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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________ 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 1-6003
  _____________________________________________
 fss-20200930_g1.jpg
FEDERAL SIGNAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware36-1063330
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1415 West 22nd Street, Oak Brook, Illinois
(Address of principal executive offices)
60523
(Zip code)
(630954-2000
(Registrant’s telephone number, including area code)
  _____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00 per shareFSSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of September 30, 2020, the number of shares outstanding of the registrant’s common stock was 60,523,414.


Table of Contents

FEDERAL SIGNAL CORPORATION
TABLE OF CONTENTS
Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) is being filed by Federal Signal Corporation and its subsidiaries (referred to collectively as the “Company,” “we,” “our” or “us” herein, unless the context otherwise indicates) with the United States (“U.S.”) Securities and Exchange Commission (the “SEC”), and includes comments made by management that may contain words such as “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “project,” “estimate” and “objective” or similar terminology, or the negative thereof, concerning the Company’s future financial performance, business strategy, plans, goals and objectives. These expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning the Company’s possible or assumed future performance or results of operations and are not guarantees. While these statements are based on assumptions and judgments that management has made in light of industry experience as well as perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances, they are subject to risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different.
These risks and uncertainties, some of which are beyond the Company’s control, include the risk factors described under Part I, Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 27, 2020, and as updated in Part II, Item 1A, Risk Factors of the Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020 and June 30, 2020, which were filed with the SEC on April 29, 2020 and July 29, 2020, respectively, and this Form 10-Q. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Company operates in a continually changing business environment and new factors emerge from time to time, including, for example, the ongoing coronavirus (“COVID-19”) pandemic and the government response to the pandemic. The Company cannot predict such factors, nor can it assess the impact, if any, of such factors on its results of operations, financial condition or cash flow. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results. The Company disclaims any responsibility to update any forward-looking statement provided in this Form 10-Q.
ADDITIONAL INFORMATION
The Company is subject to the reporting and information requirements of the Exchange Act and, as a result, is obligated to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and information with the SEC, as well as amendments to those reports. The Company makes these filings available free of charge through our website at www.federalsignal.com as soon as reasonably practicable after such materials are filed with, or furnished to, the SEC. Information on our website does not constitute part of this Form 10-Q.
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PART I. FINANCIAL INFORMATION
Item 1.     Financial Statements (Unaudited).
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions, except per share data)2020201920202019
Net sales$279.8 $308.8 $836.0 $906.9 
Cost of sales207.2 226.8 618.3 665.6 
Gross profit72.6 82.0 217.7 241.3 
Selling, engineering, general and administrative expenses38.4 43.0 118.0 128.7 
Acquisition and integration-related expenses0.2 0.4 0.8 1.9 
Restructuring  1.3  
Operating income34.0 38.6 97.6 110.7 
Interest expense1.2 2.1 4.5 6.1 
Other (income) expense, net(0.1)0.2 2.1 0.5 
Income before income taxes32.9 36.3 91.0 104.1 
Income tax expense7.6 7.9 20.9 25.4 
Net income$25.3 $28.4 $70.1 $78.7 
Earnings per share:
Basic$0.42 $0.47 $1.16 $1.31 
Diluted0.41 0.46 1.14 1.28 
Weighted average common shares outstanding:
Basic60.3 60.2 60.3 60.1 
Diluted61.3 61.4 61.5 61.3 
See notes to condensed consolidated financial statements.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2020201920202019
Net income $25.3 $28.4 $70.1 $78.7 
Other comprehensive income (loss):
Change in foreign currency translation adjustment4.4 (3.8)(0.5)(3.0)
Change in unrecognized net actuarial loss and prior service cost related to pension benefit plans, net of income tax expense of $0.2, $0.2, $0.6 and $0.5, respectively
0.3 1.3 3.0 2.8 
Change in unrealized gain or loss on interest rate swaps, net of income tax expense (benefit) of $0.0, $(0.1), $(1.1) and $(0.5), respectively
0.1 (0.1)(3.3)(1.3)
Total other comprehensive income (loss)4.8 (2.6)(0.8)(1.5)
Comprehensive income$30.1 $25.8 $69.3 $77.2 
See notes to condensed consolidated financial statements.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
2020
December 31,
2019
(in millions, except per share data)(Unaudited) 
ASSETS
Current assets:
Cash and cash equivalents$66.2 $31.6 
Accounts receivable, net of allowances for doubtful accounts of $3.0 and $2.4, respectively
145.0 134.2 
Inventories196.6 182.9 
Prepaid expenses and other current assets9.9 12.0 
Total current assets417.7 360.7 
