thus the second step of the impairment
test is unnecessary. If the carrying amount of a reporting unit
exceeds its fair value, the second step of the goodwill
impairment test shall be performed to measure the amount of
impairment loss, if any. The second step compares the implied
fair value of reporting unit goodwill with the carrying amount
of that goodwill. If the carrying amount of reporting unit
goodwill exceeds the implied fair value of that goodwill, an
impairment loss shall be recognized in an amount equal to that
excess.
Significant judgment is applied when goodwill is assessed for
impairment. This judgment includes developing cash flow
projections, selecting appropriate discount rates, identifying
relevant market comparables, incorporating general economic and
market conditions and selecting an appropriate control premium.
The income approach is based on discounted cash flows which are
derived from internal forecasts and economic expectations for
each respective reporting unit. The Company had no goodwill
impairments in 2009, 2008 or 2007. The fair values of the
reporting units exceeded their respective carrying amounts by
10% or more, except at the Environmental Solutions Group
reporting unit. The fair value of the Environmental Solutions
Group reporting unit exceeded its carrying value by 4%. The
Environmental Solutions Group reporting units goodwill is
$120.4 million. Adverse changes to the Companys
business environment and future cash flows could cause us to
record impairment charges in future periods which could be
material. See Note 12 to the audited consolidated financial
statements and Note 4 to the unaudited consolidated
financial statements included elsewhere in this prospectus
supplement for a summary of the Companys goodwill.
Indefinite
Lived Intangible Assets
An intangible asset determined to have an indefinite useful life
is not amortized until its useful life is determined to be no
longer indefinite. Indefinite lived intangible assets are
evaluated each reporting period to determine whether events and
circumstances continue to support an indefinite useful life.
These assets are
S-37
tested for impairment annually, or more frequently if events or
changes in circumstances indicate that the asset might be
impaired. The impairment test consists of a comparison of the
fair value of the indefinite lived intangible asset with its
carrying amount. If the carrying amount of an intangible asset
exceeds its fair value, an impairment loss is recognized in an
amount equal to that excess.
Significant judgment is applied when evaluating if an intangible
asset has a finite useful life. In addition, for indefinite
lived intangible assets, significant judgment is applied in
testing for impairment. This judgment includes developing cash
flow projections, selecting appropriate discount rates,
identifying relevant market comparables, and incorporating
general economic and market conditions. The Company had no
impairments of indefinite lived intangible assets in 2009, 2008
or 2007. Adverse changes to the Companys business
environment and future cash flows could cause us to record
impairment charges in future periods which could be material.
See Note 12 to the audited consolidated financial
statements and Note 4 to the unaudited consolidated
financial statements included elsewhere in this prospectus
supplement for a summary of the Companys indefinite lived
intangible assets.
Postretirement
Benefits
The Company sponsors domestic and foreign defined benefit
pension and other postretirement plans. Major assumptions used
in the accounting for these employee benefit plans include the
discount rate, expected return on plan assets and rate of
increase in employee compensation levels. A change in any of
these assumptions would have an effect on net periodic pension
and postretirement benefit costs.
The following table summarizes the impact that a change in these
assumptions would have on the Companys operating income ($
in millions):
|
|
|
|
|
|
|
|
|
|
|
Assumption Change:
|
|
|
|
25 Basis
|
|
|
25 Basis
|
|
|
|
Point Increase
|
|
|
Point Decrease
|
|
|
Discount rate
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
Return on assets
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
Employee compensation levels
|
|
|
|
|
|
|
|
|
The weighted-average discount rate used to measure pension
liabilities and costs is set by reference to published
high-quality bond indices. However, these indices give only an
indication of the appropriate discount rate because the cash
flows of the bonds comprising the indices do not match the
projected benefit payment stream of the plan precisely. For this
reason, we also consider the individual characteristics of the
plan, such as projected cash flow patterns and payment
durations, when setting the discount rate. The weighted-average
discount rate used to measure U.S. pension liabilities
decreased from 6.5% in 2008 to 6.0% in 2009. See Note 7 to
the audited consolidated financial statements and Note 8 to
the unaudited consolidated financial statements included
elsewhere in this prospectus supplement for further discussion.
Stock-Based
Compensation Expense
The Company accounts for stock-based compensation in accordance
with ASC Topic 718, Compensation Stock
Compensation (SFAS No. 123(R)), which requires
all share-based payments to employees, including grants of
employee stock options and restricted stock, to be recognized in
the financial statements based on their respective grant date
fair values. We use the Black-Scholes option pricing model to
estimate the fair value of the stock option awards. The
Black-Scholes model requires the use of highly subjective and
complex assumptions, including the Companys stock price,
expected volatility, expected term, risk-free interest rate and
expected dividend yield. For expected volatility, we base the
assumption on the historical volatility of the Companys
common stock. The expected term of the awards is based on
historical data regarding employees option exercise
behaviors. The risk-free interest rate assumption is based on
observed interest rates appropriate for the terms of the awards.
The dividend yield assumption is based on the Companys
history and expectation of dividend payouts. In addition to the
requirement for fair value estimates, ASC Topic 718
(SFAS No. 123(R)) also requires the recording of
expense that is net of an anticipated forfeiture rate.
Therefore, only expenses associated with awards that are
ultimately expected to vest are
S-38
included in our financial statements. Our forfeiture rate is
determined based on our historical option cancellation
experience.
We evaluate the Black-Scholes assumptions that we use to value
our awards on a quarterly basis. With respect to the forfeiture
rate, we revise the rate if actual forfeitures differ from our
estimates. If factors change and we employ different
assumptions, stock-based compensation expense related to future
stock-based payments may differ significantly from estimates
recorded in prior periods.
Financial
Market Risk Management
The Company is subject to market risk associated with changes in
interest rates and foreign exchange rates. To mitigate this
risk, the Company utilizes interest rate swaps and foreign
currency forward contracts. The Company does not hold or issue
derivative financial instruments for trading or speculative
purposes and is not party to leveraged derivatives contracts.
Interest
Rate Risk
The Company manages its exposure to interest rate movements by
targeting a proportionate relationship between fixed-rate debt
to total debt generally within percentages between 40% and 60%.
The Company uses funded fixed-rate borrowings as well as
interest rate swap agreements to balance its overall
fixed/floating interest rate mix.
The following table presents the principal cash flows and
weighted average interest rates by year of maturity for the
Companys total debt obligations held at December 31,
2009 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
Fair
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Fixed rate
|
|
$
|
25.1
|
|
|
$
|
9.1
|
|
|
$
|
42.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
76.9
|
|
|
$
|
77.8
|
|
Average interest rate
|
|
|
7.5
|
%
|
|
|
7.3
|
%
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
7.4
|
%
|
|
|
|
|
Variable rate
|
|
$
|
16.8
|
|
|
$
|
1.4
|
|
|
$
|
101.9
|
|
|
$
|
7.0
|
|
|
$
|
|
|
|
$
|
127.2
|
|
|
$
|
127.2
|
|
Average interest rate
|
|
|
2.0
|
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
|
|
3.4
|
%
|
|
|
|
|
|
|
1.9
|
%
|
|
|
|
|
The following table presents notional amounts and weighted
average interest rates by expected (contractual) maturity date
for the Companys interest rate swap contracts held at
December 31, 2009 ($ in millions). Notional amounts are
used to calculate the contractual payments to be exchanged under
the contract. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
Fair
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Pay fixed, receive variable
|
|
$
|
70.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
70.0
|
|
|
$
|
(0.5
|
)
|
Average pay rate
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average receive rate
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 8 to the audited consolidated financial statements
included elsewhere in this prospectus supplement for a
description of these agreements. A 100 basis point increase
or decrease in variable interest rates in 2009 would have
increased or decreased interest expense by $0.9 million,
respectively.
Foreign
Exchange Rate Risk
Although the majority of sales, expenses and cash flows are
transacted in U.S. dollars, the Company has exposure to
changes in foreign exchange rates, primarily the Euro and
British pound. If average annual foreign exchange rates
collectively weakened against the U.S. dollar by 10%,
pre-tax earnings in 2009 would have decreased by
$1.2 million from foreign currency translation.
The Company has foreign currency exposures related to buying and
selling in currencies other than the local currency in which it
operates. The Company utilizes foreign currency options and
forward contracts to manage these risks.
S-39
The following table summarizes the Companys foreign
currency derivative instruments as of December 31, 2009.
All are expected to settle in 2010 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
|
|
|
|
|
|
|
Settlement Date
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Notional
|
|
|
Contract
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Value
|
|
|
Forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy U.S. dollars, sell Euros
|
|
$
|
18.4
|
|
|
|
1.4
|
|
|
$
|
(0.3
|
)
|
Buy Euros, sell U.S. dollars
|
|
|
2.2
|
|
|
|
|
|
|
|
(0.1
|
)
|
Buy British Pounds, sell Euros
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
Other currencies
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign currency derivatives
|
|
$
|
24.1
|
|
|
|
|
|
|
$
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 8 to the audited consolidated financial statements
included elsewhere in this prospectus supplement for a
description of these agreements.
Forward exchange contracts are recorded as a natural hedge when
the hedged item is a recorded asset or liability that is
revalued each accounting period, in accordance with ASC Topic
830, Foreign Currency Matters
(SFAS No. 52). For derivatives designated as natural
hedges, changes in fair values are reported in the Other
income (expense) line of the Consolidated Statements of
Operations.
Other
Matters
The Company has a business conduct policy applicable to all
employees and regularly monitors compliance with that policy.
The Company has determined that it had no significant related
party transactions in each of the three years in the period
ended December 31, 2009.
S-40
BUSINESS
Overview
Federal Signal Corporation, founded in 1901, was reincorporated
as a Delaware corporation in 1969. We are a leading global
manufacturer and supplier of (i) safety, security and
communication equipment, (ii) street sweepers and other
environmental vehicles and equipment and
(iii) vehicle-mounted, aerial platforms for fire fighting,
rescue, electric utility and industrial uses. We also are a
designer and supplier of technology-based products and services
for the public safety and Intelligent Transportation Systems
markets. In addition, we sell parts and tooling and provide
service and repair, equipment rentals and training as part of a
comprehensive offering to our customer base. We operate 19
manufacturing facilities in 7 countries and provide our products
and integrated solutions to municipal, governmental, industrial
and commercial customers throughout the world
We completed the acquisition of two companies in March 2010. We
acquired all of the issued and outstanding shares of Sirit Inc.,
a corporation based in Toronto, Ontario, Canada, which designs,
develops and manufactures radio frequency identification device
technology for applications such as tolling, electronic vehicle
registration, parking and access control, cashless payments,
supply chain management and asset tracking solutions. We paid
Sirit stockholders and option holders total cash consideration
of CDN $77.1 million (US $74.9 million) for all of the
issued and outstanding common shares of Sirit Inc.
We also acquired all of the equity interests in VESystems, LLC,
a limited liability company located in Irvine, California, which
designs, develops and deploys advanced software applications and
customer management systems and services for the electronic toll
collection industry. We paid an aggregate purchase price of
$34.8 million in cash and stock, including the issuance of
1,220,311 shares of our common stock, in exchange for all
of the equity interests in VESystems, LLC.
Narrative
Description of Business
We have historically operated our business in three operating
segments: Safety and Security Systems, Environmental Solutions
and Fire Rescue. The individual operating companies are
organized as such because they share certain characteristics,
including technology, marketing, distribution and product
application, which create long-term synergies. For the first
quarter of 2010, we reported our acquired businesses Sirit and
VESystems in the Other segment.
Financial information (net sales, operating income (loss),
depreciation and amortization, capital expenditures and
identifiable assets) concerning our three operating segments as
of December 31, 2009 and 2008, and for each of the three
years in the period ended, December 31, 2009 are included
in Note 16 to the audited consolidated financial statements
included elsewhere in this prospectus supplement. Information
regarding our discontinued operations is included in
Note 13 to the audited consolidated financial statements
included elsewhere in this prospectus supplement. Financial
information (net sales, operating income (loss), depreciation
and amortization, capital expenditures and identifiable assets)
concerning our operating segments as and for the three months
ended March 31, 2010 and 2009 are included in Note 12
to the unaudited consolidated financial statements included
elsewhere in this prospectus supplement.
Federal
Signal Technologies (FSTech)
During the second quarter of 2010, we expect to
form FSTech, a new operating segment that will be comprised
of our acquired businesses Sirit and VESystems and our existing
PIPS, Diamond Consulting and Federal Automatic Parking Devices
businesses. FSTech will be a provider of technologies and
solutions to the Intelligent Transportation Systems and public
safety markets and other applications. These products and
solutions provide end users with the tools needed to automate
data collection and analysis, transaction processing and asset
tracking. FSTech will provide technology platforms and services
to customers in the areas of electronic toll collection,
automated license plate recognition, electronic vehicle
registration, parking and access control, cashless payment
solutions, congestion charging, traffic management, site
security solutions and supply chain systems. We deliver our
technology-based solutions through a common core platform.
S-41
We expect FSTech to consist of the following businesses:
|
|
|
|
|
Sirit: a leading designer and supplier
of radio frequency identification device products used in
electronic toll collection, electronic vehicle registration,
parking and access control, cashless payment, supply chain
management and asset tracking solutions;
|
|
|
|
VESystems: a leading designer and
integrator of transaction processing and account management
software and services that process high volume transactions
occurring in electronic toll and port congestion management
environments;
|
|
|
|
PIPS Technologies: a leading designer
and manufacturer of automated license plate recognition
technology that is used in public safety and transportation
environments.
PIPStm
cameras are used to automate and increase the efficiency of open
road tolling, parking revenue collection, stolen vehicle
recovery and criminal identification, among other uses
(previously part of our Safety and Security Systems Group);
|
|
|
|
Diamond Consulting: a leading designer
and integrator of sensors and software for open road tolling and
traffic flow detection, which we acquired in December 2009. We
believe Diamonds
Idris®
brand software is the premier technology for classifying
vehicles for electronic toll collection (previously part of our
Safety and Security Systems Group); and
|
|
|
|
Federal Automatic Parking Devices
(FAPD): a leading designer and integrator of
parking, access and revenue control systems. FAPD is a pioneer
of integrated facility management systems for the parking
industry, including software that enables variable-rate
self-parking (previously part of our Safety and Security Systems
Group).
|
Our strategy is to capitalize on growth opportunities in the
markets where we believe we have established premium brand
recognition with our customers and distribution channel
partners. Additionally, we believe there are significant global
growth opportunities in adjacent and new markets where we have
the ability to leverage our common core technology platform in
areas such as:
|
|
|
|
|
Intelligent Transportation Systems, including
technologies that enable electronic toll collection, congestion
charging, vehicle registration, traffic management and data
collection and analysis systems that enhance mobility and the
transportation experience;
|
|
|
|
Public safety, including applications relating to
traffic enforcement, border patrol, critical facility
protection, port security; and
|
|
|
|
Supply chain, including applications relating to
rail and asset tracking.
|
We believe that trends in transportation and safety will provide
FSTech significant global growth opportunities. According to an
industry report by Global Industry Analysts, the global market
for Intelligent Transportation Systems is estimated to reach
over $12 billion in 2010, with the U.S. representing
the largest market. The electronic toll collection market, which
represents approximately $3 billion by 2010, is the fastest
growing product segment, estimated to have grown in excess of
17% per year over the last decade. We expect significant future
growth in the Intelligent Transportation Systems and electronic
toll collection markets. For example, Brazil and Mexico have
recently mandated deployment of electronic vehicle recognition
systems in those countries.
Electronic toll collection systems utilize technologies that
enable drivers to pay tolls at highway speeds while traveling
through toll zones. Drivers use a windshield-mounted wireless
radio frequency identification device transponder that
automatically deducts tolls from a vehicle owners pre-paid
account. For those vehicles without a transponder, high-speed
automated license plate recognition camera imaging systems take
a picture
S-42
of a vehicles license plate and use the vehicles
registration information to deduct tolls from a video billing
account or otherwise charge the vehicle owner.
We believe the primary drivers behind the growing investment in
Intelligent Transportation Systems and electronic toll
collection solutions are the increasing emphasis on funding road
infrastructure projects, reducing vehicle congestion, decreasing
environmental pollution, managing traffic and connecting
transportation and public safety infrastructure networks. The
use of tolls to finance strategic highway projects enables
transportation authorities to finance infrastructure projects
and deliver new or improved roads to the public more quickly
than otherwise possible, while freeing funds to be used for
other purposes.
We believe that the businesses that are part of FSTech are
positioned to increase penetration of the growing Intelligent
Transportation Systems and electronic toll collection markets
for a variety of reasons including:
|
|
|
|
|
We are the only fully integrated electronic toll solutions
provider with demonstrated capabilities in North America. We
believe the businesses that will comprise our FSTech segment
offer superior performance capabilities, hold leading positions
in their respective markets, and have a history of working
together to jointly deliver integrated client solutions. We
believe our integrated solutions differentiate our products and
services from our competitors by offering performance, service
and value levels superior to competitive offerings;
|
|
|
|
In addition to integrated offerings, we offer modular solutions
to customers to enable them to upgrade specific functionality
within their systems without upgrading an entire system. We
believe our flexible approach and trusted brands differentiate
us from our competitors;
|
|
|
|
We believe our target customers in the Intelligent
Transportation Systems and electronic toll collection markets
have a strong preference for products and solutions that have
proven performance levels in live settings. Our proven
capabilities and track record of successful integrated
deployments in numerous domestic and international locations
reduces procurement and deployment risk for our
customers; and
|
|
|
|
The recent acquisitions of Diamond Consulting, Sirit and
VESystems have significantly increased our addressable market in
the growing electronic toll collection market. Specifically, we
believe we now have the ability to address over 90% of a typical
electronic toll collection contract and service needs of a
customer, compared to less than 10% prior to our acquisitions.
|
Safety
and Security Systems Group
Our Safety and Security Systems Group is a leading manufacturer
and supplier of comprehensive systems and products that law
enforcement, fire rescue, emergency medical services, campuses,
military facilities and industrial sites use to protect people
and property.
Offerings include systems for automated license plate
recognition, campus and community alerting, emergency vehicles,
first responder interoperable communications, industrial
communications and command, municipal networked security,
vehicle classification and parking revenue and access control
for municipal, governmental and industrial applications.
Specific products include access control devices, lightbars and
sirens, public warning sirens, public safety software and
automated license plate recognition cameras.
Products are sold under the Federal
Signaltm,
Federal Signal
VAMAtm,
Federal
APDtm,
PIPStm,
Idris®,
Target
Tech®
and
Victor®
brand names. The group operates manufacturing facilities in
North America, Europe and South Africa. Many of the groups
products are designed in accordance with various regulatory
codes and standards and meet agency approvals such as
Underwriters Laboratory (UL), International Electrotechnical
Commission (IEC) and American Bureau of Shipping (ABS).
Segment results have been restated for all periods presented to
exclude the operations of the groups Pauluhn business,
which were reclassified as discontinued operations and sold in
2009.
S-43
Environmental
Solutions Group
Our Environmental Solutions Group is a leading manufacturer and
supplier of a full range of street sweeper and vacuum loader
vehicles and high-performance water blasting equipment for
municipal and industrial customers. We also manufacture products
for the newer markets of hydro-excavation, glycol recovery and
surface cleaning for utility and industrial customers. Products
are sold under the
Elgin®,
Vactor®,
Guzzler®
and
Jetstreamtm
brand names. The group primarily manufactures its vehicles and
equipment in the United States.
Under the
Elgin®
brand name, we sell the leading U.S. brand of street
sweepers primarily designed for large-scale cleaning of curbed
streets, parking lots and other paved surfaces utilizing
mechanical sweeping, vacuum and recirculating air technology for
cleaning.
Vactor®
is a leading manufacturer of municipal combination catch
basin/sewer cleaning vacuum trucks.
Guzzler®
is a leader in industrial vacuum loaders that clean up
industrial waste or recover and recycle valuable raw materials.
Jetstreamtm
manufactures high pressure water blast equipment and accessories
for commercial and industrial cleaning and maintenance
operations. In addition to equipment sales, the group is
increasingly engaged in the sale of parts and tooling, service
and repair, equipment rentals and training as part of a complete
offering to its customer base.
Segment results have been restated for all periods presented in
the audited consolidated financial statements included elsewhere
in this prospectus supplement to exclude the operation of the
groups Ravo business which was reclassified as
discontinued operations and sold in 2009.
Fire
Rescue Group
Our Fire Rescue Group is a leading manufacturer and supplier of
sophisticated, vehicle-mounted, aerial platforms for fire
fighting, rescue, electric utility and industrial uses. End
customers include fire departments, industrial fire services,
electric utilities, maintenance rental companies for
applications such as fire fighting and rescue, transmission line
maintenance, and installation and maintenance of wind turbines.
The groups telescopic/articulated aerial platforms are
designed in accordance with various regulatory codes and
standards, such as European Norms (EN), National Fire Protection
Association (NFPA) and American National Standards Institute
(ANSI). In addition to equipment sales, the group sells parts,
service and training as part of a complete offering to its
customer base. The group manufactures in Finland and sells
globally under the Bronto
Skylift®
brand name.
Segment results have been restated for all periods presented in
the audited consolidated financial statements included elsewhere
in this prospectus supplement to exclude the operations of the
groups
E-ONE
business which were reclassified as discontinued operations and
sold in 2008.
Tool
Group
In 2008, we sold the remaining businesses within the Tool Group,
referred to collectively as Die and Mold Operations.
The results of the Die and Mold Operations are reported within
discontinued operations for all periods presented.
Financial
Services
We ceased entering into new financial services activities in
2008 and sold 92% of our municipal lease portfolio during 2008.
The operating results and gain recorded upon sale are reported
within discontinued operations. At December 31, 2009, the
remaining leases and floor plan receivable balances, net of
reserves, of $2.6 million were included on the balance
sheet included in the unaudited consolidated financial
statements included elsewhere in this prospectus supplement as
Assets of Discontinued Operations.
Marketing
and Distribution
Our Safety and Security Systems Group companies sell to
industrial customers through approximately 1,700
wholesalers/distributors who are supported by Company sales
personnel
and/or
independent manufacturers representatives. Products are
also sold to municipal and governmental customers through more
S-44
than 900 active independent distributors as well as through
original equipment manufacturers and direct sales. International
sales are made through the groups independent foreign
distributors or on a direct basis. We also sell comprehensive
integrated warning, interoperable communications and parking
systems through a combination of a direct sales force and
distributors.
Our Fire Rescue Group and Environmental Solutions Group use
dealer networks and direct sales to service customers generally
depending on the type and location of the customer. Our
Environmental Solutions Groups direct sales channel
concentrates on the industrial, utility and construction market
segments while the dealer networks focus primarily on the
municipal markets.
Our extensive product and customer base encourages our dealers
and independent representatives to continue to sell and service
our products, while providing us with opportunities to increase
recurring revenue through sales of parts and services.
Additionally, our distribution networks have fostered long
standing relationships that allow us to partner with our
municipal, governmental and industrial customers and understand
their current and future needs.
Customers
and Backlog
Approximately 37%, 21% and 42% of our total 2009 orders were to
U.S. municipal and government customers,
U.S. commercial and industrial customers, and
non-U.S. customers,
respectively. No single customer accounted for 10% or more of
our business.
Our U.S. municipal and government customers depend on tax
revenues to support spending. A sluggish industrial economy,
therefore, will eventually impact a municipalitys revenue
base as tax receipts decline due to higher levels of
unemployment and declining profits. Additionally, a decline in
housing prices may yield lower property tax receipts. During
2009, our U.S. municipal and government orders declined 14%
from 2008, compared to a 12% decrease in these orders in 2008
compared to 2007.
Orders to the U.S. commercial and industrial segment relate
to the energy industries, principally oil and gas production and
coal mining, to industrial contractors and rental companies and
to parking operators.
Approximately 80% of orders to
non-U.S. customers
flow to municipalities and governments while approximately 20%
flow to industrial and commercial customers. The municipal and
government segment is essentially similar to the U.S. in
that it is largely dependent on tax revenues to support
spending. Of the
non-U.S. orders,
we typically sell approximately 47% of our products in Europe,
16% in the Middle East and Africa, 14% in Canada and less than
10% in any other particular region.
Our backlog totaled $171 million at December 31, 2009,
which averages to nearly three months of shipments overall.
Backlogs vary by group due to the nature of our products and
buying patterns of our customers. Our Safety and Security
Systems Group typically maintains an average backlog of two
months of shipments, our Environmental Solutions Group three to
four months of shipments and Fire Rescue Group normally six
months of shipments.
Suppliers
We purchase a wide variety of raw materials from around the
world for use in the manufacture of our products, although the
majority of current purchases are from North American sources.
To minimize availability, price and quality risk, we are party
to numerous strategic supplier arrangements. Although certain
materials are obtained from either a single-source supplier or a
limited number of suppliers, we have identified alternative
sources to minimize the interruption to our business in the
event of supply problems.
Components critical to the production of our vehicles, such as
engines and hydraulic systems, are purchased from a select
number of suppliers. We also purchase raw and fabricated steel
as well as commercial chassis with certain specifications from a
few sources.
We believe we have adequate supplies or sources of availability
of the raw materials and components necessary to meet our needs.
However, there are risks and uncertainties with respect to the
supply of certain of these raw materials that could impact their
price, quality and availability in sufficient quantities.
S-45
Competition
Within specific product categories and domestic markets, our
Safety and Security Systems Group companies are among the
leaders with three to four strong competitors and several
additional ancillary market participants. The groups
international market position varies from leader to ancillary
participant depending on the geographic region and product line.
Generally, competition is intense with all of the groups
products, and purchase decisions are made based on competitive
bidding, price, reputation, performance and servicing.
Within our Fire Rescue Group, Bronto
Skylift®
is established as a leader for aerial platforms used in fire
fighting, rescue and industrial markets. Competitor offerings
can include trailer mounted articulated aerials and traditional
fire trucks with ladders.
Brontotm
competes on product performance where it holds technological
advantages in its designs, materials and production processes.
Within our Environmental Solutions Group,
Elgin®
is recognized as a leader among several domestic sweeper
competitors and differentiates itself primarily on product
performance.
Vactor®
and
Guzzler®
both maintain the leading domestic position in their respective
marketplaces by enhancing product performance with leading
technology and application flexibility.
Jetstreamtm
is a market leader in the in-plant cleaning segment of the
U.S. waterblast industry competing on product performance
and rapid delivery.
Research
and Development
The information concerning our research and development
activities included in Note 16 of the audited consolidated
financial statements is included elsewhere in this prospectus
supplement and is incorporated herein by reference.
Patents
and Trademarks
We own a number of patents and possess rights under others to
which we attach importance, but do not believe that our business
as a whole is materially dependent upon any such patents or
rights. We also own a number of trademarks that we believe are
important in connection with the identification of our products
and associated goodwill with customers, but no material part of
our business is dependent on such trademarks.
Employees
We employed approximately 2,600 people in ongoing
businesses at the close of 2009. Approximately 32% of our
domestic hourly workers were represented by unions at
December 31, 2009. We believe relations with our employees
to be good.
Governmental
Regulation of the Environment
We believe that our company substantially complies with federal,
state and local provisions that have been enacted or adopted
regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment. Capital
expenditures in 2009 attributable to compliance with such laws
were not material. We believe that the overall impact of
compliance with environmental regulations will not have a
material adverse effect on our future operations.
Seasonality
Certain of our businesses are susceptible to the influences of
seasonal buying or delivery patterns causing lower sales
typically in both the first and third calendar quarters compared
to other quarters. Our businesses which tend to experience this
seasonality include aerial platforms and European light bars and
sirens.
S-46
MANAGEMENT
The following table sets forth certain information regarding our
executive officers and directors.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
William H. Osborne
|
|
|
50
|
|
|
President, Chief Executive Officer and Director
|
William G. Barker, III
|
|
|
51
|
|
|
Senior Vice President, Chief Financial Officer and Chief
Accounting Officer
|
Charles F. Avery, Jr.
|
|
|
45
|
|
|
Vice President, Information Technology and Controller
|
David E. Janek
|
|
|
46
|
|
|
President, Safety and Security Systems Group
|
Fred H. Lietz
|
|
|
55
|
|
|
Vice President and Chief Procurement Officer
|
Esa Peltola
|
|
|
58
|
|
|
President, Bronto Skylift Oy Ab
|
Manfred Rietsch
|
|
|
68
|
|
|
Chief Executive Officer, VESystems, LLC
|
Jennifer L. Sherman
|
|
|
45
|
|
|
Senior Vice President, Human Resources, General Counsel and
Secretary
|
Mark D. Weber
|
|
|
52
|
|
|
President, Environmental Solutions Group
|
James E. Goodwin
|
|
|
65
|
|
|
Chairman of the Board of Directors
|
Charles R. Campbell
|
|
|
70
|
|
|
Director
|
Paul W. Jones
|
|
|
61
|
|
|
Director
|
Dennis J. Martin
|
|
|
60
|
|
|
Director
|
Brenda L. Reichelderfer
|
|
|
51
|
|
|
Director
|
Joseph R. Wright
|
|
|
71
|
|
|
Director
|
Richard R. Mudge
|
|
|
65
|
|
|
Director
|
Dominic A. Romeo
|
|
|
50
|
|
|
Director
|
William H. Osborne serves as our Companys
President and Chief Executive Officer, and has served as such
since September 15, 2008. Since August 2009,
Mr. Osborne has served as a director of Navistar
International Corporation, a truck, bus and diesel engine
manufacturer that is traded on the New York Stock Exchange
(NYSE: NAV). Prior to joining the Company, Mr. Osborne held
a number of senior level positions with Ford Motor Company. Most
recently, from October 2007 to August 2008, he served as
President and Chief Executive Officer of Ford of Australia. From
November 2005 to October 2007, he served as the President and
Chief Executive Officer of Ford of Canada; and from December
2003 to November 2005, he served as the Executive Director,
Pickup Truck and Commercial Vehicles, North American Truck
Business of Ford Motor Company.
William G. Barker, III was appointed Senior
Vice President and Chief Financial Officer in December 2008 and
Chief Accounting Officer in March 2010. Mr. Barker was
Senior Vice President and Chief Financial Officer of Sun-Times
Media Group from 2007 to 2008. He was Vice President, Finance
and Strategy, Gatorade of PepsiCo, Inc. from 2001 to 2007.
Charles F. Avery, Jr. was appointed Vice
President, Information Technology and Controller on
March 22, 2010. Mr. Avery was our Group Vice
President, Finance for the Environmental Solutions Group from
2005 until March 2010.
David E. Janek was appointed President of the
Safety and Security Systems Group in March 2010. Mr Janek was
Vice President and Controller from August 2008 to March 2010,
Vice President and Treasurer from 2006 to 2008 and Vice
President Finance, Safety and Security Systems Group from 2002
to 2006.
Fred H. Lietz was appointed Vice President and
Chief Procurement Officer in May 2007. Mr. Lietz was Vice
President of Global Procurement and Logistics at Andrew
Corporation from 2001 to 2006.
