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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________  
FORM 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
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
FEDERAL SIGNAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
36-1063330
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1415 West 22nd Street,
Oak Brook, Illinois
 
60523
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (630) 954-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ¨         No   þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨         No   þ
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   þ         No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or shorter period that the registrant was required to submit and post such files).    Yes   þ         No   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
þ
 
Accelerated filer
¨
 
 
Non-accelerated filer
¨
 
Smaller reporting company
¨
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨         No   þ
As of June 27, 2015 , the aggregate market value of voting stock held by non-affiliates was $944,481,371. For purposes of the foregoing calculation only, executive officers and directors of the registrant have been deemed to be affiliates.
As of January 31, 2016 , the number of shares outstanding of the registrant’s common stock was 62,427,675.
Documents Incorporated By Reference
Portions of the registrant’s definitive proxy statement for the 2016 Annual Meeting of Stockholders to be held on April 26, 2016 are incorporated by reference in Part III.
 

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FEDERAL SIGNAL CORPORATION
TABLE OF CONTENTS
PART I
Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
 
Item 15.

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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Form 10-K”) 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 cyclical nature of the Company’s industrial, municipal, governmental and commercial markets; compliance with domestic and foreign laws and regulations, economic and political uncertainties and foreign currency rate fluctuations; restrictive debt covenants; availability of credit and third-party financing for customers; our ability to anticipate and meet customer demands for new products and product enhancements and the resulting products generating sufficient revenues to justify research and development expenses; our incurrence of restructuring and impairment charges as we continue to evaluate opportunities to restructure our business; highly competitive markets; increased product liability, warranty, recall claims, client service interruptions and other lawsuits and claims; technological advances by competitors; information technology security threats and cyber-attacks; infringement of, or an inability to protect, our intellectual property rights; disruptions in the supply of parts and components from suppliers and subcontractors; attraction and retention of key personnel; disruptions within our dealer network; work stoppages and other labor relations matters; increased pension funding requirements and expenses beyond our control; costs of compliance with environmental and safety regulations; our ability to use net operating loss and tax credit carryforwards to reduce future tax payments; charges related to goodwill; our ability to expand our business through successful future acquisitions; and unknown or unexpected contingencies in our business or in businesses acquired by us. These risks and uncertainties include, but are not limited to, the risk factors described under Item 1A, Risk Factors as set forth in Part I, as well as those discussed elsewhere in this Form 10-K. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Company operates in a continually changing business environment and new factors emerge from time to time. The Company cannot predict such factors, nor can it assess the impact, if any, of such factors on its 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-K.
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-K. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically. All materials that we file with, or furnish to, the SEC may also be read or copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

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PART I
Item 1.     Business.
Federal Signal Corporation, founded in 1901, was reincorporated as a Delaware corporation in 1969. The Company designs and manufactures a suite of products and integrated solutions for municipal, governmental, industrial and commercial customers. The Company’s portfolio of products includes sewer cleaners, vacuum trucks, street sweepers, waterblasters, safety and security systems, including technology-based products and solutions for the public safety market. In addition, we sell parts and provide service, repair, equipment rentals and training as part of a comprehensive offering to our customers. Federal Signal Corporation and its subsidiaries operate nine principal manufacturing facilities in four countries around the world and provide products and integrated solutions to customers in all regions of the world.
Narrative Description of Business
Products manufactured and services rendered by the Company are divided into two major operating segments: the Environmental Solutions Group and the 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. Corporate contains those items that are not included in our operating segments.
Financial information concerning the Company’s two operating segments for each of the three years in the period ended December 31, 2015 , is included in Note  13 – Segment Information to the accompanying consolidated financial statements and is incorporated herein by reference. Information regarding the Company’s discontinued operations is included in Note  14 – Discontinued Operations to the accompanying consolidated financial statements and is incorporated herein by reference.
Environmental Solutions Group
Our Environmental Solutions Group is a leading manufacturer and supplier of a full range of street sweeper vehicles, sewer cleaner and vacuum loader trucks, hydro-excavation trucks and high-performance waterblasting equipment. Products are sold to both municipal and industrial customers under the Elgin ® , Vactor ® , Guzzler ® and Jetstream TM brand names. The Group manufactures vehicles and equipment in the U.S.
Under the Elgin brand name, the Company sells a 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. Vactor is a leading manufacturer of vacuum trucks used to maintain sewer lines, catch basins and storm sewers, as well as hydro-excavation trucks to meet the need for safe and non-destructive excavation. Guzzler is a leader in industrial vacuum loaders used to manage industrial waste or recover and recycle valuable raw materials. Jetstream manufactures high pressure waterblast equipment and accessories for commercial and industrial cleaning and maintenance operations.
In addition to equipment sales, the Group engages in the sale of parts, service and repair, equipment rentals and training as part of a complete offering to its customers under the FS Solutions SM brand.
Safety and Security Systems Group
Our Safety and Security Systems Group is a leading manufacturer and supplier of comprehensive systems and products that law enforcement, fire rescue, emergency medical services, campuses, military facilities and industrial sites use to protect people and property. Offerings include systems for campus and community alerting, emergency vehicles, first responder interoperable communications and industrial communications, as well as command and municipal networked security. Specific products include vehicle lightbars and sirens, public warning sirens, general alarm systems, public address systems and public safety software. Products are sold under the Federal Signal TM , Federal Signal VAMA TM and Victor TM brand names. The Group operates manufacturing facilities in the U.S., Europe and South Africa.
Discontinued Fire Rescue Group
As discussed in the notes to the consolidated financial statements included under Item 8 of Part II of this Form 10-K, on January 29, 2016, the Company completed the sale of the Bronto Skylift ® business (“Bronto”) that represented the Fire Rescue Group. The consolidated financial statements for all periods presented have been recast to present the operating results of previously divested or exited businesses, including the Fire Rescue Group, as discontinued operations. In addition, disclosures and historical financial information included in Parts I, II and IV of this Form 10-K have been adjusted to exclude information related to the Fire Rescue Group. See Note  14 – Discontinued Operations to the accompanying consolidated financial statements for further details.

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Marketing and Distribution
The Environmental Solutions Group uses either a dealer network or direct sales to service customers generally depending on the type and geographic location of the customer. The Environmental Solutions Group’s direct sales channel concentrates on the industrial, utility and construction market segments, while the dealer network focuses primarily on the municipal market. Dealer representatives demonstrate the vehicles’ functionalities and capabilities to customers and service the vehicles on a timely basis. The Company believes its national and global dealer networks for vehicles distinguish it from its competitors.
The Safety and Security Systems Group sells to industrial customers through wholesalers and distributors who are supported by Company sales personnel and/or independent manufacturers’ representatives. Products are also sold to municipal and governmental customers through active independent distributors, as well as through original equipment manufacturers and direct sales. The Company sells comprehensive integrated warning and interoperable communications through a combination of a direct sales force and distributors. International sales are made through the Group’s independent foreign distributors or on a direct basis.
Customers and Backlog
Total orders in 2015 were $686.1 million , of which approximately 47% were to U.S. municipal and governmental customers, 26% were to U.S. commercial and industrial customers and 27% were to non-U.S. customers. No single customer accounted for 10% or more of the Company’s business.
During 2015 , the Company’s U.S. municipal and governmental orders decreased by 11% compared to 2014 levels, primarily attributable to fewer large fleet orders for street sweepers and sewer cleaners. During 2014 , the Company’s U.S. municipal and governmental orders increased by 21% compared to 2013 , primarily driven by improved orders of our street sweeper and sewer cleaner products and generally solid municipal demand.
During 2015 , the Company’s U.S. commercial and industrial orders decreased by 30% from 2014 , in large part due to lower vacuum truck orders, which were adversely impacted, directly and indirectly, by softness in oil and gas markets and, to a lesser extent, other industrial markets. During 2014 , the Company’s U.S. commercial and industrial orders increased by 14% when compared to 2013 levels, largely attributable to higher orders of vacuum trucks, including hydro-excavation products.
During 2015 , the Company’s non-U.S. orders decreased by 3% from 2014 . This compared to an increase of 5% in non-U.S orders in 2014 versus 2013 . Non-U.S. municipal and governmental markets are similar to the U.S. municipal and governmental markets in that they are largely dependent on tax revenues to support spending and orders may be subject to public-entity bid procedures. Of the Company’s non-U.S. orders received in 2015 , there were approximately 41% from Canada, 26% from Europe, 17% from the Middle East and Africa and less than 10% from any other particular region.
The Company’s backlog totaled $171.3 million at December 31, 2015 compared to $254.7 million at December 31, 2014 . Backlogs vary by Group due to the nature of the Company’s products and the buying patterns of its customers. The Environmental Solutions Group has experienced an average backlog that can range from four to five months of shipments and the Safety and Security Systems Group typically experiences an average backlog of approximately two months of shipments. Production of the Company’s December 31, 2015 backlog is expected to be substantially completed during 2016 .
Suppliers
The Company purchases a wide variety of raw materials from around the world for use in the manufacture of its products, although the majority of current purchases are from North American sources. To minimize risks relating to availability, price and quality of key products and components, the Company is party to numerous strategic supplier arrangements. Although certain materials are obtained from either a single-source supplier or a limited number of suppliers, the Company has generally identified alternative sources to minimize the interruption of its business in the event of supply disruptions.
Components critical to the production of the Company’s vehicles, such as engines, are purchased from a select number of suppliers. The Company also purchases raw and fabricated steel as well as commercial chassis from multiple sources.
The Company believes it has adequate supplies or sources of availability of the raw materials and components necessary to meet its needs. However, there are risks and uncertainties with respect to the supply of certain raw materials and components that could impact their price, quality and availability in sufficient quantities.

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Competition
Within the Environmental Solutions Group, Elgin is recognized as a market leader among several domestic sweeper competitors and differentiates itself primarily on product performance. The Vactor and Guzzler brands each maintain a leading domestic position in their respective marketplaces by enhancing product performance with leading technology and application flexibility. Jetstream is a market leader in the in-plant cleaning segment of the U.S. waterblast industry, competing on product performance, rapid delivery and solutions services.
Within specific product categories and domestic markets, the businesses within the Safety and Security Systems Group are among the leaders with between one and four significant competitors and additional ancillary market participants. The Group’s international market position varies from leader to ancillary participant depending on the geographic region and product line. Generally, competition is intense within all of the Group’s product lines and purchase decisions are made based on competitive bidding, price, features, reputation, performance and service.
Research and Development
The Company invests in research to support the 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 $14.0 million in 2015 , $13.1 million in 2014 and $11.0 million in 2013 , and were reported within Selling, engineering, general and administrative (“SEG&A”) expenses on the Consolidated Statement of Operations.
Patents and Trademarks
The Company owns a number of patents and possesses rights under others to which it attaches importance, but it does not believe that its business as a whole is materially dependent upon any such patents or rights. The Company also owns a number of trademarks, including those listed within the “ Narrative Description of Business ” section above. We believe these trademarks are important in connection with the identification of our products and associated goodwill with customers, but no material part of the Company’s business is dependent on our trademarks.
Employees
The Company employed approximately 2,200 people in its businesses at December 31, 2015 with the Company’s U.S. hourly workers accounting for approximately 48% of its total workforce. Approximately 24% of the Company’s U.S. hourly workers were represented by unions at December 31, 2015 . We believe that our labor relations with our employees are good.
Governmental Regulation of the Environment
The Company believes it substantially complies with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment. Capital expenditures in 2015 attributable to compliance with such laws were not material. The Company believes that the overall impact of compliance with environmental regulations will not have a material adverse effect on our financial position, results of operations or cash flow.
In May 2012, the Company sold a facility in Pearland, Texas. The facility was previously used by the Company’s discontinued Pauluhn business, which manufactured marine, offshore and industrial lighting products. While the Company has not finalized its plans, it is probable that the site will require remediation. As of December 31, 2015 and 2014 , $0.9 million and $1.3 million , respectively, of reserves related to the environmental remediation of the Pearland facility are included in liabilities of discontinued operations on the Consolidated Balance Sheets. The Company’s estimate may change as more information becomes available; however, the costs are not expected to have a material adverse effect on the Company’s results of operations, financial position or cash flow.
Seasonality
Certain of the Company businesses are susceptible to the influences of seasonal buying or delivery patterns. The Company tends to have lower sales in the first quarter compared to other quarters as a result of these influences.

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Executive Officers of the Registrant
The following is a list of the Company’s executive officers, their ages, business experience and positions as of February 15, 2016 :
Dennis J. Martin, age 65, was appointed Executive Chairman of the Board of Directors effective January 1, 2016. Mr. Martin previously served as President and Chief Executive Officer from October 2010 to December 31, 2015. Mr. Martin was originally appointed to the Board of Directors in March 2008. Mr. Martin had been an independent business consultant from 2005 to October 2010 and was the Chairman, President and Chief Executive Officer of General Binding Corporation from 2001 to 2005.
Jennifer L. Sherman, age 51, was appointed President and Chief Executive Officer effective January 1, 2016. Ms. Sherman was also appointed to the Board of Directors effective January 1, 2016. Since joining the Company in 1994, Ms. Sherman has served in various roles of increasing responsibility, most recently as Senior Vice President and Chief Operating Officer from April 2014 to December 31, 2015. Ms. Sherman also previously served as Senior Vice President, Chief Administrative Officer, General Counsel and Secretary from 2010 to April 2014, Senior Vice President, Human Resources, General Counsel and Secretary from 2008 to 2010, and Vice President, General Counsel and Secretary from 2004 to 2008.
Matthew B. Brady, age 48, was appointed Senior Vice President of the Safety and Security Systems Group in February 2016. Mr. Brady joined the Company in 2006, serving most recently as the Vice President and General Manager of the Integrated Systems Division within the Safety and Security Systems Group. Prior to joining the Company, Mr Brady served as a Director at Motorola Solutions, Inc.
Julie A. Cook, age 54, was appointed Vice President, Human Resources in September 2012. Ms. Cook served as Johnson Controls, Inc.’s Director of Human Resources, Building Efficiency Programs and then Vice President of Human Resources, Global Manufacturing, Supply Chain and Communications, from 2010 through 2012. Ms. Cook previously served as the Company’s Environmental Solutions Group Vice President of Human Resources with responsibility for Corporate Human Resources from 2008 through 2010. Ms. Cook was Group Vice President of Human Resources for the Environmental Solutions Group from 2001 to 2007.
Brian S. Cooper, age 59, was appointed Senior Vice President and Chief Financial Officer in May 2013. Prior to joining the Company, Mr. Cooper served as Chief Financial Officer of Westell Technologies, Inc. from 2009 to 2013. Prior to Westell, Mr. Cooper served as Chief Financial Officer of Fellowes, Inc. from 2007 to 2009 and as Senior Vice President and Treasurer of United Stationers Inc. from 2001 to 2007. Prior to joining United Stationers, Mr. Cooper served as Treasurer of Burns International Services Corporation, and held various financial positions during his 12-year tenure with Amoco Corporation.
Daniel A. DuPré, age 59, was appointed Vice President, General Counsel and Secretary in November 2015. Mr. DuPré joined the Company in 2006, most recently serving as its Deputy General Counsel. Mr. DuPré previously held senior legal positions at Sears Holdings Corporation, Bank One Corporation, and Brunswick Corporation and served as an Assistant United States Attorney for the Northern District of Illinois.
Ian A. Hudson, age 39, was appointed Vice President and Corporate Controller in August 2013. Prior to joining the Company, Mr. Hudson served as Director of Accounting – Latin America and Asia Pacific at Groupon, Inc. from June 2012 to August 2013. Prior to that role, Mr. Hudson worked at Ernst & Young, LLP from 1998 to 2012, most recently as Senior Audit Manager.
Samuel E. Miceli, age 49, was appointed Senior Vice President of the Environmental Solutions Group in November 2015. Mr. Miceli joined the Company in 1993, serving most recently as the Vice President and General Manager of Vactor/Guzzler, with previous responsibility for the operations of Elgin Sweeper.
Svetlana Vinokur, age 36, was appointed Vice President, Treasurer and Corporate Development in April 2015. Prior to joining the Company, Ms. Vinokur worked as Assistant Treasurer at Illinois Tool Works Inc. Prior to that role, Ms. Vinokur served as Finance Head of M&A Strategy at Mead Johnson Nutrition Company and as a senior associate for Robert W. Baird & Company’s Consumer and Industrial Investment Banking group. Ms. Vinokur started her career at Ford Motor Company, serving in various finance roles.
These officers hold office until the next annual meeting of the Board of Directors following their election and until their successors have been elected and qualified.
There are no family relationships among any of the foregoing executive officers.

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Item 1A.     Risk Factors.
We may occasionally make forward-looking statements and estimates such as forecasts and projections of our future performance or statements of our plans and objectives. These forward-looking statements may be contained in, but are not limited to, filings with the SEC, including this Form 10-K, press releases made by us and oral statements made by our officers. Actual results could differ materially from those contained in such forward-looking statements. Important factors that could cause our actual results to differ from those contained in such forward-looking statements include, but are not limited to, the risks described below.
Our financial results are subject to U.S. economic uncertainty.
In 2015 , we generated approximately 75% of our net sales in the U.S. Our ability to be profitable depends heavily on varying conditions in the U.S. governmental and municipal markets, as well as the overall U.S. 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 government 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 U.S. government and municipalities depend heavily on tax revenues as a source of spending and accordingly, there is a historical correlation that suggests a lag of one or two years between the condition of the U.S. economy and our sales to the U.S. government and municipalities. Therefore, downturns in the U.S. 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.
We have international operations that are subject to compliance with domestic and foreign laws and regulations, economic and political uncertainties and foreign currency rate fluctuations.
Our business is subject to fluctuations in demand and changing international economic, legal and political conditions that are beyond our control. In 2015 , approximately 25% of our net sales were to customers outside the U.S. and we expect a significant portion of our revenues to come from international sales in the foreseeable future. Operating in the international marketplace exposes us to a number of risks, including the need to comply with U.S. and foreign laws and regulations applicable to our foreign operations, such as the Foreign Corrupt Practices Act, the United Kingdom (“U.K.”) Bribery Act and their counterparts in other foreign jurisdictions in which we operate, restrictive domestic and international trade regulations, including the imposition of tariffs and trade barriers on our products, changes in these laws, regulations and policies by the U.S. and foreign governments, political and economic instability in the jurisdictions in which we operate, foreign receivables collection risk, local labor market conditions, and, in some cases, international hostilities. The costs of compliance with these various laws, regulations and policies can be significant and penalties for non-compliance could significantly impact our business.
To the extent that our international operations are affected by adverse foreign economic or political conditions, we may experience disruptions and losses which could have a material impact on our financial position, results of operations or cash flow. To mitigate the risk of foreign receivables collection, we may obtain letters of credit from international customers to satisfy concerns regarding the collectibility of amounts billed to customers.
Some of our contracts are denominated in foreign currencies, which may expose us to risks of fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange. Changes in the value of foreign currencies over the long term could increase our U.S. dollar costs for, or reduce our U.S. dollar revenues from, our foreign operations. Any increased costs or reduced revenues as a result of foreign currency fluctuations could adversely affect our results of operations.
We are subject to a number of restrictive debt covenants.
In January 2016, we entered into a new five-year credit facility. The credit facility contains certain restrictive debt covenants and customary events of default. Our ability to comply with these restrictive covenants may be affected by the other factors described in this “ Risk Factors ” section, as well as other factors outside of our control. Failure to comply with one or more of these restrictive covenants may result in an event of default which, if not cured by us or waived by our lenders, allows our lenders to declare all amounts outstanding as due and payable. Such an acceleration of the maturity of our indebtedness may prevent or limit us from engaging in transactions that benefit us, including responding to changing business and economic conditions and taking advantage of attractive business opportunities.
The execution of our growth strategy is dependent upon the continued availability of credit and third-party financing arrangements for our customers.
Economic downturns result in tighter credit markets, which could adversely affect our customers’ ability to secure financing or to secure financing at favorable terms or interest rates necessary to proceed or continue with purchases of our products and

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services. Our customers’ or potential customers’ inability to secure financing for projects could result in the delay, cancellation or downsizing 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 financial position, results of operations or cash flow.
Our efforts to develop new products and services or enhance existing products and services involve substantial research, development and marketing expenses, and the resulting new or enhanced products or services may not generate sufficient revenues to justify the expense.
We place a high priority on developing new products and services, as well as enhancing our existing products and services. As a result of these efforts, we may be required to expend substantial research, development and marketing resources, and the time and expense required to develop a new product or service or enhance an existing product or service are difficult to predict. We may not succeed in developing, introducing or marketing new products or services or product or service enhancements. In addition, we cannot be certain that any new or enhanced product or service will generate sufficient revenue to justify the expense and resources devoted to this product diversification effort.
We could incur restructuring and impairment charges as we continue to evaluate opportunities to restructure our business and rationalize our manufacturing operations in an effort to optimize our cost structure.
We continue to evaluate opportunities to restructure our business and rationalize our manufacturing operations in an effort to optimize our cost structure. These actions could result in significant charges that could adversely affect our financial condition and results of operations. Future actions could result in restructuring and related charges, including but not limited to impairments, employee termination costs and charges for pension and other postretirement contractual benefits and pension curtailments that could be significant and could have an adverse effect on our financial condition, results of operations or cash flow.
We operate in highly competitive markets.
The markets in which we operate are highly competitive. Many of our competitors have significantly greater financial resources than we do. The intensity of this competition, which is expected to continue, can result in price discounting and margin pressures throughout the industry and may adversely affect our ability to increase or maintain prices for our products. In addition, certain of our competitors may have lower overall labor or material costs. In some cases, our contracts with municipal and other governmental customers are awarded and renewed through competitive bidding. We may not be successful in obtaining or renewing these contracts, which could have an adverse effect on our financial condition, results of operations or cash flow.
We may incur material losses and costs as a result of product liability, warranty, recall claims, client service interruption or other lawsuits or claims that may be brought against us.
We are exposed to product liability and warranty claims in the normal course of business in the event that our products actually or allegedly fail to perform as expected, or the use of our products results, or is alleged to result, in bodily injury and/or property damage. For example, we have been sued by firefighters seeking damages claiming that exposure to our sirens has impaired their hearing and that the sirens are, therefore, defective. In addition, we are subject to other claims and litigation from time to time as further described in the accompanying notes to our consolidated financial statements. We could experience material warranty or product liability costs in the future and incur significant costs to defend ourselves against these claims. While we carry insurance and maintain reserves for product liability claims, our insurance coverage may be inadequate if such claims do arise, and any defense costs and liability not covered by insurance could have a material adverse impact on our financial condition, results of operations or cash flow. 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 and certain other claims are not typically covered by insurance. Any product liability or warranty issues may adversely impact our reputation as a manufacturer of high quality, safe products and may have a material adverse effect on our business.
Failure to keep pace with technological developments may adversely affect our operations.
We are engaged in an industry that 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 financial

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condition, results of operations or cash flow 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.
Increased information technology security threats and more sophisticated cyber-attacks pose a risk to our systems, networks, products and operations.
We have observed a global increase in information technology security threats and more sophisticated cyber-attacks. Our business could be impacted by such disruptions, which in turn could pose a risk to the security of our systems and networks and the confidentiality, accessibility and integrity of information stored and transmitted on those systems and networks. We have adopted measures to address cyber-attacks and mitigate potential risks to our systems from these information technology-related disruptions. However, given the unpredictability of the timing, nature and scope of such disruptions, our systems and networks remain potentially vulnerable to attacks. Depending on their nature and scope, such attacks could potentially lead to the compromising of confidential information, misuse of our systems and networks, manipulation and destruction of data, production stoppages and supply shortages, which in turn could adversely affect our reputation, financial condition, results of operations or cash flow.
Infringement of, or an inability to protect, our intellectual property rights could adversely affect our business.
We rely on a combination of patents, trademarks, copyrights, nondisclosure agreements, information technology security systems, physical security and other measures to protect our proprietary intellectual property and the intellectual property of certain customers and suppliers. However, we cannot be certain that our efforts to protect these intellectual property rights will be sufficient. Intellectual property protection is subject to applicable laws in various jurisdictions where interpretations and protections differ or can be unpredictable and costly to enforce. Further, our ability to protect our intellectual property rights may be limited in certain foreign jurisdictions that do not have, or do not enforce, strong intellectual property rights. Any failure to protect or enforce our intellectual property rights could have a material adverse effect on our competitive position, financial condition, results of operations or cash flow.
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 from suppliers raw materials and component parts 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, regulatory restrictions 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.
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.
Disruptions within our dealer network or the inability of our dealers to secure adequate access to capital could adversely affect our business.
We rely on national and global dealer networks to market certain of our products and services. A disruption in our dealer network, or with a significant dealer, or within a specific market, could have an adverse impact on our business within the affected market. In addition, our dealers require adequate liquidity to finance their operations, including purchases of our products.  Dealers are subject to numerous risks and uncertainties that could unfavorably affect their liquidity positions, including, among other things, continued access to adequate financing sources on a timely basis on reasonable terms.  These sources of financing are vital to our ability to sell products through our dealer network. Deterioration in the liquidity or credit worthiness of our dealers could have a significant adverse effect on our business and could, in some limited cases, trigger repurchase obligations under an existing agreement with a third-party finance company that provides financing to certain of our dealers to support the purchase of our products. The loss or termination of a significant dealer, or a significant number of dealers, could cause difficulties in marketing and distributing our products and have an adverse effect on our business, financial condition, results of operations or cash flow.