Properties and equipment, net of accumulated depreciation of $133.0 and $125.5, respectively
105.6 91.9 
Rental equipment, net of accumulated depreciation of $40.9 and $33.6, respectively
115.4 115.4 
Operating lease right-of-use assets22.4 27.6 
Goodwill392.0 388.8 
Intangible assets, net of accumulated amortization of $29.4 and $22.1, respectively
155.4 162.9 
Deferred tax assets7.7 10.0 
Deferred charges and other long-term assets8.2 7.9 
Long-term assets of discontinued operations0.3 0.3 
Total assets$1,224.7 $1,165.5 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term borrowings and finance lease obligations$0.2 $0.2 
Accounts payable71.1 65.0 
Customer deposits11.5 11.5 
Accrued liabilities:
Compensation and withholding taxes27.8 31.1 
Current operating lease liabilities8.1 8.2 
Other current liabilities39.7 44.0 
Current liabilities of discontinued operations0.2 0.2 
Total current liabilities158.6 160.2 
Long-term borrowings and finance lease obligations238.7 220.3 
Long-term operating lease liabilities16.2 21.6 
Long-term pension and other postretirement benefit liabilities44.6 50.9 
Deferred tax liabilities58.1 52.7 
Other long-term liabilities27.8 17.3 
Long-term liabilities of discontinued operations0.9 0.9 
Total liabilities544.9 523.9 
Stockholders’ equity:
Common stock, $1 par value per share, 90.0 shares authorized, 67.8 and 66.9 shares issued, respectively
67.8 66.9 
Capital in excess of par value237.4 228.6 
Retained earnings583.8 528.2 
Treasury stock, at cost, 7.3 and 6.4 shares, respectively
(119.3)(93.0)
Accumulated other comprehensive loss(89.9)(89.1)
Total stockholders’ equity679.8 641.6 
Total liabilities and stockholders’ equity$1,224.7 $1,165.5 
See notes to condensed consolidated financial statements.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months Ended
September 30,
(in millions)20202019
Operating activities:
Net income$70.1 $78.7 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization33.1 30.1 
Stock-based compensation expense5.4 5.9 
Payments for acquisition-related activity (3.1)
Deferred income taxes8.4 8.6 
Changes in operating assets and liabilities(37.4)(61.6)
Net cash provided by operating activities79.6 58.6 
Investing activities:
Purchases of properties and equipment(24.3)(21.2)
Proceeds from sales of properties and equipment0.5 0.3 
Payments for acquisition-related activity(6.2)(49.6)
Proceeds from acquisition-related activity0.8  
Other, net 0.2 
Net cash used for investing activities(29.2)(70.3)
Financing activities:
Increase in revolving lines of credit, net20.5 37.5 
Payments of debt financing fees (1.0)
Purchases of treasury stock(13.7)(1.0)
Redemptions of common stock to satisfy withholding taxes related to stock-based compensation(9.0)(1.9)
Payments for acquisition-related activity (10.3)
Cash dividends paid to stockholders(14.5)(14.5)
Proceeds from stock-based compensation activity0.6 1.7 
Other, net0.1  
Net cash (used for) provided by financing activities(16.0)10.5 
Effects of foreign exchange rate changes on cash and cash equivalents0.2 (0.3)
Increase (decrease) in cash and cash equivalents34.6 (1.5)
Cash and cash equivalents at beginning of year31.6 37.4 
Cash and cash equivalents at end of period$66.2 $35.9 
See notes to condensed consolidated financial statements.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
Three Months Ended September 30, 2020
(in millions)Common
Stock
Capital in
Excess of
Par
Value
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Balance at July 1, 2020$67.5 $234.7 $563.3 $(115.4)$(94.7)$655.4 
Net income25.3 25.3 
Total other comprehensive income4.8 4.8 
Cash dividends declared ($0.08 per share)
(4.8)(4.8)
Stock-based payments:
Stock-based compensation1.5 1.5 
Stock option exercises and other0.3 1.2 (3.7)(2.2)
Stock repurchase program(0.2)(0.2)
Balance at September 30, 2020$67.8 $237.4 $583.8 $(119.3)$(89.9)$679.8 
Three Months Ended September 30, 2019
(in millions)Common
Stock
Capital in
Excess of
Par
Value
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Balance at July 1, 2019$66.7 $221.3 $479.7 $(91.4)$(96.2)$580.1 
Net income28.4 28.4 
Total other comprehensive loss(2.6)(2.6)
Cash dividends declared ($0.08 per share)
(4.9)(4.9)
Stock-based payments:
Stock-based compensation1.7 1.7 
Stock option exercises and other0.2 2.5 (1.2)1.5 
Balance at September 30, 2019$66.9 $225.5 $503.2 $(92.6)$(98.8)$604.2 
Nine Months Ended September 30, 2020
(in millions)Common
Stock
Capital in
Excess of
Par
Value
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Balance at January 1, 2020$66.9 $228.6 $528.2 $(93.0)$(89.1)$641.6 
Net income70.1 70.1 
Total other comprehensive loss(0.8)(0.8)
Cash dividends declared ($0.24 per share)
(14.5)(14.5)
Stock-based payments:
Stock-based compensation5.4 5.4 
Stock option exercises and other0.7 3.6 (9.7)(5.4)
Performance share unit transactions0.2 (0.2)(2.9)(2.9)
Stock repurchase program(13.7)(13.7)
Balance at September 30, 2020$67.8 $237.4 $583.8 $(119.3)$(89.9)$679.8 
See notes to condensed consolidated financial statements.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
Nine Months Ended September 30, 2019
(in millions)Common
Stock
Capital in
Excess of
Par
Value
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Balance at January 1, 2019$66.4 $217.0 $432.5 $(88.5)$(97.3)$530.1 
Net income78.7 78.7 
Total other comprehensive loss(1.5)(1.5)
Cash dividends declared ($0.24 per share)
(14.5)(14.5)
Impact of adoption of ASU 2016-026.5 6.5 
Stock-based payments:
Stock-based compensation5.2 5.2 
Stock option exercises and other0.4 3.4 (2.2)1.6 