Esa Peltola was appointed President of Bronto
Skylift Oy Ab in July 2007. Mr. Peltola was Managing
Director of Bronto Skylift from 1998 to 2007.
S-47
Manfred Rietsch has been Chief Executive Officer
of VESystems, LLC for more than five years. Mr. Rietsch has
been appointed President of the Federal Signal Technologies
Group effective upon formation of that segment expected during
the second quarter of 2010.
Jennifer L. Sherman was appointed Senior Vice
President, Human Resources, General Counsel and Secretary in
April 2008. Ms. Sherman was Vice President, General Counsel
and Secretary from 2004 to 2007 and was Deputy General Counsel
and Assistant Secretary from 1998 to 2004.
Mark D. Weber was appointed President of the
Environmental Solutions Group in April 2003. Mr. Weber was
Vice President Sweeper Products for the Environmental Solutions
Group from 2002 to 2003 and General Manager of Elgin Sweeper
Company from 2001 to 2002.
James E. Goodwin served as interim President and
Chief Executive Officer of our Company from December 2007
through September 15, 2008. Prior to that, he was an
independent business consultant from October 2001 to December
2007. From July 1999 to October 2001, Mr. Goodwin served as
Chairman and Chief Executive Officer of United Airlines, a
worldwide airline operator (NASDAQ: UAUA). Mr. Goodwin also
serves as a member of the Board of Directors of AAR Corp., a
manufacturer of products for the aviation/aerospace industry
that is traded on the New York Stock Exchange (NYSE: AIR); John
Bean Technologies Corporation (NYSE: JBT), a manufacturer of
industrial equipment for the food processing and air
transportation industries; and First Chicago Bank &
Trust, serving in such positions since April 2002, September
2008, and May 2002, respectively.
Charles R. Campbell is a retired consultant
previously working for The Everest Group, a management
consulting firm. He was a partner in The Everest Group from 1997
to 2004. Prior to joining The Everest Group, Mr. Campbell
was Senior Vice President and Chief Financial and Administrative
Officer of our Company from 1985 to 1995.
Paul W. Jones is Chairman and Chief Executive
Officer of A.O. Smith Corporation, a manufacturer of water
heating systems and electric motors that is traded on the New
York Stock Exchange (NYSE: AOS), serving as such since December
2005. From January 2004 until December 2005, Mr. Jones was
President and Chief Operating Officer of A.O. Smith Corporation.
Mr. Jones has served on the Board of Directors of A.O.
Smith Corporation since December 2004. Mr. Jones serves as
a director of Bucyrus International, Inc., a manufacturer of
mining and construction machinery that is traded on the NASDAQ
(NASDAQ: BUCY), which directorship began in July 2006.
Mr. Jones also serves as a member of the Board of Directors
of the United States Chamber of Commerce (since March
2008) and the National Association of Manufacturers (since
October 2007), and on the Board of Trustees of Manufacturers
Alliance/MAPI (since March 2006), and as a member of the
Business Roundtable (since January 2006).
Dennis J. Martin has been an independent business
consultant since August 2005. Mr. Martin is Vice President
of BD Martin Group LLC, a consulting firm, a position he has
held since August 2005. From May 2001 to August 2005,
Mr. Martin was the Chairman, President and Chief Executive
Officer of General Binding Corporation, a manufacturer and
marketer of binding and laminating office equipment.
Mr. Martin also serves as a director of HNI Corporation, a
provider of office furniture and hearths that is traded on the
New York Stock Exchange (NYSE: HNI), and of Coleman Cable, Inc.,
a manufacturer and innovator of electrical and electronic wire
and cable products that is traded on the NASDAQ (NASDAQ: CCIX),
serving in such capacities since July 2000 and February 2008,
respectively. Mr. Martin also served on the Board of
Directors of A.O. Smith Corporation, a manufacturer of water
heating systems and electric motors that is traded on the New
York Stock Exchange (NYSE: AOS), from January 2004 until
December 2005.
Brenda L. Reichelderfer is Senior Vice President
and Managing Director of TriVista Business Group, a boutique
management consulting and advisory firm, a position she has held
since June 2008. Ms. Reichelderfer also serves as a member
of the Technology Transfer Advisory Board of The Missile Defense
Agency, a division of the United States Department of Defense,
and has served as such since November 2008. Until May 2008,
Ms. Reichelderfer was Senior Vice President, Group
President (from December 2002) and Corporate Director of
Engineering and Chief Technology Officer (from October
2005) of ITT Corporation, a global engineering and
manufacturing company that is traded on the New York Stock
Exchange (NYSE: ITT).
S-48
Joseph R. Wright is a Senior Advisor at The Chart
Group, a merchant banking firm. Mr. Wright served as Chief
Executive Officer from January 1, 2009 to December 31,
2009 and serves as a director (since September 2004) of
Scientific Games Corporation, a supplier of technology-based
products, systems and services to the gaming industry that is
traded on the NASDAQ (NASDAQ: SGMS). Since November 2009, he
also serves on the Board of Directors of Cowen Group, Inc.
(NASDAQ:COWN), a research, trading and investment banking
company. He also serves as a Vice-Chairman of the Board of
Directors (since April 2000) of Terremark Worldwide Inc., a
global provider of utility-enabled managed IT infrastructure
solutions that is traded on the NASDAQ (NASDAQ: TMRK).
Mr. Wright previously served as Chairman of the Board of
Intelsat Ltd., a leading global provider of fixed satellite
services, from July 2006 to May 2008 and, prior to this
position, he served as Chief Executive Officer from August 2001
to July 2006 and served as a director (from 1997 to
2006) of PanAmSat, a publicly-listed satellite-based
services business which was acquired by Intelsat in 2006.
Mr. Wright served in the U.S. Government under
President Reagan as Deputy Director then Director of the Federal
Office of Management and Budget in the Executive Office of the
President and a member of the Cabinet, and earlier as Deputy
Secretary of Commerce. He received the Distinguished Citizens
Award from President Reagan.
Richard R. Mudge serves as the Vice President of
the U.S. Infrastructure Division of Delcan Corporation, a
privately-held engineering and consulting company (since 2002).
Dr. Mudge has served on the Board of Directors of
Delcans U.S. subsidiary since 2005. Dr. Mudge
previously served as President of Compass Services, the
transportation subsidiary of U.S. Wireless Corporation,
from 2000 to 2002, and as Managing Director of Transportation
for Hagler Bailly (NASDAQ: HBIX), a world-wide provider of
management consulting services to the energy and network
industries, from 1998 to 2000. In 1986, Dr. Mudge
co-founded Apogee Research Inc., an infrastructure consulting
firm, and served as its President until 1995 and then as its
Chairman of the Board from 1995 until 1997, when Apogee merged
with Hagler Bailly. Dr. Mudge also worked for the
Congressional Budget Office from 1975 to 1986 where he became
Chief of the Public Investment Unit, and for the Rand
Corporation where he served as Director of Economic Development
Studies from 1972 to 1975.
Dominic A. Romeo serves as Vice President and
Chief Financial Officer of IDEX Corporation (NYSE: IEX), a
leading global manufacturer of pump products, dispensing
equipment, and other engineered products, a position he has held
since 2004. Prior to joining IDEX, Mr. Romeo served in
several financial leadership positions at Honeywell
International, Inc. (NYSE: HON), a diversified technology and
manufacturing company that services customers globally,
including Vice President and Chief Financial Officer of
Honeywell Aerospace from 2001 to 2004; Vice President and Chief
Financial Officer of Honeywell Internationals Engine
Systems and Services divisions from 1999 to 2001; and various
other senior finance positions from 1994 to 1999. Mr. Romeo
also served as Vice President of Finance for AAR Trading, an
aircraft products and services provider from 1992 to 1994, and
performed multiple financial roles in audit and financial
planning for GE Aircraft Engines, a subdivision of the General
Electric Company (NYSE: GE), from 1987 to 1992.
S-49
UNDERWRITING
Citigroup Global Markets Inc. is acting as sole book-running
manager of the offering and as representative of the
underwriters named below. Subject to the terms and conditions
stated in the underwriting agreement dated the date of this
prospectus supplement, each underwriter named below has
severally agreed to purchase, and we have agreed to sell to that
underwriter, the number of shares set forth opposite the
underwriters name.
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Number
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Underwriter
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of Shares
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Citigroup Global Markets Inc.
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Total
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The underwriting agreement provides that the obligations of the
underwriters to purchase the shares included in this offering
are subject to approval of legal matters by counsel and to other
conditions. The underwriters are obligated to purchase all the
shares (other than those covered by the over-allotment option
described below) if they purchase any of the shares.
Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus supplement. Any shares sold by the
underwriters to securities dealers may be sold at a discount
from the initial public offering price not to exceed
$ per share. If all the shares are
not sold at the initial offering price, the underwriters may
change the offering price and the other selling terms.
If the underwriters sell more shares than the total number set
forth in the table above, we have granted to the underwriters an
option, exercisable for 30 days from the date of this
prospectus supplement, to purchase up to additional shares at
the public offering price less the underwriting discount. The
underwriters may exercise the option solely for the purpose of
covering over-allotments, if any, in connection with this
offering. To the extent the option is exercised, each
underwriter must purchase a number of additional shares
approximately proportionate to that underwriters initial
purchase commitment. Any shares issued or sold under the option
will be issued and sold on the same terms and conditions as the
other shares that are the subject of this offering.
We and our officers and directors have agreed that, for a period
of 90 days from the date of this prospectus supplement, we
and they will not, without the prior written consent of Citi
dispose of or hedge any shares or any securities convertible
into or exchangeable for our common stock. Citi in its sole
discretion may release any of the securities subject to these
lock-up
agreements at any time without notice. Notwithstanding the
foregoing, if (i) during the last 17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to our company occurs; or
(ii) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
restricted period, the restrictions described above shall
continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
Our shares of common stock are listed on the New York Stock
Exchange under the symbol FSS.
The following table shows the underwriting discounts and
commissions that we are to pay to the underwriters in connection
with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters
over-allotment option.
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No Exercise
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Full Exercise
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Per share
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$
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$
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Total
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$
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$
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In connection with the offering, the underwriters may purchase
and sell shares in the open market. Purchases and sales in the
open market may include short sales, purchases to cover short
positions, which may include purchases pursuant to the
over-allotment option, and stabilizing purchases.
S-50
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Short sales involve secondary market sales by the underwriters
of a greater number of shares than they are required to purchase
in the offering.
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Covered short sales are sales of shares in an amount
up to the number of shares represented by the underwriters
over-allotment option.
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Naked short sales are sales of shares in an amount
in excess of the number of shares represented by the
underwriters over-allotment option.
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Covering transactions involve purchases of shares either
pursuant to the over-allotment option or in the open market
after the distribution has been completed in order to cover
short positions.
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To close a naked short position, the underwriters must purchase
shares in the open market after the distribution has been
completed. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after
pricing that could adversely affect investors who purchase in
the offering.
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To close a covered short position, the underwriters must
purchase shares in the open market after the distribution has
been completed or must exercise the over-allotment option. In
determining the source of shares to close the covered short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option.
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Stabilizing transactions involve bids to purchase shares so long
as the stabilizing bids do not exceed a specified maximum.
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Purchases to cover short positions and stabilizing purchases, as
well as other purchases by the underwriters for their own
accounts, may have the effect of preventing or retarding a
decline in the market price of the shares. They may also cause
the price of the shares to be higher than the price that would
otherwise exist in the open market in the absence of these
transactions. The underwriters may conduct these transactions on
the New York Stock Exchange, in the
over-the-counter
market or otherwise. If the underwriters commence any of these
transactions, they may discontinue them at any time.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to
make because of any of those liabilities.
Conflicts
of Interest
The underwriters have performed commercial banking, investment
banking and advisory services for us from time to time for which
they have received customary fees and reimbursement of expenses.
The underwriters may, from time to time, engage in transactions
with and perform services for us in the ordinary course of their
business for which they may receive customary fees and
reimbursement of expenses.
Affiliates of certain of the underwriters may be lenders under
our revolving credit facility. As described in Use of
Proceeds, we intend to use the net proceeds of this
offering to repay amounts outstanding under our revolving credit
facility. Certain of the underwriters or their affiliates may
receive proceeds of this offering if they are lenders under our
credit facility. Because more than 5% of the net proceeds of
this offering, not including underwriting compensation, may be
received by affiliates of the underwriters in this offering,
this offering is being conducted in compliance with NASD Rule
2720, as administered by FINRA. Pursuant to such rule, the
appointment of a qualified independent underwriter is not
necessary in connection with this offering, as the offering is
of a class of securities having a bona fide public market as
contemplated by such rule.
Notice to
Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of shares
described in this prospectus supplement may not be made to the
public in that relevant member state prior to
S-51
the publication of a prospectus in relation to the shares that
has been approved by the competent authority in that relevant
member state or, where appropriate, approved in another relevant
member state and notified to the competent authority in that
relevant member state, all in accordance with the Prospectus
Directive, except that, with effect from and including the
relevant implementation date, an offer of securities may be
offered to the public in that relevant member state at any time:
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to any legal entity that is authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined below) subject to obtaining the prior
consent of the representatives for any such offer; or
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in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive.
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Each purchaser of shares described in this prospectus supplement
located within a relevant member state will be deemed to have
represented, acknowledged and agreed that it is a
qualified investor within the meaning of
Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an offer to
the public in any relevant member state means the
communication in any form and by any means of sufficient
information on the terms of the offer and the securities to be
offered so as to enable an investor to decide to purchase or
subscribe the securities, as the expression may be varied in
that member state by any measure implementing the Prospectus
Directive in that member state, and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing
The sellers of the shares have not authorized and do not
authorize the making of any offer of shares through any
financial intermediary on their behalf, other than offers made
by the underwriters with a view to the final placement of the
shares as contemplated in this prospectus supplement.
Accordingly, no purchaser of the shares, other than the
underwriters, is authorized to make any further offer of the
shares on behalf of the sellers or the underwriters.
Notice to
Prospective Investors in the United Kingdom
This prospectus supplement and the accompanying prospectus are
only being distributed to, and is only directed at, persons in
the United Kingdom that are qualified investors within the
meaning of Article 2(1)(e) of the Prospectus Directive that
are also (i) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(ii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (each such person
being referred to as a relevant person). This
prospectus supplement and its contents are confidential and
should not be distributed, published or reproduced (in whole or
in part) or disclosed by recipients to any other persons in the
United Kingdom. Any person in the United Kingdom that is not a
relevant person should not act or rely on this document or any
of its contents.
Notice to
Prospective Investors in France
Neither this prospectus supplement nor any other offering
material relating to the shares described in this prospectus
supplement has been submitted to the clearance procedures of the
Autorité des Marchés Financiers or of the
competent authority of another member state of the European
Economic Area and notified to the Autorité des
Marchés Financiers. The shares have not been offered or
sold and will not be offered or sold, directly or indirectly, to
the public in France. Neither this prospectus supplement nor any
other offering material relating to the shares has been or will
be:
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released, issued, distributed or caused to be released, issued
or distributed to the public in France; or
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S-52
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used in connection with any offer for subscription or sale of
the shares to the public in France.
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Such offers, sales and distributions will be made in France only:
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to qualified investors (investisseurs qualifiés)
and/or to a
restricted circle of investors (cercle restreint
dinvestisseurs), in each case investing for their own
account, all as defined in, and in accordance with
articles L.411-2,
D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the
French Code monétaire et financier;
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to investment services providers authorized to engage in
portfolio management on behalf of third parties; or
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in a transaction that, in accordance with
article L.411-2-II-1°-or-2°-or
3° of the French Code monétaire et financier
and
article 211-2
of the General Regulations (Règlement
Général) of the Autorité des Marchés
Financiers, does not constitute a public offer (appel
public à lépargne).
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The shares may be resold directly or indirectly, only in
compliance with
articles L.411-1,
L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French
Code monétaire et financier.
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold in Hong Kong by means of
any document other than (i) in circumstances which do not
constitute an offer to the public within the meaning of the
Companies Ordinance (Cap. 32, Laws of Hong Kong), or
(ii) to professional investors within the
meaning of the Securities and Futures Ordinance (Cap. 571, Laws
of Hong Kong) and any rules made thereunder, or (iii) in
other circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
Notice to Prospective Investors in Japan
The shares offered in this prospectus supplement have not been
registered under the Securities and Exchange Law of Japan. The
shares have not been offered or sold and will not be offered or
sold, directly or indirectly, in Japan or to or for the account
of any resident of Japan, except (i) pursuant to an
exemption from the registration requirements of the Securities
and Exchange Law and (ii) in compliance with any other
applicable requirements of Japanese law.
Notice to Prospective Investors in Singapore
This prospectus supplement has not been registered as a
prospectus with the Monetary Authority of Singapore.
Accordingly, this prospectus supplement and any other document
or material in connection with the offer or sale, or invitation
for subscription or purchase, of the shares may not be
circulated or distributed, nor may the shares be offered or
sold, or be made the subject of an invitation for subscription
or purchase, whether directly or indirectly, to persons in
Singapore other than (i) to an institutional investor under
Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (the SFA),
(ii) to a relevant person pursuant to Section 275(1),
or any person pursuant to Section 275(1A), and in
accordance with the conditions specified in Section 275 of
the SFA or (iii) otherwise pursuant to, and in accordance
with the conditions of, any other applicable provision of the
SFA, in each case subject to compliance with conditions set
forth in the SFA.
Where the shares are subscribed or purchased under
Section 275 of the SFA by a relevant person which is:
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a corporation (which is not an accredited investor (as defined
in Section 4A of the SFA)) the sole business of which is to
hold investments and the entire share capital of which is owned
by one or more individuals, each of whom is an accredited
investor; or
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S-53
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a trust (where the trustee is not an accredited investor) whose
sole purpose is to hold investments and each beneficiary of the
trust is an individual who is an accredited investor,
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shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest
(howsoever described) in that trust shall not be transferred
within six months after that corporation or that trust has
acquired the shares pursuant to an offer made under
Section 275 of the SFA except:
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to an institutional investor (for corporations, under
Section 274 of the SFA) or to a relevant person defined in
Section 275(2) of the SFA, or to any person pursuant to an
offer that is made on terms that such shares, debentures and
units of shares and debentures of that corporation or such
rights and interest in that trust are acquired at a
consideration of not less than S$200,000 (or its equivalent in a
foreign currency) for each transaction, whether such amount is
to be paid for in cash or by exchange of securities or other
assets, and further for corporations, in accordance with the
conditions specified in Section 275 of the SFA;
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where no consideration is or will be given for the
transfer; or
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where the transfer is by operation of law.
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LEGAL
MATTERS
The validity of the shares of common stock being offered hereby
will be passed upon for us by Thompson Coburn LLP,
St. Louis, Missouri. Certain legal matters in connection
with the offering will be passed upon for the underwriters by
Winston & Strawn LLP, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Federal Signal
Corporation appearing in Federal Signal Corporations
Annual Report (Form 10-K) for the year ended December 31,
2009 including the schedule appearing therein, and the
effectiveness of Federal Signal Corporations internal
control over financial reporting as of December 31, 2009,
have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their reports
thereon included therein, and incorporated herein by reference.
Such financial statements are, and audited financial statements
to be included in subsequently filed documents will be,
incorporated herein in reliance upon the reports of Ernst &
Young LLP pertaining to such financial statements and the
effectiveness of our internal control over financial reporting
as of the respective dates given on the authority of such firm
as experts in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. Our SEC filings are
available to the public over the Internet at the SECs
website at www.sec.gov. The SECs website contains reports,
proxy and information statements and other information regarding
issuers, such as us, that file electronically with the SEC. You
may read and copy any document we file with the SEC at the
SECs Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. You may also obtain copies of
these documents at prescribed rates by writing to the SEC.
Please call the SEC at
1-800-SEC-0330
for further information on the operation of its Public Reference
Room.
We have filed with the SEC a registration statement under the
Securities Act of 1933 relating to the offering of these
securities. The registration statement, including the attached
exhibits, contains additional relevant information about us and
the securities. This prospectus supplement does not contain all
of the information set forth in the registration statement. You
can obtain a copy of the registration statement, at prescribed
rates, from the SEC at the address listed above. The
registration statement and the documents referred to below under
Incorporation by Reference are also available on our
Internet website, www.federalsignal.com. We have not
incorporated by reference into this prospectus supplement the
information on our website, and you should not consider it to be
a part of this prospectus supplement.
S-54
INCORPORATION
BY REFERENCE
The SEC allows us to incorporate by reference in
this prospectus supplement the information that we file with it.
This means that we can disclose important information to you in
this document by referring you to other filings we have made
with the SEC. The information incorporated by reference is
considered to be part of this prospectus supplement. The
information incorporated by reference in this prospectus
supplement is accurate only as of the date of the information on
the front cover of the applicable document, or such earlier date
as is expressly stated or otherwise apparent with respect to
such incorporated information in the applicable document,
regardless of the time of delivery of this prospectus supplement
or any sale of securities.
This prospectus supplement incorporates by reference the
documents listed below, which we have filed with the SEC:
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our Annual Report on
Form 10-K
for our fiscal year ended December 31, 2009, filed with the
SEC on February 26, 2010;
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our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010, filed with the SEC on
April 30, 2010;
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our Current Reports on
Form 8-K,
filed with the SEC on January 7, 2010, January 15,
2010 (Item 1.01 only), January 21, 2010, March 4,
2010, March 5, 2010, March 10, 2010, March 22,
2010 and April 30, 2010;
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|
our Proxy Statement on Schedule 14A filed with the SEC on
March 25, 2010; and
|
|
|
|
the description of our common stock, $1.00 par value per
share, as contained in our Registration Statement on
Form 8-A
effective pursuant to Section 12 of the Securities Exchange
Act of 1934, including any amendments or reports filed for the
purpose of updating such description.
|
We incorporate by reference any additional documents that we may
file with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 (other than the portions
of those made pursuant to Item 2.02 or Item 7.01 of
Form 8-K
or other information furnished to the SEC) between
the date that we initially filed the registration statement to
which this prospectus supplement relates and the termination of
the offering of the securities. These documents may include
periodic reports, like Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
as well as proxy statements. Any material that we subsequently
file with the SEC will automatically update and replace the
information previously filed with the SEC.
This prospectus supplement may contain information that updates,
modifies or is contrary to information in one or more of the
documents incorporated by reference in this prospectus
supplement. You should rely only on the information incorporated
by reference or provided in this prospectus supplement. We have
not authorized anyone else to provide you with different
information. You should not assume that the information in this
prospectus supplement is accurate as of any date other than the
date of this prospectus supplement or the date of the documents
incorporated by reference in this prospectus supplement.
We will provide to each person, including any beneficial owner,
to whom this prospectus supplement is delivered, upon written or
oral request, at no cost, a copy of any and all of the
information that is incorporated by reference in this prospectus
supplement.
Requests for such documents should be directed to:
Jennifer L.
Sherman, ESQ.
Senior Vice President, Human Resources, General Counsel and
Secretary
Federal Signal Corporation
1415 West
22nd
Street
Oak Brook, Illinois 60523
(630) 954-2000
You may also access the documents incorporated by reference in
this prospectus supplement through our website at
www.federalsignal.com. Except for the specific incorporated
documents listed above, no information available on or through
our website shall be deemed to be incorporated in this
prospectus supplement or the registration statement of which it
forms a part.
S-55
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Federal Signal
Corporation
We have audited the accompanying consolidated balance sheets of
Federal Signal Corporation as of December 31, 2009 and
2008, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2009. Our audits
also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Federal Signal Corporation at
December 31, 2009 and 2008, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 6 to the consolidated financial
statements, on January 1, 2007, Federal Signal Corporation
changed its method of accounting for uncertain tax positions to
conform with Financial Accounting Standards Board Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Federal Signal Corporations internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 26,
2010, expressed an unqualified opinion thereon.
Ernst & Young LLP
Chicago, Illinois
February 26, 2010
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
of Federal Signal Corporation
We have audited Federal Signal Corporations internal
control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Federal Signal Corporations management is responsible for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control
over financial reporting included in Managements Annual
Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Federal Signal Corporation maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of December 31, 2009 and
2008, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2009 of Federal
Signal Corporation and our report dated February 26, 2010
expressed an unqualified opinion thereon.
Ernst & Young LLP
Chicago, Illinois
February 26, 2010
F-3
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008*
|
|
|
|
($ in millions)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21.1
|
|
|
$
|
23.4
|
|
Short-term investments
|
|
|
|
|
|
|
10.0
|
|
Accounts receivable, net of allowances for doubtful accounts of
$2.5 million
and $2.0 million, respectively
|
|
|
120.2
|
|
|
|
136.1
|
|
Inventories Note 3
|
|
|
112.1
|
|
|
|
131.6
|
|
Other current assets
|
|
|
26.0
|
|
|
|
21.0
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
279.4
|
|
|
|
322.1
|
|
Properties and equipment Note 4
|
|
|
65.5
|
|
|
|
62.5
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill Note 12
|
|
|
319.6
|
|
|
|
303.6
|
|
Intangible assets, net Note 12
|
|
|
52.7
|
|
|
|
47.8
|
|
Deferred tax assets Note 6
|
|
|
17.5
|
|
|
|
31.2
|
|
Deferred charges and other assets
|
|
|
1.7
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
Total assets of continuing operations
|
|
|
736.4
|
|
|
|
771.7
|
|
Assets of discontinued operations, net Note 13
|
|
|
8.5
|
|
|
|
67.3
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
744.9
|
|
|
$
|
839.0
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings Note 5
|
|
$
|
|
|
|
$
|
12.6
|
|
Current portion of long-term borrowings Note 5
|
|
|
41.9
|
|
|
|
25.1
|
|
Accounts payable
|
|
|
45.2
|
|
|
|
47.5
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
Compensation and withholding taxes
|
|
|
20.8
|
|
|
|
23.3
|
|
Customer deposits
|
|
|
10.4
|
|
|
|
17.4
|
|
Other
|
|
|
48.1
|
|
|
|
48.2
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
166.4
|
|
|
|
174.1
|
|
Long-term borrowings, less current portion
Note 5
|
|
|
159.7
|
|
|
|
241.2
|
|
Long-term pension and other postretirement benefit liabilities
|
|
|
39.6
|
|
|
|
58.0
|
|
Deferred gain Note 4
|
|
|
24.2
|
|
|
|
26.2
|
|
Other long-term liabilities
|
|
|
12.2
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of continuing operations
|
|
|
402.1
|
|
|
|
512.8
|
|
Liabilities of discontinued operations Note 13
|
|
|
14.1
|
|
|
|
39.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
416.2
|
|
|
|
551.9
|
|
Shareholders equity Notes 9 and 10
|
|
|
|
|
|
|
|
|
Common stock, $1 par value per share, 90.0 million
shares authorized, 49.6 million and 49.3 million
shares issued, respectively
|
|
|
49.6
|
|
|
|
49.3
|
|
Capital in excess of par value
|
|
|
93.8
|
|
|
|
106.4
|
|
Retained earnings
|
|
|
240.4
|
|
|
|
229.0
|
|
Treasury stock, 0.8 million and 1.9 million shares,
respectively, at cost
|
|
|
(15.8
|
)
|
|
|
(36.1
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
Foreign currency translation, net
|
|
|
8.5
|
|
|
|
(4.1
|
)
|
Net derivative loss, cash flow hedges, net
|
|
|
(0.7
|
)
|
|
|
(0.9
|
)
|
Unrecognized pension and postretirement losses, net
|
|
|
(47.1
|
)
|
|
|
(56.5
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive (loss)
|
|
|
(39.3
|
)
|
|
|
(61.5
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
328.7
|
|
|
|
287.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
744.9
|
|
|
$
|
839.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Prior periods have been adjusted to reflect a change in
accounting method as discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
F-4
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008*
|
|
|
2007*
|
|
|
|
($ in millions, except per share data)
|
|
|
Net sales
|
|
$
|
752.5
|
|
|
$
|
879.0
|
|
|
$
|
854.8
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
558.9
|
|
|
|
643.6
|
|
|
|
623.8
|
|
Selling, engineering, general and administrative
|
|
|
159.1
|
|
|
|
182.9
|
|
|
|
162.3
|
|
Restructuring charges Note 14
|
|
|
1.5
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
33.0
|
|
|
|
49.8
|
|
|
|
68.7
|
|
Interest expense
|
|
|
11.4
|
|
|
|
15.3
|
|
|
|
18.5
|
|
(Gain) loss on investment in joint venture
|
|
|
(1.2
|
)
|
|
|
13.0
|
|
|
|
3.3
|
|
Other expense (income), net
|
|
|
0.5
|
|
|
|
0.8
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
22.3
|
|
|
|
20.7
|
|
|
|
47.1
|
|
Income tax (provision) benefit Note 6
|
|
|
(4.6
|
)
|
|
|
6.5
|
|
|
|
(12.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
17.7
|
|
|
|
27.2
|
|
|
|
35.1
|
|
Discontinued operations Note 13
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations and disposal, net of
tax expense (benefit) of $1.6 million, ($16.2) million
and ($2.2) million, respectively
|
|
|
5.4
|
|
|
|
(122.2
|
)
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23.1
|
|
|
$
|
(95.0
|
)
|
|
$
|
54.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
$
|
0.36
|
|
|
$
|
0.57
|
|
|
$
|
0.73
|
|
Earnings (loss) from discontinued operations and disposal, net
of taxes
|
|
|
0.11
|
|
|
|
(2.56
|
)
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share
|
|
$
|
0.47
|
|
|
$
|
(1.99
|
)
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Prior periods have been adjusted to reflect a change in
accounting method as discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
F-5
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Stock
|
|
|
Excess of
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Par
|
|
|
Par
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
Earnings
|
|
|
Stock
|
|
|
Loss
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Balance at December 31, 2006*
|
|
$
|
49.1
|
|
|
$
|
99.8
|
|
|
$
|
292.9
|
|
|
$
|
(30.1
|
)
|
|
$
|
(23.1
|
)
|
|
$
|
388.6
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
54.7
|
|
|
|
|
|
|
|
|
|
|
|
54.7
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.7
|
|
|
|
11.7
|
|
Unrealized losses on derivatives, net of $1.2 million tax
benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
(2.0
|
)
|
Amortization of pension and postretirement losses, net of
$1.8 million tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66.3
|
|
Adjustments to adopt ASC 740 (FIN 48)
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
Adjustments to adopt ASC 715 (SFAS 158), net of
$0.0 million tax expense
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
0.5
|
|
|
|
0.9
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
Share based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards and options
|
|
|
0.3
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Excess tax benefits on share based payments
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007*
|
|
|
49.4
|
|
|
|
103.2
|
|
|
|
335.8
|
|
|
|
(30.1
|
)
|
|
|
(11.0
|
)
|
|
|
447.3
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(95.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(95.0
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20.0
|
)
|
|
|
(20.0
|
)
|
Unrealized gains on derivatives, net of $0.7 million tax
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
1.1
|
|
Change in unrecognized losses related to pension benefit plans,
net of $16.3 million tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31.6
|
)
|
|
|
(31.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145.5
|
)
|
Adjustment to adopt ASC Topic 715 (EITF 06 04)
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
Share based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested stock and options
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
Stock awards
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Common stock cancelled
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008*
|
|
|
49.3
|
|
|
|
106.4
|
|
|
|
229.0
|
|
|
|
(36.1
|
)
|
|
|
(61.5
|
)
|
|
|
287.1
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.6
|
|
|
|
12.6
|
|
Unrealized gains on derivatives, net of $0.1 million tax
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Change in unrecognized gains related to pension benefit plans,
net of $5.4 million tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.4
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.3
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(11.7
|
)
|
Share based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested stock and options
|
|
|
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Stock awards
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
Common stock cancelled
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
Issuance of common stock from treasury
|
|
|
|
|
|
|
(15.9
|
)
|
|
|
|
|
|
|
20.3
|
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
49.6
|
|
|
$
|
93.8
|
|
|
$
|
240.4
|
|
|
$
|
(15.8
|
)
|
|
$
|
(39.3
|
)
|
|
$
|
328.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Prior periods have been adjusted to reflect change in accounting
method discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
F-6
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008*
|
|
|
2007*
|
|
|
|
($ in millions)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23.1
|
|
|
$
|
(95.0
|
)
|
|
$
|
54.7
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on discontinued operations and disposal
|
|
|
(5.4
|
)
|
|
|
122.2
|
|
|
|
(19.6
|
)
|
(Gain) loss on joint venture
|
|
|
(1.2
|
)
|
|
|
13.0
|
|
|
|
3.3
|
|
Depreciation and amortization
|
|
|
15.3
|
|
|
|
14.9
|
|
|
|
13.3
|
|
Stock option and award compensation expense
|
|
|
3.1
|
|
|
|
2.9
|
|
|
|
3.5
|
|
Provision for doubtful accounts
|
|
|
0.9
|
|
|
|
7.1
|
|
|
|
0.6
|
|
Deferred income taxes
|
|
|
3.6
|
|
|
|
(14.4
|
)
|
|
|
6.2
|
|
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions of companies
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
17.4
|
|
|
|
(14.2
|
)
|
|
|
(0.9
|
)
|
Inventories
|
|
|
20.9
|
|
|
|
(18.6
|
)
|
|
|
(19.6
|
)
|
Other current assets
|
|
|
(0.7
|
)
|
|
|
1.9
|
|
|
|
(1.3
|
)
|
Accounts payable
|
|
|
(3.1
|
)
|
|
|
(10.4
|
)
|
|
|
1.6
|
|
Customer deposits
|
|
|
(7.4
|
)
|
|
|
|
|
|
|
3.6
|
|
Accrued liabilities
|
|
|
(5.9
|
)
|
|
|
(1.9
|
)
|
|
|
0.3
|
|
Income taxes
|
|
|
2.0
|
|
|
|
(7.9
|
)
|
|
|
(3.5
|
)
|
Pension contributions
|
|
|
(1.0
|
)
|
|
|
(11.5
|
)
|
|
|
(6.7
|
)
|
Other
|
|
|
(3.3
|
)
|
|
|
4.5
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) continuing operating activities
|
|
|
58.3
|
|
|
|
(7.4
|
)
|
|
|
34.5
|
|
Net cash provided by discontinued operating activities
|
|
|
4.1
|
|
|
|
131.1
|
|
|
|
30.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
62.4
|
|
|
|
123.7
|
|
|
|
65.4
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of properties and equipment
|
|
|
(14.6
|
)
|
|
|
(28.0
|
)
|
|
|
(19.5
|
)
|
Proceeds from sales of properties and equipment
|
|
|
4.0
|
|
|
|
38.0
|
|
|
|
0.6
|
|
Payments for acquisitions, net of cash acquired
|
|
|
(13.5
|
)
|
|
|
|
|
|
|
(147.5
|
)
|
Other, net
|
|
|
10.0
|
|
|
|
(10.1
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for continuing investing activities
|
|
|
(14.1
|
)
|
|
|
(0.1
|
)
|
|
|
(168.1
|
)
|
Net cash provided by discontinued investing activities
|
|
|
45.1
|
|
|
|
54.7
|
|
|
|
61.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
31.0
|
|
|
|
54.6
|
|
|
|
(106.6
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(Reduction) increase in short-term borrowings, net
|
|
|
(12.6
|
)
|
|
|
0.6
|
|
|
|
(28.3
|
)
|
Proceeds from issuance of long-term borrowings
|
|
|
12.5
|
|
|
|
148.8
|
|
|
|
230.1
|
|
Repayment of long-term borrowings
|
|
|
(77.6
|
)
|
|
|
(169.5
|
)
|
|
|
(142.2
|
)
|
Purchases of treasury stock
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
Cash dividends paid to shareholders
|
|
|
(11.7
|
)
|
|
|
(11.5
|
)
|
|
|
(11.5
|
)
|
Other, net
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by continuing financing activities
|
|
|
(89.2
|
)
|
|
|
(37.4
|
)
|
|
|
48.5
|
|
Net cash used for discontinued financing activities
|
|
|
(7.3
|
)
|
|
|
(129.3
|
)
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by financing activities
|
|
|
(96.5
|
)
|
|
|
(166.7
|
)
|
|
|
36.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of foreign exchange rate changes on cash
|
|
|
0.8
|
|
|
|
(0.7
|
)
|
|
|
1.1
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(2.3
|
)
|
|
|
10.9
|
|
|
|
(3.3
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
23.4
|
|
|
|
12.5
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
21.1
|
|
|
$
|
23.4
|
|
|
$
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Prior periods have been adjusted to reflect change in accounting
method discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
F-7
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
($ in
millions, except per share data)
|
|
NOTE 1
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Basis of Presentation: The accompanying
consolidated financial statements include the accounts of
Federal Signal Corporation and all of its significant
subsidiaries (the Company) and have been prepared in
accordance with accounting principles generally accepted in the
United States of America (GAAP). All significant
intercompany balances and transactions have been eliminated in
consolidation. These consolidated financial statements include
estimates and assumptions by management that effect the amounts
reported in the consolidated financial statements. Actual
results could differ from these estimates. The operating results
of businesses divested during 2009, 2008 and 2007 have been
excluded since the date of sale, and have been reported prior to
sale as discontinued operations (See Note 13). Certain
prior year amounts have been reclassified to conform to the
current presentation.