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Our business may be adversely impacted by work stoppages and other labor relations matters.
We are subject to risk of work stoppages and other labor relations matters because a portion of our workforce is unionized. As of December 31, 2015 , approximately 24% of our U.S. hourly workers were represented by labor unions and were covered by collective bargaining agreements. Many of these agreements include provisions that limit our ability to realize cost savings. Our current collective bargaining agreement with the International Brotherhood of Electrical Workers is due to expire in April 2016. Any strikes, threats of strikes or other organized disruptions in connection with the negotiation of new labor agreements or other negotiations could materially adversely affect our business as well as impair our ability to implement further measures to reduce costs and improve production efficiencies.
Our pension funding requirements and expenses are affected by certain factors outside of our control, including the performance of plan assets, the discount rate used to value liabilities, actuarial assumptions and experience and legal and regulatory changes.
Our funding obligations and pension expense for our defined benefit pension plans are driven by the performance of assets set aside in trusts for these plans, the discount rate used to value the plans’ liabilities, actuarial assumptions and experience and legal and regulatory funding requirements. Changes in these factors could have an adverse impact on our financial condition, results of operations or cash flow. In addition, a portion of our pension plan assets are invested in equity securities, which can experience significant declines if financial markets weaken. The level of the funding of our defined benefit pension plan liabilities was approximately 79% as of December 31, 2015 . The current year funding status was impacted by higher discount rates. Our future pension expenses and funding requirements could increase significantly due to the effect of adverse changes in the discount rate, asset values or the estimated expected return on plan assets. In addition, we could be legally required to make increased cash contributions to the pension plans, and these contributions could be material and negatively affect our cash flow.
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 to support our business. While we believe that we are in compliance in all material respects with these laws and regulations, we may be adversely impacted by costs, liabilities or claims with respect to our operations under existing laws or those that may be adopted. These requirements are complex, change frequently and have tended to become more stringent over time. Therefore, we could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions as a result of violation of, or liabilities under, environmental laws and safety regulations. These requirements may increase the cost of our products, which may diminish demand for those products. In addition, uneven application of environmental or safety regulations could place our products at a cost or features disadvantage, which could reduce our revenues and profitability.
Our ability to use net operating loss and tax credit carryforwards to reduce future tax payments could be negatively impacted if there is a change in our ownership or a failure to generate sufficient taxable income.
Presently, the only U.S. federal net operating loss carryforwards (“NOLs”) we have remaining are from previously acquired companies and hence are limited to specific annual amounts as permitted by Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”). If an ownership change, as defined in Section 382, occurs with respect to our capital stock, our ability to use these NOLs could be further limited to more restrictive specific annual amounts. Generally, an ownership change occurs if certain persons or groups increase their aggregate ownership by more than 50% of our total capital stock in a three-year period. If more than a 50% ownership change were to occur, use of our NOLs to reduce payments of federal tax may be deferred to later years within the 20-year carryover period; however, if the carryover period for any loss year expires, the use of the remaining NOLs for the loss year will be prohibited. If we should fail to generate a sufficient level of taxable income prior to the expiration of the applicable NOL carryforward periods, then we will lose the ability to apply the NOLs as offsets to future taxable income. We also have a significant amount of tax credit carryforwards (“tax credits”) which are generally available to offset future U.S. income tax. The usage of these tax credits is subject to similar limitations upon a change in ownership. As of December 31, 2015 , our tax credits totaled $13.1 million and had various carryforward periods, with the majority beginning to expire in approximately six years.
An impairment in the carrying value of goodwill could negatively affect our financial position and results of operations.
We have a substantial amount of goodwill, which is recorded at fair value at the time of acquisition and is not amortized, but is reviewed for impairment at least annually or more frequently if impairment indicators arise. In evaluating the potential for impairment of goodwill, we make assumptions regarding future operating performance, business trends, competition and market and general economic conditions. Such analyses further require us to make certain assumptions about our sales, operating margins, growth rates and discount rates. There are inherent uncertainties related to these factors and in applying

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these factors to the assessment of goodwill recoverability. Goodwill reviews are prepared using estimates of the fair value of reporting units, which incorporate estimates of the present value of future discounted cash flow. We could be required to evaluate the recoverability of goodwill prior to the annual assessment if we experience disruptions to the business, unexpected significant declines in operating results, a divestiture of a significant component of our business or our market capitalization declines.
If the future operating performance of our reporting units is not consistent with our assumptions, we could be required to record non-cash impairment charges. Impairment charges could substantially affect our total consolidated assets and results of operations in the periods such charges are recorded. As of December 31, 2015 , total consolidated goodwill was approximately 35% of total consolidated assets.
We may be unsuccessful in our future acquisitions, if any, which may have an adverse effect on our business.
Our long-term strategy includes exploring acquisition of companies or businesses to facilitate our growth, enhance our global market position and broaden our product offerings. Such acquisitions may help us expand into adjacent markets, add complementary products and services or allow 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 to 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 potential target’s products or services.
Acquisitions involve risks, including those associated with the following:
•
integrating the operations, financial reporting, disparate systems and processes and personnel of acquired companies;
•
managing geographically dispersed operations;
•
diverting management’s attention from other business concerns;
•
changing the competitive landscape, including disrupting existing sales channels or markets;
•
entering markets or lines of business in which we have either limited or no direct experience; and
•
losing key employees, customers and strategic partners of acquired companies.
We also may not achieve anticipated revenue and cost benefits associated with our acquisitions. 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, acquisition costs, impairment of goodwill and amortization of other intangible assets. In addition, future acquisitions could result in dilutive issuances of equity securities.
Businesses acquired by us may have liabilities that are not known to us.
We may assume liabilities in connection with the acquisition of businesses. There may be liabilities that we fail or are unable to discover in the course of performing due diligence investigations on the acquired businesses, or that may be more material than we discovered. In these circumstances, we cannot assure that our rights to indemnification from the 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 financial condition, results of operations or cash flow.
Item 1B.     Unresolved Staff Comments.
None.
Item 2.     Properties.
As of December 31, 2015 , the Company utilized six principal manufacturing plants located throughout the U.S., as well as two in Europe and one in South Africa. The Company also leases certain facilities within the U.S. and Europe from which we sell parts and/or provide service. As of December 31, 2015 , the Company devoted approximately 0.9 million square feet to manufacturing and 0.5 million square feet to service, warehousing and office space. Of the total square footage, approximately 56% is devoted to the Environmental Solutions Group and 44% to the Safety and Security Systems Group. Approximately 19% of the total square footage is owned by the Company with the remaining 81% being leased. Owned facilities are subject to lien under the Company’s Amended and Restated Credit Agreement dated January 27, 2016 (the “2016 Credit Agreement”).

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All of the Company’s properties, as well as the related machinery and equipment, are considered to be well-maintained, suitable and adequate for their intended purposes. In the aggregate, these facilities are of sufficient capacity for the Company’s current business needs.
Item 3.     Legal Proceedings.
The information concerning the Company’s legal proceedings included in Note  9 – Legal Proceedings to the accompanying consolidated financial statements is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .
Market Information
The Company’s common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “FSS”. The following table presents a summary of the high and low market price per share of our common stock for each quarter of 2015 and 2014 :
 
2015
 
2014
 
High
 
Low
 
High
 
Low
1 st  Quarter
$
17.44

 
$
14.44

 
$
15.42

 
$
11.53

2 nd  Quarter
17.22

 
14.76

 
16.05

 
13.35

3 rd  Quarter
15.49

 
12.42

 
15.41

 
13.24

4 th  Quarter
17.23

 
13.27

 
15.97

 
11.66

Holders
As of January 31, 2016 , there were 1,753 holders of record of the Company’s common stock.
Dividends
In 2014, the Company’s Board of Directors (the “Board”) reinstated the Company’s quarterly cash dividend . During 2015 and 2014 , the Company declared and paid dividends totaling $15.6 million and $5.6 million , respectively. On February 9, 2016, the Board declared a quarterly cash dividend of $0.07 per common share payable on March 17, 2016 to holders of record at the close of business on March 1, 2016.
The payment of future dividends is at the discretion of the Board and will depend, among other things, upon future earnings and cash flow, capital requirements, the Company’s general financial condition, general business conditions and other factors, including compliance with restrictive debt covenants as described below.
On January 27, 2016, the Company entered into the 2016 Credit Agreement. Under the terms of the 2016 Credit Agreement, restricted payments, including dividends and stock repurchases, shall be permitted if (i) the Company’s leverage ratio is less than or equal to 2.50 , (ii) the Company is in compliance with all other financial covenants and (iii) there are no existing defaults under the 2016 Credit Agreement. If the leverage ratio is more than 2.50 , the Company is still permitted to fund (i) up to $30.0 million of dividend payments, (ii) stock repurchases sufficient to offset dilution created by the issuance of equity as compensation to its officers, directors, employees and consultants and (iii) an incremental $30.0 million of other cash payments. For further discussion, see Note 5 – Debt to the accompanying consolidated financial statements.
The Company is able to declare dividends at current levels under the restricted payment guidelines set forth above.
Securities Authorized for Issuance under Equity Compensation
Information concerning the Company’s equity compensation plans is included under Item 12 of Part III of this Form 10-K.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities by the Company during the year ended December 31, 2015 .

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Purchases of Equity Securities
The following table provides a summary of the Company’s repurchase activity for its common stock during the three months ended December 31, 2015 :
Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (a) (b)
October 2015 (9/27/15 - 10/31/15)
 
—

 
$
—

 
—

 
$
69,146,229

November 2015 (11/1/15 - 11/28/15)
 
—

 
—

 
—

 
69,146,229

December 2015 (11/29/15 - 12/31/15)
 
—

 
—

 
—

 
69,146,229

(a)
On April 22, 2014, the Board authorized a stock repurchase program of up to $15 million of the Company’s common stock. During the second quarter of 2015, cumulative stock repurchases under the April 2014 program reached the maximum authorized level of $15.0 million . No additional stock repurchases will be made under that program.
(b)
On November 4, 2014, the Board authorized an additional stock repurchase program of up to $75 million of the Company’s common stock.
Performance Graph
The following graph compares the cumulative five-year total return to stockholders of the Company’s common stock relative to the cumulative total returns of the Russell 2000 index, the S&P Midcap 400 index and the S&P Industrials index. The graph assumes that the value of the investment in the Company’s common stock, and in each index, was $100 on December 31, 2010 and assumes reinvestment of all dividends through December 31, 2015 .
Copyright© 2016 S&P, a division McGraw Hill Financial. All rights reserved.
Copyright© 2016 Russell Investment Group. All rights reserved.


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As of December 31,
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
Federal Signal Corporation
$
100.00

 
$
60.50

 
$
110.93

 
$
213.56

 
$
226.45

 
$
236.29

Russell 2000
100.00

 
95.82

 
111.49

 
154.78

 
162.35

 
155.18

S&P Midcap 400
100.00

 
98.27

 
115.84

 
154.64

 
169.75

 
166.05

S&P Industrials
100.00

 
99.41

 
114.67

 
161.31

 
177.16

 
172.67

The stock price performance included in this graph is not necessarily indicative of future stock price performance. Notwithstanding anything set forth in any of our previous filings under the Securities Act or the Exchange Act, which might be incorporated into future filings in whole or part, including this Form 10-K, the preceding performance graph shall not be deemed incorporated by reference into any such filings.

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Item 6.     Selected Financial Data.
The following table summarizes selected financial information of the Company, which has been recast to present the Fire Rescue Group as a discontinued operation, as of and for each of the five years in the period ended December 31, 2015 :
 
For the Years Ended December 31,
($ in millions, except per share data)
2015
 
2014
 
2013
 
2012
 
2011
Results of Operations:
 
 
 
 
 
 
 
 
 
Net sales
$
768.0

 
$
779.1

 
$
712.9

 
$
668.1

 
$
579.2

Operating income (a) (c) (d)
103.2

 
88.7

 
61.6

 
42.6

 
26.6

Income from continuing operations (a) (b) (c) (d)
65.8

 
59.7

 
152.5

 
15.5

 
8.1

(Loss) gain from discontinued operations and disposal, net of tax
(2.3
)
 
4.0

 
7.5

 
(43.0
)
 
(22.3
)
Net income (loss) (a) (b) (c) (d)
$
63.5

 
$
63.7

 
$
160.0

 
$
(27.5
)
 
$
(14.2
)
Financial Position:
 
 
 
 
 
 
 
 
 
Capital expenditures
$
9.6

 
$
13.7

 
$
11.6

 
$
9.9

 
$
10.6

Depreciation and amortization
12.3

 
11.5

 
11.0

 
10.6

 
10.5

Total assets
666.5

 
658.7

 
644.8

 
613.2

 
706.7

Total debt (e)
44.1

 
50.2

 
92.1

 
157.8

 
217.4

Common Stock Data:
 
 
 
 
 
 
 
 
 
Diluted earnings per share — continuing operations
$
1.04

 
$
0.94

 
$
2.41

 
$
0.25

 
$
0.13

Cash dividends per common share
0.25

 
0.09

 
—

 
—

 
—

Weighted average shares outstanding — diluted (in millions)
63.4

 
63.6

 
63.2

 
62.7

 
62.2

Performance Measures:
 
 
 
 
 
 
 
 
 
Operating margin
13.4
%
 
11.4
%
 
8.6
%
 
6.4
%
 
4.6
%
Debt to adjusted EBITDA ratio  (f)
0.4

 
0.5

 
1.3

 
2.9

 
5.9

Other Data:
 
 
 
 
 
 
 
 
 
Total orders
$
686.1

 
$
807.4

 
$
706.0

 
$
689.8

 
$
693.8

Backlog
171.3

 
254.7

 
226.5

 
234.8

 
215.1

(a)
2015 operating income includes restructuring charges of $0.4 million . 2015 income from continuing operations includes a $1.4 million net benefit from special tax items, comprised of a $4.2 million net tax benefit associated with tax planning strategies, offset by a $2.4 million adjustment of deferred tax assets and $0.4 million of expense associated with a change in the enacted tax rate in the U.K.
(b)
2014 income from continuing operations includes the effects of a $3.5 million release of valuation allowance that was previously recorded against the Company’s foreign deferred tax assets.
(c)
2013 operating income includes restructuring charges of $0.7 million. 2013 income from continuing operations includes the effects of the restructuring charges, as well as $8.7 million of debt settlement charges and $116.2 million of valuation allowance release. The Company’s determination to release the valuation allowance on domestic deferred tax assets was based on a qualitative and quantitative analysis of current and expected domestic earnings, industry and market trends, tax planning strategies and general business risks, that resulted in a more likely than not conclusion of being able to realize a significant portion of our U.S. deferred tax assets. In the fourth quarter of 2013, the Company also executed a tax planning strategy that resulted in the release of an additional $6.7 million of valuation allowance that was previously recorded against the Company’s foreign tax credits, which would have begun to expire in 2015.
(d)
2012 operating income includes restructuring charges of $1.4 million. 2012 income from continuing operations includes the effects of the restructuring charges, as well as $3.5 million of debt settlement charges.
(e)
Includes short-term borrowings, the current portion of long-term borrowings and capital lease obligations of $0.4 million , $6.2 million , $7.4 million , $5.0 million and $4.3 million , respectively.

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(f)
The ratio of debt to adjusted EBITDA is a non-GAAP measure that represents total debt divided by the trailing 12-month total of income from continuing operations before interest expense, restructuring charges, debt settlement charges, other expense, income tax expense or benefit and depreciation and amortization expense. The Company uses the ratio to calibrate the magnitude of its debt and its debt capacity against adjusted EBITDA, which is used as an operating performance measure. We believe that investors use a version of this ratio in a similar manner. In addition, financial institutions (including the Company’s lenders) use the ratio in connection with debt agreements to set pricing and covenant limitations. For these reasons, the Company believes that the ratio is a meaningful metric to investors in evaluating the Company’s long-term financial performance and stability. Other companies may use different methods to calculate total debt to EBITDA. The following table summarizes the Company’s ratio of total debt to adjusted EBITDA and reconciles income from continuing operations to adjusted EBITDA as of and for each of the five years in the period ended December 31, 2015 :
 
Trailing Twelve Months Ending December 31,
($ in millions)
2015
 
2014
 
2013
 
2012
 
2011
Total debt
$
44.1

 
$
50.2

 
$
92.1

 
$
157.8

 
$
217.4

 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
65.8

 
$
59.7

 
$
152.5

 
$
15.5

 
$
8.1

Add:
 
 
 
 
 
 
 
 
 
Interest expense
2.3

 
3.6

 
8.9

 
21.3

 
16.2

Restructuring
0.4

 
—

 
0.7

 
1.4

 
—

Debt settlement charges
—

 
—

 
8.7

 
3.5

 
—

Other expense, net
1.0

 
1.7

 
0.1

 
0.9

 
—

Income tax expense (benefit)
34.1

 
23.7

 
(108.6
)
 
1.4

 
2.0

Depreciation and amortization
12.3

 
11.5

 
11.0

 
10.6

 
10.5

Adjusted EBITDA
$
115.9

 
$
100.2

 
$
73.3

 
$
54.6

 
$
36.8

 
 
 
 
 
 
 
 
 
 
Total debt to adjusted EBITDA ratio
0.4

 
0.5

 
1.3

 
2.9

 
5.9

The selected financial data set forth above should be read in conjunction with the Company’s consolidated financial statements, including the notes thereto, and management’s discussion and analysis of financial condition and results of operations, included under Item 8 of Part II of this Form 10-K and Item 7 of Part II of this Form 10-K, respectively.

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide information that is supplemental to, and shall be read together with, the consolidated financial statements and the accompanying notes contained in this Form 10-K. Information in MD&A is intended to assist the reader in obtaining an understanding of (i) the consolidated financial statements, (ii) the Company’s business segments and how the results of those segments impact the Company’s results of operations and financial condition as a whole and (iii) how certain accounting principles affect the Company’s consolidated financial statements.
Executive Summary
The Company is a leading global manufacturer and supplier of (i) sewer cleaners, vacuum trucks, street sweepers and other environmental vehicles and equipment and (ii) safety, security and communication equipment. We also are a designer and supplier of technology-based products and services for the public safety market. In addition, we sell parts and provide service, repair, equipment rentals and training as part of a comprehensive offering to our customer base. We operate nine manufacturing facilities in four countries around the world and provide products and integrated solutions to municipal, governmental, industrial and commercial customers in all regions of the world.
As described in Item 1 of Part I of this Form 10-K, the Company’s business units are organized and managed in two operating segments: the Environmental Solutions Group and the Safety and Security Systems Group.
In 2015, the Company continued to focus on executing against its business strategy, which resulted in strong improvement in operating earnings. The Company continued to execute against a number of key long-term objectives, including the following:
•
Creating disciplined growth;
•
Improving manufacturing efficiencies and costs;
•
Leveraging invested capital; and
•
Diversifying our customer base.
The Company assessed achievement against these objectives in 2015 as follows:
Creating Disciplined Growth
•
Despite challenging conditions, including direct and indirect effects associated with reduced demand for our products in oil and gas markets, we improved operating income to $103.2 million for the year. This was an increase of $14.5 million , or 16% , on net sales that were 1% lower than prior-year levels.
•
We demonstrated our commitment to returning value to stockholders by doubling our quarterly dividend in the first quarter of 2015 and increasing it further in the fourth quarter of 2015 . During the year, we paid dividends of $15.6 million .
•
Under our authorized share repurchase programs, we repurchased approximately 725,000 shares in 2015 for a total of $10.6 million . The remaining aggregate authorization under these programs of $69.1 million at December 31, 2015 represents approximately 8% of our market capitalization.
•
Subsequent to December 31, 2015 , we completed the sale of our Bronto Skylift business, initially receiving proceeds of approximately $83 million , with the remaining purchase price of approximately $4 million expected to be paid, in connection with the payment of the working capital and net debt adjustments, by the end of the second quarter of 2016. The sale will facilitate our focus on more profitable growth opportunities.
•
In addition, in January 2016, we executed a new five-year $325 million revolving credit facility, to replace our existing $225 million credit facility.
•
With our current capital structure, our strong balance sheet, the proceeds received from the sale of Bronto, and the liquidity available under our new credit agreement, we have greater financial flexibility to invest in internal growth initiatives, pursue strategic acquisitions and to consider ways to return value to stockholders.
•
We continue to apply a disciplined approach in considering potential acquisitions. In January 2016, we completed the acquisition of Westech Vac Systems, Ltd., a Canadian manufacturer of high-quality, rugged vacuum trucks. Although not significant in size, the acquisition provides access to new product offerings and new markets. We expect it to be the first in a series of acquisitions, and it fits our strategy of acquiring capabilities that our core businesses can build upon.
Improving Manufacturing Efficiencies and Costs
•
Operating margin improved to 13.4% in 2015 from 11.4% in 2014 - a significant achievement on lower net sales.