Performance share unit transactions0.1 (0.1)(0.9)(0.9)
Stock repurchase program(1.0)(1.0)
Balance at September 30, 2019$66.9 $225.5 $503.2 $(92.6)$(98.8)$604.2 
See notes to condensed consolidated financial statements.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of the Business
Federal Signal Corporation was founded in 1901 and was reincorporated as a Delaware corporation in 1969. References herein to the “Company,” “we,” “our” or “us” refer collectively to Federal Signal Corporation and its subsidiaries.
Products manufactured and services rendered by the Company are divided into two reportable segments: Environmental Solutions Group and Safety and Security Systems Group. The individual operating businesses are organized as such because they share certain characteristics, including technology, marketing, distribution and product application, which create long-term synergies. These segments are discussed in Note 11 – Segment Information.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements represent the consolidation of Federal Signal Corporation and its subsidiaries included herein and have been prepared by the Company pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures presented herein are adequate to ensure the information presented is not misleading. Except as otherwise noted, these condensed consolidated financial statements have been prepared in accordance with the Company’s accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and should be read in conjunction with those consolidated financial statements and the notes thereto.
These condensed consolidated financial statements include all normal and recurring adjustments that we considered necessary to present a fair statement of our results of operations, financial condition and cash flow. Intercompany balances and transactions have been eliminated in consolidation. In addition, certain prior-year amounts have been reclassified to conform to current-year presentation.
The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year, which may differ materially due to, among other things, the risk factors described under Part I, Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 27, 2020, and as updated in Part II, Item 1A, Risk Factors, of the Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020 and June 30, 2020, which were filed with the SEC on April 29, 2020 and July 29, 2020, respectively, and in this Form 10-Q. While we label our quarterly information using a calendar convention whereby our first, second and third quarters are labeled as ending on March 31, June 30 and September 30, respectively, it is our longstanding practice to establish interim quarterly closing dates based on a 13-week period ending on a Saturday, with our fiscal year ending on December 31. The effects of this practice are not material and exist only within a reporting year.
Recent Accounting Pronouncements and Accounting Changes
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements, which requires the measurement of expected credit losses for financial instruments based on historical experience, current conditions, and reasonable forecasts. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The amendments in this ASU should be applied on a modified retrospective basis. The Company adopted this guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which eliminates certain disclosure requirements, such as the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy. This ASU adds new disclosure requirements for Level 3 measurements, and is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted this guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s disclosures in its consolidated financial statements.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. The amendments should be applied on a retrospective, modified retrospective or prospective basis, depending on the area covered by the update. The Company currently expects to adopt this guidance effective January 1, 2021 and does not expect that its adoption will have a material impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. Among other things, for all types of hedging relationships, the guidance allows an entity to change the reference rate and other critical terms related to reference rate reform without having to remeasure the value or reassess a previous accounting determination. The amendments in this guidance should be applied on a prospective basis and, for companies with a fiscal year ending December 31, are effective from January 1, 2020 through December 31, 2022. The Company adopted this guidance effective January 1, 2020. When the transition occurs, the Company expects to apply this expedient to its existing interest rate swap that references LIBOR, and to any other new transactions that reference LIBOR or another reference rate that is discontinued, through December 31, 2022. The adoption of this ASU did not impact the Company’s consolidated financial statements.
No other new accounting pronouncements issued, but not yet adopted, are expected to have a material impact on the Company’s results of operations, financial position or cash flow.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (iii) the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes may differ, including as a result of the risks and uncertainties associated with the COVID-19 pandemic and its effect on the global economy.
Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
NOTE 2 – ACQUISITIONS
Acquisition of Public Works Equipment and Supply, Inc.