As of July 1, 2009, the Company changed its method for
accounting for certain inventories from
last-in,
first-out (LIFO) to
first-in,
first-out (FIFO). The Company adopted this change in accounting
principle retrospectively (See Note 3).
Foreign Operations: Assets and
liabilities of foreign subsidiaries, other than those whose
functional currency is the U.S. dollar, are translated at
current exchange rates with the related translation adjustments
reported in stockholders equity as a component of
accumulated other comprehensive income (loss). Income statement
accounts are translated at the average exchange rate during the
period. Where the U.S. dollar is considered the functional
currency, monetary assets and liabilities are translated at
current exchange rates with the related adjustment included in
net income. Non-monetary assets and liabilities are translated
at historical exchange rates. The Company incurs foreign
currency transaction gains/losses relating to assets and
liabilities that are denominated in a currency other than the
functional currency. For 2009, 2008 and 2007, the Company
incurred foreign currency transaction losses, included in other
expenses in the Consolidated Statement of Operations, of
$0.3 million, $0.7 million and $0.5 million,
respectively.
Cash Equivalents: The Company considers
all highly liquid investments with a maturity of three-months or
less, when purchased, to be cash equivalents.
Short-Term Investments: Short-term
investments are stated at cost since they represent highly
liquid certificates of deposit that mature in less than
12 months.
Accounts Receivable, Lease Financing and Other Receivables
and Allowances for Doubtful Accounts: A
receivable is considered past due if payments have not been
received within agreed upon invoice terms. The Companys
policy is generally to not charge interest on trade receivables
after the invoice becomes past due, but to charge interest on
lease receivables. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments on the outstanding
accounts receivable and outstanding lease financing and other
receivables. The allowances are each maintained at a level
considered appropriate based on historical and other factors
that affect collectibility. These factors include historical
trends of write-offs, recoveries and credit losses; portfolio
credit quality; and current and projected economic and market
conditions. If the financial condition of the Companys
customers were to deteriorate, resulting in a reduced ability to
make payments, additional allowances may be required.
Inventories: The Companys
inventories are valued at the lower of cost or market. Cost is
determined using the
first-in,
first-out (FIFO) method. Included in the cost of
inventories are raw materials, direct wages and associated
production costs.
Properties and Depreciation: Properties
and equipment are stated at cost. Depreciation, is computed
using the straight-line method over the estimated useful lives
of the assets. Depreciation ranges from 8 to 40 years for
buildings and 3 to 15 years for machinery and equipment.
Leasehold improvements are depreciated over the shorter of the
remaining life of the lease or the useful life of the
improvement. Property,
F-8
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
plant and equipment and other long-term assets are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of
the expected undiscounted cash flows is less than the carrying
value of the related asset or group of assets, a loss is
recognized for the difference between the fair value and
carrying value of the asset or group of assets. Such analyses
necessarily involve significant judgment.
Goodwill and Other Intangible
Assets: Goodwill and other intangible assets
primarily result from business acquisitions. The excess of cost
over net assets of businesses acquired is recorded as goodwill.
Goodwill and indefinite lived intangible assets are assessed
yearly for impairment in the fourth quarter and also between
annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting
unit below its carrying amount. Definite lived intangible assets
are amortized using the straight-line method over the estimated
useful lives of the amounts.
Stock-Based Compensation Plans: The
Company has various stock-based compensation plans, described
more fully in Note 9.
The Company accounts for stock-based compensation in accordance
with the provisions of ASC Topic 718,
Compensation Stock Compensation
(SFAS 123(R)). The fair value stock options are determined
using a Black-Scholes option pricing model.
Use of Estimates: The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Warranty: Sales of many of the
Companys products carry express warranties based on terms
that are generally accepted in the Companys marketplaces.
The Company records provisions for estimated warranty at the
time of sale based on historical experience and periodically
adjusts these provisions to reflect actual experience.
Infrequently, a material warranty issue can arise which is
beyond the scope of the Companys historical experience.
The Company provides for these issues as they become probable
and estimable.
Product Liability and Workers Compensation
Liability: Due to the nature of the
Companys products, the Company is subject to claims for
product liability and workers compensation in the normal
course of business. The Company is self-funded for a portion of
these claims. The Company establishes a reserve using a
third-party actuary for any known outstanding matters, including
a reserve for claims incurred but not yet reported.
Financial Instruments: The Company
enters into agreements (derivative financial instruments) to
manage the risks associated with interest rates and foreign
exchange rates. The Company does not actively trade such
instruments nor enter into such agreements for speculative
purposes. The Company principally utilizes two types of
derivative financial instruments: 1) interest rate swaps to
manage its interest rate risk, and 2) foreign currency
forward exchange and option contracts to manage risks associated
with sales and expenses (forecast or committed) denominated in
foreign currencies.
On the date a derivative contract is entered into, the Company
designates the derivative as one of the following types of
hedging instruments and accounts for the derivative as follows:
Fair Value Hedge: A hedge of a
recognized asset or liability or an unrecognized firm commitment
is declared as a fair value hedge. For fair value hedges, both
the effective and ineffective portions of the changes in the
fair value of the derivative, along with the gain or loss on the
hedged item that is attributable to the hedged risk, are
recorded in earnings and reported in the consolidated statements
of operations on the same line as the hedged item.
F-9
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash Flow Hedge: A hedge of a forecast
transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability is declared
as a cash flow hedge. The effective portion of the change in the
fair value of a derivative that is declared as a cash flow hedge
is recorded in accumulated other comprehensive income. When the
hedged item impacts the statement of operations, the gain or
loss previously included in accumulated other comprehensive
income is reported on the same line in the consolidated
statements of operations as the hedged item. In addition, both
the fair value of changes excluded from the Companys
effectiveness assessments and the ineffective portion of the
changes in the fair value of derivatives used as cash flow
hedges are reported in Other income (expense) in the
consolidated statements of operations.
The Company formally documents its hedge relationships,
including identification of the hedging instruments and the
hedged items, as well as its risk management objectives and
strategies for undertaking the hedge transaction. Derivatives
are recorded in the consolidated balance sheets at fair value in
other deferred charges and assets and other accrued liabilities.
This process includes linking derivatives that are designated as
hedges of specific forecast transactions. The Company also
formally assesses, both at inception and at least quarterly
thereafter, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in
either the fair value or cash flows of the hedged item. If it is
determined that a derivative ceases to be a highly effective
hedge, or if the anticipated transaction is no longer likely to
occur, the Company discontinues hedge accounting, and any
deferred gains or losses are recorded in Other income (expense).
Amounts related to terminated interest rate swaps are deferred
and amortized as an adjustment to interest expense over the
original period of interest exposure, provided the designated
liability continues to exist or is probable of occurring.
Fair Value of Financial Instruments: In
September 2006, the Financial Accounting Standards Board (FASB)
issued ASC Topic 820, Fair Value Measurements and
Disclosures, (SFAS No. 157) which defines
fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP) and
expands disclosure about fair value measurements. The Company
adopted the provisions of ASC Topic 820
(SFAS No. 157) with respect to its financial
assets and liabilities that are measured at fair value within
the financial statements as of January 1, 2008. The Company
adopted the provisions of ASC Topic 820
(SFAS No. 157) with respect to its non-financial
assets and non-financial liabilities as of January 1, 2009.
The adoption of ASC Topic 820 (SFAS No. 157) did
not have a material impact on the Companys fair value
measurements and the required disclosures are contained in the
notes to Consolidated Financial Statements.
ASC Topic 820 (SFAS No. 157) established a
three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1,
defined as observable inputs such as quoted prices in active
markets; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an
entity to develop its own assumptions.
In February 2007, the FASB issued ASC Topic 825, Financial
Instruments, (SFAS No. 159), which permits
entities to choose to measure many financial instruments and
certain other items at fair value that are not currently
required to be measured at fair value. The Company adopted this
statement as of January 1, 2008 and has elected not to
apply the fair value option to any of its financial instruments
at this time.
Business Combinations: In December
2007, the FASB issued ASC Topic 805, Business
Combinations (SFAS No. 141(R)) which expands the
definition of a business and a business combination, requires
the fair value of the purchase price of an acquisition including
the issuance of equity securities to be determined on the
acquisition date, requires that all assets, liabilities,
contingent consideration, contingencies and in-process research
and development costs of an acquired business be recorded at
fair value at the acquisition date, requires that acquisition
costs generally be expensed as incurred, requires that
restructuring costs generally be expensed in periods subsequent
to the acquisition date, and requires changes in accounting for
deferred tax
F-10
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
asset valuation allowances and acquired income tax uncertainties
after the measurement period to impact income tax expense. The
Company adopted the guidance on January 1, 2009.
Split-Dollar Life Insurance
Arrangements: In accordance with ASC Topic
715-60,
Defined benefit plans other
postretirement
(EITF 06-04),
which concludes that an employer should recognize a liability
for post-employment benefits promised to an employee. This
guidance is effective for fiscal years beginning after
December 15, 2007. The Company has one arrangement that
meets these criteria and recorded a liability of approximately
$0.4 million and $0.3 million at December 31,
2009 and 2008, respectively.
Revenue Recognition: The Company
recognizes revenue when all of the following are satisfied:
persuasive evidence of an arrangement exists, the price is fixed
or determinable, collectibility is reasonably assured and title
has passed or services have been rendered. Typically, title
passes at time of shipment, however occasionally title passes
later or earlier than shipment due to customer contracts or
letter of credit terms. Infrequently, a sales contract qualifies
for percentage of completion or for multiple-element accounting.
For percentage of completion revenues, the Company utilizes the
cost-to-cost
method and the contract payments are received as progress
payments as costs are incurred or based on installation and
performance milestones. Management believes that all relevant
criteria and conditions are considered when recognizing revenues.
Net Sales: Net sales are net of returns
and allowances. Returns and allowances are calculated and
recorded as a percentage of revenue based upon historical
returns. Gross sales includes sale of products and billed
freight related to product sales. Freight has not historically
comprised a material component of gross sales.
Product shipping costs: Product
shipping costs are expensed as incurred and are included in cost
of sales.
Investments: In 2005, the Company
entered into an agreement with the Shanghai Environmental
Sanitary Vehicle and Equipment Factory (SHW) and United Motor
Works (UMW) to form a joint venture to manufacture specialty
vehicles in the Peoples Republic of China (China joint
Venture). The investment in the joint venture was
accounted for under the equity method. The Companys 50%
interest in the venture did not represent a controlling
interest. In February 2009, the Company decided to terminate
funding to this venture as a review of the market and forecasts
of the joint ventures cash flows indicated its bank debt
was unlikely to be repaid and that its assets were impaired. A
charge of $10.4 million was taken in 2008 and reported in
the Statements of Operations as loss on investment in joint
venture to write-down completely the Companys investment
and to reflect the Companys $9.4 million obligation
to guaranty the debt of the joint venture and $1.0 million
obligation to guaranty the investment of UMW. In 2009, the
partners agreed to voluntarily liquidate the joint venture. A
net gain of $1.2 million was reported in the Statements of
Operations as a gain in investment in joint venture that
pertains primarily to the liquidation of assets. The debt
guaranty is included in Short-term Borrowings and the investment
guaranty is included in Accrued liabilities Other in
the Consolidated Balance Sheet at December 31, 2008. The
Companys share of operating losses was $0,
$2.6 million and $3.3 million, in each of the three
years ended December 31, 2009, 2008, and 2007, respectively.
|
|
NOTE 2
|
EARNINGS
(LOSS) PER SHARE
|
Earnings(Loss) per share basic is computed by
dividing income or loss available to common stockholders by the
weighted average number of shares of common stock outstanding
for the period. Earnings (loss) per share diluted
reflects the potential dilution that could occur if options
issued under stock-based compensation awards were converted into
common stock. In 2009, 2008 and 2007, options to purchase
2.1 million, 2.5 million and 2.4 million shares
of the Companys common stock had exercise prices that were
F-11
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
greater than the average market price of those shares during the
respective reporting periods. As a result, these shares are
excluded from the earnings per share calculation as they are
anti-dilutive.
The following is a reconciliation of net income (loss) to
earnings per share basic and diluted at
December 31 ($ in millions, except per share amounts):
Computation
of Earnings (Loss) per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions, except per share data)
|
|
|
Income from continuing operations
|
|
$
|
17.7
|
|
|
$
|
27.2
|
|
|
$
|
35.1
|
|
Gain (loss) from discontinued operations and disposal, net of tax
|
|
|
5.4
|
|
|
|
(122.2
|
)
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23.1
|
|
|
$
|
(95.0
|
)
|
|
$
|
54.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding basic
|
|
|
48.6
|
|
|
|
47.7
|
|
|
|
47.9
|
|
Dilutive effect of stock options and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
48.6
|
|
|
|
47.7
|
|
|
|
47.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.36
|
|
|
$
|
0.57
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.36
|
|
|
$
|
0.57
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
(2.56
|
)
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
(2.56
|
)
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.47
|
|
|
$
|
(1.99
|
)
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.47
|
|
|
$
|
(1.99
|
)
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories at December 31 are summarized as follows ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
53.9
|
|
|
$
|
64.3
|
|
Work in process
|
|
|
28.0
|
|
|
|
34.6
|
|
Finished goods
|
|
|
30.2
|
|
|
|
32.7
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
112.1
|
|
|
$
|
131.6
|
|
|
|
|
|
|
|
|
|
|
Prior to July 1, 2009 the Company valued certain
inventories under the
last-in,
first-out cost method (LIFO). As of July 1,
2009, the method of accounting for these inventories was changed
from the LIFO method to the FIFO method. As of December 31,
2008, approximately 22% of total inventories were valued under
the LIFO method of accounting. The Company believes that this
change is to a preferable method which better reflects the
current cost of inventory on its consolidated balance sheets.
Additionally, this change conforms all of the Companys
inventories to a consistent costing method providing better
comparability across businesses and peers. The Company has
applied this change retrospectively to all prior periods
presented herein in accordance with accounting principles
relating to accounting changes. As a result of the
F-12
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
retrospective change in accounting principle, opening retained
earnings as of January 1, 2007 increased by
$2.2 million.
Additionally, 2008 cost of sales decreased by $0.9 million,
income from continuing operations increased by $0.6 million
and the net loss decreased by $0.6 million for the year
ended December 31, 2008. In 2007, cost of sales increased
by $0.2 million, income from continuing operations
decreased $0.1 million and net income decreased
$0.1 million. Basic and diluted earnings (loss) per share
for the years ended December 31, 2008 and 2007 increased
$0.02 per share, and decreased $0.01 per share, respectively, by
the change in method. The elimination of LIFO increased
inventory by $4.1 million, decreased deferred tax assets by
$1.5 million and increased shareholders equity by
$2.6 million, the amount of the LIFO-based reserves, net of
related tax liabilities as of December 31, 2008. Had the
Company continued to value a portion of its inventories under
the LIFO method for the year ended December 31, 2009,
actual results reflected herein would not have been
significantly different.
|
|
NOTE 4
|
PROPERTIES
AND EQUIPMENT
|
Properties and equipment at December 31 are summarized as
follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
Buildings and improvements
|
|
|
24.1
|
|
|
|
17.3
|
|
Machinery and equipment
|
|
|
138.1
|
|
|
|
135.5
|
|
Accumulated depreciation
|
|
|
(97.0
|
)
|
|
|
(90.6
|
)
|
|
|
|
|
|
|
|
|
|
Total properties and equipment
|
|
$
|
65.5
|
|
|
$
|
62.5
|
|
|
|
|
|
|
|
|
|
|
In July 2008, the Company entered into sale-leaseback
transactions for its Elgin and University Park, Illinois plant
locations. Net proceeds received were $35.8 million
resulting in a deferred gain of $29.0 million. The deferred
gain is being amortized over the
15-year life
of the respective leases.
The Company leases certain facilities and equipment under
operating leases, some of which contain options to renew. Total
rental expense on all operating leases was $10.5 million in
2009, $9.3 million in 2008 and $7.8 million in 2007.
Sublease income and contingent rentals relating to operating
leases were insignificant. At December 31, 2009, minimum
future rental commitments under operating leases having
noncancelable lease terms in excess of one year aggregated
$70.9 million payable as follows: $10.4 million in
2010, $7.2 million in 2011, $6.4 million in 2012,
$5.4 million in 2013, $5.2 million in 2014 and
$36.3 million thereafter.
Short-term borrowings at December 31 consisted of the following
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
China Joint Venture debt guarantee (Note 1)
|
|
$
|
|
|
|
$
|
9.4
|
|
Other foreign lines of credit
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings
|
|
$
|
|
|
|
$
|
12.6
|
|
|
|
|
|
|
|
|
|
|
F-13
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term borrowings at December 31 consisted of the following
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Revolving Credit Facility
|
|
$
|
85.0
|
|
|
$
|
86.9
|
|
Alternative Currency Facility (within Revolving Credit Facility)
|
|
|
16.2
|
|
|
|
10.1
|
|
7.79% Unsecured Private Placement note with annual installments
of $10.0 million due
2009-2011
|
|
|
11.4
|
|
|
|
30.0
|
|
7.60% Unsecured Private Placement note with annual installments
of $7.1 million due
2009-2011
|
|
|
8.1
|
|
|
|
21.4
|
|
5.93% Unsecured Private Placement note with annual installments
of $8.0 million due
2009-2012
|
|
|
14.8
|
|
|
|
32.0
|
|
6.24% Unsecured Private Placement note due 2012
|
|
|
42.7
|
|
|
|
60.0
|
|
Unsecured Private Placement note, floating rate (2.35% and
4.837% at December 31, 2009 and 2008, respectively) due
2010-2013
|
|
|
21.3
|
|
|
|
30.0
|
|
Subsidiary Loan Agreement
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202.7
|
|
|
|
270.4
|
|
Fair value of interest rate swaps
|
|
|
1.0
|
|
|
|
1.1
|
|
Unamortized balance of terminated fair value interest rate swaps
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204.1
|
|
|
|
272.1
|
|
Less current maturities, excluding financial services activities
|
|
|
(41.9
|
)
|
|
|
(25.1
|
)
|
Less financial services activities borrowings
(included in discontinued operations)
|
|
|
(2.5
|
)
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term borrowings, net
|
|
$
|
159.7
|
|
|
$
|
241.2
|
|
|
|
|
|
|
|
|
|
|
The Company has a $250.0 million line that expires
April 25, 2012 under its Revolving Credit Facility.
Borrowings under the facility bear interest, at the
Companys option, at the Base Rate or LIBOR, plus an
applicable margin. The applicable margin ranges from 0.00% to
0.75% for Base Rate borrowings and 1.00% to 2.00% for LIBOR
borrowings depending on the Companys total indebtedness to
capital ratio. At December 31, 2009 and 2008, the
Companys applicable margin over LIBOR and Base Rate
borrowings was 1.50% and 0.25%, respectively.
In March 2008, the Company executed an amendment (the
Second Credit Amendment) to the Revolving Credit
Facility. The Second Credit Amendment modified the definitions
of Consolidated Net Worth and EBIT, reduced the Total
Indebtedness to Capital ratio maximum to 0.50, reduced the
minimum Interest Coverage Ratio requirement and reduced the
required minimum percentage of consolidated assets directly
owned by the Credit Agreements borrower and guarantors to
50%. The amendment also allowed for the unencumbered sale of the
E-One
business.
On September 6, 2007 Federal Signal of Europe B.V. y CIA,
SC, a restricted subsidiary of the Company, entered into a
Supplemental Agreement to the Companys Second Amended and
Restated Credit Agreement (Alternative Currency
Facility) whereby Federal Signal of Europe B.V. y CIA, SC,
became a Designated Alternative Currency Borrower for the
purpose of making swing loans denominated in Euros.
As of December 31, 2009, $16.2 million was drawn on
the Alternative Currency Facility and $85.0 million was
drawn on the Second Credit Amendment for a total of
$101.2 million drawn under the Second Amended and Restated
Credit Agreement leaving available borrowings of
$148.8 million.
On April 27, 2009, the Company executed the Global
Amendment to Note Purchase Agreements (the Global
Amendment) with the holders of its private placement debt
notes (the Notes). The Global
F-14
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amendment included a provision allowing the Company to prepay
$50.0 million of principal of the $173.4 million Notes
outstanding at par with no prepayment penalty. The prepayment
was executed on April 28, 2009, and included principal,
related accrued interest and a fee of $0.2 million totaling
$51.1 million. The prepayment was funded by the
Companys available capacity under its revolving credit
facility.
The Global Amendment included changes to the Notes coupon
interest rates. The coupon interest rates on the Notes were
increased by 100 basis points upon execution of the Global
Amendment. On January 1, 2010, the outstanding Notes
coupon interest rates will increase by an additional
100 basis points. On April 1, 2010, the outstanding
Notes coupon interest rates will increase an additional
200 basis points if the Companys private placement
debt rating does not improve by one rating level on or before
this date.
The Global Amendment also included changes and additions to
various covenants within the Notes Agreements. Financial
covenants were modified to more closely align with those
included in the Companys revolving credit facility, which
allows for the exclusion of various charges when computing
covenants for minimum net worth and maximum debt to
capitalization.
Aggregate maturities of total borrowings amount to approximately
$41.9 million in 2010, $10.5 million in 2011,
$144.6 million in 2012 and $7.1 million in 2013. The
fair values of these borrowings aggregated $204.9 million
and $286.3 million at December 31, 2009 and 2008,
respectively. Included in 2010 maturities is $2.5 million
of other foreign lines of credit and $39.4 million of
private placement debt.
On February 10, 2009 Bronto Skylift OY AB, a wholly-owned
subsidiary of the Company, entered into a loan in which
principal and interest is paid semi-annually and the loan
expires two years after the loan date. At the end of
December 31, 2009 the balance outstanding was
$3.2 million.
On March 24, 2005,
E-ONE, Inc.
(E-ONE),
formerly a wholly-owned subsidiary of the Company, entered into
a loan agreement with Banc of America Leasing &
Capital, LLC (the Loan Agreement) under a
nonrecourse loan facility.
E-Ones
indebtedness and other obligations under the Loan Agreement were
payable out of certain customer leases of emergency equipment
and other collateral as described in the Loan Agreement. In
December 2007, the Loan Agreement was amended to include
customer leases of
E-One Inc.,
E-One New
York, Inc., Elgin Sweeper Company and Vactor Manufacturing, Inc.
(Amended Loan Agreement). In August 2008, the
outstanding debt of the Amended Loan Agreement was paid in full,
prior to the sale of
E-ONE.
The Company was in compliance with the financial covenants
throughout 2009 and 2008.
At December 31, 2009 and 2008, deferred financing fees,
which are amortized over the remaining life of the debt, totaled
$0.9 million and $1.3 million, respectively, and are
included in deferred charges and assets on the balance sheet.
The Company paid interest of $11.3 million in 2009,
$21.4 million in 2008 and $26.2 million in 2007. See
Note 8 regarding the Companys utilization of
derivative financial instruments relating to outstanding debt.
Weighted average interest rates on short-term borrowings was
5.94% at December 31, 2008.
F-15
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision/(benefit) for income taxes for each of the three
years in the period ended December 31 consisted of the following
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(4.5
|
)
|
|
$
|
1.6
|
|
|
$
|
(0.1
|
)
|
Foreign
|
|
|
5.7
|
|
|
|
5.8
|
|
|
|
6.0
|
|
State and local
|
|
|
(0.2
|
)
|
|
|
0.5
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
7.9
|
|
|
|
5.8
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2.6
|
|
|
|
(14.7
|
)
|
|
|
5.7
|
|
Foreign
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
State and local
|
|
|
0.5
|
|
|
|
(0.1
|
)
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
|
|
(14.4
|
)
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) provision
|
|
$
|
4.6
|
|
|
$
|
(6.5
|
)
|
|
$
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Differences between the statutory federal income tax rate and
the effective income tax rate for each of the three years in the
period ended December 31 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
0.9
|
|
|
|
2.1
|
|
|
|
2.5
|
|
Losses on China Joint Venture and legal entity restructuring
|
|
|
|
|
|
|
(14.3
|
)
|
|
|
|
|
Non-deductible acquisition costs
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
Dividend repatriation
|
|
|
|
|
|
|
|
|
|
|
(3.2
|
)
|
Capital loss utilization via sale/leaseback
|
|
|
|
|
|
|
(40.0
|
)
|
|
|
|
|
Tax reserves
|
|
|
(2.8
|
)
|
|
|
1.4
|
|
|
|
4.0
|
|
R&D tax credits
|
|
|
(2.1
|
)
|
|
|
(2.7
|
)
|
|
|
(1.1
|
)
|
Foreign tax rate effects
|
|
|
(11.3
|
)
|
|
|
(11.0
|
)
|
|
|
(4.8
|
)
|
Foreign financing strategies
|
|
|
|
|
|
|
|
|
|
|
(2.3
|
)
|
Capital loss Canadian legal entity restructuring
|
|
|
|
|
|
|
|
|
|
|
(3.0
|
)
|
Other, net
|
|
|
(0.4
|
)
|
|
|
(1.9
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
20.6
|
%
|
|
|
(31.4
|
)%
|
|
|
25.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys 2009 effective rate of 20.6% reflects a
benefit for the reduction in FIN 48 reserves primarily due
to the completion of an audit of the Companys 2006
U.S. tax return in accordance with ASC Topic 740,
Income Taxes (FIN 48). The Companys
effective rate also reflects benefits for the R&D tax
credit and foreign tax rate effects.