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•
We continue to focus on reducing product costs and improving manufacturing efficiencies across all of our businesses. We started our “80/20” efficiency initiatives in 2010, and they have been a critical part of the steady improvement in our margins.
•
Our 80/20 initiatives have also helped us to focus on delivering the right products and services at the right prices to better capture the value-add that we create.
Leveraging Invested Capital
•
We remain focused on return on invested capital (“ROIC”) in 2015 and we continue to use an ROIC metric in our long-term incentive compensation programs. This increased focus contributed to a significant year-over-year improvement in ROIC, which we define as net operating profit after taxes divided by average invested capital.
•
We continue to adapt our flexible manufacturing model which allows us to shift production among facilities to optimize capacity and capabilities.
•
The sale of our Bronto Skylift business removed a low-margin operation that required a disproportionate amount of invested capital.
•
We continue to generate strong cash flow from our improved operating performance, with cash flow provided by continuing operations for the year ended December 31, 2015 of $91.1 million , up 12% compared to 2014 .
•
The cash generated from operations has helped us to significantly increase our cash position, return value to shareholders and reduce our total debt.
•
At December 31, 2015 , cash and cash equivalents exceeded total debt by $31.9 million , compared to a net debt balance of $26.1 million at December 31, 2014 . As a result of the reduction in debt, we reduced our interest expense by 36% in 2015 , to $2.3 million from $3.6 million in 2014 . 
•
Our debt leverage remains low, at 0.4 times adjusted EBITDA as of December 31, 2015 .
Diversifying Customer Base
•
Historically, 60% or more of our domestic net sales were derived from municipal and other government markets. Municipalities will continue to be important customers, and our leadership in municipal and government markets remains a strength of our company.
•
At the same time, our organic and acquisition growth initiatives generally will focus on expanding our industrial customer base.
•
Although near-term industrial demand has been soft, notably in relation to oil and gas markets, we continue to believe that industrial markets tend to offer better margin and growth opportunities over the longer term.
•
We have also continued to focus on new product development in 2015 and are encouraged that these efforts will provide additional opportunities to further diversify our customer base. Specific examples for industrial markets include investments in new excavator designs to better target utility markets and in internationally certified safety products to expand our global reach.

17
Table of Contents



Results of Operations
The following table summarizes our Consolidated Statements of Operations and illustrates the key financial indicators used to assess our consolidated financial results:
 
For the Years Ended December 31,
 
Change
($ in millions, except per share data)
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
Net sales
$
768.0

 
$
779.1

 
$
712.9

 
$
(11.1
)
 
$
66.2

Cost of sales
542.4

 
570.4

 
536.9

 
(28.0
)
 
33.5

Gross profit
225.6

 
208.7

 
176.0

 
16.9

 
32.7

Selling, engineering, general and administrative expenses
122.0

 
120.0

 
113.7

 
2.0

 
6.3

Restructuring
0.4

 
—

 
0.7

 
0.4

 
(0.7
)
Operating income
103.2

 
88.7

 
61.6

 
14.5

 
27.1

Interest expense
2.3

 
3.6

 
8.9

 
(1.3
)
 
(5.3
)
Debt settlement charges
—

 
—

 
8.7

 
—

 
(8.7
)
Other expense, net
1.0

 
1.7

 
0.1

 
(0.7
)
 
1.6

Income before income taxes
99.9

 
83.4

 
43.9

 
16.5

 
39.5

Income tax (expense) benefit
(34.1
)
 
(23.7
)
 
108.6

 
(10.4
)
 
(132.3
)
Income from continuing operations
65.8

 
59.7

 
152.5

 
6.1

 
(92.8
)
(Loss) gain from discontinued operations and disposal, net of tax
(2.3
)
 
4.0

 
7.5

 
(6.3
)
 
(3.5
)
Net income
$
63.5

 
$
63.7

 
$
160.0

 
$
(0.2
)
 
$
(96.3
)
Other data:
 
 
 
 
 
 
 
 
 
Operating margin
13.4
%
 
11.4
%
 
8.6
%
 
2.0
%
 
2.8
%
Diluted earnings per share — Continuing operations
$
1.04

 
$
0.94

 
$
2.41

 
$
0.10

 
$
(1.47
)
Total orders
686.1

 
807.4

 
706.0

 
(121.3
)
 
101.4

Backlog
171.3

 
254.7

 
226.5

 
(83.4
)
 
28.2

Depreciation and amortization
12.3

 
11.5

 
11.0

 
0.8

 
0.5

Year ended December 31, 2015 vs. year ended December 31, 2014
Net sales
Net sales decreased by $11.1 million , or 1% , for the year ended December 31, 2015 compared to the prior year. Net sales in the Environmental Solutions Group decreased by $2.5 million , with lower sales of vacuum trucks and sewer cleaners being partially offset by improved sales of street sweepers. In the Safety and Security Systems Group, net sales were down $8.6 million , largely due to an $11.4 million reduction in sales of industrial products associated with lower demand within oil and gas markets, as well as an unfavorable foreign currency impact of $8.2 million, partially offset by a $10.9 million improvement in sales into European public safety markets.
Cost of sales
For the year ended December 31, 2015 , cost of sales decreased by $28.0 million , or 5% , compared to the prior year, largely driven by a decrease of $18.0 million within the Environmental Solutions Group, principally associated with favorable product mix, as well as productivity and capacity improvements at our manufacturing facilities. The Safety and Security Systems Group also reported a $10.0 million cost of sales reduction, primarily due to a favorable foreign currency impact of $6.2 million, as well as favorable sales mix effects.
Gross profit
For the year ended December 31, 2015 , gross profit increased by $16.9 million , or 8% , compared to the prior year. Gross margin for the year ended December 31, 2015 was 29.4% , up from 26.8% in the prior year. The improvement in gross margin was primarily the result of productivity and facilities utilization improvements and improved pricing within the Environmental Solutions Group, as well as favorable product mix and lower costs in the Safety and Security Systems Group.

18



Selling, engineering, general and administrative expenses
SEG&A expenses increased by $2.0 million for the year ended December 31, 2015 compared to the prior year, largely due to increases of $0.8 million within the Safety and Security Systems Group, associated with higher engineering expenses for new product development, and $0.7 million within Corporate, primarily due to increased employee costs. The Environmental Solutions Group also reported a $0.5 million increase, primarily due to higher employee compensation costs, partially offset by decreased product liability and workers’ compensation expenses.
Operating income
Operating income for the year ended December 31, 2015 increased by $14.5 million , or 16% , to $103.2 million , reflecting an operating margin of 13.4% compared to 11.4% in the prior year. The increase was primarily attributable to improved operating leverage and favorable pricing within the Environmental Solutions Group, which contributed to a $15.5 million improvement in gross profit, and improved performance in the Safety and Security Systems Group, resulting in a $1.4 million increase in gross profit. These increases were partially offset by higher SEG&A expenses and $0.4 million of restructuring expenses in the Safety and Security Systems Group associated with severance costs incurred in connection with the completion of a voluntary reduction-in-force at our U.K. coal-mining business.
Interest expense
Interest expense for the year ended December 31, 2015 decreased by $1.3 million , or 36% , compared to the prior year, primarily due to significant reductions in debt levels. For further discussion, see Note 5 – Debt to the accompanying consolidated financial statements.
Other expense, net
Other expense, net totaled $1.0 million for the year ended December 31, 2015 , as compared to $1.7 million in the prior year. The decrease was largely driven by a $0.6 million gain on a foreign currency forward contract entered into in connection with the sale of the Fire Rescue Group, as discussed further in Note 14 – Discontinued Operations to the accompanying consolidated financial statements.
Income tax (expense) benefit
The Company recognized income tax expense of $34.1 million in the year ended December 31, 2015 , compared to $23.7 million in the prior year. The Company’s effective tax rate for the year ended December 31, 2015 was 34.1% , compared to 28.4% in 2014 . The increase in tax expense in the current year was primarily due to higher pre-tax income levels and the absence of certain tax benefits in the prior year that did not recur, described further below. The Company’s effective tax rate for the year ended December 31, 2015 was favorably impacted by a $4.2 million net tax benefit associated with tax planning strategies, partially offset by a $2.4 million adjustment of deferred tax assets and $0.4 million of expense associated with a change in the enacted tax rate in the U.K.
The Company’s effective tax rate for the year ended December 31, 2014 was favorably impacted by a $1.0 million net reduction in unrecognized tax benefits, primarily related to the completion of an IRS audit, a $3.5 million release of valuation allowance that was previously recorded against the Company’s Spanish deferred tax assets and a $0.4 million benefit attributable to a change in the enacted tax rate in Spain.
For further discussion, see Note 6 – Income Taxes to the accompanying consolidated financial statements.
Income from continuing operations
Income from continuing operations was $65.8 million for the year ended December 31, 2015 , compared with $59.7 million in the prior year. The $6.1 million increase was largely due to increased operating income and reductions in interest expense and other expense, net, as explained above, partially offset by an increase in income tax expense.
(Loss) gain from discontinued operations and disposal, net of tax
For the year ended December 31, 2015 , the Company recorded a net loss from discontinued operations and disposal of $2.3 million , which was primarily driven by tax expense associated with recording a net deferred tax liability of $6.3 million associated with recognizing the outside basis differences of entities being sold in connection with the sale of Bronto. Partially offsetting this tax expense was $1.2 million of net income generated by the Fire Rescue Group, which was discontinued in 2015. The Company also received $4.0 million from the general escrow funds originally established in connection with the Company’s 2012 sale of the former Federal Signal Technologies Group (“FSTech”), and recorded this income as a component

19



of (Loss) gain from discontinued operations and disposal, net of tax of $1.5 million. There were no amounts remaining in escrow as of December 31, 2015 .
For the year ended December 31, 2014, the Company recorded a net gain from discontinued operations and disposal of $4.0 million , which included $3.3 million of net income generated by the Fire Rescue Group, which was discontinued in 2015, as well as adjustments of estimated product liability obligations of previously discontinued businesses, resulting from updated actuarial valuations.
For further discussion of the loss from discontinued operations and disposals, see Note 14 – Discontinued Operations to the accompanying consolidated financial statements.
Year ended December 31, 2014 vs. year ended December 31, 2013
Net sales
Net sales increased by $66.2 million , or 9%, for the year ended December 31, 2014 compared to the prior year, primarily driven by our Environmental Solutions Group, which reported a net sales improvement of $62.6 million, or 13%, which primarily resulted from a $41.1 million increase in sales volumes, improved pricing strategies and favorable product mix linked to higher sales to industrial customers. Vacuum truck sales increased by $22.6 million, largely resulting from increased production throughput and productivity gains within our manufacturing facilities that have resulted in improved sales volumes of hydro-excavation products. Street sweeper sales were also $21.5 million higher than the prior year, and were reflective of improved municipal demand. There was also improvement in the Safety and Security Systems Group, where net sales increased by $3.6 million, or 2%.
Cost of sales
For the year ended December 31, 2014, cost of sales increased by $33.5 million , or 6%, compared to the prior year, largely driven by an increase of $33.8 million, or 9%, within the Environmental Solutions Group associated with higher unit volumes. These increases were partially offset by a $0.3 million reduction within our Safety and Security Group.
Gross profit
For the year ended December 31, 2014, gross profit increased by $32.7 million compared to the prior year. Gross margin for the year ended December 31, 2014 was 26.8% , up from 24.7% in the prior year. The improvement in gross margin was primarily the result of increased volumes that leveraged production capacity, favorable product mix associated with higher sales to industrial customers and productivity and facilities utilization improvements within our Environmental Solutions Group. Gross margin within our Safety and Security Systems Group improved by 110 basis points in comparison to the prior year, which included inefficiencies associated with an ERP implementation.
Selling, engineering, general and administrative expenses
SEG&A expenses increased by $6.3 million for the year ended December 31, 2014 compared to the prior year, primarily due to a $5.1 million increase within the Environmental Solutions Group, resulting from higher employee incentive and stock-compensation expense, product liability costs and consulting expenses. In addition, SEG&A expenses at Corporate were $2.3 million higher than the prior year, largely due to increased employee incentive and stock-compensation expense. These increases were partially offset by lower expenses of $1.1 million within the Safety and Security Systems Group, primarily due to lower pension expense and staffing costs.
Restructuring
There were no restructuring charges in 2014.
In 2013, the Company recorded restructuring charges of $1.2 million and $0.3 million related to severance costs in the Safety and Security Systems Group and Corporate, respectively. These charges were partially offset by the reversal of $0.6 million of Corporate restructuring costs that were originally recognized in 2012, after it was determined that the costs were not required.
Operating income
Operating income for the year ended December 31, 2014 increased by $27.1 million , or 44%, when compared to the prior year. The increases were primarily attributable to improved operating leverage and increased volumes within our Environmental Solutions Group, which contributed to a $28.8 million improvement in gross profit, and improved performance in our Safety and Security Systems Group, where gross profit increased by $3.9 million. These increases were largely offset by increased

20



SEG&A expenses within Corporate and the Environmental Solutions Group. Operating income for the year ended December 31, 2014 was also favorably impacted by the $0.7 million reduction in restructuring charges and lower SEG&A expenses in our Safety and Security Systems Group.
Interest expense
Compared with the prior year, interest expense for the year ended December 31, 2014 decreased by $5.3 million , or 60%, primarily due to significant reductions in debt levels. For the year ended December 31, 2014, interest expense further benefited from lower interest rates on borrowings that resulted from our March 2013 debt refinancing.
Debt settlement charges
There were no debt settlement charges in 2014.
In the first quarter of 2013, the Company recorded $8.7 million of charges related to the termination of our prior debt facilities. The expenses included the write-off of deferred financing fees of $4.5 million and a prepayment penalty of $4.2 million.
Other expense, net
Other expense, net totaled $1.7 million for the year ended December 31, 2014, as compared to $0.1 million in the prior year. The increase was largely driven by higher realized losses from foreign currency transactions.
Income tax (expense) benefit
The Company recognized income tax expense of $23.7 million for the year ended December 31, 2014, compared to an income tax benefit of $108.6 million in the prior year. The Company’s effective tax rate for the year ended December 31, 2014 was 28.4% , compared to (247.4)% in 2013.
In the second quarter of 2013, it was determined that $102.4 million of valuation allowance previously recorded against U.S. deferred tax assets could be released. This evaluation was based on a qualitative and quantitative analysis of current and expected domestic earnings, industry and market trends, tax planning strategies and general business risks, that resulted in a more likely than not conclusion of being able to realize a significant portion of our U.S. deferred tax assets.
Upon releasing the significant portion of our valuation allowance on U.S. deferred tax assets in the second quarter of 2013, a valuation allowance of $10.4 million was maintained in accordance with the guidance provided in Accounting Standards Codification (“ASC”) 740-270-25-4 and was released through the effective tax rate as domestic income was recognized throughout the course of the year ended December 31, 2013. An additional $3.4 million reduction in deferred tax valuation allowances was recorded as a discrete item in the year ended December 31, 2013.
In the fourth quarter of 2013, the Company also executed a tax planning strategy that resulted in the release of $6.7 million of valuation allowance that was previously recorded against the Company’s foreign tax credits, which would have begun to expire in 2015.
As the Company no longer maintains a valuation allowance against most domestic tax assets, tax expense has been recognized on domestic earnings, as well as non-U.S. earnings, in the year ended December 31, 2014.
The Company’s effective tax rate for the year ended December 31, 2014 was also favorably impacted by a $1.0 million net reduction in unrecognized tax benefits, that primarily related to the completion of an IRS audit, a $3.5 million release of valuation allowance that was previously recorded against the Company’s Spanish deferred tax assets and a $0.4 million benefit attributable to a change in the enacted tax rate in Spain.
Income from continuing operations
Income from continuing operations was $59.7 million for the year ended December 31, 2014, compared with $152.5 million in the prior year. The lower income is largely due to increased income tax expense, partially offset by improved operating income and reduced interest expense, as further explained above. Income from continuing operations for the year ended December 31, 2014, was also positively impacted by the absence of $8.7 million of debt settlement charges incurred in connection with our prior year debt refinancing.

21



Gain from discontinued operations and disposal, net of tax
For the year ended December 31, 2014, the Company recorded a net gain from discontinued operations and disposal of $4.0 million , which included $3.3 million of net income generated by the Fire Rescue Group, which was discontinued in 2015, as well as adjustments of estimated product liability obligations of previously discontinued businesses, resulting from updated actuarial valuations.
For the year ended December 31, 2013, the Company recorded a net gain from discontinued operations and disposal of $7.5 million , which included $7.7 million of net income generated by the Fire Rescue Group. Partially offsetting this income was a charge related to special termination benefits provided to certain FSTech employees that were retained by the Company in order to assist with transitional operations through the end of the third quarter of 2013, as well as certain adjustments relating to assets of other previously discontinued operations.
Orders & Backlog
($ in millions)
2015
 
2014
 
2013
Total orders
$
686.1

 
$
807.4

 
$
706.0

Change in orders year-over-year
(15.0
)%
 
14.4
%
 
2.3
 %
Change in U.S. municipal and government orders year-over-year
(10.9
)%
 
20.7
%
 
1.7
 %
Change in U.S. industrial and commercial orders year-over-year
(30.2
)%
 
13.7
%
 
8.2
 %
Change in non-U.S. orders year-over-year
(3.0
)%
 
4.8
%
 
(3.1
)%
Backlog
$
171.3

 
$
254.7

 
$
226.5

Change in backlog year-over-year
(32.7
)%
 
12.5
%
 
(3.5
)%
Year ended December 31, 2015 vs. year ended December 31, 2014
For the year ended December 31, 2015 , total orders of $686.1 million decreased by $121.3 million , or 15% , compared to the prior year, largely due to lower demand for vacuum trucks, street sweepers and sewer cleaners, which led to an $106.4 million decrease in orders within our Environmental Solutions Group. Our Safety and Security Systems Group also reported decreased orders of $14.9 million .
U.S. municipal and governmental orders decreased by 11%, primarily due to a decline in orders of street sweepers and sewer cleaners of $26.3 million and $12.9 million, respectively. Street sweeper and sewer cleaner orders from our municipal markets decreased largely due to fewer fleet orders as compared with the prior year.
U.S. industrial and commercial orders decreased by 30%, primarily as a result of lower orders within our Environmental Solutions Group, including decreased orders of $66.1 million for vacuum trucks, which were adversely impacted, directly and indirectly, by softness in oil and gas markets and, to a lesser extent, other industrial markets.
Non-U.S. orders decreased by 3%, primarily due to lower demand for industrial products used in oil and gas markets and coal markets and unfavorable foreign currency effects within our Safety and Security Systems Group. This was partially offset by an increase in orders from European and international public safety markets linked to higher demand, as well as increased orders from Canada within our Environmental Solutions Group.
Year ended December 31, 2014 vs. year ended December 31, 2013
For the year ended December 31, 2014, total orders of $807.4 million increased by $101.4 million, or 14%, compared to the prior year, largely due to higher demand for street sweepers, vacuum trucks and sewer cleaners which led to an $85.9 million increase in orders within our Environmental Solutions Group. Our Safety and Security Systems Group also reported improved orders of $15.5 million.
U.S. municipal and governmental orders increased by 21%, primarily due to higher street sweeper orders of $41.5 million, which were positively impacted by solid municipal demand and an influx of fleet orders, as well as the effects of an improved pricing strategy. Further contributing to the increase in U.S. municipal and governmental orders was an $11.2 million increase in sewer cleaner orders and a $3.6 million improvement in orders of outdoor warning and other public notification systems.
U.S. industrial and commercial orders increased by 14%, primarily as a result of improved orders within our Environmental Solutions Group, including increased orders of $19.8 million, $6.3 million and $4.3 million for vacuum trucks, waterblasters and used equipment, respectively.

22

Non-U.S. orders increased by 5%, primarily due to higher integrated systems orders and increased demand in international public safety markets within our Safety and Security Systems Group.
Backlog
Backlog was $171.3 million at December 31, 2015 as compared to $254.7 million at December 31, 2014 . The decrease was largely due to a lower backlog for vacuum trucks, street sweepers and sewer cleaners within our Environmental Solutions Group, resulting from reduced demand from oil and gas markets and the absence of certain large fleet orders received in the prior year. The reduction in orders also includes the effects of receiving fewer advance orders from customers associated with shorter lead times for our products following our recent capacity improvements.
Environmental Solutions
The following table summarizes the Environmental Solutions Group’s operating results as of and for the years ended December 31, 2015 , 2014 and 2013 :
 
For the Years Ended December 31,
 
Change
($ in millions)
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
Net sales
$
534.1

 
$
536.6

 
$
474.0

 
$
(2.5
)
 
$
62.6

Operating income
96.9

 
81.9

 
58.2

 
15.0

 
23.7

Other data:
 
 
 
 
 
 
 
 
 
Operating margin
18.1
%
 
15.3
%
 
12.3
%
 
2.8
%
 
3.0
%
Total orders
$
449.2

 
$
555.6

 
$
469.7

 
$
(106.4
)
 
$
85.9

Backlog
133.4

 
218.3

 
199.3

 
(84.9
)
 
19.0

Depreciation and amortization
7.3

 
6.8

 
6.1

 
0.5

 
0.7

Year ended December 31, 2015 vs. year ended December 31, 2014
Total orders decreased by $106.4 million , or 19% , for the year ended December 31, 2015 . U.S. orders decreased by $111.2 million, or 24%, largely due to reductions in orders for vacuum trucks, street sweepers, and sewer cleaners of $66.1 million, $22.7 million and $13.8 million, respectively. Vacuum truck orders were adversely impacted by softness in oil and gas markets, while the decreases in street sweeper and sewer cleaner orders from our municipal markets was primarily due to fewer large fleet orders when compared with the prior year. Non-U.S. orders increased by $4.8 million, or 6%, for the year ended December 31, 2015 . Orders from Canada were up $15.9 million, primarily driven by improved sewer cleaner orders. Partially offsetting the improvement in Canadian orders were decreases in orders from the Middle East, South America and Mexico of $8.7 million, $2.6 million, and $2.2 million, respectively. The prior year included a large fleet order for street sweepers from the Middle East.
Net sales decreased by $2.5 million for the year ended December 31, 2015 . U.S. sales decreased by $0.4 million, primarily due to decreases in sales of vacuum trucks and sewer cleaners of $19.9 million and $11.8 million, respectively, that was largely offset by a $33.6 million increase in shipments of street sweepers. The improvement in street sweeper sales is reflective of strong municipal order intake in prior periods. The decline in the demand for sewer cleaners and vacuum trucks is reflective of softness in oil and gas markets, which has also contributed to lower demand for additional rental units in the vacuum truck market. Non-U.S. sales decreased by $2.1 million, largely driven a $9.2 million decline in street sweeper shipments to the Middle East, partially offset by increased sales of vacuum trucks and sewer cleaners into Canada. The prior year was inclusive of a significant street sweeper fleet order to the Middle East that did not repeat.
Cost of sales decreased by $18.0 million for the year ended December 31, 2015 . Favorable product mix effects of $19.8 million were partly offset by a $1.8 million increase associated with higher unit volumes. Gross margin for the year ended December 31, 2015 improved to 26.3% from 23.3% in the prior year, largely due to favorable pricing, coupled with productivity and capacity improvements at our manufacturing facilities.
SEG&A expenses increased by $0.5 million for the year ended December 31, 2015 , largely due to a $1.9 million increase in employee compensation costs, partially offset by a $1.1 million decrease in product liability and workers’ compensation expenses.
Operating income increased by $15.0 million , or 18% , for the year ended December 31, 2015 . The increase in operating income was the result of a $15.5 million improvement in gross profit, offset by the $0.5 million increase in SEG&A expenses.