On June 12, 2020, the Company acquired certain assets and operations of Public Works Equipment and Supply, Inc. (“PWE”), a distributor of maintenance and infrastructure equipment covering North Carolina, South Carolina and parts of Tennessee. The acquisition included cash consideration of $6.2 million, which included a payment to acquire certain inventory and fixed assets at closing. As the acquisition closed on June 12, 2020, the assets and liabilities of PWE have been consolidated into the Company’s Condensed Consolidated Balance Sheet as of September 30, 2020, and the post-acquisition results of operations have been included in the Condensed Consolidated Statements of Operations, within the Environmental Solutions Group.
The assets acquired and liabilities assumed in the PWE acquisition have been measured at their fair values at the acquisition date, resulting in $2.5 million of goodwill, which is deductible for tax purposes. Due to the timing of the acquisition, these amounts are preliminary and are subject to change within the measurement period as the Company finalizes its fair value estimates. The Company currently expects to finalize the purchase price allocation by the end of the current year.
The acquisition was not, and would not have been, material to the Company’s net sales, results of operations or total assets during any period presented. Accordingly, the Company’s consolidated results from operations do not differ materially from historical performance as a result of the acquisition, and therefore, pro-forma results are not presented.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
NOTE 3 – REVENUE RECOGNITION
The following table presents the Company’s Net sales disaggregated by geographic region, based on the location of the end customer, and by major product line:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2020201920202019
Geographic Region:
U.S.$219.1 $252.6 $650.7 $705.6 
Canada41.6 35.6 113.4 131.2 
Europe/Other19.1 20.6 71.9 70.1 
Total net sales$279.8 $308.8 $836.0 $906.9 
Major Product Line:
Environmental Solutions
Vehicles and equipment (a)
$179.1 $198.3 $531.1 $585.7 
Parts32.4 34.4 96.7 101.0 
Rental income (b)
9.2 12.1 27.3 35.1 
Other (c)
10.3 9.2 23.1 18.9 
Total231.0 254.0 678.2 740.7 
Safety and Security Systems
Public safety and security equipment29.5 31.6 97.6 98.6 
Industrial signaling equipment11.6 15.1 38.0 45.1 
Warning systems7.7 8.1 22.2 22.5 
Total48.8 54.8 157.8 166.2 
Total net sales$279.8 $308.8 $836.0 $906.9 
(a)    Includes net sales from the sale of new and used vehicles and equipment, including sales of rental equipment.
(b)    Represents income from vehicle and equipment lease arrangements with customers.
(c)    Primarily includes revenues from services, such as maintenance and repair work, and the sale of extended warranty contracts.
Contract Balances
The Company recognizes contract liabilities when cash payments, such as customer deposits, are received in advance of the Company’s satisfaction of the related performance obligations. Contract liabilities are recognized as Net sales when the related performance obligations are satisfied, which generally occurs within three to six months of the cash receipt. Contract liability balances are not materially impacted by any other factors. The Company’s contract liabilities were $14.7 million and $13.9 million as of September 30, 2020 and December 31, 2019, respectively. Contract assets, such as unbilled receivables, were not material as of any of the periods presented herein.
NOTE 4 – INVENTORIES
The following table summarizes the components of Inventories:
(in millions)September 30,
2020
December 31,
2019
Finished goods$99.8 $86.8 
Raw materials79.5 79.5 
Work in process17.3 16.6 
Total inventories$196.6 $182.9 
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
NOTE 5 – DEBT
The following table summarizes the components of Long-term borrowings and finance lease obligations:
(in millions)September 30,
2020
December 31, 2019
2019 Credit Agreement (a)
$238.2 $219.9 
Finance lease obligations0.7 0.6 
Total long-term borrowings and finance lease obligations, including current portion238.9 220.5 
Less: Current finance lease obligations0.2 0.2 
Total long-term borrowings and finance lease obligations$238.7 $220.3 
(a)     Defined as the Second Amended and Restated Credit Agreement, dated July 30, 2019.
As more fully described within Note 12 – Fair Value Measurements, the Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value of long-term debt is based on interest rates that we believe are currently available to us for issuance of debt with similar terms and remaining maturities (Level 2 input).
The following table summarizes the carrying amounts and estimated fair values of the Company’s long-term borrowings:
 September 30, 2020December 31, 2019
 (in millions)
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Long-term borrowings (a)
$238.9 $238.9 $220.5 $220.5 
(a)     Long-term borrowings includes current finance lease obligations of $0.2 million and $0.2 million as of September 30, 2020 and December 31, 2019, respectively.