The Companys 2008 effective tax rate of (31.4)% reflects a
benefit of $8.2 million for the utilization of capital loss
carryforwards resulting from the sale-leaseback transaction for
two U.S. based manufacturing facilities and a benefit of
$3.1 million for losses in the China Joint Venture
previously not recognized.
F-16
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income tax assets and liabilities at December 31 are
summarized as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
17.3
|
|
|
$
|
17.6
|
|
Net operating loss, capital loss, alternative minimum tax,
research and development, and foreign tax credit carryforwards
|
|
|
53.2
|
|
|
|
60.4
|
|
Tax effect of items in other comprehensive income
|
|
|
25.9
|
|
|
|
31.2
|
|
Other
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
96.4
|
|
|
|
112.2
|
|
Valuation allowance
|
|
|
(25.2
|
)
|
|
|
(32.5
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
71.2
|
|
|
|
79.7
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(37.1
|
)
|
|
|
(35.4
|
)
|
Revenue recognition
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
Other
|
|
|
(1.3
|
)
|
|
|
|
|
Pension liabilities
|
|
|
(11.4
|
)
|
|
|
(9.9
|
)
|
Undistributed earnings of
non-U.S.
subsidiary
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(50.5
|
)
|
|
|
(46.9
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
20.7
|
|
|
$
|
32.8
|
|
|
|
|
|
|
|
|
|
|
Federal and state income taxes have not been provided on
accumulated undistributed earnings of certain foreign
subsidiaries aggregating approximately $97.2 million at
December 31, 2009, as such earnings have been reinvested in
the business. The determination of the amount of the
unrecognized deferred tax liability related to the undistributed
earnings is not practicable.
The deferred tax asset for tax loss carryforwards at
December 31, 2009, includes Federal net operating loss
carryforwards of $1.9 million, which begin to expire in
2029, state net operating loss carryforwards of
$1.0 million, which will begin to expire in 2019; foreign
net operating loss carryforwards of $0.9 million of which
$0.9 million has an indefinite life; $23.4 million for
capital loss carryforwards that will expire in 2012 and 2013.
The deferred tax asset for tax credit carryforwards includes
U.S. research tax credit carryforwards of
$5.0 million, which will begin to expire in 2022,
U.S. foreign tax credits of $15.5 million, which will
begin to expire in 2015 and U.S. alternative minimum tax
credit carryforwards of $3.4 million with no expiration.
Valuation allowances totaling $25.2 million have been
established at December 31, 2009 and include
$0.9 million related to state net operating loss
carryforwards and $0.9 million related to the foreign net
operating loss carryforwards and $23.4 million related to
capital loss carryforwards.
The net deferred tax asset at December 31 is classified in the
balance sheet as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Current net deferred tax assets (included in Other current
assets in the Consolidated Balance Sheets)
|
|
$
|
3.2
|
|
|
$
|
1.6
|
|
Long-term net deferred tax asset
|
|
|
17.5
|
|
|
|
31.2
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20.7
|
|
|
$
|
32.8
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the Company is in a net
U.S. deferred tax asset position of $34.4 million.
Additionally, the Company has incurred cumulative domestic
losses for the last three years. Under the
F-17
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provisions of ASC Topic 740, Income Taxes
(SFAS No. 109), the Company may be required to
establish a valuation allowance for its U.S. deferred tax
assets. However, ASC Topic 740,
(SFAS No. 109) provides that a valuation
allowance may not be needed if the Company can demonstrate a
strong earnings history exclusive of the losses that created the
deferred tax assets coupled with evidence indicating that loss
is due to an unusual, infrequent, or extraordinary item and not
a continuing condition. The Company considers that the
cumulative three year domestic loss was primarily due to losses
recorded on discontinued operations and disposal during the
three year period and accordingly, no valuation allowance has
been established for the net U.S. deferred tax asset
position as of December 31, 2009.
The Company paid income taxes of $5.1 million in 2009,
$6.1 million in 2008 and $7.0 million in 2007.
Income from continuing operations before taxes for each of the
three years in the period ended December 31 consisted of the
following ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
1.9
|
|
|
$
|
(3.0
|
)
|
|
$
|
26.2
|
|
Non-U.S.
|
|
|
20.4
|
|
|
|
23.7
|
|
|
|
20.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22.3
|
|
|
$
|
20.7
|
|
|
$
|
47.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 1, 2007, the Company adopted the provisions of
ASC Topic 740, (FIN 48). As a result, an increase of
$0.7 million in the liability for unrecognized tax benefits
and a $0.7 million reduction in retained earnings were
recorded in 2007.
The following table summarizes the activity related to the
Companys unrecognized tax benefits ($ in millions):
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
8.3
|
|
Increases related to current year tax positions
|
|
|
0.8
|
|
Increases from prior period positions
|
|
|
(0.9
|
)
|
Decreases due to lapse of statute of limitations
|
|
|
(0.7
|
)
|
Decreases from prior periods
|
|
|
(2.5
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
5.0
|
|
Increases related to current year tax
|
|
|
1.4
|
|
Decreases due to settlements with tax authorities
|
|
|
(1.0
|
)
|
Decreases due to lapse of statute of limitations
|
|
|
(0.5
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
4.9
|
|
|
|
|
|
|
Included in the unrecognized tax benefits of $4.9 million
at December 31, 2009 was $4.7 million of tax benefits
that if recognized, would impact our annual effective tax rate.
The Companys continuing practice is to recognize interest
and penalties related to income tax matters in income tax
expense. Interest and penalties amounting to $0.7 million
and $0.1 million, respectively, are included in the
consolidated balance sheet but are not included in the table
above. We expect our unrecognized tax benefits to decrease by
$0.8 million over the next 12 months.
We file U.S., state and foreign income tax returns in
jurisdictions with varying statutes of limitations. The 2006
through 2009 tax years generally remain subject to examination
by federal and most state tax authorities. In significant
foreign jurisdictions, the 2004 through 2009 tax years generally
remain subject to examination by their respective tax
authorities.
F-18
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7
|
POSTRETIREMENT
BENEFITS
|
The Company and its subsidiaries sponsor a number of defined
benefit retirement plans covering certain of its salaried and
hourly employees. Benefits under these plans are primarily based
on final average compensation and years of service as defined
within the provisions of the individual plans. The Company also
participates in a retirement plan that provides defined benefits
to employees under certain collective bargaining agreements.
The Company uses a December 31 measurement date for its
U.S. and
non-U.S. benefit
plans in accordance with ASC Topic 715,
Compensation Retirement Benefits
(SFAS No. 158).
The components of net periodic pension expense for each of the
three years in the period ended December 31, are summarized
as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
|
U.S. Benefit Plans
|
|
|
Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Company-sponsored plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
0.9
|
|
|
$
|
1.8
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
Interest cost
|
|
|
8.0
|
|
|
|
8.7
|
|
|
|
8.8
|
|
|
|
2.6
|
|
|
|
3.3
|
|
|
|
3.1
|
|
Expected return on plan assets
|
|
|
(9.5
|
)
|
|
|
(10.8
|
)
|
|
|
(10.9
|
)
|
|
|
(2.7
|
)
|
|
|
(4.0
|
)
|
|
|
(4.2
|
)
|
Amortization of actuarial loss
|
|
|
2.0
|
|
|
|
0.6
|
|
|
|
1.6
|
|
|
|
1.1
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Curtailment charge
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement charge
|
|
|
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
5.7
|
|
|
|
1.3
|
|
|
|
1.2
|
|
|
|
|
|
|
|
(0.3
|
)
|
Multiemployer plans
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense (income)
|
|
$
|
0.7
|
|
|
$
|
5.9
|
|
|
$
|
1.5
|
|
|
$
|
1.2
|
|
|
$
|
|
|
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On April 21, 2008, the Company sold its Die and Mold
Operations. The operations were included in discontinued
operations for all periods presented through the sale date. As a
result of an amendment related to this sale, the Company was
required to recognize a curtailment adjustment of
$0.4 million and subsequently, a settlement charge of
$5.9 million under ASC Topic 715,
Compensation Retirement Benefits
(SFAS No. 88). Pension expense relating to the Tool
segment employees, excluding the previously mentioned charges,
was $0.3 million and $1.3 million for the years ended
December 31, 2008 and 2007, respectively.
The remeasurement of these defined benefit plans as a result of
the sale of the Die and Mold Operations also included a change
in the weighted average discount rate to determine pension costs
from 6.45% used at January 1, 2008 to 6.6% at the
May 1, 2008 remeasurement date, and to 6.8% at the
July 1, 2008 remeasurement date.
On April 28, 2008, an amendment to the Companys
U.S. defined benefit plans for University Park, Illinois
IBEW employees within the Safety and Security Systems Group was
approved. The amendment froze service accruals for these
employees as of December 31, 2008. The participants do,
however, continue to accrue benefits resulting from future
salary increases through 2016.
F-19
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the weighted-average assumptions
used in determining pension costs in each of the three years in
the period ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
|
U.S. Benefit Plans
|
|
|
Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate
|
|
|
6.5
|
%
|
|
|
6.8
|
%
|
|
|
6.0
|
%
|
|
|
5.7
|
%
|
|
|
5.9
|
%
|
|
|
5.8
|
%
|
Rate of increase in compensation levels
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
N/A*
|
|
|
|
N/A*
|
|
|
|
NA*
|
|
Expected long term rate of return on plan assets
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
6.8
|
%
|
|
|
6.6
|
%
|
|
|
6.9
|
%
|
|
|
|
* |
|
Non-U.S. plan benefits are not adjusted for compensation level
changes |
The following summarizes the changes in the projected benefit
obligation and plan assets, the funded status of the
Company-sponsored plans and the major assumptions used to
determine these amounts at December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
|
U.S. Benefit Plans
|
|
|
Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
129.7
|
|
|
$
|
142.5
|
|
|
$
|
42.6
|
|
|
$
|
61.3
|
|
Service cost
|
|
|
|
|
|
|
0.9
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Interest cost
|
|
|
8.0
|
|
|
|
8.7
|
|
|
|
2.6
|
|
|
|
3.3
|
|
Actuarial (gain)/loss
|
|
|
3.1
|
|
|
|
(1.9
|
)
|
|
|
3.2
|
|
|
|
(3.4
|
)
|
Benefits paid
|
|
|
(7.3
|
)
|
|
|
(21.2
|
)
|
|
|
(2.8
|
)
|
|
|
(3.0
|
)
|
Curtailments
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
Translation and other
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
|
|
(15.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
133.5
|
|
|
$
|
129.7
|
|
|
$
|
50.0
|
|
|
$
|
42.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation, end of year
|
|
$
|
132.0
|
|
|
$
|
125.2
|
|
|
$
|
50.0
|
|
|
$
|
42.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the weighted-average assumptions
used in determining benefit obligations as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
Non-U.S. Benefit Plan
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Discount rate
|
|
|
6.0
|
%
|
|
|
6.5
|
%
|
|
|
5.7
|
%
|
|
|
5.9
|
%
|
Rate of increase in compensation levels
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
|
U.S. Benefit Plans
|
|
|
Benefit Plan
|
|
Change in Plan Assets ($ in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
79.1
|
|
|
$
|
132.9
|
|
|
$
|
38.9
|
|
|
$
|
63.3
|
|
Actual return on plan assets
|
|
|
24.8
|
|
|
|
(42.6
|
)
|
|
|
7.2
|
|
|
|
(8.2
|
)
|
Company contribution
|
|
|
4.4
|
|
|
|
10.0
|
|
|
|
1.0
|
|
|
|
1.6
|
|
Benefits and expenses paid
|
|
|
(7.3
|
)
|
|
|
(21.2
|
)
|
|
|
(2.8
|
)
|
|
|
(2.9
|
)
|
Translation and other
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
(14.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
$
|
101.0
|
|
|
$
|
79.1
|
|
|
$
|
48.2
|
|
|
$
|
38.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amounts included in Translation and other in the preceding
tables reflect the impact of the foreign exchange translation
for the
non-U.S. benefit
plan.
The plan assets fair value measurement level within the
fair value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement.
Following is a description of the valuation methodologies used
for assets measured at fair value for U.S. plan:
Mutual funds Valued at the net asset value, based on
quoted market prices in active markets, of shares held by the
Plan at year end.
Common stock Valued at the closing price reported on
the active market on which the security is traded.
Collective/Common trust Valued at the net asset
value, based on quoted market value of the underlying assets, of
shares held by the Plan at year end.
Partnership A hedge fund of funds investments
consisting of equity and debt security and other instruments.
The exchange traded assets are valued through the use of
independent trading feeds (Bloomberg, Reuters. Etc.). Grosvenor
Institutional Partners, LP records the funds investment in
an underlying portfolio on the trade date as determined by the
governing documents of the relevant portfolio and values the
investment in a portfolio at the net asset value of such
investment as reported by the manager of such portfolio.
Plan assets for the
non-U.S. benefit
plans are based on quoted prices in active markets for identical
assets.
The following table summarizes the Companys pension assets
in a three-tier fair value hierarchy for its benefit plan as of
December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Benefit Plans
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Mutual funds
|
|
$
|
45.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45.9
|
|
|
$
|
19.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19.9
|
|
Common stock
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
11.3
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
9.3
|
|
Collective fund
|
|
|
|
|
|
|
31.8
|
|
|
|
|
|
|
|
31.8
|
|
|
|
|
|
|
|
37.6
|
|
|
|
|
|
|
|
37.6
|
|
Unallocated insurance policy
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
Partnership
|
|
|
|
|
|
|
|
|
|
|
10.3
|
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
11.0
|
|
|
|
11.0
|
|
Cash
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58.0
|
|
|
$
|
32.7
|
|
|
$
|
10.3
|
|
|
$
|
101.0
|
|
|
$
|
29.6
|
|
|
$
|
38.5
|
|
|
$
|
11.0
|
|
|
$
|
79.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U. S. Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Equity securities
|
|
$
|
28.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
28.7
|
|
|
$
|
20.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20.1
|
|
Bonds holding
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
12.3
|
|
|
|
13.8
|
|
|
|
|
|
|
|
|
|
|
|
13.8
|
|
Insurance policy
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Cash
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
6.9
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
48.2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
48.2
|
|
|
$
|
38.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
38.9
|
|
F-21
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the changes in the fair value of
the Plans level 3 assets as of December 31:
|
|
|
|
|
|
|
|
|
Change in Level 3 Plan Assets ($ in millions):
|
|
2009
|
|
|
2008
|
|
|
Fair value of the assets, beginning of year
|
|
$
|
11.0
|
|
|
$
|
13.9
|
|
Unrealized Gain (loss)
|
|
|
1.3
|
|
|
|
(2.9
|
)
|
Purchases (sales)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of the assets, end of year
|
|
$
|
10.3
|
|
|
$
|
11.0
|
|
|
|
|
|
|
|
|
|
|
The investment strategy for the U.S. benefit plans is to
1) maintain a diversified portfolio that can provide a
weighted-average target return of 8.5% or more, 2) maintain
liquidity to meet obligations and 3) prudently manage
administrative and management costs. The plan invests in equity,
alternative and fixed income instruments. The U.S. plan
investment strategy and target asset allocation are under review
and the Company expects to implement changes once the review is
finalized. The use of derivatives is allowed in limited
circumstances. The plan held no derivatives during the years
ended December 31, 2009 and 2008.
Plan assets for the
non-U.S. benefit
plan consist principally of a diversified portfolio of equity
securities, U.K. government obligations and fixed interest
securities.
As of December 31, 2009 and 2008, equity securities
included 0.9 million and 0.2 million shares of the
Companys common stock valued at $5.6 million and
$1.9 million, respectively. Dividends paid on the
Companys common stock to the pension trusts aggregated
$0.3 million and $0.1 million in each of the years
ended December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
|
U.S. Benefit Plans
|
|
|
Benefit Plan
|
|
Funded Status, End of Year ($ in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Fair value of plan assets
|
|
$
|
101.0
|
|
|
$
|
79.1
|
|
|
$
|
48.2
|
|
|
$
|
38.9
|
|
Benefit obligations
|
|
|
133.5
|
|
|
|
129.7
|
|
|
|
50.0
|
|
|
|
42.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(32.5
|
)
|
|
$
|
(50.6
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
|
U.S. Benefit Plans
|
|
|
Benefit Plan
|
|
Amounts Recognized in the Balance Sheet Consist of ($ in
millions):
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Long term pension liabilities
|
|
$
|
(32.5
|
)
|
|
$
|
(50.6
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(3.7
|
)
|
Accumulated other comprehensive loss, pre-tax
|
|
|
57.2
|
|
|
|
71.4
|
|
|
|
15.1
|
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
24.7
|
|
|
$
|
20.8
|
|
|
$
|
13.3
|
|
|
$
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
Amounts Recognized in Accumulated Other
|
|
U.S. Benefit Plans
|
|
|
Benefit Plan
|
|
Comprehensive Income Consist of ($ in millions):
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net actuarial loss
|
|
$
|
57.2
|
|
|
$
|
71.4
|
|
|
$
|
15.1
|
|
|
$
|
16.0
|
|
Prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized, pre-tax
|
|
$
|
57.2
|
|
|
$
|
71.4
|
|
|
$
|
15.1
|
|
|
$
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects $4.1 million relating to amortization
of the actuarial loss to be amortized from Accumulated Other
Comprehensive Income into Net Periodic Benefit Cost in 2010.
F-22
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company expects to contribute up to $3.0 million to the
U.S. benefit plans in 2010 and up to $1.0 million to
the
non-U.S. plan.
Future contributions to the plans will be based on such factors
as annual service cost as well as return on plan asset values,
interest rate movements and benefit payments.
The following table presents the benefits expected to be paid
under the Companys defined benefit plans in each of the
next five years, and in aggregate for the five years thereafter
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit
|
|
Non-U.S.
|
|
|
Plans
|
|
Benefit Plan
|
|
2010
|
|
$
|
6.5
|
|
|
$
|
2.4
|
|
2011
|
|
|
6.5
|
|
|
|
2.5
|
|
2012
|
|
|
6.9
|
|
|
|
2.7
|
|
2013
|
|
|
7.6
|
|
|
|
2.8
|
|
2014
|
|
|
8.3
|
|
|
|
2.9
|
|
2015-2019
|
|
|
46.7
|
|
|
|
15.3
|
|
The Company also sponsors a number of defined contribution
pension plans covering a majority of its employees. Through 2006
participation in the plans was at each employees election
and Company contributions to these plans were based on a
percentage of employee contributions. Effective January 1,
2007, participation is via automatic enrollment; employees may
elect to opt out of the plan. Company contributions to the plan
are now based on employees age and service as well as a
percentage of employee contributions. Effective January 1,
2009, the Company froze the Company match of Federal Signal
employees 401k contribution to the plans.
The cost of these plans during each of the three years in the
period ended December 31, 2009, was $4.8 million in
2009, $8.2 million in 2008 and $9.9 million in 2007.
Prior to September 30, 2003, the Company also provided
medical benefits to certain eligible retired employees. These
benefits were funded when the claims were incurred. Participants
generally became eligible for these benefits at age 60
after completing at least fifteen years of service. The plan
provided for the payment of specified percentages of medical
expenses reduced by any deductible and payments made by other
primary group coverage and government programs. Effective
September 30, 2003, the Company amended the retiree medical
plan and effectively canceled coverage for all eligible active
employees except for retirees and a limited group that qualified
under a formula based on age and years of service. Accumulated
postretirement benefit liabilities of $1.4 million and
$1.7 million at December 31, 2009 and 2008,
respectively, were fully accrued. The net periodic
postretirement benefit costs have not been significant during
the three-year period ended December 31, 2009.
|
|
NOTE 8
|
DERIVATIVE
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
|
In March 2008, the FASB amended and revised existing financial
statement disclosure requirements related to derivative
instruments and hedging activities. The requirements enhance
disclosures for derivative instruments, including those used in
hedging activities. The Company adopted the requirements on
January 1, 2009 and the required disclosures are included
herein.
At December 31, 2009, the Company was party to interest
rate swap agreements with financial institutions in which the
Company pays interest at a fixed rate and receives interest at
variable LIBOR rates. These derivative instruments terminate in
2010. These interest rate swap agreements are designated as cash
flow hedges.
The Company manages the volatility of cash flows caused by
fluctuations in currency rates by entering into foreign exchange
forward contracts and options. These derivative instruments may
be designated as cash flow hedges that hedge portions of the
Companys anticipated third-party purchases and forecast
sales
F-23
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
denominated in foreign currencies. The Company also enters into
foreign exchange contracts that are not intended to qualify for
hedge accounting, but are intended to offset the effect on
earnings of foreign currency movements on short and long term
intercompany transactions. Gains and losses on these derivative
instruments are recorded through earnings.
For assets and liabilities measured at fair value on a recurring
basis, the Company uses an income approach to value the assets
and liabilities for outstanding derivative contracts which
include interest rate swap and foreign currency forward
contracts. The income approach consists of a discounted cash
flow model that takes into account the present value of future
cash flows under the terms of the contracts using current market
information as of the reporting date, such as prevailing
interest rates and foreign currency spot and forward rates. The
following table provides a summary of the fair values of assets
and liabilities ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
1.0
|
|
|
$
|
|
|
|
$
|
1.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008
|
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
4.4
|
|
|
$
|
|
|
|
$
|
4.4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
10.0
|
|
|
$
|
|
|
|
$
|
10.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
Markets for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$5.1
|
|
$
|
|
|
|
$
|
5.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of the Companys derivative instruments was
recorded as follows at December 31, 2009. ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
December 31, 2009
|
|
|
December 31, 2009
|
|
|
|
Balance Sheet
|
|
|
Fair
|
|
|
Balance Sheet
|
|
|
Fair
|
|
|
|
Location
|
|
|
Value
|
|
|
Location
|
|
|
Value
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
$
|
0.5
|
|
Foreign exchange
|
|
|
Other current assets
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
December 31, 2008
|
|
|
December 31, 2008
|
|
|
|
Balance Sheet
|
|
Fair
|
|
|
Balance Sheet
|
|
Fair
|
|
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
|
Interest rate contracts
|
|
Deferred charges and
other assets
|
|
$
|
1.1
|
|
|
Other long-term
liabilities
|
|
$
|
1.4
|
|
Foreign exchange
|
|
Other current assets
|
|
|
1.6
|
|
|
Other current liabilities
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
2.7
|
|
|
|
|
|
1.9
|
|
Derivatives not designated as hedging instruments;
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Deferred charges and
other assets
|
|
|
|
|
|
Other long-term
liabilities
|
|
|
0.7
|
|
Foreign exchange
|
|
Accounts receivable, net
|
|
|
1.7
|
|
|
Other current liabilities
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
1.7
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
4.4
|
|
|
|
|
$
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The effect of derivative instruments on the condensed
consolidated statement of operations for the year ended
December 31, 2009, was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss)
|
|
|
|
Amount of Gain/(Loss)
|
|
|
Location of Gain/(Loss)
|
|
Reclassified from
|
|
Derivatives in
|
|
Recognized in OCI
|
|
|
Reclassified from
|
|
Accumulated OCI
|
|
Cash Flow Hedging
|
|
on Derivative
|
|
|
Accumulated OCI into
|
|
into Income
|
|
Relationships
|
|
(Effective Portion)
|
|
|
Income (Effective Portion)
|
|
(Effective Portion)
|
|
|
Interest rate contracts
|
|
$
|
(0.4
|
)
|
|
Interest expense
|
|
$
|
0.2
|
|
Foreign exchange
|
|
|
|
|
|
Net sales
|
|
|
0.5
|
|
Foreign exchange
|
|
|
0.1
|
|
|
Other income (expense), net
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(0.3
|
)
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The location and amount of gain (loss) recognized in income on
derivatives not designated as hedging instruments are as follows
for the year ended December 31, 2009 ($ in millions):
|
|
|
|
|
|
|
|
|
Location in Consolidated
|
|
Amount of Gain
|
|
|
|
Statement of Operations
|
|
(Loss) Recognized
|
|
|
Interest rate swaps
|
|
Interest expense
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Other (income) expense, net
|
|
|
1.5
|
|
|
|
|
|
|
|
|
Total gain (loss)
|
|
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2008, accumulated other
comprehensive loss associated with interest rate swaps and
foreign exchange contracts qualifying for hedge accounting
treatment was $0.7 million and $0.9 million,
respectively, net of income tax effects. The Company expects
$0.9 million of pre-tax net loss on cash flow hedges that
are reported in accumulated other comprehensive loss as of
December 31, 2009, to be reclassified into earnings within
the next 12 months as the respective hedged transactions
affect earnings.
The following table summarizes the carrying amounts and fair
values of the Companys financial instruments at December
31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Notional
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Short-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12.6
|
|
|
$
|
12.6
|
|
Long-term debt*
|
|
|
204.1
|
|
|
|
205.0
|
|
|
|
270.4
|
|
|
|
273.7
|
|
Fair value swaps
|
|
|
|
|
|
|
|
|
|
|
50.0
|
|
|
|
1.7
|
|
Cash flow swaps
|
|
|
70.0
|
|
|
|
(0.5
|
)
|
|
|
60.0
|
|
|
|
(2.7
|
)
|
Foreign exchange contracts
|
|
|
24.1
|
|
|
|
(0.5
|
)
|
|
|
59.2
|
|
|
|
0.3
|
|
|
|
|
* |
|
Long term debt includes financial service borrowings for all
periods presented, which is included in discontinued operations. |
The carrying value of short-term debt approximates fair value
due to its short maturity. The fair value of long-term debt is
based on interest rates that are currently available to us for
issuance of debt with similar terms and remaining maturities.
F-26
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the Companys money market
accounts in a three-tier fair value hierarchy as of December 31
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Cash equivalents
|
|
$
|
4.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4.5
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4.5
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
|
NOTE 9
|
STOCK-BASED
COMPENSATION
|
The Companys stock benefit plans, approved by the
Companys shareholders, and administered by the
Compensation and Benefits Committee of the Board of Directors of
the Company, provides for the grant of incentive and
non-incentive stock options, restricted stock and other
stock-based awards or units to key employees and directors. The
plans, as amended, authorize the grant of up to 4.0 million
shares or units through April 2015. These share or unit amounts
exclude amounts that were issued under predecessor plans.
Stock options grade vest equally over the three years from the
date of the grant. The cost of stock options, based on the fair
market value of the shares on the date of grant, is being
charged to expense over the respective vesting periods. Stock
options normally become exercisable at a rate of one-third
annually and in full on the third anniversary date. All options
and rights must be exercised within ten years from date of
grant. At the Companys discretion, vested stock option
holders are permitted to elect an alternative settlement method
in lieu of purchasing common stock at the option price. The
alternative settlement method permits the employee to receive,
without payment to the Company, cash, shares of common stock or
a combination thereof equal to the excess of market value of
common stock over the option purchase price. The Company intends
to settle all such options in common stock.
The weighted average fair value of options granted during 2009,
2008 and 2007 was $2.00, $3.60, and $5.68, respectively. The
fair value of each option grant was estimated using the
Black-Scholes option pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Dividend yield
|
|
|
3.7
|
%
|
|
|
1.7
|
%
|
|
|
1.7
|
%
|
Expected volatility
|
|
|
40
|
%
|
|
|
33
|
%
|
|
|
31
|
%
|
Risk free interest rate
|
|
|
2.2
|
%
|
|
|
3.2
|
%
|
|
|
4.4
|
%
|
Weighted average expected option life in years
|
|
|
6.5
|
|
|
|
6.4
|
|
|
|
7.0
|
|
The expected life of options represents the weighted average
period of time that options granted are expected to be
outstanding giving consideration to vesting schedules and the
Companys historical exercise patterns. The risk-free
interest rate is based on the U.S. Treasury yield curve in
effect at the time of the grant for periods corresponding with
the expected life of the options. Expected volatility is based
on historical volatilities of the Companys common stock.
Dividend yields are based on historical dividend payments.
F-27
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock option activity for the three years ended
December 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Shares
|
|
|
Weighted Average Exercise Price
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
2.3
|
|
|
|
2.4
|
|
|
|
2.6
|
|
|
$
|
16.20
|
|
|
$
|
17.47
|
|
|
$
|
18.15
|
|
Granted
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
6.74
|
|
|
|
11.13
|
|
|
|
15.69
|
|
Cancelled or expired
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
17.00
|
|
|
|
16.00
|
|
|
|
19.67
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
15.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
2.1
|
|
|
|
2.3
|
|
|
|
2.4
|
|
|
$
|
13.60
|
|
|
$
|
16.20
|
|
|
$
|
17.47
|
|
Exercisable at end of year
|
|
|
1.3
|
|
|
|
1.6
|
|
|
|
1.5
|
|
|
$
|
16.35
|
|
|
$
|
17.68
|
|
|
$
|
18.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information concerning stock
options outstanding as of December 31, 2009 under all plans:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
Range of Exercise Prices
|
|
Shares
|
|
|
Remaining Life
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
(In millions)
|
|
|
(In years)
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
$5.00 -$ 7.59
|
|
|
0.4
|
|
|
|
9.1
|
|
|
$
|
6.69
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
7.60 - 11.00
|
|
|
0.4
|
|
|
|
7.9
|
|
|
|
10.47
|
|
|
|
0.1
|
|
|
|
10.56
|
|
|
|
|
|
11.01 - 15.00
|
|
|
0.2
|
|
|
|
7.6
|
|
|
|
13.76
|
|
|
|
0.1
|
|
|
|
13.30
|
|
|
|
|
|
15.01 - 17.00
|
|
|
0.8
|
|
|
|
3.7
|
|
|
|
16.15
|
|
|
|
0.8
|
|
|
|
16.15
|
|
|
|
|
|
17.01 - 21.00
|
|
|
0.2
|
|
|
|
2.7
|
|
|
|
18.92
|
|
|
|
0.2
|
|
|
|
18.92
|
|
|
|
|
|
21.01 - 26.13
|
|
|
0.1
|
|
|
|
1.5
|
|
|
|
22.42
|
|
|
|
0.1
|
|
|
|
22.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
5.7
|
|
|
$
|
13.60
|
|
|
|
1.3
|
|
|
$
|
16.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The exercise price of stock options outstanding and exercisable
at December 31, 2009 exceeded the market value and
therefore, the aggregate intrinsic value was near zero. The
closing price on December 31, 2009 was $6.02.