23

Backlog was $133.4 million at December 31, 2015 compared to $218.3 million at December 31, 2014 . The decrease was largely due to a lower backlog for vacuum trucks, street sweepers and sewer cleaners, which declined by $83.2 million in the aggregate, resulting from reduced demand from oil and gas markets and the absence of certain large fleet orders received in the prior year. The reduction in orders also includes the effects of receiving fewer advance orders from customers associated with shorter lead times for our products that were facilitated by our recent capacity improvements.
Year ended December 31, 2014 vs. year ended December 31, 2013
Total orders increased by $85.9 million, or 18%, for the year ended December 31, 2014. U.S. orders increased $86.5 million, or 23%, largely due to an increase in orders for street sweepers of $37.4 million, vacuum trucks of $15.9 million, sewer cleaners of $15.0 million and waterblasters of $6.3 million. Orders for street sweepers and sewer cleaners benefited from solid municipal demand and an influx of fleet orders, including significant orders from large municipalities. Improved vacuum truck orders are inclusive of hydro-excavation products with applications in industrial markets. Non-U.S. orders decreased by $0.6 million for the year ended December 31, 2014. Compared with the prior year, orders for street sweepers and sewer cleaners in Canada were $7.0 million lower, while orders for sewer cleaners in the Middle East were also down $3.3 million. Partially offsetting these decreases were increased orders of $8.8 million for street sweepers in the Middle East, which were largely driven by a large fleet order during the second quarter of 2014.
Net sales increased by $62.6 million, or 13%, for the year ended December 31, 2014. U.S. sales increased $43.1 million, primarily driven by increased shipments of vacuum trucks and street sweepers of $25.5 million and $10.4 million, respectively. Vacuum truck shipments exceeded prior-year levels, largely due to increased production throughput and productivity improvements within our manufacturing facilities which have facilitated increased sales of hydro-excavator products. Higher sales of street sweepers reflected improving municipal demand. Non-U.S. sales increased $19.5 million, or 25%, primarily due to increased street sweeper sales to the Middle East and Canada, and increased sewer cleaner shipments to Mexico and Canada.
Cost of sales increased by $33.8 million for the year ended December 31, 2014. The increase was primarily due to higher sales volumes, which resulted in a $31.5 million increase in cost of sales, as well as increased costs associated with product mix relating to higher-content products within our industrial markets, partially offset by productivity improvements. Gross margin for the year ended December 31, 2014 improved to 23.3% from 20.3% in the prior year largely due to favorable mix associated with higher sales to industrial customers, including increased shipments of hydro-excavation products. Gross margin further benefited from favorable pricing, improved productivity and manufacturing facilities utilization improvements.
SEG&A expenses increased by $5.1 million for the year ended December 31, 2014. The higher SEG&A expenses were largely the result of increased employee incentive and stock-based compensation expense, product liability costs and consulting expenses of $1.9 million, $1.6 million and $1.1 million, respectively.
Operating income increased by $23.7 million, or 41%, for the year ended December 31, 2014. The increase in operating income was a result of higher gross profit of $28.8 million, primarily attributable to operating leverage and favorable product mix, offset by a $5.1 million increase in SEG&A expenses.
Backlog was $218.3 million at December 31, 2014, up 10% compared to $199.3 million at December 31, 2013. Backlog for street sweepers increased by $30.3 million, largely as a result of significant fleet orders, while backlog for sewer cleaners and vacuum trucks declined by $12.1 million, primarily as a result of measures taken to increase production capacity to manage backlog and shorten lead times for sewer cleaners and vacuum trucks.

24

Safety and Security Systems
The following table summarizes the Safety and Security Systems Group’s operating results as of and for the years ended December 31, 2015 , 2014 and 2013 :
 
For the Years Ended December 31,
 
Change
($ in millions)
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
Net sales
$
233.9

 
$
242.5

 
$
238.9

 
$
(8.6
)
 
$
3.6

Operating income
32.3

 
32.1

 
26.1

 
0.2

 
6.0

Other data:
 
 
 
 
 
 
 
 
 
Operating margin
13.8
%
 
13.2
%
 
10.9
%
 
0.6
%
 
2.3
%
Total orders
$
236.9

 
$
251.8

 
$
236.3

 
$
(14.9
)
 
$
15.5

Backlog
37.9

 
36.4

 
27.2

 
1.5

 
9.2

Depreciation and amortization
4.8

 
4.5

 
4.2

 
0.3

 
0.3

Year ended December 31, 2015 vs. year ended December 31, 2014
Total orders decreased by $14.9 million , or 6% , for the year ended December 31, 2015 . U.S. orders decreased by $4.4 million, primarily due to a $5.4 million decrease in orders for outdoor warning systems when compared to the prior year that included two large orders that did not repeat, and a $6.8 million decrease in industrial orders attributable to lower demand in oil and gas markets and domestic coal markets. These decreases were partially offset by a $7.8 million improvement in orders from public safety markets, largely driven by improved police orders. Non-U.S. orders decreased by $10.5 million, or 10%, primarily due to an $8.3 million unfavorable foreign currency effect. Excluding the unfavorable foreign currency effect, non-U.S orders were adversely impacted by a $6.5 million decline in industrial orders, primarily due to softness in the international oil and gas markets, a $3.5 million reduction in orders for products sold into international coal markets and a $2.8 million decrease in orders for outdoor warning systems. These reductions were offset by a $10.6 million increase in orders from European and other international public safety markets associated with improved demand, as well as the effects of several large orders received during the year.
Net sales decreased by $8.6 million for the year ended December 31, 2015 . U.S. sales decreased by $3.4 million, largely due to a $6.0 million decrease in sales of industrial products, attributable to lower demand in oil and gas markets and domestic coal markets, which was partially offset by a $2.7 million improvement in sales into public safety markets. Non-U.S. sales decreased by $5.2 million, principally due to an unfavorable foreign currency impact of $8.2 million. Excluding unfavorable foreign currency effects, non-U.S. sales increased by $3.0 million, largely due to a $10.9 million improvement in sales into European public safety markets and a $1.2 million increase in other international public safety markets. These increases were partially offset by a $5.4 million reduction in sales of industrial products into international oil and gas and coal markets, and a $3.7 million decrease in sales of outdoor warning systems.
Cost of sales decreased by $10.0 million for the year ended December 31, 2015 . The decrease largely resulted from a favorable foreign currency impact of $6.2 million, coupled with favorable customer and product mix effects, as well as reductions in manufacturing, freight and product costs. Gross margin for the year ended December 31, 2015 improved to 36.3% from 34.5% in the prior year, largely as a result of reduced costs and a favorable change in the mix of products sold to customers.
SEG&A expenses increased by $0.8 million for the year ended December 31, 2015 , largely due to higher engineering expenses for new product development and increased employee costs.
Operating income increased by $0.2 million for the year ended December 31, 2015 , largely due to a $1.4 million improvement in gross profit, offset by the $0.8 million increase in SEG&A expenses and $0.4 million of expense associated with restructuring activities, primarily associated with severance costs incurred in connection with a voluntary reduction-in-force that was completed at our U.K. coal-mining business.
Backlog was $37.9 million at December 31, 2015 compared to $36.4 million at December 31, 2014 . The increase was primarily due to improved orders within the public safety market, largely driven by higher police orders, partially offset by decreased industrial orders attributable to lower demand in oil and gas markets.
Year ended December 31, 2014 vs. year ended December 31, 2013
Total orders increased by $15.5 million, or 7%, for the year ended December 31, 2014. U.S. orders were $6.3 million higher than the prior year, and included increases of $3.9 million within our public safety markets, largely driven by higher police orders coupled with market share gains. Orders of outdoor warning and other notification systems sold into the municipal

25

markets increased by $3.6 million. These increases were partially offset by a $1.3 million decrease in orders of industrial products. Non-U.S. orders increased by $9.2 million largely due to a $6.7 million improvement in integrated systems orders, including sales into the international oil and gas markets, as well as $6.0 million of increased orders within our international public safety markets, primarily attributable to an influx of large orders within our European markets. These increases were partially offset by a $2.6 million decrease in orders into international coal markets.
Net sales increased by $3.6 million for the year ended December 31, 2014. U.S. sales were $0.3 million higher than the prior year. Sales within our public safety markets increased by $6.4 million, including a $3.2 million improvement in sales to police customers that was inclusive of a significant project with a major municipality. Largely offsetting these increases was a reduction of $4.5 million in sales of outdoor warning systems, which were impacted by the completion of significant orders in the municipal and military markets in the prior year, as well as a $1.5 million decrease in sales of industrial products due to slow demand. Non-U.S. sales increased by $3.3 million, primarily due to improvements within the European public safety markets of $2.9 million, driven by several significant deliveries, as well as a $2.8 million increase in integrated system sales and a $2.1 million improvement in sales of outdoor warning systems including several large sales into the Middle East. These increases were offset by $2.4 million in lower public safety exports to Mexico, South America and other international markets. Sales into international coal markets declined by $1.5 million as compared to the prior year, reflecting unfavorable market conditions.
Despite increased sales of $3.6 million, cost of sales decreased by $0.3 million for the year ended December 31, 2014. The reduction resulted from lower manufacturing costs, improved productivity, and favorable fixed-cost absorption tied to higher volumes. Also contributing to the decrease in cost of sales was the absence of expenses incurred in the prior year in connection with an ERP system implementation, as well as lower freight costs. Gross margin for the year ended December 31, 2014 improved to 34.5% from 33.4% in the prior year as a result of these factors, coupled with moderate pricing gains and favorable product mix realized in 2014.
SEG&A expenses decreased by $1.1 million for the year ended December 31, 2014, primarily due to a $1.3 million reduction in pension expense, lower sales commissions related to sales mix, decreased staffing costs attributable to prior restructuring activities and reductions in discretionary spending. Partially offsetting the decrease were increased employee incentive and stock-based compensation expenses.
Operating income increased by $6.0 million, or 23%, for the year ended December 31, 2014, largely due to a $3.9 million improvement in gross profit and the $1.1 million decrease in SEG&A expenses. In addition, there were $1.0 million of restructuring charges incurred in the prior year.
Backlog was $36.4 million at December 31, 2014 compared to $27.2 million at December 31, 2013. The increase of $9.2 million, or 34%, is primarily due to orders received in the fourth quarter of 2014, which were $5.3 million higher than in the fourth quarter of 2013, as well as the timing of future deliveries based on customer requirements.
Corporate Expense
Corporate operating expenses were $26.0 million , $25.3 million and $22.7 million for the years ended December 31, 2015 , 2014 and 2013 , respectively.
For the year ended December 31, 2015 , corporate operating expenses increased by $0.7 million , primarily due to higher employee costs.
For the year ended December 31, 2014, corporate operating expenses increased by $2.6 million, or 11%. The increase primarily related to an aggregate increase of $3.3 million in incentive and stock-based compensation expense, which was due in part to improvements in the Company’s performance. Also contributing to the increase was an unfavorable impact of $0.3 million from corporate restructuring activities. These increases were partially offset by a $1.3 million reduction in pension expense and lower professional services costs.
The Company’s hearing loss litigation has historically been managed by the Company’s legal staff resident at the corporate office and not by management at any reporting segment. In accordance with ASC Topic 280, Segment Reporting , which provides that segment reporting should follow the management of the item and that certain expenses may be corporate expenses, these legal expenses (which are not part of the normal operating activities of any of our operating segments), are reported and managed as corporate expenses.

26

Financial Condition, Liquidity and Capital Resources
The Company used its cash flow from operations to fund growth and to make capital investments that sustain its operations, reduce costs, or both. Beyond these uses, remaining cash is used to pay down debt, repurchase shares, fund dividend payments and make pension contributions. The Company may also choose to invest in the acquisition of businesses. In the absence of significant unanticipated cash demands, we believe that the Company’s existing cash balances, cash flow from operations and borrowings available under the 2016 Credit Agreement will provide funds sufficient for these purposes.
The Company’s cash and cash equivalents totaled $76.0 million , $24.1 million and $13.6 million as of December 31, 2015 , 2014 and 2013 , respectively. As of December 31, 2015 , $12.5 million of cash and cash equivalents was held by foreign subsidiaries. Cash and cash equivalents held by subsidiaries outside the U.S. typically are held in the currency of the country in which it is located. This cash is used to fund the operating activities of our foreign subsidiaries and for further investment in foreign operations. Generally, we consider such cash to be permanently reinvested in our foreign operations and our current plans do not demonstrate a need to repatriate such cash to fund U.S. operations. However, in the event that these funds were needed to fund U.S. operations or to satisfy U.S. obligations, they generally could be repatriated. The repatriation of these funds may then cause us to incur additional U.S. income tax expense, which would be dependent on income tax laws and other circumstances at the time any such amounts were repatriated.
As discussed further in Note  14 – Discontinued Operations to the accompanying consolidated financial statements, the Company recorded a net deferred tax liability of $6.3 million at December 31, 2015 associated with recognizing the outside basis differences of entities being sold in connection with the sale of Bronto. The deferred tax liability recorded at December 31, 2015 includes a liability for U.S. income tax effects associated with the repatriation of the related sales proceeds. The initial sales proceeds of € 76 million (approximately $83 million ) were received on January 29, 2016 , with the remaining purchase price expected to be paid, in connection with the payment of the working capital and net debt adjustments, by the end of the second quarter of 2016.
Net cash provided by continuing operating activities totaled $91.1 million , $81.1 million and $64.8 million in 2015 , 2014 and 2013 , respectively. The increase in cash generated by continuing operating activities in 2015 compared to 2014 was largely the result of higher earnings and a $1.2 million reduction in pension contributions, offset by increases in year-end primary working capital (defined as accounts receivable and inventories, net, less accounts payable and customer deposits) and tax payments of $4.0 million and $2.4 million, respectively. The increase in cash generated by continuing operating activities in 2014 compared to 2013 was largely the result of higher earnings, offset by increases in year-end primary working capital and tax payments of $7.7 million and $5.9 million, respectively.
Net cash used in continuing investing activities totaled $11.5 million , $5.8 million and $10.5 million in 2015 , 2014 and 2013 , respectively. In each of the years presented, cash was used to fund the purchase of properties and equipment, with $9.6 million , $13.7 million and $11.6 million of capital expenditures in 2015 , 2014 and 2013 , respectively. In 2015 , the Company provided a customer with a loan of $6.0 million . The loan is secured by real estate of the customer, has a one-year term and bears interest at a rate of 7% per annum, increasing to 14% per annum if the loan is not repaid by an agreed-upon date. During 2015 and 2014 , the Company also received $4.0 million and $7.4 million , respectively, from the escrow associated with the FSTech divestiture. Proceeds from the sale of properties and equipment amounted to $0.1 million , $0.5 million and $0.1 million in 2015 , 2014 and 2013 , respectively.
Net cash used for continuing financing activities totaled $33.0 million , $53.7 million and $65.6 million in 2015 , 2014 and 2013 , respectively. In 2015, the Company funded cash dividends of $15.6 million , repurchased $10.6 million of treasury stock, and redeemed $3.2 million of stock in order to remit funds to tax authorities to satisfy employees’ minimum tax withholdings following the vesting of stock-based compensation. The Company also paid $5.8 million in scheduled term loan repayments. Offsetting these financing cash outflows were $1.0 million of proceeds from stock option exercises and a $1.6 million excess tax benefit, representing the difference between stock-based compensation expense deductible for income tax and recognized for financial reporting purposes. In 2014, the Company used cash to pay down a net $20.0 million on its revolving credit facility and $21.6 million on its term loan, including a voluntary debt prepayment of $15.0 million that was made during the fourth quarter. The Company also repurchased $10.3 million of treasury stock and funded cash dividends of $5.6 million. These financing cash outflows were offset by $2.6 million of proceeds from stock option exercises and a $2.2 million excess tax benefit. In 2013, the Company used $61.4 million to pay down debt, and $6.1 million to pay an early termination penalty and debt issuance costs in connection with its March 2013 debt refinancing. The Company also received $2.6 million from stock compensation activity in 2013.
The Company uses the ratio of total debt to adjusted EBITDA as one measure of its long-term financial stability. The ratio of debt to adjusted EBITDA is a non-GAAP measure that represents total debt divided by the trailing 12-month total of income from continuing operations before interest expense, restructuring charges, other expense, income tax benefit or expense, and depreciation and amortization expense. The Company uses the ratio to calibrate the magnitude of its debt and its debt capacity

27

against adjusted EBITDA, which is used as an operating performance measure. We believe that investors use a version of this ratio in a similar manner. In addition, financial institutions (including the Company’s lenders) use the ratio in connection with debt agreements to set pricing and covenant limitations. For these reasons, the Company believes that the ratio is a meaningful metric to investors in evaluating the Company’s long-term financial performance and stability. Other companies may use different methods to calculate total debt to EBITDA. The following table summarizes the Company’s ratio of total debt to adjusted EBITDA and reconciles income from continuing operations to adjusted EBITDA as of and for each of the three years in the period ended December 31, 2015 :
 
Trailing Twelve Months Ending December 31,
($ in millions)
2015
 
2014
 
2013
Total debt
$
44.1

 
$
50.2

 
$
92.1

 
 
 
 
 
 
Income from continuing operations
$
65.8

 
$
59.7

 
$
152.5

Add:
 
 
 
 
 
Interest expense
2.3

 
3.6

 
8.9

Restructuring
0.4

 
—

 
0.7

Debt settlement charges
—

 
—

 
8.7

Other expense, net
1.0

 
1.7

 
0.1

Income tax expense (benefit)
34.1

 
23.7

 
(108.6
)
Depreciation and amortization
12.3

 
11.5

 
11.0

Adjusted EBITDA
$
115.9

 
$
100.2

 
$
73.3

 
 
 
 
 
 
Total debt to adjusted EBITDA ratio
0.4

 
0.5

 
1.3

On January 27, 2016, the Company entered into the 2016 Credit Agreement, by and among the Company and certain of its foreign subsidiaries (collectively, the “Borrowers”), Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing lender, JPMorgan Chase Bank, N.A. as syndication agent, KeyBank National Association, as documentation agent, Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint bookrunners, and the other lenders and parties signatory thereto.
The 2016 Credit Agreement is a $325.0 million revolving credit facility, maturing on January 27, 2021, that provides for borrowings in the form of loans or letters of credit up to the aggregate availability under the facility, with a sub-limit of $50.0 million for letters of credit. The 2016 Credit Agreement allows for the Borrowers to borrow in denominations of U.S. Dollars, Canadian Dollars (up to a maximum of C $85.0 million ) or euros (up to a maximum of € 20.0 million ). In addition, the Company may cause the commitments to increase by up to an additional $75.0 million , subject to the approval of the applicable lenders providing such additional financing. Borrowings under the 2016 Credit Agreement may be used for working capital and general corporate purposes, including permitted acquisitions.
The Company’s domestic subsidiaries provide guarantees for all obligations of the Borrowers under the 2016 Credit Agreement, which is secured by a first priority security interest in all now or hereafter acquired domestic property and assets and the stock or other equity interests in each of the domestic subsidiaries and 65% of the outstanding voting capital stock of certain first-tier foreign subsidiaries, subject to certain exclusions.
Borrowings under the 2016 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 0.00% to 1.25% for base rate borrowings and 1.00% to 2.25% for LIBOR borrowings. The Company must also pay a commitment fee to the lenders ranging between 0.15% to 0.30%  per annum on the unused portion of the $325.0 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 leverage ratio and interest coverage ratio financial covenants under the 2016 Credit Agreement that are to be measured at each fiscal quarter-end. The 2016 Credit Agreement also includes a “covenant holiday” period, which allows for the temporary increase of the minimum leverage ratio following the completion of a permitted acquisition, or a series of permitted acquisitions, when the total consideration exceeds a specified threshold. In addition, the 2016 Credit Agreement includes customary negative covenants, subject to certain exceptions, restricting or limiting the Company’s and its subsidiaries’ ability to, among other things: (i) make non-ordinary course dispositions of assets, (ii) make certain fundamental business changes, such as merge, consolidate or enter into any similar combination, (iii) make restricted payments, including dividends and stock repurchases, (iv) incur indebtedness, (v) make certain loans and investments, (vi)

28

create liens, (vii) transact with affiliates, (viii) enter into sale/leaseback transactions, (ix) make negative pledges and (x) modify subordinated debt documents.
Under the 2016 Credit Agreement, restricted payments, including dividends and stock repurchases, shall be permitted if (i) the Company’s leverage ratio is less than or equal to 2.50 , (ii) the Company is in compliance with all other financial covenants and (iii) there are no existing defaults under the 2016 Credit Agreement. If its leverage ratio is more than 2.50 , the Company is still permitted to fund (i) up to $30.0 million of dividend payments, (ii) stock repurchases sufficient to offset dilution created by the issuance of equity as compensation to its officer, directors, employees and consultants and (iii) an incremental $30.0 million of other cash payments.
The 2016 Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the Borrowers may be required immediately to repay all amounts outstanding under the 2016 Credit Agreement and the commitments from the lenders may be terminated.
The 2016 Credit Agreement amends and restates the Company’s March 13, 2013 Credit Agreement (the “2013 Credit Agreement”) by and among the Company, as borrower, the lenders referred to therein, as lenders, Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing lender, General Electric Capital Corporation, as syndication agent, and Wells Fargo Securities, LLC and GE Capital Markets, Inc., as joint lead arrangers and joint book managers. The 2013 Credit Agreement provided the Company with a $225.0 million senior secured credit facility comprised of a five -year fully funded term loan of $75.0 million and a five -year $150.0 million revolving credit facility under which borrowings may be made from time to time during the five -year term.
The 2013 Credit Agreement was a five-year senior secured credit facility secured by a first priority security interest in all now or hereafter acquired domestic property and assets and the stock or other equity interests in each of the domestic subsidiaries and certain of the first-tier foreign subsidiaries, subject to certain exclusions. Under the terms of the 2013 Credit Agreement, the Company was required to make quarterly installment payments against the $75.0 million term loan, with any remaining balance due on the maturity date of March 13, 2018. As a result of executing the 2016 Credit Agreement subsequent to December 31, 2015, but prior to the issuance of the financial statements, the $6.9 million current portion of term loan debt outstanding as of December 31, 2015 has been reflected as a component of long-term borrowings and capital lease obligations on the Consolidated Balance Sheet. Under the 2013 Credit Agreement, the Company was allowed to prepay the term loan in whole or in part prior to maturity without premium or penalty. In the fourth quarter of 2014, the Company made a voluntary term loan prepayment of $15.0 million . In the first quarter of 2016, the Company repaid the remaining $43.4 million of principal outstanding under the 2013 Credit Agreement.
The 2013 Credit Agreement provided for loans and letters of credit in an amount up to an aggregate availability under the revolving credit facility of $150.0 million , with a sub-limit of $50.0 million for letters of credit. Borrowings under the 2013 Credit Agreement bore interest, at the Company’s option, at a base rate or a LIBOR rate, plus, in each case, an applicable margin. The applicable margin ranged from 1.00% to 2.00% for base rate borrowings and 2.00% to 3.00% for LIBOR borrowings. The Company was also required to pay a commitment fee to the lenders equal to a range of 0.25% to 0.45%  per annum on the unused portion of the $150.0 million revolving credit facility along with other standard fees. Letter of credit fees were also payable on outstanding letters of credit in an amount equal to the applicable LIBOR margin plus other customary fees. The Company was allowed to prepay in whole or in part advances under the revolving credit facility portion without penalty or premium other than customary “breakage” costs with respect to LIBOR loans.
The 2013 Credit Agreement required the Company to comply with financial covenants related to the maintenance of a minimum fixed charge coverage ratio and maximum leverage ratio. The financial covenants were measured at each fiscal quarter-end. Restricted payments, including dividends, were permitted only if the pro-forma leverage ratio after giving effect to such payment is less than 3.25 x, pro-forma compliance after giving effect to such payment was maintained for all other financial covenants and there were no existing defaults under the 2013 Credit Agreement. The Company was in compliance with all of its debt covenants as of, and throughout the year ended, December 31, 2015 .
In the first quarter of 2013, upon execution of the 2013 Credit Agreement, the Company recorded $8.7 million of costs related to the termination of its prior debt agreements. The costs included a $4.2 million early termination penalty payment and a $4.5 million write-off of the remaining unamortized deferred financing costs related to the prior debt agreements.
The Company incurred $1.9 million of debt issuance costs associated with the execution of the 2013 Credit Agreement. Financing costs incurred in connection with the 2013 Credit Agreement were deferred and, prior to the execution of the 2016 Credit Agreement, were being amortized over the five-year term. The Company does not expect to write off a material amount of unamortized deferred financing fees associated with the 2013 Credit Agreement in connection with executing the 2016 Credit Agreement in the first quarter of 2016. The Company estimates that approximately $1 million of debt issuance costs were incurred in connection with the execution of the 2016 Credit Agreement.