Borrowings under the 2019 Credit Agreement bear interest, at the Company’s option, at a base rate or a LIBOR rate, plus, in each case, an applicable margin. The applicable margin ranges from zero to 0.75% for base rate borrowings and 1.00% to 1.75% for LIBOR borrowings. The Company must also pay a commitment fee to the lenders ranging between 0.10% to 0.25% per annum on the unused portion of the $500 million revolving credit facility along with other standard fees. Letter of credit fees are payable on outstanding letters of credit in an amount equal to the applicable LIBOR margin plus other customary fees.
The Company is subject to certain net leverage ratio and interest coverage ratio financial covenants under the 2019 Credit Agreement that are to be measured at each fiscal quarter-end. The Company was in compliance with all such covenants as of September 30, 2020.
As of September 30, 2020, there was $238.2 million of cash drawn and $11.2 million of undrawn letters of credit under the 2019 Credit Agreement, with $250.6 million of availability for borrowings. As of December 31, 2019, there was $219.9 million cash drawn and $11.2 million of undrawn letters of credit under the 2019 Credit Agreement, with $268.9 million of availability for borrowings.
The following table summarizes the gross borrowings and gross payments under the Company’s revolving credit facilities:
Nine Months Ended
September 30,
(in millions)20202019
Gross borrowings$82.6 $80.1 
Gross payments 62.1 42.6 
Interest Rate Swap
On June 2, 2017, the Company entered into an interest rate swap (the “2017 Swap”) with a notional amount of $150.0 million, as a means of fixing the floating interest rate component on $150.0 million of its variable-rate debt. In the third quarter of 2019, the Company terminated the 2017 Swap and received $0.2 million in connection with its settlement. The 2017 Swap was previously designated as a cash flow hedge, with an original termination date of June 2, 2020.
On October 2, 2019, the Company entered into an interest rate swap (the “2019 Swap”) with a notional amount of $75.0 million, as a means of fixing the floating interest rate component on $75.0 million of its variable-rate debt. The 2019 Swap is designated as a cash flow hedge, with a maturity date of July 30, 2024.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
As a result of the application of hedge accounting treatment, all unrealized gains and losses related to the derivative instrument are recorded in Accumulated other comprehensive loss and are reclassified into operations in the same period in which the hedged transaction affects earnings. The gain on the termination of the 2017 Swap was included in Accumulated other comprehensive loss and was reclassified into earnings ratably through June 2, 2020. Hedge effectiveness is assessed quarterly. The Company does not use derivative instruments for trading or speculative purposes.
The fair value of the Company’s interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve (Level 2 inputs) and measured on a recurring basis in our Condensed Consolidated Balance Sheets. At September 30, 2020, the fair value of the 2019 Swap was a liability of $3.4 million, which was included in Other long-term liabilities on the Condensed Consolidated Balance Sheet. At December 31, 2019, the fair value of the 2019 Swap was an asset of $0.9 million, which was included in Deferred charges and other long-term assets on the Condensed Consolidated Balance Sheet. During the three months ended September 30, 2020, an unrealized pre-tax gain of $0.1 million was recorded in Accumulated other comprehensive loss, whereas during the nine months ended September 30, 2020, an unrealized pre-tax loss of $4.3 million was recorded. No ineffectiveness was recorded in either period. During the three and nine months ended September 30, 2019, unrealized pre-tax losses of $0.2 million and $1.8 million, respectively, were recorded in Accumulated other comprehensive loss, and no ineffectiveness was recorded.
NOTE 6 – INCOME TAXES
The Company recognized income tax expense of $7.6 million and $7.9 million for the three months ended September 30, 2020 and 2019, respectively. The decrease in tax expense in the current-year quarter was largely due to lower pre-tax income levels, and the recognition of $0.7 million more excess tax benefits from stock compensation activity, compared to the prior-year quarter. The Company’s effective tax rate for the three months ended September 30, 2020 was 23.1%, compared to 21.8% in the prior-year quarter, when the Company also recognized a $0.6 million benefit associated with the completion of a tax audit.
For the nine months ended September 30, 2020 and 2019, the Company recognized income tax expense of $20.9 million and $25.4 million, respectively. The decrease in tax expense in the current year was largely due to lower pre-tax income levels, and the recognition of $2.3 million more excess tax benefits from stock compensation activity, compared to the prior-year period. The Company’s effective tax rate for the nine months ended September 30, 2020 was 23.0%, compared to 24.4% in the prior-year period.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The income tax provisions of the CARES Act had limited applicability to the Company and, therefore, did not have a material impact on the Company’s income tax expense for the three and nine months ended September 30, 2020. However, as permitted under the CARES Act, the Company elected to defer approximately $3.3 million of federal income tax payments, that would have otherwise been paid during the second quarter of 2020, to the third quarter of 2020.