Restricted stock awards are granted to employees at no cost.
Through 2004, these awards primarily vested at the rate of 25%
annually commencing one year from the date of award, provided
the recipient was still employed by the Company on the vesting
date. Beginning in 2005, awards primarily cliff vest at the
third anniversary from the date of award, provided the recipient
is still employed by the Company on the vesting date. The cost
of restricted stock awards, based on the fair market value at
the date of grant, is being charged to expense over the
respective vesting periods. The following table summarizes
restricted stock grants for the twelve month period ended
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
(Shares in Millions)
|
|
Restricted Shares
|
|
|
Price per Share
|
|
|
Outstanding and non-vested at December 31, 2008
|
|
|
0.6
|
|
|
$
|
13.87
|
|
Granted
|
|
|
0.3
|
|
|
|
6.70
|
|
Vested
|
|
|
(0.2
|
)
|
|
|
17.07
|
|
Cancelled
|
|
|
(0.1
|
)
|
|
|
11.17
|
|
|
|
|
|
|
|
|
|
|
Outstanding and non-vested at December 31, 2009
|
|
|
0.6
|
|
|
$
|
10.09
|
|
|
|
|
|
|
|
|
|
|
F-28
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total compensation expense related to all share-based
compensation plans was $3.1 million, $2.9 million, and
$3.5 million for the years ended December 31, 2009,
2008 and 2007, respectively. Also, as of December 31, 2009,
the total remaining unrecognized compensation cost related to
awards of stock options amounted to $1.1 million, which
will be amortized over the weighted-average period of
approximately 18 months.
Beginning in 2008, the Company established a long term incentive
plan for executive officers under which awards thereunder are
classified as equity in accordance with ASC Topic 718,
Compensation Stock Compensation
(SFAS 123(R)). The ultimate payment of the performance
shares units will be based on the Companys stock
performance as compared to the stock performance of a peer
group. Compensation expense for the stock performance portion of
the plan is based on the fair value of the plan that is
determined on the day the plan is established. The fair value is
calculated using a Monte Carlo simulation model. The total
compensation expense for these awards is being amortized over a
three-year service period. Compensation expense relating to
these awards included in the Consolidated Statement of
Operations for 2009 was $0.4 million. As of
December 31, 2009, the unrecognized compensation cost
relating to these plans was $0.7 million, which will be
amortized over the remaining requisite service period.
|
|
NOTE 10
|
SHAREHOLDERS
EQUITY
|
The Companys board of directors has the authority to issue
90.0 million shares of common stock at a par value of $1
per share. The holders of common stock (i) may receive
dividends subject to all of the rights of the holders of
preference stock, (ii) shall be entitled to share ratably
upon any liquidation of the Company in the assets of the
Company, if any, remaining after payment in full to the holders
of preference stock and (iii) receive one vote for each
common share held and shall vote together share for share with
the holders of voting shares of preference stock as one class
for the election of directors and for all other purposes. The
Company has 49.6 million and 49.3 million common
shares issued as of December 31, 2009 and 2008,
respectively. Of those amounts 48.8 million and
47.4 million common shares were outstanding as of
December 31, 2009 and 2008, respectively.
The Companys board of directors is also authorized to
provide for the issuance of 0.8 million shares of
preference stock at a par value of $1 per share. The authority
of the board of directors includes, but is not limited to, the
determination of the dividend rate, voting rights, conversion
and redemption features and liquidation preferences. The Company
has not issued any preference stock as of December 31, 2009.
On December 9, 2009, the Company acquired all voting equity
interests of Diamond Consulting Services Ltd. (DCS) for total
consideration of approximately $13.5 million in cash and
deferred payments in future years of up to $3.2 million.
DCS specializes in vehicle classification systems for tolling
and other Intelligent Transportation Systems (ITS). The
acquisition supports the Companys long-term strategy by
creating growth opportunities and revenue synergies. The
December 31, 2009 balance sheet and statement of operations
are included in the Safety and Security Systems Segment. Pro
forma financial information for the acquisition has not been
presented as the results are immaterial to the consolidated and
segment financial statements for all periods presented.
The preliminary fair values assigned to the net assets acquired
resulted in approximately $9.5 million of goodwill and
approximately $7.0 million of other intangible assets. None
of the goodwill is deductible for tax purposes. The Company
believes that the information used in the determination of the
preliminary fair values is reasonable, however, the Company is
waiting on additional information necessary to finalize those
fair values. The Company expects to finalize the valuation and
complete the purchase price allocation by the end of the first
quarter of 2010.
F-29
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 12
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
Goodwill and other intangible assets deemed to have indefinite
lives are not amortized, but are subject to annual impairment
tests. Other intangible assets are amortized over their useful
lives.
Changes in the carrying amount of goodwill for the years ended
December 31, 2009 and 2008, by operating segment, were as
follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
|
|
|
Fire
|
|
|
Safety
|
|
|
|
|
|
|
Solutions
|
|
|
Rescue
|
|
|
Security
|
|
|
Total
|
|
|
December 31, 2007
|
|
$
|
120.5
|
|
|
$
|
35.5
|
|
|
$
|
164.2
|
|
|
$
|
320.2
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
0.3
|
|
Translation
|
|
|
(0.2
|
)
|
|
|
(2.5
|
)
|
|
|
(14.2
|
)
|
|
|
(16.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
120.3
|
|
|
|
33.0
|
|
|
|
150.3
|
|
|
|
303.6
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
|
|
9.5
|
|
Translation
|
|
|
0.1
|
|
|
|
1.7
|
|
|
|
4.7
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
120.4
|
|
|
$
|
34.7
|
|
|
$
|
164.5
|
|
|
$
|
319.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company tests its goodwill annually for impairment in the
fourth quarter or earlier if impairment indicators exist in
accordance with ASC Topic 350 Intangibles
Goodwill and Other. The Company performed this test in
2009 and determined that there was no impairment. The Company
determined the fair value of each reporting unit In accordance
with ASC Topic 820 Fair Value Measurements and
Disclosures. See Note 11 for a discussion of goodwill
additions as a result of the acquisition made in the year ended
December 31, 2009.
OTHER
INTANGIBLE ASSETS
The carrying value of other intangible assets is impacted by
changes in foreign currency exchange rates. In 2009, the Company
acquired intangible assets through the acquisition of DCS. See
Note 11 for a discussion of intangible additions as a
result of the acquisition made in the year ended
December 31, 2009. Following are the carrying amount and
accumulated amortization of these assets as of December 31 ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
(Years)
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Definite lived (amortizable):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed software
|
|
|
6
|
|
|
$
|
25.2
|
|
|
$
|
(17.0
|
)
|
|
$
|
8.2
|
|
|
$
|
24.6
|
|
|
$
|
(14.1
|
)
|
|
$
|
10.5
|
|
Patents
|
|
|
5-10
|
|
|
|
0.7
|
|
|
|
(0.5
|
)
|
|
|
0.2
|
|
|
|
0.6
|
|
|
|
(0.4
|
)
|
|
|
0.2
|
|
Customer relationships
|
|
|
5-10
|
|
|
|
19.0
|
|
|
|
(4.2
|
)
|
|
|
14.8
|
|
|
|
15.0
|
|
|
|
(2.3
|
)
|
|
|
12.7
|
|
Technology
|
|
|
10
|
|
|
|
5.6
|
|
|
|
(1.2
|
)
|
|
|
4.4
|
|
|
|
4.5
|
|
|
|
(0.6
|
)
|
|
|
3.9
|
|
Other
|
|
|
3
|
|
|
|
1.8
|
|
|
|
(1.1
|
)
|
|
|
0.7
|
|
|
|
1.8
|
|
|
|
(0.8
|
)
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.3
|
|
|
|
(24.0
|
)
|
|
|
28.3
|
|
|
|
46.5
|
|
|
|
(18.2
|
)
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
|
|
|
|
|
24.4
|
|
|
|
|
|
|
|
24.4
|
|
|
|
19.5
|
|
|
|
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
76.7
|
|
|
$
|
(24.0
|
)
|
|
$
|
52.7
|
|
|
$
|
66.0
|
|
|
$
|
(18.2
|
)
|
|
$
|
47.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the years ended December 31, 2009,
2008 and 2007 totaled $5.8 million, $5.2 million and
$4.2 million, respectively. The Company estimates that the
aggregate amortization expense
F-30
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
will be $5.2 million in 2010, $5.3 million in 2011,
$4.2 million in 2012, $2.7 million in 2013,
$2.3 million in 2014 and $8.6 million thereafter.
Actual amounts of amortization expense may differ from estimated
amounts due to additional intangible asset acquisitions, changes
in foreign currency exchange rates, impairment of intangible
assets, accelerated amortization of intangible assets and other
events.
|
|
NOTE 13
|
DISCONTINUED
OPERATIONS
|
The following table presents the operating results of the
Companys discontinued operations for the three-year period
ended December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Pauluhn (SSG Segment)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
17.3
|
|
|
$
|
25.9
|
|
|
$
|
26.7
|
|
Costs and expenses
|
|
|
(13.9
|
)
|
|
|
(20.6
|
)
|
|
|
(21.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3.4
|
|
|
|
5.3
|
|
|
|
5.5
|
|
Income tax (expense)
|
|
|
(1.2
|
)
|
|
|
(1.8
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
2.2
|
|
|
$
|
3.5
|
|
|
$
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RAVO (ESG Segment)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
28.2
|
|
|
$
|
53.9
|
|
|
$
|
52.7
|
|
Costs and expenses
|
|
|
(27.4
|
)
|
|
|
(52.7
|
)
|
|
|
(52.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
0.8
|
|
|
|
1.2
|
|
|
|
0.7
|
|
Income tax (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
0.8
|
|
|
$
|
1.2
|
|
|
$
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E-ONE (Fire Rescue Segment)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
157.1
|
|
|
$
|
201.3
|
|
Costs and expenses
|
|
|
|
|
|
|
(168.2
|
)
|
|
|
(226.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
|
|
|
(11.1
|
)
|
|
|
(25.6
|
)
|
Income tax (expense) benefit
|
|
|
(0.7
|
)
|
|
|
4.9
|
|
|
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(0.7
|
)
|
|
$
|
(6.2
|
)
|
|
$
|
(15.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Die and Mold Operations (Tool Segment)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
39.7
|
|
|
$
|
119.3
|
|
Costs and expenses
|
|
|
|
|
|
|
(39.2
|
)
|
|
|
(112.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
0.5
|
|
|
|
6.8
|
|
Income tax (expense)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations
|
|
$
|
|
|
|
$
|
(0.2
|
)
|
|
$
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
0.2
|
|
|
$
|
4.3
|
|
|
$
|
7.4
|
|
Costs and expenses
|
|
|
(0.4
|
)
|
|
|
(5.7
|
)
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(0.2
|
)
|
|
|
(1.4
|
)
|
|
|
(0.8
|
)
|
Income tax benefit
|
|
|
0.1
|
|
|
|
1.7
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations
|
|
$
|
(0.1
|
)
|
|
$
|
0.3
|
|
|
$
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refuse and Cutting Tool Operations (ESG and Tool Segments)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.0
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Income tax benefit (expense)
|
|
|
|
|
|
|
1.9
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
|
|
|
$
|
1.9
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On November 30, 2009, the Company sold substantially all of
the assets of Pauluhn, located in Pearland, Texas, for
$35.0 million of which $4.2 million is expected to be
received in 2010, subject to an initial working capital
adjustment. The results of Pauluhns operations were
previously included within the Safety and Security Systems
Group. Pauluhn provided marine, offshore and industrial lighting
products with innovative solutions for hazardous locations and
corrosive environments. In association with the sale, the
Company recognized a gain on disposal of discontinued operations
of Pauluhn of $14.3 million at December 31, 2009,
which included a gain of $1.8 million transferred from
cumulative translation adjustments. The gain included costs
associated with the sale of $1.1 million and the write-off
of $18.3 million of goodwill of the Safety and Security
Systems Group attributable to Pauluhn. Proceeds from the sale
were used to pay down debt and fund core operations.
In accordance with GAAP, the goodwill attributable to Pauluhn
was determined based on its fair value in comparison to the fair
value of the remaining businesses with the Safety and Security
Systems Group excluding Federal APD, a business that represents
its own reporting unit. The sale price of $35.0 million
represented the fair value of Pauluhn, which was 10.4% of the
fair value of the entire Safety and Security Systems Group
excluding Federal APD, based on a discounted cash flow of the
Safety and Security Systems Groups remaining businesses.
This 10.4% was then applied to the Groups goodwill balance
of $175.1 million to derive the goodwill attributable to
Pauluhn of $18.2 million.
On July 16, 2009, the Company sold 100% of the shares of
its European sweeper business, Ravo Holdings B.V.,
(Ravo) located in the Netherlands for
8.5 million, or approximately $12.1 million. The
Ravo businesses were classified as discontinued operations as of
the second quarter of 2009. The results of Ravos
operations were previously included within the Environmental
Solutions Group. In association with this sale, the Company
recognized a loss on disposal of discontinued operations of Ravo
of $11.3 million at December 31, 2009. The loss
includes a write-down of $4.9 million to reflect the fair
value of the net assets sold, costs associated with the sale of
$0.2 million, a gain of $0.3 million transferred from
cumulative translation adjustments, and the write-off of
$6.2 million of goodwill of the Environmental Solutions
Group attributable to Ravo. Proceeds from the sale were used to
pay down debt and fund core operations.
In accordance with GAAP, the goodwill attributable to Ravo was
determined based on its fair value in comparison to the fair
value of the remaining businesses within the Environmental
Solutions Group. The sale price of $12.1 million
represented the fair value of Ravo, which was 5% of the fair
value of the entire Environmental Solutions Group, as the
remaining businesses are more profitable and have greater
earnings
F-32
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
potential than Ravo. This 5% was then applied to the
Groups goodwill balance of $126.4 million to derive
the goodwill attributable to Ravo of $6.2 million.
All of the Companys
E-ONE
businesses were discontinued in 2008 leaving just the
Companys Bronto businesses within its Fire Rescue segment.
On August 5, 2008, the Company sold 100% of the shares of
E-ONE, Inc.
located in Ocala, Florida. The after-tax loss on the sale for
the year ended December 31, 2008 totaled
$85.0 million, which related primarily to after-tax
impairment charges that reflect the fair value of the net assets
and the impairment of $6.2 million of goodwill attributable
to the E-ONE
business. The goodwill of
E-ONE was
based on its fair value in comparison to the fair value of the
Bronto businesses. The sale price of
E-ONE, which
was representative of its fair value, was approximately 14% of
the Fire Rescue Groups fair value. Applying the 14% to the
Fire Rescue Groups goodwill yielded goodwill attributable
to E-ONE of
$6.2 million. The Bronto businesses fair value was
significantly greater than
E-ONEs
fair value since Bronto was profitable and growing, while
E-ONE was
unprofitable and losing market share.
The Company provided its domestic municipal customers with the
opportunity to finance purchases through leasing arrangements
with the Company. Following the sale of the
E-ONE
business, the Company elected to discontinue its financial
services activities through divestiture of this leasing
portfolio. In 2008, the Company sold its municipal leasing
portfolio to Banc of America Public Capital Corp. in several
tranches for a gain of $0.3 million. Proceeds from the sale
of the portfolio were used to repay debt associated with these
assets. In October, 2008, the Company discontinued entirely its
practice of providing lease financing to its customers and all
other financial service activities, principally its dealer floor
planning.
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 $65.5 million.
The after-tax loss on disposal for the year ended
December 31, 2008 was $35.3 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 also decided to close the Dayton Hong Kong operation
incurring a $4.6 million pre-tax impairment charge related
to this business for the year ended December 31, 2008. 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 were used to repay debt.
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 which were part of the Tool Group for
$65.4 million. There was a net gain on disposal of
discontinued operations of $24.6 million for the year ended
December 31, 2007. These operations produced industrial
cutting tools, engineered components and advanced materials
consumed in production processes. No asset impairment charges
were recorded in conjunction with the disposal.
In December 2005, the Company determined that its investment in
the Refuse business operating under the Leach brand name was no
longer strategic. The majority of the assets of the business
have been sold since that time and the operation has been shut
down. For the years ended December 31, 2008 and 2007, the
Company recorded an after-tax gain of $2.2 million and
$0.5 million, respectively, primarily related to a revision
in the estimate of product liability reserves.
F-33
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows an analysis of assets and liabilities
of discontinued operations as of December 31:
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2009
|
|
|
2008
|
|
|
Current assets
|
|
$
|
1.4
|
|
|
$
|
28.5
|
|
Properties and equipment
|
|
|
|
|
|
|
3.1
|
|
Long-term assets
|
|
|
4.5
|
|
|
|
30.1
|
|
Financial service assets, net
|
|
|
2.6
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
Total assets of discontinued operations
|
|
$
|
8.5
|
|
|
$
|
67.3
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
0.8
|
|
|
$
|
18.3
|
|
Long-term liabilities
|
|
|
10.8
|
|
|
|
15.6
|
|
Financial service liabilities
|
|
|
2.5
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of discontinued operations
|
|
$
|
14.1
|
|
|
$
|
39.1
|
|
|
|
|
|
|
|
|
|
|
Included in long-term liabilities at December 31, 2009 and
2008 is $7.0 million and $7.7 million, respectively,
relating to estimated product liability obligations of the North
American refuse truck body business.
In July 2009, the Company began an initiative to consolidate a
number of manufacturing and distribution operations into the
Companys University Park, IL plant. The restructuring
actions known collectively as the Footprint restructuring plan
(Footprint) include termination and benefit costs
for employees that will be voluntarily or involuntarily
terminated in the fourth quarter of 2009 and the first quarter
of 2010, as well as costs associated with closing facilities and
relocating operations and personnel. The Company expects all of
these actions will be completed by July 31, 2010.
The following table summarizes the 2009 Footprint restructuring
charges by segment and the total charges estimated to be
incurred ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
Charges at
|
|
|
|
|
|
|
December 31,
|
|
|
Estimate of
|
|
Group
|
|
2009
|
|
|
Total Charges
|
|
|
Safety and Security
|
|
$
|
1.4
|
|
|
$
|
2.1
|
|
Environmental Solutions
|
|
|
0.1
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.5
|
|
|
$
|
2.9
|
|
|
|
|
|
|
|
|
|
|
The following presents an analysis of the Footprint
restructuring reserves included in other accrued liabilities as
of December 31, 2009 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Other
|
|
|
Total
|
|
|
Balance as of December 31, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Charges to selling, general and administrative expenses
|
|
|
1.1
|
|
|
|
0.4
|
|
|
|
1.5
|
|
Cash payments
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
0.7
|
|
|
$
|
0.4
|
|
|
$
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2008, the Company announced an objective to reduce
salaried personnel costs by 13% in 2009 when compared to 2008
levels. This cost reduction was to affect not only salaries,
benefits and equity
F-34
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
compensation, but also contracted services and travel expenses.
A process was created to review every organizational chart and
employee reporting relationship within the Company with the
purpose of increasing spans of control of each manager and to
better improve management oversight. In addition, certain
contracted services were reviewed for termination. A charge of
$2.7 million was recorded in the fourth quarter of 2008 to
reflect severance and other costs associated with a salaried
employee reduction in force and contract terminations. There
were no meaningful changes to the estimate of charges at
December 31, 2009.
The following presents an analysis of the restructuring reserves
relating to prior year initiatives as of December 31, 2009
and 2008 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Other
|
|
|
Total
|
|
|
Balance as of December 31, 2008
|
|
$
|
2.0
|
|
|
$
|
0.6
|
|
|
$
|
2.6
|
|
Charges to selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(1.9
|
)
|
|
|
(0.5
|
)
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 15
|
LEGAL
PROCEEDINGS
|
The Company is subject to various claims, other pending and
possible legal actions for product liability and other damages
and other matters arising out of the conduct of the
Companys business. The Company believes, based on current
knowledge and after consultation with counsel, that the outcome
of such claims and actions will not have an adverse effect on
the Companys consolidated financial position or results of
operations. However, in the event of unexpected future
developments, it is possible that the ultimate resolution of
such matters, if unfavorable, could have a material adverse
effect on the Companys results of operations.
The Company has been sued by firefighters seeking damages
claiming that exposure to the Companys sirens has impaired
their hearing and that the sirens are therefore defective. There
were 33 cases filed during the period
1999-2004,
involving a total of 2,443 plaintiffs 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. After the first trial
concluded, another 63 cases were dismissed, all during 2008. An
additional 40 firefighter plaintiffs were selected for trial to
begin on January 5, 2009. Plaintiffs counsel later
moved to reduce the number of plaintiffs from 40 to 9. Trial of
these nine plaintiffs began on February 6, 2009 and
concluded on February 20, 2009 with a verdict returned
against the Company and for the plaintiffs in varying amounts
totaling $0.4 million. The Company is appealing this
verdict. All trials previously scheduled during 2009 and 2010
are stayed pending the result of this appeal. Since
February 20, 2009, the Company is aware of six additional
cases have been filed in Cook County, involving 299 plaintiffs.
The Company has also been sued on this issue outside of the Cook
County venue. Federal Signal is currently a defendant in 57
hearing loss suits in Pennsylvania, involving a total of 57
plaintiffs. Fifty-four of these lawsuits have been filed since
February 20, 2009. Trial of one of these cases is currently
scheduled to begin on February 16, 2010 while a
consolidated trial of two cases is scheduled to begin on
March 15, 2010. Another four trials, involving 10
plaintiffs each, are scheduled during the second and third
quarters of 2010. Four cases in the Supreme Court of Kings
County, New York were dismissed on January 25, 2008 after
the court granted the Companys motion to dismiss which
eliminated all claims pending in New York. The court
subsequently denied reconsideration of its ruling. On appeal,
the Court affirmed the trial courts dismissal of the
cases. All plaintiffs who have filed hearing loss cases against
the Company in other jurisdictions have dismissed their claims.
Plaintiffs attorneys have threatened to file additional
lawsuits. The Company intends to vigorously defend all of these
lawsuits.
F-35
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Federal Signals ongoing negotiations with CNA over
insurance coverage on these claims have resulted in
reimbursements of a portion of the Companys defense costs.
In the year ended December 31, 2009, the Company recorded
$0.7 million of reimbursements from CNA as a reduction of
corporate operating expenses of which $0.6 million has been
received as of December 31, 2009. In the years ended
December 31, 2008 and 2007, the Company recorded
$1.7 million and $3.7 million respectively of CNA
reimbursements.
|
|
NOTE 16
|
SEGMENT
AND RELATED INFORMATION
|
The Company has three continuing operating segments as defined
under ASC Topic 280, Segment Reporting
(SFAS No. 131). Business units are organized under
each segment because they share certain characteristics, such as
technology, marketing, distribution and product application,
which create long-term synergies. The principal activities of
the Companys operating segments are as follows:
Information regarding the Companys discontinued operations
is included in Note 13 Discontinued Operations.
The segment information included herein has been reclassified to
reflect such discontinued operations.
Safety and Security Systems Safety and
Security Systems Group companies produce a variety of systems
for automated license plate recognition, campus and community
alerting, emergency vehicles, first responder interoperable
communications, industrial communications and command, municipal
networked security, vehicle classification, parking revenue and
access control for municipal, governmental and industrial
applications. Specific products include access control devices,
lightbars and sirens, public warning sirens, public safety
software and automated license plate recognition cameras. The
groups products are sold primarily to municipal,
industrial and governmental customers.
Fire Rescue Fire Rescue manufactures
articulated and telescopic aerial platforms for rescue and fire
fighting and for maintenance purposes. This group sells to
municipal and industrial fire services, civil defense
authorities, rental companies, electric utilities and industrial
customers.
Environmental Solutions Environmental
Solutions manufactures a variety of self-propelled street
cleaning vehicles, vacuum loader vehicles, municipal catch
basin/sewer cleaning vacuum trucks and water blasting equipment.
Environmental Solutions sells primarily to municipal and
government customers and industrial contractors.
Net sales by operating segment reflect sales of products and
services to external customers, as reported in the
Companys consolidated statements of operations.
Intersegment sales are insignificant. The Company evaluates
performance based on operating income of the respective segment.
Operating income includes all revenues, costs and expenses
directly related to the segment involved. In determining
operating segment income, neither corporate nor interest
expenses are included. Operating segment depreciation expense,
identifiable assets and capital expenditures relate to those
assets that are utilized by the respective operating segment.
Corporate assets consist principally of cash and cash
equivalents, short-term investments, notes and other receivables
and fixed assets. The accounting policies of each operating
segment are the same as those described in the summary of
significant accounting policies.
Revenues attributed to customers located outside of the
U.S. aggregated $333.7 million in 2009,
$352.9 million in 2008 and $318.9 million in 2007 of
which sales exported from the U.S. aggregated
$113.8 million, $110.8 million and
$116.4 million, respectively.
The Company invests in research to support development of new
products and the enhancement of existing products and services.
The Company believes this investment is important to maintain
and/or
enhance its leadership position in key markets. Expenditures for
research and development by the Company were approximately
$19.0 million in 2009, $20.9 million in 2008 and
$21.0 million in 2007.
F-36
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the Companys continuing operations by segment
for each of the three years in the period ended December 31 is
as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety and Security Systems
|
|
$
|
292.7
|
|
|
$
|
345.9
|
|
|
$
|
340.4
|
|
Fire Rescue
|
|
|
160.0
|
|
|
|
145.5
|
|
|
|
117.9
|
|
Environmental Solutions
|
|
|
299.8
|
|
|
|
387.6
|
|
|
|
396.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
752.5
|
|
|
$
|
879.0
|
|
|
$
|
854.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety and Security Systems
|
|
$
|
27.5
|
|
|
$
|
35.2
|
|
|
$
|
44.0
|
|
Fire Rescue
|
|
|
19.2
|
|
|
|
10.4
|
|
|
|
7.9
|
|
Environmental Solutions
|
|
|
14.9
|
|
|
|
34.9
|
|
|
|
37.9
|
|
Corporate expense
|
|
|
(28.6
|
)
|
|
|
(30.7
|
)
|
|
|
(21.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
33.0
|
|
|
|
49.8
|
|
|
|
68.7
|
|
Interest expense
|
|
|
(11.4
|
)
|
|
|
(15.3
|
)
|
|
|
(18.5
|
)
|
Gain (loss) on investment in joint venture (Environmental
Solutions Segment)
|
|
|
1.2
|
|
|
|
(13.0
|
)
|
|
|
(3.3
|
)
|
Other (expense) income
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
22.3
|
|
|
$
|
20.7
|
|
|
$
|
47.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety and Security Systems
|
|
$
|
8.1
|
|
|
$
|
9.0
|
|
|
$
|
8.0
|
|
Fire Rescue
|
|
|
1.9
|
|
|
|
1.4
|
|
|
|
1.3
|
|
Environmental Solutions
|
|
|
4.5
|
|
|
|
3.9
|
|
|
|
3.4
|
|
Corporate
|
|
|
0.8
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
15.3
|
|
|
$
|
14.9
|
|
|
$
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
Safety and Security Systems
|
|
$
|
324.4
|
|
|
$
|
312.5
|
|
Fire Rescue
|
|
|
140.5
|
|
|
|
141.0
|
|
Environmental Solutions
|
|
|
235.9
|
|
|
|
249.6
|
|
Corporate
|
|
|
35.6
|
|
|
|
68.6
|
|
|
|
|
|
|
|
|
|
|
Total assets of continuing operations
|
|
|
736.4
|
|
|
|
771.7
|
|
Assets of discontinued operations
|
|
|
8.5
|
|
|
|
67.3
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets
|
|
$
|
744.9
|
|
|
$
|
839.0
|
|
|
|
|
|
|
|
|
|
|
F-37
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety and Security Systems
|
|
$
|
2.7
|
|
|
$
|
4.5
|
|
|
$
|
4.4
|
|
Fire Rescue
|
|
|
2.2
|
|
|
|
8.5
|
|
|
|
4.6
|
|
Environmental Solutions
|
|
|
9.4
|
|
|
|
14.2
|
|
|
|
9.8
|
|
Corporate
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
14.6
|
|
|
$
|
28.0
|
|
|
$
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The segment information provided below is classified based on
geographic location of the Companys subsidiaries ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
418.8
|
|
|
$
|
526.1
|
|
|
$
|
535.9
|
|
Europe
|
|
|
299.5
|
|
|
|
323.1
|
|
|
|
282.2
|
|
Canada
|
|
|
34.2
|
|
|
|
29.8
|
|
|
|
36.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
752.5
|
|
|
$
|
879.0
|
|
|
$
|
854.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
207.2
|
|
|
$
|
257.8
|
|
|
|
|
|
Europe
|
|
|
239.3
|
|
|
|
172.4
|
|
|
|
|
|
Canada
|
|
|
9.2
|
|
|
|
13.5
|
|
|
|
|
|
Other
|
|
|
1.3
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
457.0
|
|
|
$
|
449.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 17
|
COMMITMENTS,
GUARANTEES AND FAIR VALUES OF FINANCIAL INSTRUMENTS
|
At December 31, 2009 and 2008, the Company had outstanding
standby letters of credit aggregating $33.3 million and
$33.8 million, respectively, principally to act as security
for retention levels related to casualty insurance policies and
to guarantee the performance of subsidiaries that engage in
export transactions to foreign governments and municipalities.
The Company issues product performance warranties to customers
with the sale of its products. The specific terms and conditions
of these warranties vary depending upon the product sold and
country in which the Company does business with warranty periods
generally ranging from six months to five years. The Company
estimates the costs that may be incurred under its basic limited
warranty and records a liability in the amount of such costs at
the time the sale of the related product is recognized. Factors
that affect the Companys warranty liability include the
number of units under warranty from time to time, historical and
anticipated rates of warranty claims and costs per claim. The
Company periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary.
F-38
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes in the Companys warranty liabilities for the years
ended December 31, 2009 and 2008 were as follows ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at January 1
|
|
$
|
5.8
|
|
|
$
|
5.1
|
|
Provisions to expense
|
|
|
9.4
|
|
|
|
8.7
|
|
Actual costs incurred
|
|
|
(9.0
|
)
|
|
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
6.2
|
|
|
$
|
5.8
|
|
|
|
|
|
|
|
|
|
|
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. These
transactions have been recorded as operating leases and
liabilities equal to the fair value of the guarantees were
recognized. The notional amounts of the residual value
guarantees were $0 million and $1.6 million as of
December 31, 2009 and 2008, respectively. No losses have
been incurred as of December 31, 2009. The guarantees
expired in 2009.