29

As of December 31, 2015 , there was no cash drawn and $19.2 million of undrawn letters of credit under the $150.0 million revolving credit facility portion of the 2013 Credit Agreement, with $130.8 million of net availability for borrowings. As of December 31, 2015 , no amounts were drawn against the Company’s non-U.S. lines of credit which provide for borrowings up to $10.0 million .
For the years ended December 31, 2014 and December 31, 2013 , gross borrowings under the Company’s domestic revolving credit facility of the 2013 Credit Agreement were $6.5 million and $123.7 million , respectively. For the years ended December 31, 2014 and December 31, 2013 , gross payments under the Company’s domestic revolving credit facility of the 2013 Credit Agreement were $26.5 million and $106.2 million , respectively. There were no borrowings or repayments under the Company’s domestic revolving credit facility of the 2013 Credit Agreement during 2015 .
Aggregate maturities of total borrowings, giving effect to the 2016 Credit Agreement, amount to approximately $0.4 million in 2016 , $0.3 million in 2017 , none in 2018 , none in 2019 and $43.4 million in 2020 and thereafter. The weighted average interest rate on long-term borrowings was 2.4% at December 31, 2015 .
The Company paid interest of $1.9 million in 2015 , $3.0 million in 2014 and $9.4 million in 2013 .
The Company paid income taxes of $9.6 million in 2015 , $7.2 million in 2014 and $1.3 million in 2013 .
Cash dividends of $15.6 million and $5.6 million were declared and paid to stockholders in 2015 and 2014 . The Company did not declare any dividends in 2013 or 2012, and accordingly, no dividends were paid in 2013.
The Company anticipates that capital expenditures for 2016 will be in the range of $10 million to $15 million. The Company believes that its financial resources and major sources of liquidity, including cash flow from operations and borrowing capacity, will be adequate to meet its operating needs, capital needs and financial commitments.
Contractual Obligations and Off-Balance Sheet Arrangements
The following table summarizes the Company’s contractual obligations and payments due by period as of December 31, 2015 :
 
Payments Due by Period
(in millions)
Total
 
Less than
1 Year
 
2-3 Years
 
4-5 Years
 
More than
5 Years
Long-term debt (a)
$
43.4

 
$
—

 
$
—

 
$
—

 
$
43.4

Interest payments on long-term debt (b)
5.3

 
1.1

 
2.1

 
2.1

 
—

Operating lease obligations
43.3

 
7.6

 
13.0

 
10.4

 
12.3

Capital lease obligations
0.7

 
0.4

 
0.3

 
—

 
—

Purchase obligations (c)
55.0

 
51.5

 
3.5

 
—

 
—

Pension contributions (d)
6.3

 
6.3

 
—

 
—

 
—

Total contractual obligations (e)
$
154.0

 
$
66.9

 
$
18.9

 
$
12.5

 
$
55.7

(a)
L ong-term debt is reflective of the effects of the 2016 Credit Agreement, which was executed on January 27, 2016. For additional information, refer to Note  5 – Debt to the accompanying consolidated financial statements.
(b)
Amounts represent estimated contractual interest payments on outstanding long-term debt and are reflective of the effects the 2016 Credit Agreement. For further discussion, refer to Note  5 – Debt to the accompanying consolidated financial statements.
(c)
Purchase obligations primarily relate to commercial chassis and other contracts in the ordinary course of business.
(d)
The Company expects to contribute up to $4.8 million to the U.S. benefit plans and up to $1.5 million to the non-U.S. benefit plans in 2015, which represents the minimum required contribution. Future contributions to the plans will be based on such factors as (i) annual service cost, (ii) the financial return on plan assets, (iii) interest rate movements that affect discount rates applied to plan liabilities and (iv) the value of benefit payments made. Due to the high degree of uncertainty regarding the potential future cash outflows associated with these plans, the Company is unable to provide a reasonably reliable estimate of the amounts and periods in which any additional liabilities might be paid.
(e)
As of December 31, 2015 , the Company has a liability of approximately $2.2 million for unrecognized tax benefits (refer to Note  6 – Income Taxes to the accompanying consolidated financial statements). Due to the uncertainties related to these tax matters, the Company generally cannot make a reasonably reliable estimate of the period of cash settlement for this liability. As such, the potential future cash outflows are not included in the table above. We do not expect any significant change to our unrecognized tax benefits as a result of potential expiration of statute of limitations and settlements with tax authorities.

30

The following table summarizes the Company’s off-balance sheet arrangements and the notional amount by expiration period as of December 31, 2015 :
 
Notional Amount by Expiration Period
(in millions)
Total  
 
Less than
1 Year
 
2-3 Years
Financial standby letters of credit (a)
$
18.1

 
$
18.1

 
$
—

Performance standby letters of credit (a)
1.1

 
1.1

 
—

Performance and bid bonds (b)
3.0

 
2.9

 
0.1

Repurchase obligations (c)
11.7

 
11.7

 
—

Total off-balance sheet arrangements
$
33.9

 
$
33.8

 
$
0.1

(a) 
Financial standby letters of credit largely relate to casualty insurance policies for the Company’s workers’ compensation, automobile, general liability and product liability policies. Performance standby letters of credit primarily represent guarantees of performance of certain subsidiaries that engage in transactions with foreign customers.
(b)
Performance and bid bonds primarily relate to guarantees of performance of certain subsidiaries that engage in transactions with domestic and foreign customers.
(c)
For certain independent Environmental Solutions Group dealers that purchase products financed by a third-party lender, the Company may be obligated, for a limited period, to repurchase those products from the lender, in the event of a default by the applicable dealer and ultimate repossession of the underlying products by the lender. Subsequent to December 31, 2015 , the Company and the lender executed an amendment to the agreement which removed the Company’s repurchase obligation effective January 1, 2016 . For further discussion, see Note  8 – Commitments and Contingencies to the accompanying consolidated financial statements.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) 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 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 Company’s consolidated financial statements and the uncertainties that could impact the Company’s financial condition, results of operations or cash flow.
Revenue Recognition
Net sales consist primarily of revenue from the sale of equipment, environmental vehicles, parts, service and maintenance contracts.
The Company recognizes revenue for products when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the sales price is fixed or determinable and (iv) collection is reasonably assured. A product is considered delivered to the customer once it has been shipped and title and risk of loss have been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped; however, occasionally title passes later or earlier than shipment due to customer contracts or letter of credit terms. If, at the outset of an arrangement, the Company determines the arrangement fee is not, or is presumed not to be, fixed or determinable, revenue is deferred and subsequently recognized as amounts become due and payable and all other criteria for revenue recognition have been met.
The Company enters into sales arrangements that may provide for multiple deliverables to a customer. These arrangements may include software and non-software components that function together to deliver the products’ essential functionality. The Company identifies all goods and/or services that are to be delivered separately under the sales arrangement and allocates revenue to each deliverable based on relative fair values. Fair values are generally established using reliable third-party objective evidence, or management’s best estimate of selling price, including prices charged when sold separately by the Company. In general, revenues are separated between hardware, integration and installation services. The allocated revenue for each deliverable is then recognized using appropriate revenue recognition methods.
Workers’ Compensation and Product Liability Reserves
Due to the nature of the Company’s manufacturing and products, the Company is subject to workers’ compensation and product liability claims in the ordinary course of business. The Company is self-funded for a portion of these claims with various retention and excess coverage thresholds. After a 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 Company’s claim administrator of each claim and an independent actuarial valuation of the nature and severity of total claims, as well as management’s estimate. The Company utilizes a third-party claims administrator to pay claims, track and evaluate actual claims experience and ensure

31

consistency in the data used in the actuarial valuation. The amount and timing of cash payments relating to these claims are considered to be reliably determinable given the nature of the claims and historical claim volumes to support the actuarial assumptions and judgments used to derive the expected loss payment patterns. As such, the reserves recorded are discounted using a risk-free rate that matches the average duration of the claims. Management believes that the reserve established at December 31, 2015 appropriately reflects the Company’s risk exposure. The Company has not established a reserve for potential losses resulting from firefighter hearing loss litigation (see Note  9 – Legal Proceedings to the accompanying consolidated financial statements). If the Company is not successful in its defense after exhausting all appellate options, it will record a charge for such claims, to the extent they exceed insurance recoveries, at the appropriate time.
Goodwill
Goodwill represents the excess of the cost of an acquired business over the amounts assigned to its net assets. Goodwill is not amortized but is tested for impairment at a reporting unit level on an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company performed its annual goodwill impairment test as of October 31, 2015 .
In 2014 and 2013, the Company applied the qualitative assessment, outlined in ASC 350, Intangibles — Goodwill and Other , to its reporting units and concluded that it was not “more likely than not” that the fair values of these reporting units were less than their carrying values. As a result, the Company was not required to perform the two-step impairment test described below for these reporting units in 2014 or 2013.
The Company applies the two-step quantitative test outlined in ASC 350 to each of its reporting units at least once every three years. As such, in 2015, a full valuation was performed for the Company’s reporting units under the two-step test. The first step in the two-step approach is used to identify potential impairment, by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The Company generally determines the fair value of its reporting units using two valuation methods: the “Income Approach — Discounted Cash Flow Analysis” method, and the “Market Approach — Guideline Public Company Method.”
Under the “Income Approach — Discounted Cash Flow Analysis” method, the key assumptions consider projected sales, cost of sales and operating expenses. These assumptions were determined by management utilizing our internal operating plan, including growth rates for revenues and operating expenses and margin assumptions. An additional key assumption under this approach is the discount rate, which is determined by reviewing current risk-free rates of capital and current market interest rates and by evaluating the risk premium relevant to the business segment. If our assumptions relative to growth rates were to change, our fair value calculation may change, which could result in impairment.
Under the “Market Approach — Guideline Public Company Method,” the Company identified several publicly traded companies, including Federal Signal, which we believe have sufficiently relevant similarities to our businesses. For these companies, the Company used market values to calculate the mean ratio of invested capital to revenues and invested capital to EBITDA. Similar to the income approach discussed above, sales, cost of sales, operating expenses and their respective growth rates are key assumptions utilized. The market prices of the Company’s common stock and other guideline companies are additional key inputs. If these market prices increase, the estimated market value would increase. Conversely, if market prices decrease, the estimated market value would decrease.
The results of these two methods are weighted based upon management’s evaluation of the relevance of the two approaches. Management used a combination of the income and market approaches to determine the fair value of the reporting units in 2015.
Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from estimated financial results due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units, the amount of any goodwill impairment charge, or both. Future declines in the overall market value of the Company may also result in a conclusion that the fair value of one or more reporting units has declined below its carrying value.
One measure of the sensitivity of assumptions used in the impairment analysis is the amount by which each reporting unit “passed” (fair value exceeds the carrying value) the first-step of the two-step goodwill impairment test. The fair value of the reporting units that were tested for impairment under the two-step approach in the 2015 analysis significantly exceeded their

32

carrying values. Relatively small changes in the Company’s key assumptions would not have resulted in any of the reporting units failing the first step of the two-step test.
The Company had no goodwill impairments for its continuing operations in 2015 , 2014 or 2013 . Adverse changes to the Company’s business environment and future cash flow could cause us to record impairment charges in future periods, which could be material. See Note  4 – Goodwill to the accompanying consolidated financial statements for a summary of the Company’s goodwill by segment.
Pensions
The Company sponsors domestic and foreign defined benefit pension plans. Key assumptions used in the accounting for these employee benefit plans include the discount rate, expected long-term rate of return on plan assets, rate of increase in employee compensation levels and estimates of future mortality of plan participants. A change in any of these assumptions would have an effect on net periodic pension expense.
The following table summarizes the impact that a 25 basis point change in the discount rate on the Company’s projected benefit obligation and net periodic pension expense:
 
Assumption Change:
(in millions)
25 Basis Point Increase
 
25 Basis Point Decrease
Projected benefit obligation
$
(7.5
)
 
$
7.9

Net periodic pension expense
(0.4
)
 
0.4

The weighted-average discount rate used to measure pension liabilities and costs is selected using a hypothetical portfolio of high quality bonds that would provide the necessary cash flow to match the projected benefit payments of the plans. The discount rate represents the rate at which our benefit obligations could effectively be settled as of the year-end measurement date. The weighted-average discount rate used to measure pension liabilities increased from 2014 to 2015. For further discussion, see Note  7 – Pensions to the accompanying consolidated financial statements.
The Company’s net periodic pension expense is also sensitive to changes in the expected long-term rate of return on plan assets. The expected long-term rate of return on plan assets is based on historical and expected returns for the asset classes in which the plans are invested. The expected asset return assumption is based upon a long-term view; therefore, we do not expect to see significant changes from year to year based on positive or negative actual performance in a single year. A 25 basis point decrease or increase in the expected long-term rate of return on plan assets would have increased or decreased the net periodic pension expense recognized in 2015 by $0.5 million.
A decrease or increase of 25 basis points in the rate of increase in employee compensation levels would have an insignificant impact on the net periodic pension expense recognized in 2015 .
In October 2014, the Society of Actuaries published new mortality tables and scales that project people will generally live longer than previously anticipated. The Company’s projected benefit obligations as of December 31, 2015 and 2014 were measured after taking the updated tables into consideration. The estimated impact of adopting these new tables in 2014 was an increase of approximately 4% in the projected benefit obligation of the Company’s U.S. defined benefit plan.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recorded with respect to net operating losses and other tax attribute carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the years in which temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the income of the period that includes the enactment date.
The guidance on accounting for income taxes provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient taxable income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset. A high degree of judgment is required to determine if, and the extent that, valuation allowances should be recorded against deferred tax assets. A valuation allowance is required to be established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized.

33

We continually evaluate the need to maintain a valuation allowance for deferred tax assets based on our assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance.
We continue to maintain a valuation allowance on certain state deferred tax assets that we believe, on a more likely than not basis, will not be realized. At December 31, 2015 , the valuation allowance recorded against state net operating loss carryforwards totaled $5.9 million .
We believe that our approach to the associated estimates and judgments applied to our tax positions as described herein is reasonable; however, actual results could differ and we may be exposed to increases or decreases in income taxes that could be material. Specifically, if actual results in our U.K. based businesses deviate negatively from expectations, we may be required to record a valuation allowance against our U.K. net deferred tax assets in 2016 , or in a subsequent year. At December 31, 2015 , the total of such net deferred tax assets, which include deferred taxes on the actuarial losses of our U.K. pension plan, was $3.2 million .
Accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. We recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
The guidance on accounting for uncertainty in income taxes also outlines de-recognition and classification, and requires companies to elect and disclose their method of reporting interest and penalties on income taxes. We recognize interest and penalties related to uncertain tax positions as part of income tax expense.
Item 7A.     Quantitative and Qualitative Disclosures about Market Risk.
The Company is subject to market risk associated with changes in interest rates and foreign exchange rates. To mitigate this risk, the Company may utilize derivative financial instruments, including 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
Our debt instruments subject us to market risk associated with movements in interest rates. The fair value of the Company’s total debt obligations held at December 31, 2015 was $44.1 million . See Note  5 – Debt to the accompanying consolidated financial statements for a description of our debt agreements. A hypothetical 100 basis point increase or decrease in variable interest rates in 2015 would not significantly impact the annual interest expense.
Foreign Exchange Rate Risk
Although the majority of the Company’s sales, expenses and cash flow are transacted in U.S. dollars, the Company has exposure to changes in foreign exchange rates, primarily the Euro and the British pound. The impact of currency movements on our financial results is largely mitigated by natural hedges in our operations. Approximately 75% of our total sales are conducted within the U.S. Almost all sales of product from the U.S. to other parts of the world are denominated in U.S. dollars. Sales from and within other currency zones are predominantly transacted in the currency of the country sourcing the product or service. Management estimates that a 10% appreciation of the U.S. dollar against other currencies would reduce full-year net sales and operating income by less than 1%.
The Company may also have foreign currency exposures related to buying and selling in currencies other than the local currency in which it operates and to certain balance sheet positions. If such transactional or balance sheet exposures are material, the Company may enter into matching foreign currency forward contracts from time to time to protect against variability in exchange rates. As of December 31, 2015 , the only outstanding foreign currency contract was entered into to mitigate foreign exchange exposure related to the receipt of the euro-denominated proceeds to be received in connection with the sale of Bronto. The unrealized gain on this contract of $0.6 million as of December 31, 2015 was recorded as a component of Other expense, net in the Consolidated Statement of Operations for the year ended December 31, 2015 . See Note 14 – Discontinued Operations to the accompanying consolidated financial statements for additional discussion.

34

Item 8.     Financial Statements and Supplementary Data.
FEDERAL SIGNAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
Page

35
Table of Contents



Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Federal Signal Corporation
Oak Brook, Illinois
We have audited the accompanying consolidated balance sheets of Federal Signal Corporation and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedule as of December 31, 2015 listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement 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, such consolidated financial statements present fairly, in all material respects, the financial position of Federal Signal Corporation and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on the criteria established in  Internal Control — Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 29, 2016



36



Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Federal Signal Corporation
Oak Brook, Illinois
We have audited the internal control over financial reporting of Federal Signal Corporation and subsidiaries (the “Company”) as of December 31, 2015, based on criteria established in  Internal Control — Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s 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 the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s 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 company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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 company’s 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 company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the 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, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in  Internal Control — Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2015, of the Company and our report dated February 29, 2016 expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 29, 2016


37



FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Years Ended December 31,
(in millions, except per share data)
2015
 
2014
 
2013
Net sales
$
768.0

 
$
779.1

 
$
712.9

Cost of sales
542.4

 
570.4

 
536.9

Gross profit
225.6

 
208.7

 
176.0

Selling, engineering, general and administrative expenses
122.0

 
120.0

 
113.7

Restructuring
0.4

 
—

 
0.7

Operating income
103.2

 
88.7

 
61.6

Interest expense
2.3

 
3.6

 
8.9

Debt settlement charges
—

 
—

 
8.7

Other expense, net
1.0

 
1.7

 
0.1

Income before income taxes
99.9

 
83.4

 
43.9

Income tax (expense) benefit
(34.1
)
 
(23.7
)
 
108.6

Income from continuing operations
65.8

 
59.7

 
152.5

(Loss) gain from discontinued operations and disposal, net of income tax expense of $8.3, $1.0 and $0.6, respectively
(2.3
)
 
4.0

 
7.5

Net income
$
63.5

 
$
63.7

 
$
160.0

Basic earnings per share:
 
 
 
 
 
Earnings from continuing operations
$
1.06

 
$
0.95

 
$
2.44

(Loss) gain from discontinued operations and disposal, net of tax
(0.04
)
 
0.06

 
0.12

Net earnings per share
$
1.02

 
$
1.01

 
$
2.56

Diluted earnings per share:
 
 
 
 
 
Earnings from continuing operations
$
1.04

 
$
0.94

 
$
2.41

(Loss) gain from discontinued operations and disposal, net of tax
(0.04
)
 
0.06

 
0.12

Net earnings per share
$
1.00

 
$
1.00

 
$
2.53

Weighted average shares outstanding:


 
 
 
 
Basic
62.2

 
62.7

 
62.6

Diluted
63.4

 
63.6

 
63.2

Cash dividends declared per common share
$
0.25

 
$
0.09

 
$
—

See notes to consolidated financial statements.


38
Table of Contents



FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
For the Years Ended December 31,
(in millions)
2015
 
2014
 
2013
Net income
$
63.5

 
$
63.7

 
$
160.0

Other comprehensive (loss) income:
 
 
 
 
 
Change in foreign currency translation adjustment
(13.5
)
 
(15.8
)
 
5.2

Change in unrecognized net actuarial losses related to pension benefit plans, net of income tax expense (benefit) of $1.6, $(11.6) and $15.8, respectively
4.2

 
(21.7
)
 
32.9

Unrealized net (loss) gain on derivatives, net of income tax (benefit) expense of $(0.0), $(0.1) and $0.2, respectively
—

 
(0.1
)
 
0.1

Total other comprehensive (loss) income
(9.3
)
 
(37.6
)
 
38.2

Comprehensive income
$
54.2

 
$
26.1

 
$
198.2

See notes to consolidated financial statements.