NOTE 7 – PENSION AND OTHER POST-EMPLOYMENT PLANS
Defined Benefit Pension Plans
The following table summarizes the components of Net periodic pension (benefit) expense: 
 U.S. Benefit PlanNon-U.S. Benefit Plan
 Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)20202019202020192020201920202019
Service cost$ $ $ $ $ $ $0.1 $0.1 
Interest cost$1.5 1.7 4.3 5.1 0.2 0.3 0.7 1.0 
Amortization of actuarial loss0.8 0.8 2.4 2.0 0.2 0.2 0.4 0.5 
Amortization of prior service cost      0.1 0.1 
Expected return on plan assets(2.3)(2.1)(6.9)(6.5)(0.5)(0.5)(1.4)(1.5)
Net periodic pension (benefit) expense$ $0.4 (0.2)0.6 $(0.1)$ (0.1)0.2 
The items that comprise Net periodic pension (benefit) expense, other than service cost, are included as a component of Other (income) expense, net on the Condensed Consolidated Statements of Operations.
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In the nine months ended September 30, 2020, the Company contributed $5.0 million to its U.S. defined benefit plan. The Company did not make any contributions to its U.S. defined benefit plan in 2019. In each of the nine months ended September 30, 2020 and 2019, the Company contributed $1.0 million to its non-U.S. defined benefit plan.
During the remainder of 2020, the Company expects to make additional contributions of up to $0.3 million to the non-U.S. benefit plan.
Multi-Employer Pension Plans
During the second quarter of 2020, the Company decided to withdraw from the Sheet Metal Workers’ National Pension Fund. In connection with the issuance of the Company’s intention to withdraw from the plan, the Company recorded an estimated liability of $2.4 million as a component of Other current liabilities on the Condensed Consolidated Balance Sheet as of September 30, 2020. The related expense was included as a component of Other (income) expense, net on the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2020.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Financial Commitments
The Company provides indemnifications and other guarantees in the ordinary course of business, the terms of which range in duration and often are not explicitly defined. Specifically, the Company is occasionally required to provide letters of credit and bid and performance bonds to various customers, principally to act as security for retention levels related to casualty insurance policies and to guarantee the performance of subsidiaries that engage in export and domestic transactions. At September 30, 2020, the Company had outstanding performance and financial standby letters of credit, as well as outstanding bid and performance bonds, aggregating to $28.1 million. If any such letters of credit or bonds are called, the Company would be obligated to reimburse the issuer of the letter of credit or bond. The Company believes the likelihood of any currently outstanding letter of credit or bond being called is remote.
The Company has transactions involving the sale of equipment to certain of its customers which include (i) guarantees to repurchase the equipment for a fixed price at a future date and (ii) guarantees to repurchase the equipment from the third-party lender in the event of default by the customer. As of September 30, 2020, the single year and maximum potential cash payments the Company could be required to make to repurchase equipment under these agreements were each $3.9 million. The Company’s risk under these repurchase arrangements would be partially mitigated by the value of the products repurchased as part of the transaction. Historical cash requirements and losses associated with these obligations have not been significant, but could increase if customer defaults exceed current expectations, including as a result of the current COVID-19 pandemic and its effect on the global economy.
Product 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 does business, with warranty periods generally ranging from one 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 Company’s warranty liability include (i) the number of units under warranty, (ii) historical and anticipated rates of warranty claims and (iii) costs per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
The following table summarizes the changes in the Company’s warranty liabilities during the nine months ended September 30, 2020 and 2019:
(in millions)20202019
Balance at January 1$11.2 $9.8 
Provisions to expense5.2 4.9 
Acquisitions 0.2 
Payments(6.3)(4.8)
Balance at September 30$10.1 $10.1 
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As of September 30, 2020 and December 31, 2019, an estimated liability was recorded within the Environmental Solutions Group in connection with a specific warranty matter. It is reasonably possible that the Company’s estimate may change in the future as more information becomes available; however, the ultimate resolution of this matter is not expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.
Liabilities of Discontinued Operations
The Company retains certain liabilities for operations discontinued in prior periods, primarily for environmental remediation and product liability. Included in liabilities of discontinued operations on the Condensed Consolidated Balance Sheets as of both September 30, 2020 and December 31, 2019, were reserves of $0.3 million related to environmental remediation at the Pearland, Texas facility previously used by the Company’s discontinued Pauluhn business, and $0.8 million related to estimated product liability obligations of the discontinued North American refuse truck body business.
Legal Proceedings
The Company is subject to various claims, including pending and possible legal actions for product liability and other damages, and other matters arising in the ordinary course of the Company’s business. On a quarterly basis, the Company reviews uninsured material legal claims against the Company and accrues for the costs of such claims as appropriate in the exercise of management’s best judgment and experience. However, due to a lack of factual information available to the Company about a claim, or the procedural stage of a claim, it may not be possible for the Company to reasonably assess either the probability of a favorable or unfavorable outcome of the claim or to reasonably estimate the amount of loss should there be an unfavorable outcome. Therefore, for many claims, the Company cannot reasonably estimate a range of loss.