The Company has retained an environmental consultant to conduct
an environmental risk assessment at its Pearland, Texas
facility. The facility manufactured marine, offshore and
industrial lighting products operating within the Safety and
Securities Systems Group. While the Company has not completed
the risk assessment analysis, it appears probable the site will
require remediation. An undiscounted estimate of the range of
costs to remediate the site is $0.7 million to
$2.4 million, depending upon the remediation approach and
other factors. As of December 31, 2009, $0.7 million has
been recorded and is included in other accrued liabilities. The
Companys estimate may change in the near term as more
information becomes available; however the costs are not
expected to have a material adverse effect on the Companys
results of operations, financial position or liquidity.
|
|
NOTE 18
|
NEW
ACCOUNTING PRONOUNCEMENTS
|
In October, 2009, the FASB amended guidance relating to
multiple-deliverable revenue arrangements and certain
arrangements that include software elements. The revised
guidance requires entities to allocate revenue in an arrangement
using estimated selling prices of the delivered goods and
services based on a selling price hierarchy. The amendments
eliminate the residual method of revenue allocation and require
revenue to be allocated using the relative selling price method.
Tangible products are removed from the scope of software revenue
guidance and guidance is provided on determining whether
software deliverables in an arrangement that includes a tangible
product are covered by the scope of the software revenue
guidance. The amended guidance must be applied on a prospective
basis for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15,
2010, with early adoption permitted. The Company does not expect
the adoption of the revised guidance to have a material impact
on the Companys consolidated results of operations or
financial condition.
No other new accounting pronouncements issued or effective
during 2009 has had or is expected to have a material impact on
the Consolidated Financial Statements.
|
|
NOTE 19
|
SELECTED
QUARTERLY DATA (UNAUDITED
|
Effective January 1, 2004, the Company began reporting its
interim quarterly periods on a 13-week basis ending on a
Saturday with the fiscal year ending on December 31. For
convenience purposes, the Company uses March 31,
June 30, September 30 and December
31 to refer to its results of operations for the quarterly
periods ended. In 2009, the Companys interim quarterly
periods ended March 28, June 27, September 26 and
December 31 and in 2008, the Companys interim quarterly
periods ended March 29, June 28, September 27 and
December 31, respectively.
F-39
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the quarterly results of
operations, including income per share, for the Company for the
quarterly periods of fiscal 2009 and 2008. Restatements of
previously reported amounts represent discontinued operations as
described in Note 13 and a change in accounting method as
discussed in Notes 1 and 3 ($ in millions, except per share
amount).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarterly Period Ended
|
|
|
2009
|
|
2008
|
|
|
March 28
|
|
June 27
|
|
September 26
|
|
December 31
|
|
March 29
|
|
June 28
|
|
September 27
|
|
December 31
|
|
Net sales
|
|
$
|
184.7
|
|
|
$
|
198.8
|
|
|
$
|
162.7
|
|
|
$
|
206.3
|
|
|
$
|
207.9
|
|
|
$
|
232.9
|
|
|
$
|
206.3
|
|
|
$
|
231.9
|
|
Gross margin
|
|
|
46.6
|
|
|
|
52.0
|
|
|
|
40.6
|
|
|
|
54.4
|
|
|
|
54.4
|
|
|
|
62.0
|
|
|
|
54.4
|
|
|
|
64.6
|
|
Income from continuing operations
|
|
|
0.2
|
|
|
|
4.2
|
|
|
|
4.3
|
|
|
|
9.0
|
|
|
|
3.6
|
|
|
|
6.7
|
|
|
|
13.9
|
|
|
|
3.0
|
|
Gain (loss) from discontinued operations and disposal
|
|
|
0.8
|
|
|
|
(9.2
|
)
|
|
|
0.1
|
|
|
|
13.7
|
|
|
|
(88.3
|
)
|
|
|
(20.1
|
)
|
|
|
0.4
|
|
|
|
(14.2
|
)
|
Net income (loss)
|
|
|
1.0
|
|
|
|
(5.0
|
)
|
|
|
4.4
|
|
|
|
22.7
|
|
|
|
(84.7
|
)
|
|
|
(13.4
|
)
|
|
|
14.3
|
|
|
|
(11.2
|
)
|
Per share data diluted: Income from continuing
operations
|
|
$
|
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.18
|
|
|
$
|
0.08
|
|
|
$
|
0.14
|
|
|
$
|
0.29
|
|
|
$
|
0.06
|
|
Income (loss) from discontinued operations
|
|
|
0.02
|
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
0.28
|
|
|
|
(1.86
|
)
|
|
|
(0.42
|
)
|
|
|
0.01
|
|
|
|
(0.29
|
)
|
Net income (loss)
|
|
|
0.02
|
|
|
|
(0.10
|
)
|
|
|
0.09
|
|
|
|
0.46
|
|
|
|
(1.78
|
)
|
|
|
(0.28
|
)
|
|
|
0.30
|
|
|
|
(0.23
|
)
|
Dividends paid per share
|
|
|
0.06
|
|
|
|
0.06
|
|
|
|
0.06
|
|
|
|
0.06
|
|
|
|
0.06
|
|
|
|
0.06
|
|
|
|
0.06
|
|
|
|
0.06
|
|
Market price range per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
9.28
|
|
|
|
9.17
|
|
|
|
9.30
|
|
|
|
7.55
|
|
|
|
14.37
|
|
|
|
14.70
|
|
|
|
17.50
|
|
|
|
13.48
|
|
Low
|
|
|
3.73
|
|
|
|
4.93
|
|
|
|
6.76
|
|
|
|
5.43
|
|
|
|
9.10
|
|
|
|
11.53
|
|
|
|
10.91
|
|
|
|
5.10
|
|
The Company recorded $3.9 million of after-tax charges to
income from continuing operations in the quarter ended
December 31, 2008 associated with its investment in a joint
venture in China.
|
|
NOTE 20
|
SUBSEQUENT
EVENT
|
On January 13, 2010, the Company entered into a definitive
arrangement agreement (the Arrangement Agreement)
pursuant to which the Company will acquire all of the issued and
outstanding common shares of Sirit Inc., a corporation existing
under the laws of the Territory of Yukon, Canada
(Sirit), by way of a court approved plan of
arrangement under the Business Corporations Act (Ontario)
(the Arrangement) for cash consideration of CDN
$0.30 per share. In response to Sirits subsequent receipt
of an unsolicited and non-binding acquisition proposal, the
Company amended the Arrangement Agreement, most recently on
February 23, 2010 to increase the purchase price to CDN
$0.46 per share.
Under the amended Arrangement Agreement, at the effective time
of the Arrangement (i) Sirits shareholders (other
than those Sirit shareholders who properly exercise dissent
rights and are entitled to receive fair value for their Sirit
common shares) will receive CDN $0.46 per Sirit common share;
and (ii) holders of outstanding Sirit stock options having
an exercise price less than CDN $0.46 per share will be entitled
to receive an amount per Sirit stock option equal to the
difference between the CDN $0.46 and the exercise price in
respect of such Sirit stock option. The transaction has a total
equity value of approximately CDN $81.0 million (US
$78.0 million).
Certain executive officers, directors and shareholders of Sirit
owning approximately 28% of the outstanding common shares of
Sirit have entered into a voting and
lock-up
agreement with the Company under which they have agreed to vote
their shares in favor of the Arrangement.
F-40
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Arrangement Agreement, as amended, contains customary terms
and conditions for a transaction of this nature, including a
prohibition upon Sirit from soliciting or initiating any
discussion concerning any other business combination or similar
transaction, the right of the Company to match any unsolicited
superior proposal received by Sirit and a termination fee of CDN
$4.0 million payable to the Company by Sirit in certain
circumstances.
The closing of the Arrangement is subject to the satisfaction of
certain closing conditions, including, among others, obtaining
certain court approvals as well as the approval of Sirits
shareholders. For the Arrangement to proceed, a special
resolution approving the Arrangement must be approved by not
less than two-thirds of the votes cast by Sirits
shareholders. The transaction is not subject to financing. The
Company intends to finance the transaction through cash on hand
and existing bank lines of credit. The transaction is expected
to close during the first quarter of calendar year 2010.
Management has evaluated and disclosed, as required, any
subsequent events up to February 26, 2010, the date of the
filing of this report with the Securities and Exchange
Commission.
F-41
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
($ in millions)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12.3
|
|
|
$
|
21.1
|
|
Accounts receivable, net of allowances for doubtful accounts of
$2.3 million and $2.5 million, respectively
|
|
|
120.2
|
|
|
|
120.2
|
|
Inventories
|
|
|
115.8
|
|
|
|
112.1
|
|
Other current assets
|
|
|
27.1
|
|
|
|
26.0
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
275.4
|
|
|
|
279.4
|
|
Properties and equipment, net
|
|
|
65.8
|
|
|
|
65.5
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
376.7
|
|
|
|
319.6
|
|
Intangible assets, net
|
|
|
102.2
|
|
|
|
52.7
|
|
Deferred tax assets
|
|
|
14.7
|
|
|
|
17.5
|
|
Deferred charges and other assets
|
|
|
3.4
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
Total assets of continuing operations
|
|
|
838.2
|
|
|
|
736.4
|
|
Assets of discontinued operations, net
|
|
|
8.3
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
846.5
|
|
|
$
|
744.9
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
7.9
|
|
|
$
|
|
|
Current portion of long-term borrowings
|
|
|
42.1
|
|
|
|
41.9
|
|
Accounts payable
|
|
|
48.8
|
|
|
|
45.2
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
Compensation and withholding taxes
|
|
|
17.7
|
|
|
|
20.8
|
|
Customer deposits
|
|
|
12.1
|
|
|
|
10.4
|
|
Other
|
|
|
49.4
|
|
|
|
48.1
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
178.0
|
|
|
|
166.4
|
|
Long-term borrowings, less current portion
|
|
|
252.5
|
|
|
|
159.7
|
|
Long-term pension liabilities
|
|
|
39.3
|
|
|
|
39.6
|
|
Deferred gain
|
|
|
23.7
|
|
|
|
24.2
|
|
Other long-term liabilities
|
|
|
12.3
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of continuing operations
|
|
|
505.8
|
|
|
|
402.1
|
|
Liabilities of discontinued operations
|
|
|
12.9
|
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
518.7
|
|
|
|
416.2
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common stock, $1 par value per share, 90.0 million
shares authorized, 50.8 million and 49.6 million
shares issued, respectively
|
|
|
50.8
|
|
|
|
49.6
|
|
Capital in excess of par value
|
|
|
104.4
|
|
|
|
93.8
|
|
Retained earnings
|
|
|
233.8
|
|
|
|
240.4
|
|
Treasury stock, 0.9 million and 0.8 million shares at
cost, respectively
|
|
|
(15.8
|
)
|
|
|
(15.8
|
)
|
Accumulated other comprehensive loss
|
|
|
(45.4
|
)
|
|
|
(39.3
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
327.8
|
|
|
|
328.7
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
846.5
|
|
|
$
|
744.9
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
F-42
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
($ in millions, except per share data)
|
|
|
Net sales
|
|
$
|
166.6
|
|
|
$
|
184.7
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
(124.9
|
)
|
|
|
(138.1
|
)
|
Selling, general and administrative
|
|
|
(39.6
|
)
|
|
|
(42.3
|
)
|
Acquisition related costs
|
|
|
(2.6
|
)
|
|
|
|
|
Restructuring charges
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(0.8
|
)
|
|
|
4.3
|
|
Interest expense
|
|
|
(2.9
|
)
|
|
|
(3.3
|
)
|
Other expense, net
|
|
|
(0.9
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(4.6
|
)
|
|
|
|
|
Income tax benefit
|
|
|
1.4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(3.2
|
)
|
|
|
0.2
|
|
(Loss) gain from discontinued operations and disposal, net of
income tax expense of $0.1, and $0.4, respectively
|
|
|
(0.4
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3.6
|
)
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(0.06
|
)
|
|
$
|
|
|
(Loss) gain from discontinued operations and disposal
|
|
|
(0.01
|
)
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share
|
|
$
|
(0.07
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
49.2
|
|
|
|
47.9
|
|
Diluted
|
|
|
49.2
|
|
|
|
48.0
|
|
Cash dividends per share of common stock
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
See notes to condensed consolidated financial statements.
F-43
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Stock
|
|
|
Excess of
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Par
|
|
|
Par
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
Earnings
|
|
|
Stock
|
|
|
Loss
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Balance at December 31, 2009
|
|
$
|
49.6
|
|
|
$
|
93.8
|
|
|
$
|
240.4
|
|
|
$
|
(15.8
|
)
|
|
$
|
(39.3
|
)
|
|
$
|
328.7
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.6
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.2
|
)
|
|
|
(7.2
|
)
|
Unrealized losses on derivatives, net of tax expense of
$0.04 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Change in unrecognized losses related to pension benefit plans,
net of tax benefit of $0.5 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
1.2
|
|
Shares issued for acquisition
|
|
|
1.2
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.0
|
)
|
Share based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards and options
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
Excess tax benefit on share based payment
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
50.8
|
|
|
$
|
104.4
|
|
|
$
|
233.8
|
|
|
$
|
(15.8
|
)
|
|
$
|
(45.4
|
)
|
|
$
|
327.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
F-44
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
($ in millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3.6
|
)
|
|
$
|
1.0
|
|
Adjustments to reconcile net (loss) income to net cash (used
for) provided by operating activities:
|
|
|
|
|
|
|
|
|
Loss (gain) on discontinued operations and disposal
|
|
|
0.4
|
|
|
|
(0.8
|
)
|
Loss on joint venture
|
|
|
|
|
|
|
0.9
|
|
Depreciation and amortization
|
|
|
4.2
|
|
|
|
3.8
|
|
Stock-based compensation expense
|
|
|
1.5
|
|
|
|
1.1
|
|
Pension contributions
|
|
|
|
|
|
|
(0.5
|
)
|
Changes in other assets and liabilities, exclusive of the
effects of businesses acquired and disposed
|
|
|
(11.6
|
)
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by continuing operating activities
|
|
|
(9.1
|
)
|
|
|
6.7
|
|
Net cash (used for) provided by discontinued operating activities
|
|
|
(0.5
|
)
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by operating activities
|
|
|
(9.6
|
)
|
|
|
7.8
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchases of properties and equipment
|
|
|
(3.2
|
)
|
|
|
(3.9
|
)
|
Proceeds from sales of properties, plant and equipment
|
|
|
0.7
|
|
|
|
|
|
Payments for acquisitions, net of cash acquired
|
|
|
(97.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for continuing investing activities
|
|
|
(99.8
|
)
|
|
|
(3.9
|
)
|
Net cash provided by discontinued investing activities
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(99.8
|
)
|
|
|
(0.9
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Increase (decrease) in debt outstanding under revolving credit
facilities, net
|
|
|
96.2
|
|
|
|
(6.4
|
)
|
Proceeds on short-term borrowings
|
|
|
7.5
|
|
|
|
|
|
Payments on short-term borrowings
|
|
|
|
|
|
|
(11.4
|
)
|
Proceeds on long-term borrowings
|
|
|
|
|
|
|
6.3
|
|
Payments on long-term borrowings
|
|
|
(2.6
|
)
|
|
|
|
|
Cash dividends paid to shareholders
|
|
|
(3.0
|
)
|
|
|
(2.9
|
)
|
Other, net
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) continuing financing activities
|
|
|
98.1
|
|
|
|
(14.2
|
)
|
Net cash used for discontinued financing activities
|
|
|
(0.3
|
)
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
97.8
|
|
|
|
(20.6
|
)
|
Effects of foreign exchange rate changes on cash
|
|
|
2.8
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(8.8
|
)
|
|
|
(13.7
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
21.1
|
|
|
|
23.4
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
12.3
|
|
|
$
|
9.7
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
F-45
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
(unaudited)
The accompanying unaudited condensed consolidated financial
statements of Federal Signal Corporation and subsidiaries (the
Company) included herein have been prepared by the
Company 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 have been prepared in accordance with the
Companys accounting policies described in the Annual
Report on
Form 10-K
for the year ended December 31, 2009 and should be read in
conjunction with the consolidated financial statements and the
notes thereto.
In the opinion of the management of the Company, the information
contained herein reflects all adjustments necessary to present
fairly the Companys 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 month periods ended March 31, 2010
are not necessarily indicative of the results to be expected for
the full year of 2010.
The Company assessed events occurring subsequent to
March 31, 2010 through the date of the filing for potential
recognition and disclosure in the consolidated financial
statements. No events have occurred that would require
adjustment or disclosure in the consolidated financial
statements.
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 presentation, the Company uses
March 31, 2010 to refer to its financial
position as of April 3, 2010 and its results of operations
and cash flows for the 13-week period ended April 3, 2010.
Certain balances in 2009 have been reclassified to conform to
the 2010 presentation. Included with reclassifications are
restatements for discontinued operations.
In December 2007, the FASB issued revised guidance under
ASC 805 related to accounting for business combinations.
The Company has applied the provisions of this guidance
prospectively to business combinations for which the acquisition
date occurred on or after January 1, 2009.
In October 2009, the FASB amended guidance relating to
multiple-deliverable revenue arrangements and certain
arrangements that include software elements. The revised
guidance requires entities to allocate revenue in an arrangement
using estimated selling prices of the delivered goods and
services based on a selling price hierarchy. The amendments
eliminate the residual method of revenue allocation and require
revenue to be allocated using the relative selling price method.
Tangible products are removed from the scope of software revenue
guidance and guidance is provided on determining whether
software deliverables in an arrangement that includes a tangible
product are covered by the scope of the software revenue
guidance. The amended guidance should be applied on a
prospective basis for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010, with early adoption permitted. The Company
has not adopted the revised guidance and is currently evaluating
the impact on the Companys consolidated results of
operations or financial condition.
No other new accounting pronouncements issued or effective
during the first three months of 2010 has had or is expected to
have a material impact on the consolidated financial statements.
F-46
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On March 5, 2010, the Company acquired all of the issued
and outstanding common shares of Sirit Inc. and subsidiaries
(Sirit) for total cash consideration of CDN
$77.1 million (US $74.9 million). Sirit designs,
develops and manufactures radio frequency identification device
technology for applications such as tolling, electronic vehicle
registration, parking and access control, cashless payments,
supply chain management and asset tracking solutions. The
acquisition of Sirit supports the Companys long-term
strategy by creating growth opportunities and revenue synergies.
The results of Sirit, which have been included in the
Companys condensed consolidated financial statements since
March 5, 2010, included net sales and operating losses of
$1.9 million and $(0.7) million, respectively. The
results of Sirit are included within the Other
business segment.
On March 2, 2010, the Company acquired all of the equity
interests in VESystems, LLC and subsidiaries
(VESystems) for an aggregate purchase price of
$34.8 million. The consideration transferred consisted of
cash in the amount of approximately $24.6 million and an
aggregate of 1,220,311 shares of Federal Signal common
stock with an acquisition date fair value of $10.2 million.
VESystems designs, develops and deploys advanced software
applications and customer management systems and services for
the electronic toll collection and port industries. The
acquisition of VESystems supports the Companys long-term
strategy by creating growth opportunities and revenue synergies.
The results of VESystems, which have been included in the
Companys condensed consolidated financial statement since
March 2, 2010, included net sales and operating losses of
$1.5 million and $(0.5) million, respectively. The
results of VESystems are included within the Other
business segment.
The Company accounted for both transactions using the
acquisition method of accounting. The following table summarizes
the preliminary allocation of the purchase price to the net
assets of Sirit and VESystems, and the resultant goodwill which
represents synergies of combining the businesses.
|
|
|
|
|
|
|
|
|
|
|
Sirit
|
|
|
VESystems
|
|
|
|
($ in millions)
|
|
|
Total fair value of consideration transferred
|
|
$
|
74.9
|
|
|
$
|
34.8
|
|
Total fair value of net assets acquired
|
|
|
30.5
|
|
|
|
17.0
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related goodwill(1)
|
|
$
|
44.4
|
|
|
$
|
17.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company recorded this Goodwill within the Other
segment and is currently evaluating the amount of goodwill that
is deductible for tax purposes. |
In connection with the acquisitions, the Company incurred
$2.6 million of direct acquisition-related costs in the
three month period ended March 31, 2010. These costs are
included within Acquisition related costs in the
condensed consolidated statements of operations.
F-47
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the preliminary fair value of
assets acquired and liabilities assumed from Sirit and VESystems
as of their respective acquisition dates:
|
|
|
|
|
|
|
|
|
|
|
Sirit
|
|
|
VESystems
|
|
|
|
At March 5, 2010
|
|
|
At March 2, 2010
|
|
|
|
($ in millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2.4
|
|
|
$
|
0.2
|
|
Inventory
|
|
|
2.6
|
|
|
|
|
|
Receivables
|
|
|
2.0
|
|
|
|
2.0
|
|
Intangible assets
|
|
|
37.1
|
|
|
|
16.1
|
|
Fixed assets
|
|
|
1.6
|
|
|
|
0.1
|
|
Other assets
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
46.1
|
|
|
$
|
18.9
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4.9
|
|
|
$
|
0.7
|
|
Capital leases
|
|
|
0.7
|
|
|
|
|
|
Accrued liabilities and other liabilities
|
|
|
7.0
|
|
|
|
1.2
|
|
Deferred revenue
|
|
|
0.6
|
|
|
|
|
|
Deferred tax, net
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
15.6
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
30.5
|
|
|
$
|
17.0
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the preliminary fair value of
amortizable and indefinite-lived intangible assets as of their
respective acquisition dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sirit at
|
|
|
VESystems at
|
|
|
|
March 5, 2010
|
|
|
March 2, 2010
|
|
|
|
Estimated
|
|
|
Estimated
|
|
|
|
Fair
|
|
|
Useful Life
|
|
|
Fair
|
|
|
Useful Life
|
|
|
|
Value
|
|
|
(in Years)
|
|
|
Value
|
|
|
(in Years)
|
|
|
|
($ in millions)
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
18.0
|
|
|
|
18
|
|
|
$
|
9.5
|
|
|
|
17
|
|
Technology
|
|
|
12.1
|
|
|
|
9
|
|
|
|
4.9
|
|
|
|
16
|
|
Non-compete
|
|
|
2.9
|
|
|
|
5
|
|
|
|
0.4
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
$
|
33.0
|
|
|
|
|
|
|
$
|
14.8
|
|
|
|
|
|
Indefinite-lived intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
$
|
4.1
|
|
|
|
|
|
|
$
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
37.1
|
|
|
|
|
|
|
$
|
16.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above estimated fair values of assets acquired and
liabilities assumed are preliminary and are based on the
information that was available as of the acquisition date and
the subsequent filing of this
Form 10-Q.
The Company believes that information provides a reasonable
basis for estimating the fair values of assets acquired and
liabilities assumed, however the Company is awaiting
finalization of a third party valuation to finalize those fair
values. Thus, the preliminary measurements of fair value set
forth above are subject to
F-48
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
change. The Company expects to finalize the valuation and
complete the purchase price allocation as soon as practicable,
but no later than one year from the acquisition date.
Pro forma
condensed combined financial information
The following unaudited pro forma condensed combined financial
information presents the results of operations of the Company as
they may have appeared if the closing of Sirit and VESystems,
presented in the aggregate, had been completed on
January 1, 2010 and January 1, 2009.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
($ in millions, except per share data)
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
Net sales
|
|
$
|
175.6
|
|
|
$
|
195.6
|
|
Loss from continuing operations
|
|
|
(1.4
|
)
|
|
|
(0.7
|
)
|
Loss from continuing operationsper basic and diluted share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
The unaudited pro forma condensed combined financial information
is presented for illustrative purposes only and does not
indicate the actual financial results of the Company had the
closing of Sirit and VESystems been completed on January 1,
2010 and January 1, 2009, respectively, nor is it
indicative of the results of operations in future periods.
Included in the unaudited pro forma combined financial
information for the quarters ended March 31, 2010 and
March 31, 2009 were pro forma adjustments to reflect the
results of operations of Sirit and VESystems as well as the
impact of amortizing certain acquisition accounting adjustments
such as amortizable intangible assets. The pro forma condensed
financial information does not indicate the impact of possible
business model changes nor does it consider any potential
impacts of current market conditions, expense efficiencies or
other factors.
Diamond
Consulting Services Ltd.
On December 9, 2009, the Company acquired all voting equity
interests of Diamond Consulting Services Ltd.
(Diamond) for total consideration of approximately
$13.5 million in cash and deferred payments in future years
of up to $3.2 million. Diamond specializes in vehicle
classification systems for tolling and other Intelligent
Transportation Systems. The acquisition supports the
Companys long-term strategy by creating growth
opportunities and revenue synergies. The balance sheet and
statement of operations are included in the Safety and Security
Systems Segment.
As of December 31, 2009, preliminary fair values were
assigned to the net assets acquired and liabilities assumed,
resulting in estimated goodwill of $9.5 million and a
preliminary fair value of intangible assets of
$7.0 million. Although the purchase accounting for this
acquisition is not yet complete, the Company has recognized
certain measurement period adjustments related to a deferred tax
liability, fair value of intangible assets and additional
consideration of $0.4 million paid to the seller. The net
effect of these measurement period adjustments decreased the
Companys estimate of goodwill by $0.1 million and
intangible assets by $0.5 million.
The above estimated fair values of assets acquired and
liabilities assumed are preliminary and are based on the
information that was available as of the acquisition date and
the subsequent filing of this
Form 10-Q.
The Company believes that information provides a reasonable
basis for estimating the fair values of assets acquired and
liabilities assumed, however the Company is awaiting the
finalization of a third party valuation to finalize those fair
values. Thus, the preliminary measurements of fair value set
forth above are subject to change. The Company expects to
finalize the valuation and complete the purchase price
allocation as soon as practicable, but no later than one year
from the acquisition date.
F-49
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories are summarized as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw materials
|
|
$
|
56.4
|
|
|
$
|
53.9
|
|
Work in progress
|
|
|
27.9
|
|
|
|
28.0
|
|
Finished goods
|
|
|
31.5
|
|
|
|
30.2
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
115.8
|
|
|
$
|
112.1
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The following table provides the changes in carrying value of
goodwill by operating segment through the three months ended
March 31, 2010 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill from
|
|
|
Other Adjustments
|
|
|
|
|
|
|
At December 31,
|
|
|
2010 Acquisitions
|
|
|
Including Currency
|
|
|
At March 31,
|
|
|
|
2009
|
|
|
(Note 2)
|
|
|
Translations
|
|
|
2010
|
|
|
Environmental Solutions
|
|
$
|
120.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
120.4
|
|
Fire Rescue
|
|
|
34.7
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
34.0
|
|
Safety & Security
|
|
|
164.5
|
|
|
|
|
|
|
|
(4.4
|
)
|
|
|
160.1
|
|
Other (See Note 12)
|
|
|
|
|
|
|
62.2
|
|
|
|
|
|
|
|
62.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
319.6
|
|
|
$
|
62.2
|
|
|
$
|
(5.1
|
)
|
|
$
|
376.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides the gross carrying value and
accumulated amortization for each major class of intangible
assets ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
(Years)
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Amortized Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed software
|
|
|
6
|
|
|
$
|
25.5
|
|
|
$
|
(17.7
|
)
|
|
$
|
7.8
|
|
|
$
|
25.2
|
|
|
$
|
(17.0
|
)
|
|
$
|
8.2
|
|
Patents
|
|
|
8
|
|
|
|
1.6
|
|
|
|
(0.5
|
)
|
|
|
1.1
|
|
|
|
0.7
|
|
|
|
(0.5
|
)
|
|
|
0.2
|
|
Customer relationships
|
|
|
13
|
|
|
|
46.6
|
|
|
|
(4.6
|
)
|
|
|
42.0
|
|
|
|
19.0
|
|
|
|
(4.2
|
)
|
|
|
14.8
|
|
Technology
|
|
|
11
|
|
|
|
21.7
|
|
|
|
(1.4
|
)
|
|
|
20.3
|
|
|
|
5.6
|
|
|
|
(1.2
|
)
|
|
|
4.4
|
|
Other
|
|
|
5
|
|
|
|
5.6
|
|
|
|
(1.2
|
)
|
|
|
4.4
|
|
|
|
1.8
|
|
|
|
(1.1
|
)
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
101.0
|
|
|
|
(25.4
|
)
|
|
|
75.6
|
|
|
|
52.3
|
|
|
|
(24.0
|
)
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
|
|
|
|
|
26.6
|
|
|
|
|
|
|
|
26.6
|
|
|
|
24.4
|
|
|
|
|
|
|
|
24.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
127.6
|
|
|
$
|
(25.4
|
)
|
|
$
|
102.2
|
|
|
$
|
76.7
|
|
|
$
|
(24.0
|
)
|
|
$
|
52.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the three month periods ended
March 31, 2010 and 2009 totaled $1.4 million and
$1.4 million, respectively. The Company estimates that the
aggregate amortization expense will be $8.5 million in
2010, $9.6 million in 2011, $8.5 million in 2012,
$7.0 million in 2013, $6.5 million in 2014 and
$36.9 million thereafter.
F-50
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
DERIVATIVE
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
|
At March 31, 2010, the Company was party to interest rate
swap agreements with financial institutions in which the Company
pays interest at a fixed rate and receives interest at variable
LIBOR rates. These interest rate swap agreements are designated
as cash flow hedges and terminate throughout 2010.
The Company manages the volatility of cash flows caused by
fluctuations in currency rates by entering into foreign exchange
forward contracts and options. These derivative instruments may
be designated as cash flow hedges that hedge portions of the
Companys anticipated third-party purchases and forecasted
sales denominated in foreign currencies. The Company also enters
into foreign exchange contracts that are not intended to qualify
for hedge accounting, but are intended to offset the effect on
earnings of foreign currency movements on short and long term
intercompany transactions. Gains and losses on these derivative
instruments are recorded through earnings.