39
Table of Contents



FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
As of December 31,
(in millions, except per share data)
2015
 
2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
76.0

 
$
24.1

Accounts receivable, net of allowances for doubtful accounts of $0.8 and $0.7, respectively
73.0

 
73.6

Inventories
87.2

 
87.6

Prepaid expenses and other current assets
15.1

 
9.2

Current assets of discontinued operations
63.8

 
76.2

Total current assets
315.1

 
270.7

Properties and equipment, net
52.9

 
52.7

Goodwill
231.6

 
235.2

Deferred tax assets
20.1

 
45.1

Deferred charges and other assets
3.5

 
4.0

Long-term assets of discontinued operations
43.3

 
51.0

Total assets
$
666.5

 
$
658.7

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term borrowings and capital lease obligations
$
0.4

 
$
6.2

Accounts payable
38.0

 
41.7

Accrued liabilities:
 
 
 
Compensation and withholding taxes
18.6

 
22.6

Other current liabilities
31.6

 
35.7

Current liabilities of discontinued operations
28.6

 
32.9

Total current liabilities
117.2

 
139.1

Long-term borrowings and capital lease obligations
43.7

 
44.0

Long-term pension and other post-retirement benefit liabilities
55.2

 
62.6

Deferred gain
12.6

 
14.6

Other long-term liabilities
16.9

 
16.0

Long-term liabilities of discontinued operations
15.3

 
10.8

Total liabilities
260.9

 
287.1

Stockholders’ equity:
 
 
 
Common stock, $1 par value per share, 90.0 shares authorized, 64.8 and 64.2 shares issued, respectively
64.8

 
64.2

Capital in excess of par value
195.6

 
187.0

Retained earnings
274.9

 
227.0

Treasury stock, at cost, 2.6 million and 1.7 million shares, respectively
(40.9
)
 
(27.1
)
Accumulated other comprehensive loss
(88.8
)
 
(79.5
)
Total stockholders’ equity
405.6

 
371.6

Total liabilities and stockholders’ equity
$
666.5

 
$
658.7


See notes to consolidated financial statements.
40
Table of Contents



FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Years Ended December 31,
(in millions)
2015
 
2014
 
2013
Operating activities:
 
 
 
 
 
Net income
$
63.5

 
$
63.7

 
$
160.0

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Net loss (gain) on discontinued operations and disposal
2.3

 
(4.0
)
 
(7.5
)
Depreciation and amortization
12.3

 
11.5

 
11.0

Deferred financing costs
0.4

 
0.5

 
5.0

Deferred gain
(1.9
)
 
(1.9
)
 
(1.9
)
Stock-based compensation expense
6.8

 
6.1

 
4.0

Excess tax benefit from stock-based compensation
(1.6
)
 
(2.2
)
 
—

Pension expense, net of funding
(3.8
)
 
(5.9
)
 
(1.4
)
Deferred income taxes, including change in valuation allowance
25.9

 
18.9

 
(110.5
)
Changes in operating assets and liabilities, net of effects of discontinued operations:
 
 
 
 
 
Accounts receivable
(0.3
)
 
1.5

 
(3.9
)
Inventories
(3.3
)
 
(15.5
)
 
8.0

Prepaid expenses and other current assets
1.0

 
(0.1
)
 
3.7

Accounts payable
(3.1
)
 
0.4

 
(0.4
)
Accrued liabilities
(7.2
)
 
6.8

 
(1.7
)
Income taxes
(1.5
)
 
(0.9
)
 
—

Other
1.6

 
2.2

 
0.4

Net cash provided by continuing operating activities
91.1

 
81.1

 
64.8

Net cash provided by (used for) discontinued operating activities
6.1

 
(8.8
)
 
10.0

Net cash provided by operating activities
97.2

 
72.3

 
74.8

Investing activities:
 
 
 
 
 
Purchases of properties and equipment
(9.6
)
 
(13.7
)
 
(11.6
)
Proceeds from sales of properties and equipment
0.1

 
0.5

 
0.1

Proceeds from escrow receivable
4.0

 
7.4

 
—

Cash provided to customer
(6.0
)
 
—

 
—

Decrease in restricted cash
—

 
—

 
1.0

Net cash used for continuing investing activities
(11.5
)
 
(5.8
)
 
(10.5
)
Net cash used for discontinued investing activities
(1.3
)
 
(5.8
)
 
(5.4
)
Net cash used for investing activities
(12.8
)
 
(11.6
)
 
(15.9
)
Financing activities:
 
 
 
 
 
(Decrease) increase in revolving lines of credit, net
—

 
(20.0
)
 
17.5

Proceeds from issuance of long-term borrowings
—

 
—

 
75.0

Payments on long-term borrowings
(5.8
)
 
(21.6
)
 
(153.6
)
Payments of debt financing fees
—

 
—

 
(6.1
)
Purchases of treasury stock
(10.6
)
 
(10.3
)
 
—

Redemptions of common stock to satisfy withholding taxes related to stock-based compensation
(3.2
)
 
—

 
—

Cash dividends paid to stockholders
(15.6
)
 
(5.6
)
 
—

Proceeds from stock-based compensation activity
1.0

 
2.6

 
2.6

Excess tax benefit from stock-based compensation
1.6

 
2.2

 
—

Other, net
(0.4
)
 
(1.0
)
 
(1.0
)
Net cash used for financing activities
(33.0
)
 
(53.7
)
 
(65.6
)
Effects of foreign exchange rate changes on cash and cash equivalents
(0.8
)
 
(0.4
)
 
0.8

Increase (decrease) in cash and cash equivalents
50.6

 
6.6

 
(5.9
)
Cash and cash equivalents at beginning of year
30.4

 
23.8

 
29.7

Cash and cash equivalents at end of year
81.0

 
30.4

 
23.8

Less: Cash and cash equivalents of discontinued operations at end of year
(5.0
)
 
(6.3
)
 
(10.2
)
Cash and cash equivalents of continuing operations at end of year
$
76.0

 
$
24.1

 
$
13.6


See notes to consolidated financial statements.
41
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
Common
Stock Par
Value
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balance at January 1, 2013
$
63.4

 
$
171.1

 
$
8.9

 
$
(16.4
)
 
$
(80.1
)
 
$
146.9

Net income
 
 
 
 
160.0

 
 
 
 
 
160.0

Total other comprehensive income
 
 
 
 
 
 
 
 
38.2

 
38.2

Stock-based payments:
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation

 
3.6

 

 

 

 
3.6

Stock option exercises and other
0.4

 
2.0

 

 
(0.4
)
 

 
2.0

Common stock canceled


 
0.3

 


 


 


 
0.3

Balance at December 31, 2013
63.8

 
177.0

 
168.9

 
(16.8
)
 
(41.9
)
 
351.0

Net income
 
 
 
 
63.7

 
 
 
 
 
63.7

Total other comprehensive loss
 
 
 
 
 
 
 
 
(37.6
)
 
(37.6
)
Cash dividends declared ($0.09 per share)

 

 
(5.6
)
 

 

 
(5.6
)
Stock-based payments:

 

 

 

 

 

Stock-based compensation

 
5.5

 

 

 

 
5.5

Stock option exercises and other
0.4

 
2.3

 

 

 

 
2.7

Excess tax benefit from stock-based compensation


 
2.2

 


 


 


 
2.2

Stock repurchase program


 


 


 
(10.3
)
 


 
(10.3
)
Balance at December 31, 2014
64.2

 
187.0

 
227.0

 
(27.1
)
 
(79.5
)
 
371.6

Net income
 
 
 
 
63.5

 
 
 
 
 
63.5

Total other comprehensive loss
 
 
 
 
 
 
 
 
(9.3
)
 
(9.3
)
Cash dividends declared ($0.25 per share)
 
 
 
 
(15.6
)
 
 
 
 
 
(15.6
)
Stock-based payments:
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
6.3

 
 
 
 
 
 
 
6.3

Stock option exercises and other
0.1

 
1.2

 
 
 
(0.5
)
 
 
 
0.8

Performance share unit transactions
0.5

 
(0.5
)
 

 
(2.7
)
 

 
(2.7
)
Excess tax benefit from stock-based compensation
 
 
1.6

 
 
 
 
 
 
 
1.6

Stock repurchase program
 
 
 
 
 
 
(10.6
)
 
 
 
(10.6
)
Balance at December 31, 2015
$
64.8

 
$
195.6

 
$
274.9

 
$
(40.9
)
 
$
(88.8
)
 
$
405.6



See notes to consolidated financial statements.
42
Table of Contents



FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 major operating 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. The Company’s reportable segments are consistent with its operating segments. These segments are discussed in Note 13 – Segment Information.
Our fiscal year ends on December 31. All references to 2015 , 2014 and 2013 relate to the fiscal year unless otherwise indicated.
Basis of Presentation and Consolidation
The accompanying 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 Securities and Exchange Commission (“SEC”) and in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”). Intercompany balances and transactions have been eliminated in consolidation. As discussed in Note  14 – Discontinued Operations, on January 29, 2016, the Company completed the sale of its Bronto Skylift ® business (“Bronto”) that represented its Fire Rescue Group. The consolidated financial statements for all periods presented have been recast to present the operating results of previously divested or exited businesses as discontinued operations, including the Fire Rescue Group. See Note  14 – Discontinued Operations for further details.
Certain prior year amounts have been reclassified to conform to the current year presentation. These include adjustments to present the Fire Rescue Group as a discontinued operation and adjustments to reflect the adoption of Accounting Standards Update (“ASU”) No. 2015-17, “ Balance Sheet Classification of Deferred Taxes ” (“ASU 2015-17”), as discussed further in Note  6 – Income Taxes.
Non-U.S. Operations
Assets and liabilities of non-U.S. subsidiaries, other than those whose functional currency is the U.S. dollar, are translated at current exchange rates with the related translation adjustments reported in stockholders’ equity as a component of Accumulated other comprehensive loss. Accounts within the Consolidated Statements of Operations are translated at the average exchange rate during the period. Non-monetary assets and liabilities are translated at historical exchange rates.
Relating to transactions that are denominated in a currency other than the functional currency, the Company incurs foreign currency transaction gains or losses, which are recognized in the Consolidated Statement of Operations as incurred. For the years ended December 31, 2015, 2014 and 2013 , the Company incurred foreign currency transaction losses, included in other expense, net in the Consolidated Statements of Operations, of $1.5 million , $1.7 million and $0.2 million , respectively.
Fair Value Measurements
The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. The three levels of inputs are classified as follows:
•
Level 1 — quoted prices in active markets for identical assets or liabilities;
•
Level 2 — observable inputs, other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and
•
Level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

43



Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash equivalents. The carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity and highly liquid nature of these instruments.
Accounts Receivable
The Company carries accounts receivable at the face amount less an allowance for doubtful accounts for estimated losses as a result of a customer’s inability to make required payments. Management evaluates the aging of the accounts receivable balances, the financial condition of its customers, historical trends and the time outstanding of specific balances to estimate the amount of accounts receivables that may not be collected in the future and records the appropriate provision.
Inventories
The Company’s inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method. Included in the cost of inventories are raw materials, direct wages and associated production costs.
Properties and Equipment
Properties and equipment are stated at cost, net of depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. Useful lives generally range from eight to 40  years for buildings and three 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 . Depreciation expense is primarily included as a component of Cost of sales on the Consolidated Statements of Operations, with depreciation expense associated with certain assets used for administrative purposes being presented within Selling, engineering, general and administrative (“SEG&A”) expenses. Depreciation expense was $12.0 million , $11.4 million and $10.8 million in the years ended December 31, 2015, 2014 and 2013 , respectively.
Properties and equipment includes certain equipment that is manufactured by the Company and subsequently transferred to a rental fleet for the purpose of leasing to end customers. The related cash flow activity associated with these transactions is reflected within operating activities on the Consolidated Statements of Cash Flows. Non-cash transfers from Inventories to Properties and equipment totaled $3.1 million and $4.1 million for the years ended December 31, 2015 and 2014 , respectively. The rental income associated with this activity is not considered material to the Company’s consolidated results of operations.
Properties and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Goodwill
G oodwill represents the excess of the cost of an acquired business over the amounts assigned to its net assets. Goodwill is not amortized but is tested for impairment at a reporting unit level on an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company performs its annual goodwill impairment test as of October 31.
In 2014 and 2013, the Company applied the qualitative assessment, outlined in Accounting Standards Codification (“ASC”) 350, Intangibles — Goodwill and Other , to its reporting units and concluded that it was not “more likely than not” that the fair values of these reporting units were less than their carrying values. As a result, the Company was not required to perform the two-step impairment test described below for these reporting units in 2014 or 2013.
The Company applies the two-step quantitative test outlined in ASC 350 to each of its reporting units at least once every three years. As such, in 2015, a full valuation was performed for the Company’s reporting units under the two-step test. The first step in the two-step approach is used to identify potential impairment, by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The Company generally determines the fair value of its reporting units using two valuation methods: the “Income Approach — Discounted Cash Flow Analysis” method, and the “Market Approach — Guideline Public Company Method.”

44



Under the “Income Approach — Discounted Cash Flow Analysis” method, the key assumptions consider projected sales, cost of sales and operating expenses. These assumptions were determined by management utilizing our internal operating plan, including growth rates for revenues and operating expenses and margin assumptions. An additional key assumption under this approach is the discount rate, which is determined by reviewing current risk-free rates of capital and current market interest rates and by evaluating the risk premium relevant to the business segment.
Under the “Market Approach — Guideline Public Company Method,” the Company identified several publicly traded companies, including Federal Signal, which we believe have sufficiently relevant similarities to our businesses. For these companies, the Company used market values to calculate the mean ratio of invested capital to revenues and invested capital to EBITDA. Similar to the income approach discussed above, sales, cost of sales, operating expenses and their respective growth rates are key assumptions utilized. The market prices of the Company’s common stock and other guideline companies are additional key inputs.
The results of these two methods are weighted based upon management’s evaluation of the relevance of the two approaches. Management used a combination of the income and market approaches to determine the fair value of the reporting units in 2015 .
The fair value of the reporting units significantly exceeded their carrying value. Relatively small changes in the Company’s key assumptions would not have resulted in any of the reporting units failing the first step of the two-step test.
The Company had no goodwill impairments for its continuing operations in 2015 , 2014 or 2013 . See Note  4 – Goodwill to the accompanying consolidated financial statements for a summary of the Company’s goodwill by segment.
Pensions
The Company sponsors domestic and foreign defined benefit pension plans. Key assumptions used in the accounting for these employee benefit plans include the discount rate, expected long-term rate of return on plan assets, rate of increase in employee compensation levels and estimates of future mortality of plan participants.
The weighted-average discount rate used to measure pension liabilities and costs is selected using a hypothetical portfolio of high-quality bonds that would provide the necessary cash flow to match the projected benefit payments of the plans. The discount rate represents the rate at which our benefit obligations could effectively be settled as of the year-end measurement date. The weighted-average discount rate used to measure pension liabilities increased from 2014 to 2015 . See Note  7 – Pensions for further discussion.
The expected long-term rate of return on plan assets is based on historical and expected returns for the asset classes in which the plans are invested.
In October 2014, the Society of Actuaries published new mortality tables and scales that project people will generally live longer than previously anticipated. The Company’s projected benefit obligations as of December 31, 2015 and 2014 were measured after taking the updated tables into consideration. The estimated impact of adopting these new tables in 2014 was an increase of approximately 4% in the projected benefit obligation of the Company’s U.S. defined benefit plan.
Stock-Based Compensation Plans
The Company has various stock-based compensation plans, described more fully in Note  11 – Stock-Based Compensation. The fair value of stock options is determined using a Black-Scholes option pricing model.
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 could differ from those estimates.
Warranty
Sales of many of the Company’s products carry express warranties based on terms that are generally accepted in the Company’s marketplaces. The Company records provisions for estimated warranty, which are included within Cost of sales, at the time of sale based on historical experience. The Company periodically adjusts these provisions to reflect actual experience. Infrequently, a material warranty issue can arise which is beyond the scope of the Company’s historical experience. The Company records costs related to these issues as they become probable and estimable.

45



The Company also sells optional extended warranty contracts that extend coverage beyond the initial term of the express warranty period. At the time of sale, revenue related to the extended warranty contract is deferred and recognized as income over the life of the contract. As of December 31, 2015 and 2014 , deferred revenue associated with extended warranty contracts was $2.6 million and $2.4 million , respectively, and was included within Other current liabilities and Other long-term liabilities on the Consolidated Balance Sheets. Costs under extended warranty contracts are expensed as incurred.
Workers’ Compensation and Product Liability Reserves
Due to the nature of the Company’s manufacturing and products, the Company is subject to claims for workers’ compensation and product liability 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. The amount and timing of cash payments relating to these claims are considered to be reliably determinable given the nature of the claims and historical claim volumes to support the actuarial assumptions and judgments used to derive the expected loss payment patterns. As such, the reserves recorded are discounted using a risk-free rate that matches the average duration of the claims.
The Company has not established a reserve for potential losses resulting from the firefighter hearing loss litigation (see Note  9 – Legal Proceedings). 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.
Revenue Recognition
Net sales consist primarily of revenue from the sale of equipment, environmental vehicles, parts, service and maintenance contracts.
The Company recognizes revenue for products when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the sales price is fixed or determinable and (iv) collection is reasonably assured. A product is considered delivered to the customer once it has been shipped, and title and risk of loss have been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped; however, occasionally title passes later or earlier than shipment due to customer contracts or letter of credit terms. If at the outset of an arrangement the Company determines the arrangement fee is not, or is presumed not to be, fixed or determinable, revenue is deferred and subsequently recognized as amounts become due and payable and all other criteria for revenue recognition have been met. Taxes collected from customers and remitted to governmental authorities are recorded on a net basis and are excluded from revenue.
The Company enters into sales arrangements that may provide for multiple deliverables to a customer. These arrangements may include software and non-software components that function together to deliver the products’ essential functionality. The Company identifies all goods and/or services that are to be delivered separately under the sales arrangement and allocates revenue to each deliverable based on relative fair values. Fair values are generally established using reliable third-party objective evidence, or management’s best estimate of selling price, including prices charged when sold separately by the Company. In general, revenues are separated between hardware, integration and installation services. The allocated revenue for each deliverable is then recognized using appropriate revenue recognition methods.
Net sales are presented net of returns and allowances. Returns and allowances are calculated and recorded as a percentage of revenue based upon historical returns. Net sales include sales of products and billed freight related to product sales. Freight has not historically comprised a material component of Net sales.
Product Shipping Costs
Product shipping costs are expensed as incurred and are included within Cost of sales.
Research and Development
The Company invests in research to support development of new products and the enhancement of existing products and services. Expenditures for research and development by the Company were $14.0 million in 2015 , $13.1 million in 2014 and $11.0 million in 2013 , and are included within SEG&A expenses.
Income Taxes
We file a consolidated U.S. federal income tax return for Federal Signal Corporation and its eligible domestic subsidiaries. Our non-U.S. subsidiaries file income tax returns in their respective local jurisdictions. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and

46



tax benefit carryforwards. Deferred tax assets and liabilities at the end of each period are determined using enacted tax rates expected to apply to taxable income in the period in which the deferred tax liability or asset is expected to be settled or realized. A valuation allowance is established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized.
Accounting standards on accounting for uncertainty in income taxes address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under the guidance on accounting for uncertainty in income taxes, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The guidance on accounting for uncertainty in income taxes also outlines de-recognition and classification, as well as interest and penalties on income taxes.
Litigation Contingencies
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. The Company believes, based on current knowledge and after consultation with counsel, that the outcome of such claims and actions in the aggregate will not have an adverse effect on the Company’s 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 Company’s results of operations. Professional legal fees are expensed when incurred. We accrue for contingent losses when such losses are probable and reasonably estimable. In the event that estimates or assumptions of contingent losses are different from actual results, adjustments are made in subsequent periods to reflect more current information.
NOTE  2  — INVENTORIES
The following table summarizes the components of inventories:
(in millions)
2015
 
2014
Raw materials
$
35.3

 
$
40.6

Work in process
6.7

 
9.2

Finished goods
45.2

 
37.8

Total inventories
$
87.2

 
$
87.6

NOTE  3  — PROPERTIES AND EQUIPMENT, NET
The following table summarizes the components of properties and equipment, net:
(in millions)
2015
 
2014
Land
$
0.2

 
$
0.2

Buildings and improvements
24.7

 
21.8

Machinery and equipment
130.8

 
130.9

Total property and equipment, at cost
155.7

 
152.9

Less: Accumulated depreciation
102.8

 
100.2

Properties and equipment, net
$
52.9

 
$
52.7

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 deferred gain balance was $14.5 million and $16.5 million at December 31, 2015 and 2014 , respectively. Of these amounts, $1.9 million and $1.9 million , was included within Other current liabilities on the Consolidated Balance Sheets at December 31, 2015 and 2014 , respectively.
The Company leases certain facilities and equipment under operating leases, some of which contain options to renew. Total rental expense on all operating leases was $7.2 million in 2015 , $6.6 million in 2014 and $7.0 million in 2013 . Sublease income and contingent rentals relating to operating leases were insignificant. At December 31, 2015 , minimum future rental commitments under operating leases having non-cancelable lease terms in excess of one year aggregated $43.3 million and were payable as follows: $7.6 million in 2016 , $7.0 million in 2017 , $6.0 million in 2018 , $5.5 million in 2019 , $4.9 million in 2020 and $12.3 million thereafter.