The Company believes, based on current knowledge and after consultation with counsel, that the outcome of such claims and actions will not have a material adverse effect on the Company’s results of operations or financial condition. However, in the event of unexpected future developments, it is possible that the ultimate resolution of such matters, if unfavorable, could have a material adverse effect on the Company’s results of operations, financial condition or cash flow.
Hearing Loss Litigation
The Company has been sued for monetary damages by firefighters who claim that exposure to the Company’s sirens has impaired their hearing and that the sirens are therefore defective. There were 33 cases filed during the period of 1999 through 2004, involving a total of 2,443 plaintiffs, in the Circuit Court of Cook County, Illinois. These cases involved more than 1,800 firefighter plaintiffs from locations outside of Chicago. In 2009, six additional cases were filed in Cook County, involving 299 Pennsylvania firefighter plaintiffs. During 2013, another case was filed in Cook County involving 74 Pennsylvania firefighter plaintiffs.
The trial of the first 27 of these plaintiffs’ claims occurred in 2008, whereby a Cook County jury returned a unanimous verdict in favor of the Company.
An additional 40 Chicago firefighter plaintiffs were selected for trial in 2009. Plaintiffs’ counsel later moved to reduce the number of plaintiffs from 40 to nine. The trial for these nine plaintiffs concluded with a verdict against the Company and for the plaintiffs in varying amounts totaling $0.4 million. The Company appealed this verdict. On September 13, 2012, the Illinois Appellate Court rejected this appeal. The Company thereafter filed a petition for rehearing with the Illinois Appellate Court, which was denied on February 7, 2013. The Company sought further review by filing a petition for leave to appeal with the Illinois Supreme Court on March 14, 2013. On May 29, 2013, the Illinois Supreme Court issued a summary order declining to accept review of this case. On July 1, 2013, the Company satisfied the judgments entered for these plaintiffs, which resulted in final dismissal of these cases.
A third consolidated trial involving eight Chicago firefighter plaintiffs occurred during November 2011. The jury returned a unanimous verdict in favor of the Company at the conclusion of this trial.
Following this trial, on March 12, 2012 the trial court entered an order certifying a class of the remaining Chicago Fire Department firefighter plaintiffs for trial on the sole issue of whether the Company’s sirens were defective and unreasonably dangerous. The Company petitioned the Illinois Appellate Court for interlocutory appeal of this ruling. On May 17, 2012, the Illinois Appellate Court accepted the Company’s petition. On June 8, 2012, plaintiffs moved to dismiss the appeal, agreeing with the Company that the trial court had erred in certifying a class action trial in this matter. Pursuant to plaintiffs’ motion, the Illinois Appellate Court reversed the trial court’s certification order.
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Thereafter, the trial court scheduled a fourth consolidated trial involving three firefighter plaintiffs, which began in December 2012. Prior to the start of this trial, the claims of two of the three firefighter plaintiffs were dismissed. On December 17, 2012, the jury entered a complete defense verdict for the Company.
Following this defense verdict, plaintiffs again moved to certify a class of Chicago Fire Department plaintiffs for trial on the sole issue of whether the Company’s sirens were defective and unreasonably dangerous. Over the Company’s objection, the trial court granted plaintiffs’ motion for class certification on March 11, 2013 and scheduled a class action trial to begin on June 10, 2013. The Company filed a petition for review with the Illinois Appellate Court on March 29, 2013 seeking reversal of the class certification order.
On June 25, 2014, a unanimous three-judge panel of the First District Illinois Appellate Court issued its opinion reversing the class certification order of the trial court. Specifically, the Appellate Court determined that the trial court’s ruling failed to satisfy the class-action requirements that the common issues of the firefighters’ claims predominate over the individual issues and that there is an adequate representative for the class. During a status hearing on October 8, 2014, plaintiffs represented to the Court that they would again seek to certify a class of firefighters on the issue of whether the Company’s sirens were defective and unreasonably dangerous. On January 12, 2015, plaintiffs filed motions to amend their complaints to add class action allegations with respect to Chicago firefighter plaintiffs, as well as the approximately 1,800 firefighter plaintiffs from locations outside of Chicago. On March 11, 2015, the trial court granted plaintiffs’ motions to amend their complaints. On April 24, 2015, the cases were transferred to Cook County chancery court, which will decide all class certification issues. On March 23, 2018, plaintiffs filed a motion to certify as a class all firefighters from the Chicago Fire Department who have filed lawsuits in this matter. The parties have requested discovery from each other related to this motion. The Company intends to continue its objections to any attempt at certification. A settlement conference related to the Cook County cases occurred on October 20, 2020, which was not successful in resolving these cases. Another status hearing has been scheduled for November 19, 2020.