For assets and liabilities measured at fair value on a recurring
basis, the Company uses an income approach to value the assets
and liabilities for outstanding derivative contracts which
include interest rate swap and foreign currency forward
contracts. The income approach consists of a discounted cash
flow model that takes into account the present value of future
cash flows under the terms of the contracts using current market
information as of the reporting date, such as prevailing
interest rates and foreign currency spot and forward rates. The
following table provides a summary of the fair values of assets
and liabilities ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
Fair Value Measurements at March 31, 2010
|
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivatives
|
|
$
|
0.9
|
|
|
$
|
|
|
|
$
|
0.9
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Fair Value Measurements at March 31, 2010
|
|
|
|
|
|
|
Quoted prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivatives
|
|
$
|
1.0
|
|
|
$
|
|
|
|
$
|
1.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2010 and December 31, 2009, the fair
value of the Companys derivative instruments was recorded
as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
March 31, 2010
|
|
|
March 31, 2010
|
|
|
|
Balance Sheet Location
|
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
|
Fair Value
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
$
|
|
|
|
|
Other accrued liabilities
|
|
|
$
|
0.2
|
|
Foreign exchange
|
|
|
Other current assets
|
|
|
|
0.1
|
|
|
|
Other accrued liabilities
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.8
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
|
|
|
Accounts receivable, net
|
|
|
|
0.8
|
|
|
|
Accounts payable
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
0.9
|
|
|
|
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
December 31, 2009
|
|
December 31, 2009
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
|
$
|
0.5
|
|
Foreign exchange
|
|
|
Other current assets
|
|
|
$
|
|
|
|
|
Other accrued liabilities
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of derivative instruments on the condensed
consolidated statement of operations for the three months ended
March 31, 2010, was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
Amount of Gain
|
|
|
|
Gain/(Loss)
|
|
|
Location of Gain/(Loss)
|
|
Reclassified from
|
|
|
|
Recognized in OCI
|
|
|
Reclassified from
|
|
Accumulated OCI
|
|
Derivatives in Cash Flow
|
|
on Derivative
|
|
|
Accumulated OCI into
|
|
into Income
|
|
Hedging Relationships
|
|
(Effective Portion)
|
|
|
Income (Effective Portion)
|
|
(Effective Portion)
|
|
|
Interest rate contracts
|
|
$
|
0.3
|
|
|
Interest expense
|
|
$
|
0.1
|
|
Foreign exchange
|
|
|
|
|
|
Net sales
|
|
|
|
|
Foreign exchange
|
|
|
(0.5
|
)
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(0.2
|
)
|
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
|
|
|
|
|
|
Recognized in
|
|
Derivatives Not Designated as
|
|
Location of Gain Recognized in
|
|
Income on
|
|
Hedging Instruments
|
|
Income on Derivative
|
|
Derivative
|
|
|
Foreign exchange
|
|
Other income (expense)
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
At March 31, 2010 and December 31, 2009, accumulated
other comprehensive loss associated with interest rate swaps and
foreign exchange contracts qualifying for hedge accounting
treatment was $0.8 million and $0.7 million, net of
income tax effects, respectively. The Company expects
$1.0 million of pre-tax net loss on cash flow hedges that
are reported in accumulated other comprehensive loss as of
March 31, 2010, to be reclassified into earnings within the
next 12 months as the respective hedged transactions affect
earnings.
F-52
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the carrying amounts and fair
values of the Companys financial instruments as follows
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Short-term debt
|
|
$
|
7.9
|
|
|
$
|
7.9
|
|
|
$
|
|
|
|
$
|
|
|
Long-term debt*
|
|
|
296.7
|
|
|
|
296.0
|
|
|
|
204.1
|
|
|
|
205.0
|
|
Interest rate contracts
|
|
|
70.0
|
|
|
|
(0.2
|
)
|
|
|
70.0
|
|
|
|
(0.5
|
)
|
Foreign exchange
|
|
|
52.4
|
|
|
|
0.1
|
|
|
|
24.1
|
|
|
|
(0.5
|
)
|
|
|
|
* |
|
Long term debt includes financial service borrowings for all
periods presented, which is included in discontinued operations. |
The carrying value of short-term debt approximates fair value
due to its short maturity. The fair value of long-term debt is
based on interest rates that are currently available to us for
issuance of debt with similar terms and remaining maturities.
Short-term borrowings consisted of the following ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Line of credit
|
|
$
|
0.5
|
|
|
$
|
|
|
Other foreign lines of credit
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings
|
|
$
|
7.9
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-53
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term borrowings consisted of the following ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
Revolving Credit Facility
|
|
$
|
180.1
|
|
|
$
|
85.0
|
|
Alternative Currency Facility (within Revolving Credit Facility)
|
|
|
14.5
|
|
|
|
16.2
|
|
10.79% Unsecured Private Placement note with annual installments
of $10.0 million due
2010-2011
|
|
|
11.3
|
|
|
|
11.4
|
|
10.60% Unsecured Private Placement note with annual installments
of $7.1 million due
2010-2011
|
|
|
8.1
|
|
|
|
8.1
|
|
8.93% Unsecured Private Placement note with annual installments
of $8.0 million due
2010-2012
|
|
|
14.8
|
|
|
|
14.8
|
|
9.24% Unsecured Private Placement note due 2012
|
|
|
42.7
|
|
|
|
42.7
|
|
Unsecured Private Placement note, floating rate (5.32% and 2.35%
at March 31, 2010 and December 31, 2009, respectively)
due 2010-2013
|
|
|
21.3
|
|
|
|
21.3
|
|
Subsidiary Loan Agreement
|
|
|
2.0
|
|
|
|
3.2
|
|
Capital Lease Obligations
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295.5
|
|
|
|
202.7
|
|
Unamortized balance of terminated fair value interest rate swaps
|
|
|
1.2
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
296.7
|
|
|
|
204.1
|
|
Less current maturities, excluding financial services activities
|
|
|
(42.1
|
)
|
|
|
(41.9
|
)
|
Less financial services activities borrowings
(included in discontinued operations)
|
|
|
(2.1
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term borrowings, net
|
|
$
|
252.5
|
|
|
$
|
159.7
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, 10.7 million (or
$14.5 million), was drawn on the Alternative Currency
Facility, a supplemental agreement under the Second Amended
Credit Agreement and $180.1 million was drawn directly
under the Second Amended Credit Agreement for a total of
$194.6 million drawn under the Second Amended Credit
Agreement leaving available borrowings of $55.4 million not
including $30.5 million of capacity used for existing
letters of credit.
At March 31, 2010, $7.4 million was drawn against the
Companys foreign lines of credit which provide for
borrowings up to $17.7 million.
The outstanding unsecured fixed Private Placement Notes
coupon interest rates increased by 3% from December 31,
2009 as a result of the Companys private placement debt
rating not improving by one rating level on or before
April 1, 2010.
The Companys effective tax rate on the loss from
continuing operations was a 30.4% benefit for the three month
period ended March 31, 2010. The 30.4% rate includes
benefits for foreign tax effects. In the comparable three month
period ended March 31, 2009, the Company recorded a
$0.2 million tax benefit primarily related to the
resolution of an IRS audit of the 2006 tax year and the benefit
of research and development tax credits.
In connection with the acquisitions of Sirit and VESystems, the
Company acquired certain net operating loss carry-forwards. The
estimated acquired U.S. NOL is $24.4 million. The
estimated acquired Canadian NOL is $3.8 million (USD).
F-54
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys unrecognized tax benefits were
$4.9 million at January 1, 2010 of which
$4.7 million are tax benefits that if recognized, would
reduce the annual effective tax rate. The Companys
continuing practice is to recognize interest and penalties
related to income tax matters in income tax expense. Interest
and penalties amounting to $0.8 million and
$0.1 million, respectively, are included in the
consolidated balance sheet at March 31, 2010. The Company
expects the unrecognized tax benefits to decrease by
$0.8 million over the next 12 months. In the three
months ended March 31, 2010, the Companys
unrecognized tax benefits did not change.
|
|
8.
|
POSTRETIREMENT
BENEFITS
|
The components of the Companys net periodic pension
expense for its defined benefit pension plans are summarized as
follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Interest on obligation
|
|
$
|
2.0
|
|
|
$
|
2.1
|
|
|
$
|
0.8
|
|
|
$
|
0.6
|
|
Amortization of actuarial loss
|
|
|
0.9
|
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
0.3
|
|
Less: Expected return on plan assets
|
|
|
(2.2
|
)
|
|
|
(2.3
|
)
|
|
|
(0.8
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net postretirement pension expense
|
|
$
|
0.7
|
|
|
$
|
0.3
|
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three month period ended March 31, 2010, no
contribution to the pension plans were made. During the
comparable prior period, the Company contributed
1.1 million shares of the Companys common stock held
in treasury to the U.S. pension plan. The stock was valued
at $4.4 million based upon prices in the open market at the
contribution date. In addition, the Company contributed
$0.5 million during the three months ended March 31,
2009 to its
non-U.S. defined
benefit plan.
|
|
9.
|
(LOSS)
EARNINGS PER SHARE
|
(Loss) earnings per share basic is computed by
dividing income or loss available to common stockholders by the
weighted average number of shares of common stock outstanding
for the period. (Loss) earnings per share diluted
reflects the potential dilution that could occur if options
issued under stock-based compensation awards were exercised and
converted into common stock. For the three month period ended
March 31, 2010, options to purchase 1.4 million shares
of the Companys common stock had exercise prices that were
greater than the average market price of those shares during the
respective reporting periods. For the three months ended
March 31, 2009, options to purchase 1.3 million shares
of the Companys common stock had exercise prices that were
greater than the average market price of those shares during the
respective reporting periods. As a result, these shares are
excluded from the (loss) earnings per share calculation as they
are anti-dilutive.
F-55
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a reconciliation of net (loss) income to (loss)
earnings per share basic and diluted for
the three months ended March 31, 2010 and 2009:
Computation
of (Loss) Earnings per Common Share
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions, except per share data)
|
|
|
(Loss) income from continuing operations
|
|
$
|
(3.2
|
)
|
|
$
|
0.2
|
|
(Loss) gain from discontinued operations and disposal, net of tax
|
|
|
(0.4
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3.6
|
)
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding basic
|
|
|
49.2
|
|
|
|
47.9
|
|
Dilutive effect of stock options and other
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
49.2
|
|
|
|
48.0
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.06
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) from discontinued operations per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.07
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.07
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
COMMITMENTS,
CONTINGENCIES AND WARRANTIES
|
The Company issues product performance warranties to customers
with the sale of its products. The specific terms and conditions
of these warranties vary depending upon the product sold and
country in which the Company conducts business, with warranty
periods generally ranging from one to ten years. The Company
estimates the costs that may be incurred under its basic limited
warranty and records a liability in the amount of such costs at
the time the sale of the related product is recognized. Factors
that affect the Companys 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 Companys warranty liabilities in the three
month periods ended March 31, 2010 and 2009 were as follows
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance at December 31
|
|
$
|
6.2
|
|
|
$
|
5.8
|
|
Provisions to expense
|
|
|
2.1
|
|
|
|
2.9
|
|
Actual costs incurred
|
|
|
(2.0
|
)
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
|
Balance at March 31
|
|
$
|
6.3
|
|
|
$
|
6.1
|
|
|
|
|
|
|
|
|
|
|
F-56
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company retained an environmental consultant to conduct an
environmental risk assessment at its Pearland, Texas facility.
While the Company has not completed the risk assessment
analysis, it appears probable the site will require remediation.
A reasonable estimate of the range of costs to remediate the
site is $0.7 million to $2.4 million, depending upon
the remediation approach and other factors. As of March 31,
2010 and December 31, 2009 $0.7 million is included in
other accrued liabilities within the Safety and Security Systems
Group. The Companys estimate may change in the near term
as more information becomes available; however the costs are not
expected to have a material adverse effect on the Companys
results of operations, financial position or liquidity.
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
Companys business. The Company believes, based on current
knowledge and after consultation with counsel, that the outcome
of such claims and actions will not have an adverse effect on
the Companys consolidated financial position or results of
operations. However, in the event of unexpected future
developments, it is possible that the ultimate resolution of
such matters, if unfavorable, could have a material adverse
effect on the Companys results of operations.
The Companys subsidiary Bronto Skylift, a manufacturer of
aerial lifts which is headquartered in Finland, was named in a
lawsuit in France, in connection with an accident which occurred
in 2006. The incident occurred at a fairgrounds in Pau, France
where the National Conference of Firefighters was held, and
involved the fatal fall of an individual from the demonstration
cage of one of Bronto Skylifts vehicles. Bronto Skylift is
named in the lawsuit along with two individuals, one of whom is
a consultant for Bronto Skylift. The case was referred to the
Court of Corrections (criminal court). In March 2010 the Court
of Corrections fined Bronto Skylift 60,000 euros in connection
with the accident, and through its counsel, Bronto Skylift is
appealing that decision. Claims for indemnity have been filed
against Bronto Skylift by various individuals in connection with
the incident.
The Company has been sued by firefighters seeking damages
claiming that exposure to the Companys sirens has impaired
their hearing and that the sirens are therefore defective. There
were 33 cases filed during the period
1999-2004,
involving a total of 2,443 plaintiffs 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. An additional 40
firefighter plaintiffs were selected for trial to begin on
January 5, 2009. Plaintiffs counsel later moved to
reduce the number of plaintiffs from 40 to 9. Trial of these
nine plaintiffs began on February 6, 2009 and concluded on
February 20, 2009 with a verdict returned against the
Company and for the plaintiffs in varying amounts totaling
$0.4 million. The Company is appealing this verdict. All
trials previously scheduled in Cook County during 2009 and 2010
are stayed pending the result of this appeal. Since
February 20, 2009, the Company is aware of six additional
cases that have been filed in Cook County, involving 299
plaintiffs.
The Company has also been sued on this issue outside of the Cook
County venue. With the exception of matters on appeal, Federal
Signal is currently a defendant in 55 hearing loss lawsuits in
Philadelphia, Pennsylvania, involving a total of 55 firefighter
plaintiffs. The first trial involving one of these plaintiffs
began on February 16, 2010 and ended on March 2, 2010,
when the jury returned a verdict for the plaintiff. In
particular, the jury found that the Companys siren was not
defectively designed, but that the Company negligently
constructed the siren. The jury awarded damages in the amount of
$100,000 which was subsequently reduced to $75,000. The Company
plans to appeal this verdict. Another trial, involving 10
Philadelphia firefighter plaintiffs, is scheduled to begin on
June 14. Thereafter, three additional trials, involving 10
plaintiffs each, are scheduled to begin during the second and
third quarters of 2010. During the course of the current
Philadelphia litigation, five cases have been dismissed. In four
of these cases, the Company paid nominal sums which included
reimbursement of expenses, to obtain dismissals. One case has
been dismissed
F-57
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
pursuant to motion filed by the Company. Four cases in the
Supreme Court of Kings County, New York were dismissed on
January 25, 2008 after the court granted the Companys
motion to dismiss which eliminated all claims pending in New
York. The court subsequently denied reconsideration of its
ruling. On appeal, the Court affirmed the trial courts
dismissal of these cases. All plaintiffs who have filed hearing
loss cases against the Company in other jurisdictions have
dismissed their claims. Plaintiffs attorneys have
threatened to file additional lawsuits. 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 Signals ongoing negotiations with CNA over
insurance coverage on these claims have resulted in
reimbursements of a portion of the Companys defense costs.
In the three month period ended March 31, 2009, the Company
recorded $0.6 million of reimbursements from CNA as a
reduction of corporate operating expenses. No reimbursements
were recorded in the three month period ended March 31,
2010.
The following is a description of the Companys reporting
segments:
Safety and Security Systems segment manufactures and
supplies comprehensive systems and products that law
enforcement, fire rescue and emergency medical services,
campuses, military facilities and industrial sites use to
protect people and property.
Environmental Solutions segment manufactures and supplies
a full range of street sweeper and vacuum loader vehicles and
high-performance water blasting equipment for municipal and
industrial customers. Products are also manufactured for the
newer markets of hydro-excavation, glycol recovery and surface
cleaning. Products are sold under the Elgin, Vactor, Guzzler and
Jetstream brand names.
Fire Rescue segment is a manufacturer and designer of
sophisticated, vehicle-mounted, aerial platforms for fire
fighting, rescue, electric utility and industrial uses. End
customers include fire departments, industrial fire services,
electric utilities and maintenance rental companies for
applications such as fire fighting and rescue, transmission line
maintenance, and installation and maintenance of wind turbines.
The groups telescopic/articulated aerial platforms are
designed in accordance with various regulatory codes and
standards, such as European Norms (EN), National Fire Protection
Association (NFPA) and American National Standards Institute
(ANSI).
Other consists of the Companys acquisitions made
during the first quarter of 2010. In March 2010, the Company
acquired Sirit which designs, develops and manufactures radio
frequency identification device technology for applications such
as tolling, electronic vehicle registration, parking and access
control, cashless payments, supply chain management and asset
tracking solutions. Also in March 2010, the Company acquired
VESystems, which designs, develops and deploys advanced software
applications and customer management systems and services for
the electronic toll collection and port industries.
It is expected that during the second quarter of 2010, the
Company will form Federal Signal Technologies Group
(FSTech), a new operating segment that focuses on
automated solutions for the Intelligent Transportation Systems
and public safety markets and other applications that leverage
our technologies and process and service expertise. FSTech will
provide technology platforms and services to customers in the
areas of electronic toll collection, automated license plate
recognition (ALPR), electronic vehicle registration,
parking and access control, cashless payment solutions,
congestion charging, traffic management, site security solutions
and supply chain systems.
Corporate contains those items that are not included in
our other segments.
F-58
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the Companys operating
income (loss) by segment. The results for the interim periods
are not necessarily indicative of results for a full year.
Selected financial information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety and
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Security
|
|
|
Fire
|
|
|
Environmental
|
|
|
|
|
|
and
|
|
|
|
|
|
|
Systems
|
|
|
Rescue
|
|
|
Solutions
|
|
|
Other
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Three Months Ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
68.3
|
|
|
$
|
24.8
|
|
|
$
|
70.1
|
|
|
$
|
3.4
|
|
|
$
|
|
|
|
$
|
166.6
|
|
Operating income (loss)
|
|
|
4.1
|
|
|
|
0.8
|
|
|
|
3.7
|
|
|
|
(1.2
|
)
|
|
|
(8.2
|
)
|
|
|
(0.8
|
)
|
Three Months Ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
70.8
|
|
|
|
32.5
|
|
|
|
81.4
|
|
|
|
|
|
|
|
|
|
|
|
184.7
|
|
Operating income (loss)
|
|
|
4.9
|
|
|
|
2.4
|
|
|
|
3.0
|
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
4.3
|
|
As of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
366.9
|
|
|
$
|
139.7
|
|
|
$
|
197.7
|
|
|
$
|
125.2
|
|
|
$
|
17.0
|
|
|
$
|
846.5
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
372.8
|
|
|
$
|
141.9
|
|
|
$
|
191.7
|
|
|
$
|
|
|
|
$
|
38.5
|
|
|
$
|
744.9
|
|
In July 2009, the Company began an initiative to consolidate a
number of manufacturing and distribution operations into the
Companys University Park, Illinois plant collectively
known as the Footprint restructuring plan
(Footprint). The Company expects all of these
actions will be completed in the 2010 calendar year. During the
first quarter of 2010, the Company recorded approximately
$0.3 million in costs associated with the Footprint
initiative within our Safety and Security Group. There were no
changes to the total estimate of charges at March 31, 2010,
as disclosed in the Companys
Form 10-K
for the year ended December 31, 2009 of $2.6 million.
In December 2008, the Company announced an objective to reduce
salaried personnel costs. There were no changes to the estimate
of charges at March 31, 2010.
The following presents an analysis of the restructuring reserves
included in other accrued liabilities as of December 31,
2009 and March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Other
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Balance as of December 31, 2009
|
|
$
|
0.8
|
|
|
$
|
0.5
|
|
|
$
|
1.3
|
|
Charges to selling, general and administrative expenses
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.3
|
|
Cash payments
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2010
|
|
$
|
0.7
|
|
|
$
|
0.7
|
|
|
$
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-59
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive loss for the three month periods ended
March 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
($ in millions)
|
|
|
Net (loss) income
|
|
$
|
(3.6
|
)
|
|
$
|
1.0
|
|
Foreign currency translation
|
|
|
(7.2
|
)
|
|
|
(2.4
|
)
|
Unrealized (loss) gain or derivatives
|
|
|
(0.1
|
)
|
|
|
0.3
|
|
Change in unrecognized losses related to pension benefit plans,
net of tax
|
|
|
1.2
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(9.7
|
)
|
|
$
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
DISCONTINUED
OPERATIONS
|
2010
During the first quarter of 2010, the Company recorded
approximately $0.4 million in costs and expenses related to
the Pauluhn discontinued operation.
2009
During 2009 the Company discontinued both Ravo Holdings B.V. and
Pauluhn. In the first quarter of 2009 the Company recorded
income on discontinued operations of $0.8 million.
The following table presents the operating results of the
Companys discontinued operations for the three month
periods ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
($ in millions)
|
|
2010
|
|
|
2009
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
18.8
|
|
Costs and expenses
|
|
|
(0.5
|
)
|
|
|
(17.6
|
)
|
|
|
|
|
|
|
|
|
|
Loss (income) before income taxes
|
|
|
(0.5
|
)
|
|
|
1.2
|
|
Income tax expense (benefit)
|
|
|
0.1
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
(Loss) income on discontinued operations
|
|
$
|
(0.4
|
)
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
The following table shows an analysis of assets and liabilities
of discontinued operations as of March 31, 2010 and
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
($ in millions)
|
|
|
Current assets
|
|
$
|
1.4
|
|
|
$
|
1.4
|
|
Long-term assets
|
|
|
4.6
|
|
|
|
4.5
|
|
Financial service assets, net
|
|
|
2.3
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
Total assets of discontinued operations
|
|
$
|
8.3
|
|
|
$
|
8.5
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
0.8
|
|
|
$
|
0.8
|
|
Long-term liabilities
|
|
|
10.0
|
|
|
|
10.8
|
|
Financial service liabilities
|
|
|
2.1
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of discontinued operations
|
|
$
|
12.9
|
|
|
$
|
14.1
|
|
|
|
|
|
|
|
|
|
|
F-60
PROSPECTUS
FEDERAL SIGNAL
CORPORATION
$150,000,000
Common Stock
Preferred Stock
Warrants
Debt Securities
Units
We may offer and sell from time to time, in one or more series
or issuances and on terms that we will determine at the time of
the offering, any combination of the securities described in
this prospectus, up to an aggregate amount of $150,000,000.
We will provide specific terms of any offering in a supplement
to this prospectus. Any prospectus supplement may also add,
update or change information contained in this prospectus. You
should carefully read this prospectus and the applicable
prospectus supplement as well as the documents incorporated or
deemed to be incorporated by reference in this prospectus before
you purchase any of the securities offered hereby.
These securities may be offered and sold in the same offering or
in separate offerings; to or through underwriters, dealers, and
agents; or directly to purchasers. The names of any
underwriters, dealers, or agents involved in the sale of our
securities and their compensation will be described in the
applicable prospectus supplement. See Plan of
Distribution.
Our common stock is listed on the New York Stock Exchange under
the symbol FSS. We will provide information in any
applicable prospectus supplement regarding any listing of
securities other than shares of our common stock on any
securities exchange.
INVESTING IN OUR SECURITIES INVOLVES SIGNIFICANT RISKS. SEE
RISK FACTORS BEGINNING ON PAGE 3 OF THIS
PROSPECTUS AND IN THE APPLICABLE PROSPECTUS SUPPLEMENT BEFORE
INVESTING IN ANY SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is March 24, 2010
Table of
Contents
|
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Page
|
|
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i
|
|
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1
|
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3
|
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|
3
|
|
|
|
|
3
|
|
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|
|
3
|
|
|
|
|
4
|
|
|
|
|
4
|
|
|
|
|
5
|
|
|
|
|
6
|
|
|
|
|
12
|
|
|
|
|
13
|
|
|
|
|
14
|
|
|
|
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14
|
|
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14
|
|
|
|
|
15
|
|
About
This Prospectus
You should rely only on the information contained or
incorporated by reference in this prospectus. We have not
authorized anyone to provide you with information different from
that contained or incorporated by reference in this prospectus.
You should assume that the information appearing in this
prospectus, any prospectus supplement or any document
incorporated by reference is accurate only as of the date of the
applicable documents, regardless of the time of delivery of this
prospectus or any sale of securities. Our business, financial
condition, results of operations and prospects may have changed
since that date.
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, which we
refer to as the SEC, utilizing a shelf
registration process. Under this shelf process, we may, from
time to time, sell any combination of the securities described
in this prospectus in one or more offerings up to a total amount
of $150,000,000.
This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will
provide a prospectus supplement that will contain specific
information about the terms of that offering. We will file each
prospectus supplement with the SEC. The prospectus supplement
may also add, update or change information contained in this
prospectus. You should read both this prospectus and any
prospectus supplement together with additional information
described under the heading Where You Can Find More
Information below.
i
PROSPECTUS
SUMMARY
The following summary does not contain all of the information
that may be important to purchasers of our securities.
Prospective purchasers of securities should carefully review the
detailed information and financial statements, including the
notes thereto, appearing elsewhere in or incorporated by
reference into this prospectus and any prospectus supplement.
Our
Company
Federal Signal Corporation designs and manufactures a suite of
products and integrated solutions for municipal, governmental,
industrial and commercial customers. Our portfolio of products
includes safety and security systems, vacuum loader vehicles,
street sweepers, truck mounted aerial platforms and
waterblasters.
The products we manufacture and services we render are divided
into three major operating segments: Safety and Security
Systems, Fire Rescue and Environmental Solutions. The individual
operating companies are organized as such because they share
certain characteristics, including technology, marketing,
distribution and product application, which create long-term
synergies.
Our Safety and Security Systems Group designs, manufactures and
deploys comprehensive safety and security systems and products
that help law enforcement, fire rescue and emergency medical
services (EMS), emergency operations and industrial
plant/facility first responders protect people, property and the
environment.
Our Fire Rescue Group is the world leader in designing and
manufacturing sophisticated, vehicle-mounted, aerial platforms
for fire fighting, rescue, electric utility and industrial uses.
End customers include fire departments, industrial fire
services, electric utilities and maintenance rental companies
for applications such as fire fighting and rescue, transmission
line maintenance, and installation and maintenance of wind
turbines. The groups telescopic/articulated aerial
platforms are designed in accordance with various regulatory
codes and standards, such as European Norms (EN), National Fire
Protection Association (NFPA) and American National Standards
Institute (ANSI). In addition to equipment sales, the group
sells parts, service and training as part of a complete offering
to its customer base.
Our Environmental Solutions Group manufactures and markets
worldwide a full range of street cleaning and vacuum loader
vehicles and high-performance water blasting equipment. Products
are also manufactured for the newer markets of hydro-excavation,
glycol recovery and surface cleaning.
Effective March 5, 2010, we completed, through our
wholly-owned subsidiary 1815315 Ontario Limited, a corporation
incorporated under the laws of the Province of Ontario, the
acquisition of all of the issued and outstanding common shares
of Sirit Inc., a corporation continued under the laws of the
Province of Ontario, by way of a court approved plan of
arrangement under the Business Corporations Act (Ontario).
We paid to the Sirit stockholders and option holders total
cash consideration in the transaction of approximately
CDN$77.1 million (US$73.4).
On March 2, 2010, we acquired all of the equity interests
in VESystems, LLC from its members for an aggregate purchase
price of $33.0 million pursuant to the terms of the
purchase agreement by and among Federal Signal Corporation, our
wholly owned subsidiary and the members owning all of the equity
interests of VESystems, LLC. Included in the aggregate purchase
price was the issuance of 1,220,311 shares of our common
stock. At the closing of the acquisition on March 2, 2010,
we issued to one of the members of VESystems, LLC shares of
common stock equal in value to $8,415,000, with the exact number
of shares to be issued computed by dividing $8,415,000 by the
weighted average daily closing price of our common stock as
reported on the New York Stock Exchange for the 20 trading days
prior to the closing date ($6.896), and rounding the result up
to the nearest whole share.
Federal Signal Corporation, founded in 1901, was reincorporated
as a Delaware corporation in 1969.
1
Our
Offices
Our principal executive office is located at 1415 West
22nd
Street, Oak Brook, Illinois 60523. Our telephone number is
(630) 954-2000.
Our website is located at www.federalsignal.com. Other than as
described in Where You Can Find More Information
below, the information on, or that can be accessed through, our
website is not incorporated by reference in this prospectus or
any prospectus supplement, and you should not consider it to be
a part of this prospectus or any prospectus supplement.
Unless the context requires otherwise, the terms Federal
Signal, Company, we,
our and us refer to Federal Signal
Corporation and its consolidated subsidiaries.
2
RISK
FACTORS
Investing in our securities involves risks. Please see the risk
factors described under the caption Risk Factors in
our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 on file with
the SEC, which is incorporated by reference in this prospectus
and in any accompanying prospectus supplement. Before making an
investment decision, you should carefully consider these risks
as well as information we include or incorporate by reference in
this prospectus and in any accompanying prospectus supplement.
The risks and uncertainties we have described are not the only
ones facing our Company. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may
also affect our business or operations.
FORWARD-LOOKING
STATEMENTS
This prospectus, each prospectus supplement and the information
incorporated by reference in this prospectus and each prospectus
supplement contain historical information, as well as
forward-looking statements that involve known and unknown risks
and relate to future events, our future financial performance or
our projected business results. In some cases, forward-looking
statements can be identified by terminology such as
may, will, should,
expects, plans, anticipates,
believes, estimates,
predicts, targets,
potential, or continue or the negative
of these terms or other comparable terminology. These statements
are made on the basis of our views and assumptions as of the
time the statements are made and we undertake no obligation to
update these statements. We caution investors that any such
forward-looking statements we make are not guarantees of future
performance and that actual results may differ materially from
anticipated results or expectations expressed in our
forward-looking statements as a result of a variety of factors.
While it is impossible to identify all such factors, some of the
factors that could impact our business and cause actual results
to differ materially from forward-looking statements are
discussed in Item 1A, Risk Factors in our
Annual Report on
Form 10-K
for the year ended December 31, 2009.
Except as required by applicable law, including the securities
laws of the United States and the rules and regulations of the
SEC, we do not plan to publicly update or revise any
forward-looking statements contained herein after we distribute
this prospectus, whether as a result of any new information,
future events or otherwise.
USE OF
PROCEEDS
Unless otherwise indicated in the applicable prospectus
supplement, we will use the net proceeds from the sale of the
securities for general corporate purposes, which may include
capital expenditures, acquisitions, investments and the
repayment of indebtedness. Pending these uses, the net proceeds
may also be temporarily invested in short- and medium-term
securities.
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our historical ratio of earnings
to fixed charges for the periods indicated. We had no preferred
stock outstanding and did not pay preferred stock dividends
during these periods.
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Fiscal Year Ended December 31,
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2009
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2008
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2007
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2006
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2005
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Ratio of earnings to fixed charges
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2.02
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1.84
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2.79
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2.67
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2.96
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The ratio of earnings to fixed charges has been computed on a
consolidated basis. Earnings consists of pretax
income from continuing operations before adjustment for
noncontrolling interests and equity in net income (loss) from
affiliates plus fixed charges. Fixed charges consist of interest
expense and a portion of rental expense estimated to represent
interest.
3
THE
SECURITIES WE MAY OFFER
The descriptions of the securities contained in this prospectus,
together with the applicable prospectus supplements, summarize
the material terms and provisions of the various types of
securities that we may offer. We will describe in the applicable
prospectus supplement relating to any securities the particular
terms of the securities offered by that prospectus supplement.
We will also include in the prospectus supplement information,
when applicable, about material U.S. federal income tax
considerations relating to the securities, and the securities
exchange, if any, on which the securities will be listed.
We may sell from time to time, in one or more offerings, any one
or more of the following:
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common stock;
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preferred stock;
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debt securities;
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warrants to purchase common stock, preferred stock
and/or debt
securities;
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units consisting of common stock, preferred stock, debt
securities
and/or
warrants in any combination; or
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any combination of the foregoing securities.