47



NOTE  4  — GOODWILL
The following table summarizes the carrying amount of goodwill by segment:
(in millions)
Environmental
Solutions
 
Safety & Security
Systems
 
Total
Balance at December 31, 2013
$
120.4

 
$
119.6

 
$
240.0

Translation adjustments
—

 
(4.8
)
 
(4.8
)
Balance at December 31, 2014
120.4

 
114.8

 
235.2

Translation adjustments
—

 
(3.6
)
 
(3.6
)
Balance at December 31, 2015
$
120.4

 
$
111.2

 
$
231.6

NOTE  5  — DEBT
The following table summarizes the components of long-term debt and capital lease obligations, net:
(in millions)
2015
 
2014
2013 Credit Agreement:
 
 
 
Revolving Credit Facility
$
—

 
$
—

Term Loan
43.4

 
49.2

Capital lease obligations
0.7

 
1.0

Total long-term borrowings and capital lease obligations, including current portion
44.1

 
50.2

Less: Current maturities
—

 
5.8

Less: Current capital lease obligations
0.4

 
0.4

Total long-term borrowings and capital lease obligations, net
$
43.7

 
$
44.0

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 fair values of the Company’s financial instruments:
 
2015
 
2014
(in millions)
Notional
Amount
 
Fair
Value
 
Notional
Amount
 
Fair
Value
Long-term debt (a)
$
44.1

 
$
44.1

 
$
50.2

 
$
50.2

(a)
Long-term debt includes current portions of long-term debt and current portions of capital lease obligations of $0.4 million and $6.2 million as of December 31, 2015 and 2014 , respectively.
On January 27, 2016, the Company entered into an Amended and Restated Credit Agreement (the “2016 Credit Agreement”), by and among the Company and certain of its foreign subsidiaries (collectively, the “Borrowers”), Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing lender, JPMorgan Chase Bank, N.A. as syndication agent, KeyBank National Association, as documentation agent, Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint bookrunners, and the other lenders and parties signatory thereto.
The 2016 Credit Agreement is a $325.0 million revolving credit facility, maturing on January 27, 2021, that provides for borrowings in the form of loans or letters of credit up to the aggregate availability under the facility, with a sub-limit of $50.0 million for letters of credit. The 2016 Credit Agreement allows for the Borrowers to borrow in denominations of U.S. Dollars, Canadian Dollars (up to a maximum of C $85.0 million ) or euros (up to a maximum of € 20.0 million ). In addition, the Company may cause the commitments to increase by up to an additional $75.0 million , subject to the approval of the applicable lenders providing such additional financing. Borrowings under the 2016 Credit Agreement may be used for working capital and general corporate purposes, including permitted acquisitions.
The Company’s domestic subsidiaries provide guarantees for all obligations of the Borrowers under the 2016 Credit Agreement, which is secured by a first priority security interest in all now or hereafter acquired domestic property and assets and the stock or other equity interests in each of the domestic subsidiaries and 65% of the outstanding voting capital stock of certain first-tier foreign subsidiaries, subject to certain exclusions.
Borrowings under the 2016 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 0.00% to 1.25% for base rate borrowings and 1.00% to 2.25% for LIBOR borrowings. The Company must also pay a commitment fee to the lenders ranging between 0.15% to 0.30%  per annum on the unused portion of the $325.0 million revolving credit facility along with other standard fees. Letter of

48



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 leverage ratio and interest coverage ratio financial covenants under the 2016 Credit Agreement that are to be measured at each fiscal quarter-end. The 2016 Credit Agreement also includes a “covenant holiday” period, which allows for the temporary increase of the minimum leverage ratio following the completion of a permitted acquisition, or a series of permitted acquisitions, when the total consideration exceeds a specified threshold. In addition, the 2016 Credit Agreement includes customary negative covenants, subject to certain exceptions, restricting or limiting the Company’s and its subsidiaries’ ability to, among other things: (i) make non-ordinary course dispositions of assets, (ii) make certain fundamental business changes, such as merge, consolidate or enter into any similar combination, (iii) make restricted payments, including dividends and stock repurchases, (iv) incur indebtedness, (v) make certain loans and investments, (vi) create liens, (vii) transact with affiliates, (viii) enter into sale/leaseback transactions, (ix) make negative pledges and (x) modify subordinated debt documents.
Under the 2016 Credit Agreement, restricted payments, including dividends and stock repurchases, shall be permitted if (i) the Company’s leverage ratio is less than or equal to 2.50 , (ii) the Company is in compliance with all other financial covenants and (iii) there are no existing defaults under the 2016 Credit Agreement. If its leverage ratio is more than 2.50 , the Company is still permitted to fund (i) up to $30.0 million of dividend payments, (ii) stock repurchases sufficient to offset dilution created by the issuance of equity as compensation to its officer, directors, employees and consultants and (iii) an incremental $30.0 million of other cash payments.
The 2016 Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the Borrowers may be required immediately to repay all amounts outstanding under the 2016 Credit Agreement and the commitments from the lenders may be terminated.
The 2016 Credit Agreement amends and restates the Company’s March 13, 2013 Credit Agreement (the “2013 Credit Agreement”) by and among the Company, as borrower, the lenders referred to therein, as lenders, Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing lender, General Electric Capital Corporation, as syndication agent, and Wells Fargo Securities, LLC and GE Capital Markets, Inc., as joint lead arrangers and joint book managers. The 2013 Credit Agreement provided the Company with a $225.0 million senior secured credit facility comprised of a five -year fully funded term loan of $75.0 million and a five -year $150.0 million revolving credit facility under which borrowings may be made from time to time during the five -year term.
The 2013 Credit Agreement was a five-year senior secured credit facility secured by a first priority security interest in all now or hereafter acquired domestic property and assets and the stock or other equity interests in each of the domestic subsidiaries and certain of the first-tier foreign subsidiaries, subject to certain exclusions. Under the terms of the 2013 Credit Agreement, the Company was required to make quarterly installment payments against the $75.0 million term loan, with any remaining balance due on the maturity date of March 13, 2018. As a result of executing the 2016 Credit Agreement subsequent to December 31, 2015, but prior to the issuance of the financial statements, the $6.9 million current portion of term loan debt outstanding as of December 31, 2015 has been reflected as a component of long-term borrowings and capital lease obligations on the Consolidated Balance Sheet. Under the 2013 Credit Agreement, the Company was allowed to prepay the term loan in whole or in part prior to maturity without premium or penalty. In the fourth quarter of 2014, the Company made a voluntary term loan prepayment of $15.0 million . In the first quarter of 2016, the Company repaid the remaining $43.4 million of principal outstanding under the 2013 Credit Agreement.
The 2013 Credit Agreement provided for loans and letters of credit in an amount up to an aggregate availability under the revolving credit facility of $150.0 million , with a sub-limit of $50.0 million for letters of credit. Borrowings under the 2013 Credit Agreement bore interest, at the Company’s option, at a base rate or a LIBOR rate, plus, in each case, an applicable margin. The applicable margin ranged from 1.00% to 2.00% for base rate borrowings and 2.00% to 3.00% for LIBOR borrowings. The Company was also required to pay a commitment fee to the lenders equal to a range of 0.25% to 0.45%  per annum on the unused portion of the $150.0 million revolving credit facility along with other standard fees. Letter of credit fees were also payable on outstanding letters of credit in an amount equal to the applicable LIBOR margin plus other customary fees. The Company was allowed to prepay in whole or in part advances under the revolving credit facility portion without penalty or premium other than customary “breakage” costs with respect to LIBOR loans.
The 2013 Credit Agreement required the Company to comply with financial covenants related to the maintenance of a minimum fixed charge coverage ratio and maximum leverage ratio. The financial covenants were measured at each fiscal quarter-end. Restricted payments, including dividends, were permitted only if the pro-forma leverage ratio after giving effect to such payment is less than 3.25 x, pro-forma compliance after giving effect to such payment was maintained for all other

49



financial covenants and there were no existing defaults under the 2013 Credit Agreement. The Company was in compliance with all of its debt covenants as of, and throughout the year ended, December 31, 2015 .
In the first quarter of 2013, upon execution of the 2013 Credit Agreement, the Company recorded $8.7 million of costs related to the termination of its prior debt agreements. The costs included a $4.2 million early termination penalty payment and a $4.5 million write-off of the remaining unamortized deferred financing costs related to the prior debt agreements.
The Company incurred $1.9 million of debt issuance costs associated with the execution of the 2013 Credit Agreement. Financing costs incurred in connection with the 2013 Credit Agreement were deferred and, prior to the execution of the 2016 Credit Agreement, were being amortized over the five-year term. The Company does not expect to write off a material amount of unamortized deferred financing fees associated with the 2013 Credit Agreement in connection with executing the 2016 Credit Agreement in the first quarter of 2016. The Company estimates that approximately $1 million of debt issuance costs were incurred in connection with the execution of the 2016 Credit Agreement.
As of December 31, 2015 , there was no cash drawn and $19.2 million of undrawn letters of credit under the $150.0 million revolving credit facility portion of the 2013 Credit Agreement, with $130.8 million of net availability for borrowings. As of December 31, 2015 , no amounts were drawn against the Company’s non-U.S. lines of credit which provide for borrowings up to $10.0 million .
For the years ended December 31, 2014 and December 31, 2013 , gross borrowings under the Company’s domestic revolving credit facility of the 2013 Credit Agreement were $6.5 million and $123.7 million , respectively. For the years ended December 31, 2014 and December 31, 2013 , gross payments under the Company’s domestic revolving credit facility of the 2013 Credit Agreement were $26.5 million and $106.2 million , respectively. There were no borrowings or repayments under the Company’s domestic revolving credit facility of the 2013 Credit Agreement during 2015 .
Aggregate maturities of total borrowings, giving effect to the 2016 Credit Agreement, amount to approximately $0.4 million in 2016 , $0.3 million in 2017 , none in 2018 , none in 2019 and $43.4 million in 2020 and thereafter. The weighted average interest rate on long-term borrowings was 2.4% at December 31, 2015 .
The Company paid interest of $1.9 million in 2015 , $3.0 million in 2014 and $9.4 million in 2013 .
NOTE  6  — INCOME TAXES
The following table summarizes the income tax expense (benefit) from continuing operations:
(in millions)
2015
 
2014
 
2013
Current:
 
 
 
 
 
Federal
$
6.6

 
$
3.0

 
$
—

Foreign
—

 
0.3

 
0.4

State and local
1.8

 
1.3

 
0.9

Total current tax expense
8.4

 
4.6

 
1.3

Deferred:
 
 
 
 
 
Federal
25.4

 
17.8

 
(112.1
)
Foreign
(2.0
)
 
(3.0
)
 
0.9

State and local
2.3

 
4.3

 
1.3

Total deferred tax expense (benefit)
25.7

 
19.1

 
(109.9
)
Total income tax expense (benefit)
$
34.1

 
$
23.7

 
$
(108.6
)

50



The following table summarizes the differences between the statutory federal income tax rate and the effective income tax rate from continuing operations:
 
2015
 
2014
 
2013
Statutory federal income tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal tax benefit
3.3

 
3.7

 
3.3

Valuation allowance
1.7

 
(4.5
)
 
(279.4
)
Domestic production deduction
(2.2
)
 
(2.1
)
 
(1.5
)
Tax planning benefits, excluding valuation allowance effects
(6.0
)
 
—

 
—

Asset dispositions and write-offs
—

 
—

 
(3.3
)
Repatriation effects
—

 
—

 
1.8

Tax reserves
0.2

 
(1.2
)
 
—

Tax credits
1.9

 
(0.6
)
 
(1.8
)
Foreign tax rate effects
0.5

 
(2.0
)
 
(2.7
)
Other, net
(0.3
)
 
0.1

 
1.2

Effective income tax rate
34.1
 %
 
28.4
 %
 
(247.4
)%
The following table summarizes income from continuing operations before taxes:
(in millions)
2015
 
2014
 
2013
U.S.
$
96.4

 
$
78.2

 
$
39.2

Non-U.S.
3.5

 
5.2

 
4.7

 Income from continuing operations before taxes
$
99.9

 
$
83.4

 
$
43.9

ASC Topic 740 , Income Taxes , requires that the future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income. If, based upon all available evidence, both positive and negative, it is more likely than not such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A company’s three-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable and the accounting guidance restricts the amount of reliance the Company can place on projected taxable income to support the recovery of the deferred tax assets.
We continually evaluate the need to maintain a valuation allowance for deferred tax assets based on our assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance.
In the second quarter of 2013, this evaluation resulted in the determination that $102.4 million of valuation allowance, initially recorded against U.S. deferred tax assets in 2010 due to the uncertainty of the realization of such assets, could be released. At that time, a qualitative and quantitative analysis of current and expected domestic earnings, industry and market trends, tax planning strategies and general business risks resulted in a conclusion that it was more likely than not that a significant portion of our U.S. deferred tax assets would be realized. Factors considered in reaching this determination included the return to profitability on a cumulative basis and improved market demand, with expectations that such improvement would continue into the foreseeable future. In addition, in 2013 , we exited a business segment that had produced losses.
Upon releasing the significant portion of our valuation allowance on U.S. deferred tax assets in the second quarter of 2013, a valuation allowance of $10.4 million was maintained in accordance with the guidance provided in ASC 740-270-25-4 and was released through the effective tax rate as domestic income is recognized throughout the course of the year ended December 31, 2013 . An additional $3.4 million reduction in deferred tax valuation allowances was recorded in the year ended December 31, 2013 .
In the fourth quarter of 2013 , the Company also executed a tax planning strategy that resulted in the release of $6.7 million of valuation allowance that was previously recorded against the Company’s foreign tax credits, which would have begun to expire in 2015.

51



As the Company no longer maintains a valuation allowance against most domestic tax assets, tax expense has been recognized on domestic earnings in each of the years ended December 31, 2015 and 2014 . An income tax provision was recorded in each of the three years ended December 31, 2015 for foreign operations that were not in a cumulative loss position.
The Company recognized income tax expense of $34.1 million for the year ended December 31, 2015 , compared to income tax expense of $23.7 million in the prior year. The Company’s effective tax rate for the year ended December 31, 2015 was 34.1% , compared to 28.4% in 2014 . The increase in tax expense in the current year was primarily due to higher pre-tax income levels and the absence of certain tax benefits in the prior year that did not recur, described further below. The Company’s effective tax rate for the year ended December 31, 2015 was favorably impacted by a $4.2 million net tax benefit associated with tax planning strategies, partially offset by a $2.4 million adjustment of deferred tax assets and $0.4 million of expense associated with a change in the enacted tax rate in the United Kingdom (“U.K.”).
In the fourth quarter of 2014 , based on a qualitative and quantitative analysis, the Company determined that $3.5 million of valuation allowance previously recorded against deferred tax assets in Spain could be released. In reaching the conclusion that it was more likely that deferred tax assets would be realized, the Company evaluated current and expected earnings, the cumulative earnings position, industry and market trends, recent changes in Spanish tax legislation and general business risks.
The Company’s effective tax rate for the year ended December 31, 2014 was also favorably impacted by a $1.0 million net reduction in unrecognized tax benefits and an income tax benefit of $0.4 million related to the decrease in foreign deferred tax liabilities resulting from a change in the enacted Spanish tax rate.
As noted in Note 15 – New Accounting Pronouncements, the Company adopted the provisions of ASU 2015-17 retrospectively in the fourth quarter of 2015. The adoption of this ASU will simplify the presentation of deferred income taxes and reduce complexity without decreasing the usefulness of information provided to users of financial statements. Upon adoption, $18.8 million of deferred tax assets previously classified as a component of current assets in the Consolidated Balance Sheet at December 31, 2014 have been reclassified as a component of long-term deferred tax assets. The adoption of ASU 2015-17 did not have a significant impact on our results of operations or cash flows.
The following table summarizes deferred income tax assets and liabilities:
(in millions)
2015
 
2014
Deferred tax assets:
 
 
 
Depreciation and amortization
$
10.9

 
$
11.1

Accrued expenses
27.6

 
28.5

Net operating loss, alternative minimum tax, research and development and foreign tax credit carryforwards
29.1

 
44.6

Definite lived intangibles
1.4

 
1.6

Pension benefits
33.5

 
35.3

Deferred revenue
—

 
0.1

Gross deferred tax assets
102.5

 
121.2

Valuation allowance
(5.9
)
 
(3.8
)
Total deferred tax assets
96.6

 
117.4

Deferred tax liabilities:
 
 
 
Depreciation and amortization
(6.6
)
 
(5.0
)
Expenses capitalized for book
(2.0
)
 
(1.4
)
Pension benefits
(14.7
)
 
(13.4
)
Indefinite lived intangibles
(52.6
)
 
(52.1
)
Other
(0.1
)
 
(0.1
)
Gross deferred tax liabilities
(76.0
)
 
(72.0
)
Net deferred tax assets
$
20.6

 
$
45.4

*
The above table does not include the deferred tax assets and corresponding full valuation allowance associated with the Company’s discontinued operations, as described in Note 14 - Discontinued Operations.
The deferred tax asset for tax loss and tax credit carryforwards at December 31, 2015 includes federal net operating loss carryforwards of $4.0 million , which begin to expire in 2027 , state net operating loss carryforwards of $6.8 million , which will begin to expire in 2016 , and foreign net operating loss carryforwards of $5.2 million , which have an indefinite life. The

52



deferred tax asset for tax credit carryforwards includes U.S. research tax credit carryforwards of $1.5 million , which will begin to expire in 2019 , U.S. foreign tax credits of $8.3 million , which will begin to expire in 2021 , and U.S. alternative minimum tax credit carryforwards of $3.3 million with no expiration.
The deferred tax asset for tax loss and tax credit carryforwards at December 31, 2014 , included federal net operating loss carryforwards of $5.1 million , state net operating loss carryforwards of $5.7 million , foreign net operating loss carryforwards of $3.0 million , U.S. research tax credit carryforwards of $5.0 million , U.S. foreign tax credits of $22.3 million , alternative motor vehicle credits of $0.2 million , and U.S. alternative minimum tax credit carryforwards of $3.3 million .
We continue to maintain a valuation allowance on certain state deferred tax assets that we believe, on a more likely than not basis, will not be realized. At December 31, 2015 , the valuation allowance recorded against state net operating loss carryforwards totaled $5.9 million .
The $96.6 million of deferred tax assets at December 31, 2015 , for which no valuation allowance is recorded, is anticipated to be realized through future taxable income or the future reversal of existing taxable temporary differences recorded as deferred tax liabilities at December 31, 2015 . Should the Company determine that it would not be able to realize its remaining deferred tax assets in the future, an adjustment to the valuation allowance would be recorded in the period such determination is made.
Federal and state income taxes have not been provided on accumulated undistributed earnings of certain foreign subsidiaries aggregating approximately $28.0 million and $25.2 million at December 31, 2015 and 2014 , respectively, as such undistributed earnings are considered to be indefinitely reinvested in the business. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
(in millions)
2015
 
2014
 
2013
Balance at January 1
$
2.0

 
$
3.9

 
$
4.0

Increases related to current year tax
0.3

 
0.4

 
0.5

Increases from prior period positions
—

 
0.3

 
0.4

Decreases from prior period positions
—

 
(0.1
)
 
(0.2
)
Decreases due to lapse of statute of limitations
(0.1
)
 
(2.4
)
 
(0.8
)
Foreign currency translation
—

 
(0.1
)
 
—

Balance at December 31
$
2.2

 
$
2.0

 
$
3.9

The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. At December 31, 2015 and 2014 , accruals for interest and penalties amounting to $0.8 million and $0.8 million , respectively, are included in the Consolidated Balance Sheets but are not included in the table above. At December 31, 2015 and 2014 , reserves for unrecognized tax benefits, including interest and penalties, of $2.5 million and $2.5 million , respectively, were included within Other long-term liabilities on the Consolidated Balance Sheets. At December 31, 2015 and 2014 , unrecognized tax benefits of $0.5 million and $0.3 million , respectively, were included as a reduction of Deferred tax assets on the Consolidated Balance Sheets.
All of the unrecognized tax benefits of $2.2 million at December 31, 2015 would impact our annual effective tax rate, if recognized. We do not expect any significant change to our unrecognized tax benefits as a result of potential expiration of statute of limitations and settlements with tax authorities.
We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2012 through 2014 tax years generally remain subject to examination by federal tax authorities, whereas the 2011 through 2014 tax years generally remain subject to examination by most state tax authorities. In significant foreign jurisdictions, the tax years from 2011 through 2014 generally remain subject to examination by their respective tax authorities.
The Company paid income taxes of $9.6 million in 2015 , $7.2 million in 2014 and $1.3 million in 2013 .

53



NOTE  7  — PENSIONS
The Company and its subsidiaries sponsor two defined benefit pension plans covering certain salaried and hourly employees. These plans have been closed to new participants for a number of years. Benefits under these plans are primarily based on final average compensation and years of service as defined within the provisions of the individual plans. As a result of plan amendments, the latest of which was in 2008, the only new benefits currently being accrued are salary increases for a limited group of participants. Those benefits will cease at the end of 2016, at which point all existing plans will be fully frozen.
The Company also participates in multi-employer pension plans that provide defined benefits to employees under U.S. collective bargaining agreements. None of these plans are considered individually significant to the Company. Contributions to these plans totaled $0.2 million , $0.2 million and $0.2 million for 2015 , 2014 and 2013 , respectively.
The following table summarizes net periodic pension expense for U.S. and non-U.S. benefit plans:
 
U.S. Benefit Plan
 
Non-U.S. Benefit Plan
(in millions)
2015
 
2014
 
2013
 
2015
 
2014
 
2013
Company-sponsored plans:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
$
0.2

 
$
0.2

 
$
0.2

Interest cost
7.6

 
7.9

 
7.3

 
2.1

 
2.6

 
2.5

Expected return on plan assets
(10.3
)
 
(9.1
)
 
(8.8
)
 
(2.7
)
 
(3.6
)
 
(2.6
)
Amortization of actuarial loss
6.8

 
5.1

 
7.5

 
0.7

 
0.4

 
0.8

Total company-sponsored plans
4.1

 
3.9

 
6.0

 
0.3

 
(0.4
)
 
0.9

Multi-employer plans
0.2

 
0.2

 
0.2

 
—

 
—

 
—

Net periodic pension expense
$
4.3

 
$
4.1

 
$
6.2

 
$
0.3

 
$
(0.4
)
 
$
0.9

The following table summarizes the weighted-average assumptions used in determining pension costs:
 
U.S. Benefit Plan
 
Non-U.S. Benefit Plan
 
2015
 
2014
 
2013
 
2015
 
2014
 
2013
Discount rate
4.2
%
 
5.1
%
 
4.2
%
 
3.5
%
 
4.5
%
 
4.1
%
Rate of increase in compensation levels
3.5
%
 
3.5
%
 
3.5
%
 
—

 
—

 
—

Expected long-term rate of return on plan assets
7.8
%
 
7.6
%
 
7.9
%
 
4.7
%
 
5.9
%
 
5.1
%
The following table summarizes the changes in the projected benefit obligation and plan assets:
 
U.S. Benefit Plan
 
Non-U.S. Benefit Plan
(in millions)
2015
 
2014
 
2015
 
2014
Benefit obligation, beginning of year
$
186.3

 
$
159.3

 
$
62.7

 
$
59.9

Service cost
—

 
—

 
0.2

 
0.2

Interest cost
7.6

 
7.9

 
2.1

 
2.6

Actuarial (gain) loss
(10.0
)
 
28.6

 
(2.5
)
 
7.0

Benefits and expenses paid
(9.6
)
 
(9.5
)
 
(3.5
)
 
(3.1
)
Foreign currency translation
—

 
—

 
(3.3
)
 
(3.9
)
Benefit obligation, end of year
$
174.3

 
$
186.3

 
$
55.7

 
$
62.7

Accumulated benefit obligation, end of year
$
173.5

 
$
184.4

 
$
55.7

 
$
62.7

The following table summarizes the weighted-average assumptions used in determining benefit obligations:
 
U.S. Benefit Plan
 
Non-U.S. Benefit Plan
 
2015
 
2014
 
2015
 
2014
Discount rate
4.6
%
 
4.2
%
 
3.7
%
 
3.5
%
Rate of increase in compensation levels
3.5
%
 
3.5
%
 
—

 
—


54



The following summarizes the changes in the fair value of plan assets:
 
U.S. Benefit Plan
 
Non-U.S. Benefit Plan
(in millions)
2015
 
2014
 
2015
 
2014
Fair value of plan assets, beginning of year
$
134.0

 
$
129.4

 
$
59.0

 
$
62.4

Actual return on plan assets
(3.3
)
 
5.9

 
0.8

 
2.2

Company contribution
7.0

 
8.2

 
1.1

 
1.2

Benefits and expenses paid
(9.6
)
 
(9.5
)
 
(3.5
)
 
(3.1
)
Foreign currency translation
—

 
—

 
(3.1
)
 
(3.7
)
Fair value of plan assets, end of year
$
128.1

 
$
134.0

 
$
54.3

 
$
59.0

As more fully described within Note  1 – Significant Accounting Policies, the Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.
Following is a description of the valuation methodologies used for assets measured at fair value for the U.S. benefit plan:
•
Cash and cash equivalents are comprised of cash on deposit and a money market fund, that invests principally in short-term instruments. The money-market fund is valued at the net asset value (“NAV”) of the shares in the fund.
•
Equity investments represent domestic and foreign securities, including common stock, which are publicly traded on active exchanges and are valued based on quoted market prices. Certain equity securities, which are valued using a model that takes the underlying security’s “ best ” price, divides it by the applicable exchange rate and multiplies the result by a depository receipt factor, are categorized within Level 2 of the fair value hierarchy.
•
Fixed income investments include corporate bonds, asset-backed securities and treasury bonds. Corporate bonds are valued using pricing models that include bids provided by brokers or dealers, benchmark yields, base spreads and reported trades. Asset-backed securities are valued using models with readily observable data as inputs. Treasury bonds are valued based on quoted market prices in active markets.
•
Mutual funds are valued at the NAV, based on quoted market prices in active markets, of shares held by the plan at year end.
•
Real estate investments include public real estate investment trusts (“REIT”) and exchange traded REIT funds, which are publicly traded on active exchanges and are valued based on quoted market prices.
Following is a description of the valuation methodologies used for assets measured at fair value for the non-U.S. benefit plan:
•
Equity investments represent domestic and foreign securities, which are publicly traded on active exchanges and are valued based on quoted market prices. The inputs used to value certain other non-U.S. investments in equity securities both in the U.K. and other overseas markets are based on observable market information consistent with Level 2 of the fair value hierarchy inputs. Specifically, they are valued using the NAV as of the last business day of the year. The NAV is based on the underlying value of the assets owned by the fund minus its liabilities, and then divided by the number of shares outstanding. The value of the underlying assets is based on quoted prices in active markets.
•
Fixed income investments include treasury securities, which are valued based on quoted market prices in active markets, and corporate bonds which are either valued based on quoted market prices in active markets or other readily observable market data.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

55



The following summarizes the Company’s pension assets in a three-tier fair value hierarchy for its benefit plans:
 
U. S. Benefit Plan
 
2015
 
2014
(in millions)
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents
$
6.8

 
$
—

 
$
—

 
$
6.8

 
$
2.5

 
$
—

 
$
—

 
$
2.5

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Large Cap
37.7

 
0.1

 
—

 
37.8

 
40.1

 
0.1

 
—

 
40.2

U.S. Small and Mid Cap
18.0

 
—

 
—

 
18.0

 
15.9

 
—

 
—

 
15.9

Federal Signal common stock
—

 
—

 
—

 
—

 
3.6

 
—

 
—

 
3.6

Developed international
12.8

 
6.9

 
—

 
19.7

 
9.9

 
4.5

 
—

 
14.4

Emerging markets
6.9

 
—

 
—

 
6.9

 
10.7

 
0.2

 
—

 
10.9

Fixed income:
 
 
 
 
 
 


 
 
 
 
 
 
 
 
Government securities
2.7

 
0.3

 
—

 
3.0

 
1.1

 
—

 
—

 
1.1

Asset-backed securities
—

 
7.7

 
—

 
7.7

 
—

 
7.1

 
—

 
7.1

Corporate bonds
—

 
13.1

 
—

 
13.1

 
—

 
19.2

 
—

 
19.2

Mutual funds
0.7

 
—

 
—

 
0.7

 
1.2

 
—

 
—

 
1.2

Other investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
10.5

 
—

 
—

 
10.5

 
13.9

 
—

 
—

 
13.9

Real estate
4.0

 
—

 
—

 
4.0

 
3.7

 
—

 
—

 
3.7

Total assets at fair value (a)
$
100.1

 
$
28.1

 
$
—

 
$
128.2

 
$
102.6

 
$
31.1

 
$
—

 
$
133.7

(a)
Total assets at fair value in the table above exclude a net payable of $0.1 million and a net receivable of $0.3 million at December 31, 2015 and 2014 , respectively.
 