The Company has also filed motions to dismiss cases involving firefighters who worked for fire departments located outside of the State of Illinois based on improper venue. On February 24, 2017, the Circuit Court of Cook County entered orders dismissing the cases of 1,770 such firefighter plaintiffs from the jurisdiction of the State of Illinois. Pursuant to these orders, these plaintiffs had six months thereafter to refile their cases in jurisdictions where these firefighters are located. Prior to this six-month deadline, attorneys representing some of these plaintiffs contacted the Company regarding possible settlement of their cases. During the year ended December 31, 2017, the Company entered into a global settlement agreement with two attorneys who represented approximately 1,090 of these plaintiffs. Under the terms of the settlement agreement, the Company offered $700 per plaintiff to settle these cases and 717 plaintiffs accepted this offer as a final settlement. The attorneys representing these plaintiffs agreed to withdraw from representing plaintiffs who did not respond to the settlement offer. It is the Company’s position that the non-settling plaintiffs who failed to timely refile their cases following the February 2017 dismissal by the Circuit Court of Cook County are now barred from doing so by the statute of limitations. The Company filed a venue motion seeking to transfer to DuPage County cases involving 10 plaintiffs who reside and work in Illinois but outside of Cook County. The Court granted this motion on June 28, 2017.
The Company has also been sued on this issue outside of the Cook County, Illinois venue. Between 2007 and 2009, a total of 71 lawsuits involving 71 plaintiffs were filed in the Court of Common Pleas, Philadelphia County, Pennsylvania. Three of these cases were dismissed pursuant to pretrial motions filed by the Company. Another case was voluntarily dismissed. Prior to trial in four cases, the Company paid nominal sums to obtain dismissals.
Three trials occurred in Philadelphia involving these cases filed in 2007 through 2009. The first trial involving one of these plaintiffs occurred in 2010, when the jury returned a verdict for the plaintiff. In particular, the jury found that the Company’s siren was not defectively designed, but that the Company negligently constructed the siren. The jury awarded damages in the amount of $0.1 million, which was subsequently reduced to $0.08 million. The Company appealed this verdict. Another trial, involving nine Philadelphia firefighter plaintiffs, also occurred in 2010 when the jury returned a defense verdict for the Company as to all claims and all plaintiffs involved in that trial. The third trial, also involving nine Philadelphia firefighter plaintiffs, was completed during 2010 when the jury returned a defense verdict for the Company as to all claims and all plaintiffs involved in that trial.
Following defense verdicts in the last two Philadelphia trials, the Company negotiated settlements with respect to all remaining filed cases in Philadelphia at that time, as well as other firefighter claimants represented by the attorney who filed the Philadelphia cases. On January 4, 2011, the Company entered into a Global Settlement Agreement (the “Settlement Agreement”) with the law firm of the attorney representing the Philadelphia claimants, on behalf of 1,125 claimants the firm
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represented (the “Claimants”) and who had asserted product claims against the Company (the “Claims”). Three hundred eight of the Claimants had lawsuits pending against the Company in Cook County, Illinois.
The Settlement Agreement provided that the Company pay a total amount of $3.8 million (the “Settlement Payment”) to settle the Claims (including the costs, fees and other expenses of the law firm in connection with its representation of the Claimants), subject to certain terms, conditions and procedures set forth in the Settlement Agreement. In order for the Company to be required to make the Settlement Payment: (i) each Claimant who agreed to settle his or her claims had to sign a release acceptable to the Company (a “Release”), (ii) each Claimant who agreed to the settlement and who was a plaintiff in a lawsuit, had to dismiss his or her lawsuit with prejudice, (iii) by April 29, 2011, at least 93% of the Claimants identified in the Settlement Agreement must have agreed to settle their claims and provide a signed Release to the Company and (iv) the law firm had to withdraw from representing any Claimants who did not agree to the settlement, including those who filed lawsuits. If the conditions to the settlement were met, but less than 100% of the Claimants agreed to settle their Claims and sign a Release, the Settlement Payment would be reduced by the percentage of Claimants who did not agree to the settlement.
On April 22, 2011, the Company confirmed that the terms and conditions of the Settlement Agreement had been met and made a payment of $3.6 million to conclude the settlement. The amount was based upon the Company’s receipt of 1,069 signed releases provided by Claimants, which was 95% of all Claimants identified in the Settlement Agreement.
The Company generally denies the allegations made in the claims and lawsuits by the Claimants and denies that its products caused any injuries to the Claimants. Nonetheless, the Company entered into the Settlement Agreement for the purpose of minimizing its expenses, including legal fees, and avoiding the inconvenience, uncertainty and distraction of the claims and lawsuits.
During April through October 2012, 20 new cases were filed in the Court of Common Pleas, Philadelphia County, Pennsylvania. These cases were filed on behalf of 20 Philadelphia firefighters and involve various defendants in addition to the Company.