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In this prospectus, we refer to the common stock, preferred
stock, debt securities, warrants and units collectively as
securities. The total dollar amount of all
securities that we may issue under this prospectus will not
exceed $150,000,000.
If we issue debt securities at a discount from their original
stated principal amount, then, for purposes of calculating the
total dollar amount of all securities issued under this
prospectus, we will treat the initial offering price of the debt
securities as the total original principal amount of the debt
securities.
This prospectus may not be used to consummate a sale of
securities unless it is accompanied by a prospectus supplement.
DESCRIPTION
OF CAPITAL STOCK
We are authorized to issue 90,000,000 shares of common
stock, par value $1.00 per share, and 800,000 shares of
preferred stock, par value $1.00 per share, which may be issued
in one or more series. As of March 5, 2010, there were
49,907,404 shares of our common stock outstanding, held of
record by 2,538 holders, and 872,084 shares of our common
stock were held in our treasury. As of such date, no shares of
our preferred stock were outstanding.
The following summary describes certain of the material
provisions of our common stock and our preferred stock, but does
not purport to be complete and is subject to and qualified in
its entirety by Delaware General Corporation Law and our
Restated Certificate of Incorporation and our Amended and
Restated By-Laws.
Common
Stock
Holders of shares of our common stock are entitled to one vote
per share on all matters to be voted upon by the stockholders.
Holders of our common stock are entitled to receive dividends
when, as and if declared by our Board of Directors from funds
legally available for dividend payments, and to share ratably in
our assets legally available for distribution to our
stockholders in the event of liquidation or dissolution. Our
common stock has no preemptive rights and no subscription or
redemption privileges. Our common stock does not have cumulative
voting rights, which means the holders of more than half of the
shares voting for the election of directors can elect all the
directors then being elected. All of the outstanding shares of
our common stock are fully paid and not liable for further call
or assessment.
4
Preferred
Stock
Our Board of Directors has the authority by resolution, without
any action of our stockholders, to issue from time to time up to
800,000 shares of preferred stock in one or more series
with such terms and designations as our Board of Directors may
fix, including dividend rates, voting rights, conversion rights,
redemption rights and liquidation preferences.
The authority possessed by our Board of Directors to issue
preferred stock could potentially be used to discourage attempts
by others to obtain control of the Company through merger,
tender offer, proxy contest, consent or otherwise by making such
attempts more difficult to achieve or more costly. Our Board of
Directors may issue preferred stock without stockholder
approval, and with voting and conversion rights that could
adversely affect the voting power of holders of our common stock.
Delaware
Law and Certain Charter and By-Law Provisions
We are subject to the provisions of Section 203 of the
Delaware General Corporation Law. In general, this statute
prohibits a publicly-held Delaware corporation from engaging in
a business combination with an interested
stockholder for a period of three years after the date of
the transaction in which the person becomes an interested
stockholder, unless the business combination is approved in a
manner prescribed in the statute. An interested
stockholder is a person who, together with affiliates and
associates, owns (or owned within the prior three years) 15% or
more of the corporations voting stock.
Our Restated Certificate of Incorporation includes provisions to
eliminate the personal liability of our directors for monetary
damages resulting from breaches of their fiduciary duty to the
extent permitted by the Delaware General Corporation Law. Both
the Restated Certificate of Incorporation and our Amended and
Restated By-Laws provide for the indemnification of our
directors and officers to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law.
Listing
Our common stock is listed on the New York Stock Exchange under
the symbol FSS.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is
Computershare.
DESCRIPTION
OF WARRANTS
We may issue warrants, including warrants to purchase common
stock, preferred stock or debt securities or any combination of
the foregoing. Warrants may be issued independently or as part
of a unit with any other securities and may be attached to or
separate from the underlying securities. Warrants will be issued
under a warrant agreement to be entered into between us and a
warrant agent, as detailed in the prospectus supplement relating
to warrants being offered.
A prospectus supplement relating to any warrants being offered
will include specific terms relating to the offering, including
a description of any other securities sold together with the
warrants. These items will include:
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the title of the warrants;
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the aggregate number of the warrants;
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the price or prices at which the warrants will be issued;
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the currencies in which the exercise price of the warrants may
be payable;
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the designation, amount, and terms of the common stock,
preferred stock or debt securities or rights, including rights
to receive payment in cash or securities based on the value,
rate or price of one or
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more specified commodities, currencies or indices, purchasable
upon exercise of the warrants and procedures by which those
numbers may be adjusted;
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the designation and terms of the other offered securities, if
any, with which the warrants are issued and the number of the
warrants issued with each security;
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if applicable, the date on and after which the warrants and the
offered securities purchasable upon exercise of the warrants
will be separately transferable;
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the exercise price at which the offered securities purchasable
upon exercise of the warrants may be purchased;
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the date on which the right to exercise the warrants shall
commence and the date on which the right shall expire;
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the minimum or maximum amount of the warrants that may be
exercised at any one time;
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any terms relating to the modification of the warrants;
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information with respect to book-entry procedures, if any;
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a discussion of any material federal income tax
considerations; and
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any other material terms of the warrants, including terms,
procedures, and limitations relating to the transferability,
exchange, exercise or redemption of the warrants.
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The applicable prospectus supplement will describe the specific
terms of any warrants or warrant units.
The descriptions of the warrant agreements in this prospectus
and in any prospectus supplement are summaries of the applicable
provisions of the applicable agreements. These descriptions do
not restate those agreements in their entirety and do not
contain all of the information that you may find useful. We urge
you to read the applicable agreements because they, and not the
summaries, define your rights as holders of the warrants or any
warrant units. For more information, please review the form of
the relevant agreements, which will be filed with the SEC
promptly after the offering of the warrants or warrant units and
will be available as described under the heading Where You
Can Find More Information.
DESCRIPTION
OF DEBT SECURITIES
The following description sets forth some general terms and
provisions of the debt securities we may offer, but it is not
complete. The particular terms of the debt securities offered
and the extent, if any, to which the general provisions may not
apply to the debt securities so offered will be described in the
prospectus supplement relating to the debt securities. For a
more detailed description of the terms of the debt securities,
please refer to the indenture relating to the issuance of the
particular debt securities.
Any senior debt securities will be issued under a senior
indenture to be entered into between us and the trustee named in
the senior indenture. Any subordinated debt securities will be
issued under a subordinated indenture to be entered into between
us and the trustee named in the subordinated indenture. As used
in this registration statement, the term indentures
refers to both the senior indenture and the subordinated
indenture. The indenture(s) will be qualified under the
Trust Indenture Act of 1939. As used in this registration
statement, the term debt trustee refers to either
the senior trustee or the subordinated trustee, as applicable.
The following summaries of the material provisions of the senior
debt securities, the subordinated debt securities and the
indentures are subject to, and qualified in their entirety by
reference to, all the provisions of the indenture applicable to
a particular series of debt securities, including the
definitions therein of some terms. Except as otherwise
indicated, the terms of any senior indenture and subordinated
indenture will be identical.
6
General
If applicable, each prospectus supplement will describe the
following terms relating to a series of debt securities:
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the title of the debt securities;
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whether the debt securities are senior debt securities or
subordinated debt securities and, if they are subordinated debt
securities, the terms of subordination;
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any limit on the amount of debt securities that may be issued;
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whether any of the debt securities will be issuable, in whole or
in part, in temporary or permanent global form or in the form of
book-entry securities;
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the maturity dates of the debt securities;
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the annual interest rates (which may be fixed or variable) or
the method for determining the rates and the dates interest will
begin to accrue on the debt securities, the dates interest will
be payable, and the regular record dates for interest payment
dates or the method for determining the dates;
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the places where payments with respect to the debt securities
shall be payable;
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our right, if any, to defer payment of interest on the debt
securities and extend the maximum length of any deferral period;
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the date, if any, after which, and the prices at which, the
series of debt securities may, pursuant to any optional
redemption provisions, be redeemed at our option, and other
related terms and provisions;
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the dates, if any, on which, and the prices at which we are
obligated, pursuant to any sinking fund provisions or otherwise,
to redeem, or at the holders option to purchase, the
series of debt securities and other related terms and provisions;
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the denominations in which the series of debt securities will be
issued, if other than denominations of $1,000 and any integral
multiple thereof;
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any mandatory or optional sinking fund or similar provisions
with respect to the debt securities;
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any index used to determine the amount of payments of the
principal of, and premium, if any, and interest on, the debt
securities and the manner in which the amounts shall be
determined;
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the terms pursuant to which the debt securities are subject to
defeasance;
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the terms and conditions, if any, pursuant to which the debt
securities are secured; and
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any other material terms of the debt securities.
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The debt securities may be issued as original issue discount
securities. An original issue discount security is a debt
security, including any zero-coupon debt security, which:
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is issued at a price lower than the amount payable upon its
stated maturity; and
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provides that, upon redemption or acceleration of the maturity,
an amount less than the amount payable upon the stated maturity
shall become due and payable.
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United States federal income tax considerations applicable to
debt securities sold at an original issue discount will be
described in the applicable prospectus supplement.
Under the indentures we will have the ability, without the
consent of the holders, to issue debt securities with terms
different from those of debt securities previously issued and to
reopen a previous issue of a series of debt securities and issue
additional debt securities of that series, unless the reopening
was restricted when the series was created, in an aggregate
principal amount determined by us.
7
Conversion
or Exchange Rights
The terms, if any, on which a series of debt securities may be
convertible into or exchangeable for common stock or other of
our securities will be detailed in the applicable prospectus
supplement. The terms will include provisions as to whether
conversion or exchange is mandatory, at the option of the
holder, or at our option, and may include provisions pursuant to
which the number of shares of our common stock or other of our
securities to be received by the holders of the series of debt
securities would be subject to adjustment.
Consolidation,
Merger or Sale of Assets
Unless we provide otherwise in the applicable prospectus
supplement, the indentures will provide that we may not
consolidate with or merge into any other person, in a
transaction in which we are not the surviving corporation, or
convey, transfer or lease our properties and assets
substantially as an entirety to, any person, unless:
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the successor entity, if any, is a corporation, limited
liability company, partnership, trust or other entity existing
under the laws of the United States, or any State or the
District of Columbia;
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the successor entity assumes our obligations on the debt
securities and under the indentures;
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immediately prior to and after giving effect to the transaction,
no default or event of default shall have occurred and be
continuing; and
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certain other conditions are met.
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Events of
Default Under the Indenture
Unless we provide otherwise in the applicable prospectus
supplement, the following will be events of default under the
indenture with respect to any series of debt securities issued:
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failure to pay interest on the debt securities when due, which
failure continues for a specified period set forth in the
applicable indenture and prospectus supplement and the time for
payment has not been deferred;
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failure to pay the principal of or premium on the debt
securities, if any, when due;
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failure to deposit any sinking fund payment when due, which
failure continues for 60 days;
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failure to observe or perform any other covenant contained in
the debt securities or the indentures other than a covenant
specifically relating to another series of debt securities,
which failure continues for a specified period set forth in the
applicable indenture and prospectus supplement after we receive
notice from the debt trustee or holders of a specified
percentage, set forth in the applicable indenture and prospectus
supplement, of the aggregate principal amount of the outstanding
debt securities of that series; or
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particular events of our bankruptcy, insolvency or
reorganization.
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The supplemental indenture or the form of note for a particular
series of debt securities may include additional events of
default or changes to the events of default described above. For
any additional or different events of default applicable to a
particular series of debt securities, see the indenture and
prospectus supplement relating to the series.
If an event of default with respect to debt securities of any
series occurs and is continuing, the debt trustee or the holders
of a specified percentage of the aggregate principal amount of
the outstanding debt securities of that series, by notice in
writing to us (and, to the debt trustee, if notice is given by
the holders), may declare the unpaid principal of or premium, if
any, and accrued interest, if any, on the debt securities of
that series due and payable immediately.
8
The holders of a specified percentage of the aggregate principal
amount of the outstanding debt securities of an affected series
may waive any default or event of default with respect to the
series and its consequences, except defaults or events of
default regarding:
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payment of principal of or premium, if any, or interest on the
debt securities; or
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those covenants described under the subsection
Modification of Indenture; Waiver that cannot be
modified or amended without the consent of each holder of any
outstanding debt securities affected.
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Any waiver shall cure the default or event of default.
Subject to the terms of the indenture (as supplemented), if an
event of default under an indenture occurs and is continuing,
the debt trustee will be under no obligation to exercise any of
its rights or powers under the indenture at the request or
direction of any of the holders of the applicable series of debt
securities, unless the holders have offered the debt trustee
reasonable indemnity. The holders of a specified percentage of
the aggregate principal amount of the outstanding debt
securities of any series will have the right to direct the time,
method and place of conducting any proceeding for any remedy
available to the debt trustee, or exercising any trust or power
conferred on the debt trustee, with respect to the debt
securities of that series, provided that:
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it is not in conflict with any law or the applicable indenture;
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the debt trustee may take any other action deemed proper by it
that is not inconsistent with the direction;
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subject to its duties set forth under the applicable indenture,
the debt trustee need not take any action that might involve it
in personal liability; and
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in the case of the debt trustee under the senior indenture,
subject to its duties set forth under the indenture, the debt
trustee need not take any action that it determines, upon the
advice of counsel, may not lawfully be taken or in good faith
determines would be unduly prejudicial to the holders of the
debt securities.
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A holder of the debt securities of any series will only have the
right to institute a proceeding under the indenture or to
appoint a receiver or trustee, or to seek other remedies if:
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the holder has given written notice to the debt trustee of a
continuing event of default with respect to that series;
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the holders of a specified percentage of the aggregate principal
amount of the outstanding debt securities of that series have
made written request to the debt trustee, and the holders have
offered reasonable indemnity to the debt trustee to institute
proceedings; and
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the debt trustee does not institute a proceeding, and does not
receive from the holders of a majority in aggregate principal
amount of the outstanding debt securities of that series other
conflicting directions within a specified period set forth in
the applicable indenture and prospectus supplement after the
notice, request and offer.
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These limitations will not apply to a suit instituted by a
holder of debt securities if we default in the payment of the
principal of or premium, if any, or interest on the debt
securities.
We will periodically file statements with the debt trustee
regarding our compliance with the covenants in the indentures.
Modification
of Indenture; Waiver
We and the debt trustee may change an indenture without the
consent of any holders with respect to specific matters,
including:
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to fix any ambiguity, defect or inconsistency in the indenture,
provided that such action does not materially adversely affect
the interests of any holder of debt securities of any series;
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to provide for the assumption by a successor person or the
acquirer of all or substantially all of our assets or
obligations under such indenture;
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to evidence and provide for successor trustees;
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to add, change or eliminate any provision affecting only debt
securities not yet issued;
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to comply with any requirement of the SEC in connection with
qualification of an indenture under the Trust Indenture Act
of 1939; and
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to conform the indenture to the provisions set forth in the
description of the securities in the applicable prospectus
supplement.
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In addition, the rights of holders of a series of debt
securities may be changed by us and the debt trustee with the
written consent of the holders of at least a majority in
aggregate principal amount of the outstanding debt securities of
each series that is affected. However, the following changes may
only be made with the consent of each holder of any outstanding
debt securities affected:
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extend the fixed maturity of the series of debt securities;
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change any obligation of ours to pay additional amounts with
respect to the debt securities;
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reduce the principal amount of, the rate of interest on, or any
premium payable upon the redemption of any debt securities;
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reduce the amount of principal of an original issue discount
security or any other debt security payable upon acceleration of
the maturity thereof;
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impair the right to enforce any payment on, or with respect to,
any debt security;
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adversely change the right to convert or exchange, including
decreasing the conversion rate or increasing the conversion
price of, the debt security (if applicable);
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in the case of the subordinated indenture, modify the
subordination provisions in a manner adverse to the holders of
the subordinated debt securities;
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if the debt securities are secured, change the terms and
conditions pursuant to which the debt securities are secured in
a manner adverse to the holders of the secured debt securities;
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reduce the percentage of principal amount of outstanding debt
securities of any series the consent of the holders of which is
required for modification or amendment of the indenture or for
waiver of compliance with certain provisions of the indenture or
for waiver of certain defaults; or
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modify any of the above provisions.
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Form,
Exchange and Transfer
The debt securities of each series will be issuable only in
fully registered form without coupons and, unless otherwise
specified in the applicable indenture and prospectus supplement,
in denominations of $1,000 and any integral multiple thereof.
The indenture will provide that debt securities of a series may
be issuable in temporary or permanent global form and may be
issued as book-entry securities that will be deposited with, or
on behalf of, The Depository Trust Company, or DTC, unless
the indenture and prospectus supplement provides otherwise.
At the option of the holder, subject to the terms of the
indenture and the limitations applicable to global securities
described in the applicable prospectus supplement, debt
securities of any series will be exchangeable for other debt
securities of the same series, in any authorized denomination
and of like tenor and aggregate principal amount.
Subject to the terms of the indenture and the limitations
applicable to global securities detailed in the applicable
prospectus supplement, debt securities may be presented for
exchange or for registration of transfer (duly endorsed or with
the form of transfer endorsed thereon duly executed if so
required by us or the security
10
registrar) at the office of the security registrar or at the
office of any transfer agent designated by us for that purpose.
Unless otherwise provided in the debt securities to be
transferred or exchanged, no service charge will be made for any
registration of transfer or exchange, but we may require payment
of any taxes or other governmental charges. The security
registrar and any transfer agent (in addition to the security
registrar) initially designated by us for any debt securities
will be named in the applicable prospectus supplement. We may at
any time designate additional transfer agents or rescind the
designation of any transfer agent or approve a change in the
office through which any transfer agent acts, except that we
will be required to maintain a transfer agent in each place of
payment for the debt securities of each series.
If the debt securities of any series are to be redeemed, we will
not be required to:
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issue, register the transfer of, or exchange any debt securities
of that series during a period beginning at the opening of
business 15 days before the day of mailing of a notice of
redemption of any debt securities that may be selected for
redemption and ending at the close of business on the day of the
mailing; or
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register the transfer of or exchange any debt securities so
selected for redemption, in whole or in part, except for the
unredeemed portion of any debt securities being redeemed in part.
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Information
Concerning the Debt Trustee
The debt trustee, other than during the occurrence and
continuance of an event of default under an indenture,
undertakes to perform only the duties specifically set forth in
the indenture and, upon an event of default under the indenture,
must use the same degree of care as a prudent person would
exercise or use in the conduct of his or her own affairs.
Subject to this provision, the debt trustee is under no
obligation to exercise any of the powers given to it by the
indenture at the request of any holder of debt securities unless
it is offered reasonable security and indemnity against the
costs, expenses and liabilities that it might incur. The debt
trustee is not required to spend or risk its own money or
otherwise become financially liable while performing its duties
unless it reasonably believes that it will be repaid or receive
adequate indemnity.
Payment
and Paying Agents
Unless otherwise indicated in the applicable indenture and
prospectus supplement, payment of the interest on any debt
securities on any interest payment date will be made to the
person in whose name the debt securities (or one or more
predecessor securities) are registered at the close of business
on the regular record date for the payment of interest.
Principal of and any premium and interest on the debt securities
of a particular series will be payable at the office of the
paying agents designated by us, except that, unless otherwise
indicated in the applicable indenture and prospectus supplement,
interest payments may be made by check mailed to the holder.
Unless otherwise indicated in the applicable indenture and
prospectus supplement, the corporate trust office of the debt
trustee in the City of New York will be designated as our sole
paying agent for payments with respect to debt securities of
each series. Any other paying agents initially designated by us
for the debt securities of a particular series will be named in
the applicable prospectus supplement. We will be required to
maintain a paying agent in each place of payment for the debt
securities of a particular series.
All moneys paid by us to a paying agent or the debt trustee for
the payment of the principal of, or any premium or interest on,
any debt securities which remain unclaimed at the end of two
years after the principal, premium, or interest has become due
and payable will be repaid to us, and the holder of the security
thereafter may look only to us for payment thereof.
Governing
Law
Unless otherwise indicated in the applicable prospectus
supplement, the indentures and the debt securities will be
governed by and construed in accordance with the laws of the
State of New York except for conflict of laws provisions and
except to the extent that the Trust Indenture Act of 1939
is applicable.
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Subordination
of Subordinated Debt Securities
Any subordinated debt securities will be unsecured and will be
subordinate and junior in priority of payment to some of our
other indebtedness to the extent described in the applicable
indenture and prospectus supplement. The subordinated indenture
will not limit the amount of subordinated debt securities that
we may issue, nor will it limit us from issuing any other
secured or unsecured debt. We have a $250 million credit
facility of which we had approximately $24.0 million in
available borrowing capacity at March 17, 2010.
Book-Entry
Debt Securities
We will make payments on each series of book-entry debt
securities to DTC or its nominee as the sole registered owner
and holder of the global security. Neither we nor the debt
trustee nor any of our or its agents will be responsible or
liable for any aspect of DTCs records relating to or
payments made on account of beneficial ownership interests in a
global security or for maintaining, supervising or reviewing any
of DTCs records relating to the beneficial ownership
interests or with respect to its performance of its obligations
under the rules and regulations governing its operations.
We understand that when DTC receives any payment on a global
security, it will immediately, on its book-entry registration
and transfer system, credit the accounts of participants with
payments in amounts proportionate to their beneficial interests
in the global security as shown on DTCs records. Payments
by participants to you, as an owner of a beneficial interest in
the global security, will be governed by standing instructions
and customary practices (as is the case with securities held for
customer accounts registered in street name) and
will be the sole responsibility of the participants.
A global security representing a series will be exchanged for
certificated debt securities of that series if (a) DTC
notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered
under the Securities Exchange Act of 1934 and we do not appoint
a successor within 90 days or (b) we decide that the
global security shall be exchangeable. If that occurs, we will
issue debt securities of that series in certificated form in
exchange for the global security. An owner of a beneficial
interest in the global security then will be entitled to
physical delivery of a certificate for debt securities of the
series equal in principal amount to that beneficial interest and
to have those debt securities registered in its name. We would
issue the certificates for the debt securities in denominations
of $1,000 or any larger amount that is an integral multiple
thereof, and we would issue them in registered form only,
without coupons.
We understand that DTC is a limited-purpose trust company
organized under the New York Banking Law, a banking
organization within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform
Commercial Code and a clearing agency registered
under the Securities Exchange Act of 1934. DTC was created to
hold the securities of its participants and to facilitate the
clearance and settlement of securities transactions among its
participants through electronic book-entry changes in accounts
of the participants, thereby eliminating the need for physical
movement of securities certificates. DTCs participants
include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations, some of
which (and/or their representatives) own DTC. Access to
DTCs book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant,
either directly or indirectly. The rules applicable to DTC and
its participants are on file with the SEC. No fees or costs of
DTC will be charged to you.
DESCRIPTION
OF UNITS
We may issue units comprised of one or more of the other classes
of securities described in this prospectus in any combination.
Each unit will be issued so that the holder of the unit is also
the holder of each security included in the unit. Thus, the
holder of a unit will have the rights and obligations of a
holder of each included security. The units may be issued under
unit agreements to be entered into between us and a
12
unit agent, as detailed in the prospectus supplement relating to
the units being offered. The prospectus supplement will describe:
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the designation and terms of the units and of the securities
comprising the units, including whether and under what
circumstances the securities comprising the units may be held or
transferred separately;
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a description of the terms of any unit agreement governing the
units;
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a description of the provisions for the payment, settlement,
transfer or exchange of the units;
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a discussion of material federal income tax considerations, if
applicable; and
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whether the units will be issued in fully registered or global
form.
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The descriptions of the units in this prospectus and in any
prospectus supplement are summaries of the material provisions
of the applicable agreements. These descriptions do not restate
those agreements in their entirety and may not contain all the
information that you may find useful. We urge you to read the
applicable agreements because they, and not the summaries,
define your rights as holders of the units. For more
information, please review the forms of the relevant agreements,
which will be filed with the SEC promptly after the offering of
units and will be available as described under the heading
Where You Can Find More Information.
PLAN OF
DISTRIBUTION
We may sell the offered securities in one or more of the
following ways:
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through an underwriter or underwriters;
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through dealers;
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through agents;
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directly to one or more purchasers, including affiliates of
ours; or
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through a combination of any of these methods of sale.
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The applicable prospectus supplement will contain the terms of
the offering of any securities. The initial public offering
price and any discount or concessions allowed or reallowed to
dealers may be changed from time to time. The applicable
prospectus supplement will contain the expected time of delivery
of the securities for which this prospectus is delivered.
Unless otherwise indicated in the applicable prospectus
supplement, if underwriters are used in the sale of the
securities, the underwriting agreement will provide that the
obligations of the underwriters are subject to certain
conditions precedent and that the underwriters will be obligated
to purchase all of the securities if any are purchased. In
connection with the sale of securities, underwriters may receive
compensation from us or from purchasers of securities for whom
they may act as agents in the form of discounts, concessions or
commissions. Underwriters may sell securities to or through
dealers, and dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters
and/or
commissions from the purchasers for whom they may act as agent.
Underwriters, agents or dealers participating in the
distribution of securities may be deemed to be underwriters, and
any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be
underwriting discounts and commissions under the Securities Act
of 1933. The securities may be sold in one or more transactions
either at a fixed price or at prices which may be changed based
on market prices prevailing at the time of sale, at prices
related to the prevailing market prices or at negotiated prices.
We may indemnify the underwriters, agents or dealers who
participate in the distribution of securities against certain
liabilities, including liabilities under the Securities Act of
1933. We may also contribute to payments that the underwriters,
dealers or agents or any of their controlling persons may be
required to make
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in respect of such liabilities. Underwriters, agents or dealers
may be customers of, engage in transactions with or perform
services for us or our subsidiaries in the ordinary course of
business.
If so indicated in a prospectus supplement, we will authorize
underwriters, dealers and agents to solicit offers by certain
institutions to purchase securities from us pursuant to delayed
delivery contracts providing for payment and delivery on the
date stated in the prospectus supplement. These contracts will
be subject only to those conditions contained in the prospectus
supplement. The prospectus supplement will also contain the
commission payable for solicitation of any of these contracts.
Offers to purchase securities may be solicited directly by us
and sales of securities may be made by us directly to
institutional investors or others who may be deemed to be
underwriters within the meaning of the Securities Act of 1933,
with respect to any resale of the securities. The terms of any
such sales will be described in the prospectus supplement
relating to the securities. Except as contained in the
applicable prospectus supplement, no director, officer or
employee of ours will solicit or receive a commission in
connection with the direct sales by us of the securities,
although these persons may respond to inquiries by potential
purchasers and perform ministerial and clerical work in
connection with any such direct sales.
LEGAL
MATTERS
The validity of the securities offered hereby will be passed
upon for us by Thompson Coburn LLP, St. Louis, Missouri.
EXPERTS
The consolidated financial statements of Federal Signal
Corporation appearing in Federal Signal Corporations
Annual Report
(Form 10-K)
for the year ended December 31, 2009 including the schedule
appearing therein, and the effectiveness of Federal Signal
Corporations internal control over financial reporting as
of December 31, 2009, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their reports thereon included
therein, and incorporated herein by reference. Such financial
statements are, and audited financial statements to be included
in subsequently filed documents will be, incorporated herein in
reliance upon the reports of Ernst & Young LLP
pertaining to such financial statements and the effectiveness of
our internal control over financial reporting as of the
respective dates given on the authority of such firm as experts
in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. Our SEC filings are
available to the public over the Internet at the SECs
website at www.sec.gov. The SECs website contains reports,
proxy and information statements and other information regarding
issuers, such as us, that file electronically with the SEC. You
may read and copy any document we file with the SEC at the
SECs Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. You may also obtain copies of
these documents at prescribed rates by writing to the SEC.
Please call the SEC at
1-800-SEC-0330
for further information on the operation of its Public Reference
Room.
We have filed with the SEC a registration statement under the
Securities Act of 1933 relating to the offering of these
securities. The registration statement, including the attached
exhibits, contains additional relevant information about us and
the securities. This prospectus does not contain all of the
information set forth in the registration statement. You can
obtain a copy of the registration statement, at prescribed
rates, from the SEC at the address listed above. The
registration statement and the documents referred to below under
Incorporation by Reference are also available on our
Internet website, www.federalsignal.com. We have not
incorporated by reference into this prospectus the information
on our website, and you should not consider it to be a part of
this prospectus.
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INCORPORATION
BY REFERENCE
The SEC allows us to incorporate by reference in
this prospectus the information that we file with it. This means
that we can disclose important information to you in this
document by referring you to other filings we have made with the
SEC. The information incorporated by reference is considered to
be part of this prospectus. The information incorporated by
reference in this prospectus is accurate only as of the date of
the information on the front cover of the applicable document,
or such earlier date as is expressly stated or otherwise
apparent with respect to such incorporated information in the
applicable document, regardless of the time of delivery of this
prospectus or any sale of securities.
This prospectus incorporates by reference the documents listed
below, which we have filed with the SEC:
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our Annual Report on
Form 10-K
for our fiscal year ended December 31, 2009, filed on
February 26, 2010;
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our Current Reports on
Form 8-K,
filed on January 7, 2010, January 15, 2010,
January 21, 2010, March 4, 2010, March 5, 2010
and March 10, 2010; and
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the description of our common stock, $1.00 par value per
share, as contained in our Registration Statement on
Form 8-A
effective pursuant to Section 12 of the Securities Exchange
Act of 1934, including any amendments or reports filed for the
purpose of updating such description.
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We incorporate by reference any additional documents that we may
file with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 (other than the portions
of those made pursuant to Item 2.02 or Item 7.01 of
Form 8-K
or other information furnished to the SEC) between
the date that we initially filed the registration statement to
which this prospectus relates and the termination of the
offering of the securities. These documents may include periodic
reports, like Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
as well as proxy statements. Any material that we subsequently
file with the SEC will automatically update and replace the
information previously filed with the SEC.
This prospectus may contain information that updates, modifies
or is contrary to information in one or more of the documents
incorporated by reference in this prospectus. You should rely
only on the information incorporated by reference or provided in
this prospectus. We have not authorized anyone else to provide
you with different information. You should not assume that the
information in this prospectus is accurate as of any date other
than the date of this prospectus or the date of the documents
incorporated by reference in this prospectus.
We will provide to each person, including any beneficial owner,
to whom this prospectus is delivered, upon written or oral
request, at no cost, a copy of any and all of the information
that is incorporated by reference in this prospectus.
Requests for such documents should be directed to:
JENNIFER L.
SHERMAN, ESQ.
Senior Vice President, Human Resources, General Counsel and
Secretary
Federal Signal Corporation
1415 West
22nd
Street
Oak Brook, Illinois 60523
(630) 954-2000
You may also access the documents incorporated by reference in
this prospectus through our website at
www.federalsignal.com. Except for the specific
incorporated documents listed above, no information available on
or through our website shall be deemed to be incorporated in
this prospectus or the registration statement of which it forms
a part.
15
Shares
Common Stock
PRELIMINARY PROSPECTUS SUPPLEMENT
,
2010
Citi