Non-U. S. Benefit Plan
 
2015
 
2014
(in millions)
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash
$
9.2

 
$
—

 
$
—

 
$
9.2

 
$
11.5

 
$
—

 
$
—

 
$
11.5

Equity securities
5.3

 
34.8

 
—

 
40.1

 
6.0

 
35.9

 
—

 
41.9

Fixed income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government securities
2.7

 
—

 
—

 
2.7

 
2.9

 
—

 
—

 
2.9

Corporate bonds
1.5

 
0.8

 
—

 
2.3

 
1.6

 
1.1

 
—

 
2.7

Total assets at fair value
$
18.7

 
$
35.6

 
$
—

 
$
54.3

 
$
22.0

 
$
37.0

 
$
—

 
$
59.0

    
The Company maintains a structured derisking investment strategy for the U.S. pension plan to improve alignment of assets and liabilities that includes: (i) maintaining a diversified portfolio that can provide a near-term weighted-average target return of approximately 7.8% or more, (ii) maintaining liquidity to meet obligations and (iii) prudently managing administrative and management costs. The target asset allocations for the U.S. pension plan are (i) between 45% and 75% equity securities, (ii) between 15% and 45% fixed income securities and (iii) between 0% and 20% in other investments, with the remainder represented by cash and cash equivalents. Other investments may include real estate investments and mutual funds investing in real estate, commodities or hedge funds.
Plan assets for the non-U.S. benefit plans consist principally of a diversified portfolio of equity securities, U.K. government securities, company bonds and debt securities. The target asset allocations for the non-U.S. benefit plan assets are between 50% and 75% equity securities and between 25% and 50% debt securities.
During the year ended December 31, 2015 , the Company repurchased all of the remaining shares of its common stock from its U.S. benefit plan for a total cost of $3.6 million . The repurchases were made under authorized stock repurchase programs further outlined in Note 12 – Stockholders’ Equity. At December 31, 2014 , total assets of the U.S. benefit plan included 0.2 million shares of the Company’s common stock valued at $3.6 million . Dividends paid on the Company’s common stock held in the U.S. benefit plan did not exceed $0.1 million in each of the years ended December 31, 2015 and 2014 .

56



The following summarizes the funded status of the Company-sponsored plans:
 
U.S. Benefit Plan
 
Non-U.S. Benefit Plan
(in millions)
2015
 
2014
 
2015
 
2014
Fair value of plan assets, end of year
$
128.1

 
$
134.0

 
$
54.3

 
$
59.0

Benefit obligation, end of year
174.3

 
186.3

 
55.7

 
62.7

Funded status, end of year
$
(46.2
)
 
$
(52.3
)
 
$
(1.4
)
 
$
(3.7
)
At December 31, 2015 and 2014 , the Company’s non-U.S. benefit plans where the accumulated benefit obligation was in excess of the fair value of plan assets reflected an underfunded status of $1.4 million and $3.7 million , respectively.
The following summarizes the amounts recognized within our Consolidated Balance Sheets:
 
U.S. Benefit Plan
 
Non-U.S. Benefit Plan
(in millions)
2015
 
2014
 
2015
 
2014
Amounts recognized in Total liabilities include:
 
 
 
 
 
 
 
Long-term pension and other post-retirement benefit liabilities
$
(46.2
)
 
$
(52.3
)
 
$
(1.4
)
 
$
(3.7
)
Net liability recorded
$
(46.2
)
 
$
(52.3
)
 
$
(1.4
)
 
$
(3.7
)
Amounts recognized in Accumulated other comprehensive loss include:
 
 
 
 
 
 
 
Net actuarial loss
$
78.2

 
$
81.4

 
$
18.7

 
$
21.2

Net amount recognized, pre-tax
$
78.2

 
$
81.4

 
$
18.7

 
$
21.2

The Company expects $6.2 million relating to amortization of the actuarial loss to be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2016 . In addition, following the sale of Bronto, the Company expects that $0.3 million of actuarial losses will be amortized from accumulated other comprehensive loss in the first quarter of 2016 and included in the calculation of the gain on disposal.
The Company expects to contribute up to $4.8 million to the U.S. benefit plan and up to $1.5 million to the non-U.S. benefit plan in 2016 . Future contributions to the plans will be based on such factors as annual service cost, the financial return on plan assets, interest rate movements that affect discount rates applied to plan liabilities and the value of benefit payments made.
The following summarizes the benefits expected to be paid under the Company’s defined benefit plans in each of the next five years, and in aggregate for the five years thereafter:
(in millions)
U.S. Benefit Plan
 
Non-U.S. Benefit Plan
2016
$
8.4

 
$
3.4

2017
9.0

 
3.5

2018
9.0

 
3.6

2019
9.2

 
3.7

2020
10.5

 
3.8

2021-2025
54.7

 
21.0

The Company also sponsors a defined contribution retirement plan covering a majority of its employees. Participation is via automatic enrollment and employees may elect to opt out of the plan. Company contributions to the plan are based on employees’ age and service as well as a percentage of employee contributions. The cost of these plans was $7.5 million in 2015 , $7.1 million in 2014 and $7.0 million in 2013 .
Prior to September 30, 2003, the Company also provided medical benefits to certain eligible retired employees. These benefits are funded when the claims are incurred. Participants generally became eligible for these benefits at age  60 after completing at least 15 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 post-retirement benefit liabilities of $0.5 million and $0.5 million at December 31, 2015 and 2014 , respectively, were fully accrued. The net periodic post-retirement benefit costs have not been significant during the three-year period ended December 31, 2015 .

57



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 December 31, 2015 , the Company had outstanding performance and financial standby letters of credit, as well as outstanding bid and performance bonds, aggregating $22.2 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.

For certain independent Environmental Solutions Group dealers that purchase products financed by a third-party lender (the “Lender”), the Company also has provided a limited repurchase agreement to the Lender. In the event of a default by the applicable dealer and ultimate repossession of the underlying products by the Lender, the Company is obligated to repurchase those products from the Lender. The arrangement is subject to a maximum repurchase amount and the Company’s repurchase obligation is generally limited to products purchased by the dealer, and financed by the Lender, for a period of one year. The Company’s risk under the repurchase arrangement is partially mitigated by the value of the products repurchased under the agreement. As of December 31, 2015 , the potential cash payments the Company could be required to make under the agreement were $11.7 million .

The Company has recorded the fair value of its estimated net liability associated with losses from these guarantee and repurchase obligations on its Consolidated Balance Sheet based on historical experience and current facts and circumstances. Historical cash requirements and losses associated with these obligations have not been significant, but could increase if dealer defaults exceed current expectations. The Company’s repurchase accrual represents the expected losses resulting from obligations to repurchase products, after giving effect to proceeds anticipated to be received from the resale of those products to alternative customers. At December 31, 2015 , the Company’s accrual for potential losses related to repurchase exposure was insignificant. Subsequent to December 31, 2015 , the Company and the Lender executed an amendment to the agreement which removed the Company’s repurchase obligation effective January 1, 2016 .
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 from time to time, (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:
(in millions)
2015
 
2014
Balance at January 1
$
7.7

 
$
6.6

Provisions to expense
5.9

 
7.1

Actual costs incurred
(6.2
)
 
(6.0
)
Balance at December 31
$
7.4

 
$
7.7

At December 31, 2015 and 2014 , an accrual of $1.1 million and $1.3 million , respectively, was recorded in our Environmental Solutions Group in connection with a specific warranty matter. The accrual recorded represents management’s best estimate of the probable liability. The Company’s estimate may change as more information becomes available; however, the costs are not expected to have a material adverse effect on the Company’s results of operations, financial position or cash flow.
Environmental Liabilities
Reserves of $0.9 million and $1.3 million related to the environmental remediation of the Pearland, Texas facility are included in liabilities of discontinued operations on the Consolidated Balance Sheets at December 31, 2015 and 2014 , respectively. The facility was previously used by the Company’s discontinued Pauluhn business and manufactured marine, offshore and industrial lighting products. The Company sold the facility in May 2012 and while the Company has not finalized its plans, it is

58



probable that the site will require remediation. The recorded reserves are based on an undiscounted estimate of the range of costs to remediate the site, depending upon the remediation approach and other factors. The Company’s 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 Company’s results of operations, financial position or cash flow.
NOTE  9  — 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 2014 , 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 has 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.
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.

59



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 plaintiff’s motions to amend their complaints. Plaintiffs have indicated that they will now file motions to certify classes in these cases. On April 24, 2015, the cases were transferred to Cook County chancery court, which will decide all class certification issues. The Company intends to continue its objections to any attempt at certification. The Company also has filed motions to dismiss cases involving firefighters located outside of Cook County based on improper venue. Plaintiffs have requested discovery from the Company related to these venue motions. The Court has scheduled a further status hearing regarding venue matters for March 18, 2016.
The Company has also been sued on this issue outside of the Cook County, Illinois venue. Many of these cases have involved lawsuits filed by a single attorney in the Court of Common Pleas, Philadelphia County, Pennsylvania. During 2007 and through 2009, this attorney filed a total of 71 lawsuits involving 71 plaintiffs in this jurisdiction. 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 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, as amended, 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 95.02% 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. Five of these cases were subsequently dismissed. The first trial involving these 2012 Philadelphia cases occurred

60



during December 2014 and involved three firefighter plaintiffs. The jury returned a verdict in favor of the Company. Following this trial, all of the parties agreed to settle cases involving seven firefighter plaintiffs set for trial during January 2015 for nominal amounts per plaintiff. In January 2015, plaintiffs’ attorneys filed two new complaints in the Court of Common Pleas, Philadelphia, Pennsylvania on behalf of approximately 70 additional firefighter plaintiffs. The vast majority of the firefighters identified in these complaints are located outside of Pennsylvania. One of the complaints in these cases, which involves 11 firefighter plaintiffs from the District of Columbia, has been removed to federal court in the Eastern District of Pennsylvania. With respect to claims of other out-of-state firefighters involved in these two cases, the Company moved to dismiss these claims as improperly filed in Pennsylvania. The Court granted this motion and dismissed these claims on November 5, 2015. During August through December 2015, another nine new cases were filed in the Court of Common Pleas, Philadelphia County, Pennsylvania. These cases involve a total of 193 firefighters, most of whom are located outside of Pennsylvania. The Company is seeking dismissal of claims filed by these out-of-state firefighters as improperly filed in Pennsylvania.
During April through July 2013, additional cases were filed in Allegheny County, Pennsylvania. These cases involve 247 plaintiff firefighters from Pittsburgh and various defendants, including the Company. After the Company filed pretrial motions, the Court dismissed claims of 41 Pittsburgh firefighter plaintiffs. An initial trial involving eight Pittsburgh firefighters has been scheduled for March 2016. During March 2014, an action also was brought in the Court of Common Pleas of Erie County, Pennsylvania on behalf of 61 firefighters. This case likewise involves various defendants in addition to the Company. After the Company filed pretrial motions, 32 Erie County firefighter plaintiffs voluntarily dismissed their claims. On September 17, 2014, 20 lawsuits, involving a total of 193 Buffalo Fire Department firefighters, were filed in the Supreme Court of the State of New York, Erie County. Several product manufacturers, including the Company, have been named as defendants in these cases. All of the cases filed in Erie County, New York have been removed to federal court in the Western District of New York. During February 2015, a lawsuit involving one New York City firefighter plaintiff was filed in the Supreme Court of the State of New York, New York County. Plaintiff named the Company as well as several other parties as defendants. That case has been transferred to federal court in the Northern District of New York. The Company also is aware that a lawsuit involving eight New York City firefighters was filed in New York County, New York, on April 24, 2015. The Company has not yet been served in that case. During November and December 2015, 23 new cases involving a total of 210 firefighters were filed in various counties in the New York City area. During November 2015, the Company was also served with a complaint filed in Union county, New Jersey state court, involving 34 New Jersey firefighters. During January 2016, three additional cases were filed in various New Jersey state courts. These cases involve a total of 41 firefighters, most of whom reside in New Jersey and worked at New Jersey Fire Departments.
From 2007 through 2009, firefighters also brought hearing loss claims against the Company in New Jersey, Missouri, Maryland and Kings County, New York. All of those cases, however, were dismissed prior to trial, including four cases in the Supreme Court of Kings County, New York that were dismissed upon the Company’s motion in 2008. On appeal, the New York appellate court affirmed the trial court’s dismissal of these cases. Plaintiffs’ attorneys have threatened to file additional lawsuits. The Company intends to vigorously defend all of these lawsuits, if filed.
The Company’s ongoing negotiations with its insurer, CNA, over insurance coverage on these claims have resulted in reimbursements of a portion of the Company’s defense costs. These reimbursements are recorded as a reduction of corporate operating expenses. For the years ended December 31, 2015, 2014 and 2013 , the Company recorded reimbursements from CNA of $0.3 million , $0.3 million and $0.5 million , respectively, related to legal costs, respectively.
Latvian Commercial Dispute
On June 12, 2014, a Latvian trial court issued a summary ruling against the Company’s former Bronto subsidiary in a lawsuit relating to a commercial dispute. The dispute involves a transaction for the 2008 sale of three Bronto units that were purchased by a financing company for lease to a Latvian fire department. The lessor and the Latvian fire department sought to rescind the contract after delivery, despite the fact that an independent third party, selected by the lessor, had certified that the vehicles satisfied the terms of the contract. The adverse judgment requires Bronto to refund the purchase price and pay interest and attorneys’ fees. The trial court denied the lessor’s claim against Bronto for alleged damages relating to lost lease income.
The Company continues to believe that the claims against Bronto are invalid and that Bronto fully satisfied the terms of the subject contract. Accordingly, on July 30, 2014, the Company filed an appeal with the Civil Chamber of the Supreme Court of Latvia seeking a reversal of the trial court’s ruling. The appeal hearing with the Supreme Court is currently scheduled for April 2016.
As of December 31, 2015 , the Company has not accrued any liability within its consolidated financial statements for this lawsuit. In evaluating whether a charge to record a reserve was necessary, the Company analyzed all of the available information, including the legal reasoning applied by the judge of the trial court in reaching its decision. Based on the

61



Company’s analysis, and consultations with external counsel, the Company has assessed the likelihood of a successful appeal to be more likely than not and therefore does not believe that a probable loss has been incurred.
In connection with the sale of Bronto to Morita Holdings Corporation (“Morita”), discussed further in Note 14 , the Company and Morita agreed that the Company will remain in control of negotiations and proceedings relating to the appeal and fund the legal costs associated therewith. The Company also agreed to compensate Morita for 50% of any liability resulting from a final and non-appealable decision of a court of competent jurisdiction, less 50% of legal fees incurred by the Company between the date or sale and the date of receiving such decision.
In the event that the appeal of the initial judgment is unsuccessful or not fully successful, and after considering the agreement to share any resulting liability, the Company would expect to record a charge as a component of (Loss) gain from discontinued operations and disposal, that could range from zero to approximately $2.5 million . This range includes estimates of interest that will continue to accrue throughout the appeal process.
NOTE  10  — EARNINGS PER SHARE
The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share , which requires that non-vested restricted stock containing non-forfeitable dividend rights should be treated as participating securities pursuant to the two-class method. Under the two-class method, net income is reduced by the amount of dividends declared in the period for common stock and participating securities. The remaining undistributed earnings are then allocated to common stock and participating securities as if all of the net income for the period had been distributed. The amounts of distributed and undistributed earnings allocated to participating securities for the years ended December 31, 2015, 2014 and 2013 were insignificant and did not materially impact the calculation of basic or diluted EPS.
Basic EPS is computed by dividing income or loss available to common stockholders by the weighted average number of shares of common stock and non-vested restricted stock awards outstanding for the year.
Diluted EPS is computed using the weighted average number of shares of common stock and non-vested restricted stock awards outstanding for the year plus the effect of dilutive potential common shares outstanding during the year. The dilutive effect of common stock equivalents is determined using the more dilutive of the two-class method or alternative methods. We use the treasury stock method to determine the potentially dilutive impact of our employee stock options and restricted stock units, and the contingently issuable method for our performance-based restricted stock unit awards.
For the years ended December 31, 2015, 2014 and 2013 , options to purchase 0.8 million , 0.5 million and 0.9 million shares of the Company’s common stock, respectively, had an anti-dilutive effect on EPS, and accordingly, are excluded from the calculation of diluted EPS.
The following table reconciles net income to basic and diluted EPS:
(in millions, except per share data)
2015
 
2014
 
2013
Income from continuing operations
$
65.8

 
$
59.7

 
$
152.5

(Loss) gain from discontinued operations and disposal, net of tax
(2.3
)
 
4.0

 
7.5

Net income
$
63.5

 
$
63.7

 
$
160.0

Weighted average shares outstanding — Basic
62.2

 
62.7

 
62.6

Dilutive effect of common stock equivalents
1.2

 
0.9

 
0.6

Weighted average shares outstanding — Diluted
63.4

 
63.6

 
63.2

Basic earnings per share:
 
 
 
 
 
Earnings from continuing operations
$
1.06

 
$
0.95

 
$
2.44

(Loss) gain from discontinued operations and disposal, net of tax
(0.04
)
 
0.06

 
0.12

Net earnings per share
$
1.02

 
$
1.01

 
$
2.56

Diluted earnings per share:
 
 
 
 
 
Earnings from continuing operations
$
1.04

 
$
0.94

 
$
2.41

(Loss) gain from discontinued operations and disposal, net of tax
(0.04
)
 
0.06

 
0.12

Net earnings per share
$
1.00

 
$
1.00

 
$
2.53

NOTE  11  — STOCK-BASED COMPENSATION
The Company’s stock compensation plan, approved by the Company’s stockholders and administered by the Compensation and Benefits Committee of the Board of Directors of the Company (the “CBC”), provides for the grant of incentive stock options,

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restricted stock and other stock-based awards or units to key employees and directors. The plan authorizes the grant of up to 7.8 million shares or units through April 2025 . At December 31, 2015 , approximately 7.3 million shares were available for future issuance under the plan. These share or unit amounts exclude amounts that were issued under prior stock compensation plans.
Stock Options
Stock options vest equally over the three years from the date of the grant. The cost of stock options, based on their fair value at the date of grant, is 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. Under the plan, all options and rights must be exercised within ten years from date of grant. At the Company’s 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 has historically settled all such options in common stock and intends to continue to do so. Stock options do not have voting or dividend rights until such time that the options are exercised and shares have been issued.
The weighted average fair value of options granted during 2015 , 2014 and 2013 was $6.12 , $7.16 and $4.56 , respectively.
The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
 
2015
 
2014
 
2013
Dividend yield
1.5
%
 
0.8
%
 
—
%
Expected volatility
46
%
 
57
%
 
59
%
Risk free interest rate
1.5
%
 
1.9
%
 
1.0
%
Weighted average expected option life in years
5.7

 
5.8

 
5.8

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 Company’s 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 volatility of the Company’s common stock. Dividend yields are based on historical dividend payments.
The following summarizes stock option activity:  
 
Option Shares
 
Weighted Average Exercise Price
(in millions)
2015
 
2014
 
2013
 
2015
 
2014
 
2013
Outstanding, at beginning of year
2.0

 
2.1

 
2.3

 
$
9.28

 
$
8.63

 
$
8.93

Granted
0.3

 
0.3

 
0.5

 
16.08

 
14.36

 
8.50

Exercised
(0.1
)
 
(0.3
)
 
(0.3
)
 
7.34

 
7.49

 
7.47

Canceled or expired
(0.1
)
 
(0.1
)
 
(0.4
)
 
14.69

 
14.33

 
10.94

Outstanding, at end of year
2.1

 
2.0

 
2.1

 
$
10.29

 
$
9.28

 
$
8.63

Exercisable, at end of year
1.4

 
1.2

 
1.2

 
$
8.47

 
$
8.64

 
$
9.85

The following table summarizes information for stock options outstanding as of December 31, 2015 under all plans:
 
Options Outstanding
 
Options Exercisable
Range of Exercise Prices
Shares
 
Weighted Average
Remaining Life
 
Weighted Average
Exercise Price
 
Shares
 
Weighted Average
Exercise Price
 
(in millions)
 
(in years)
 
 
 
(in millions)
 
 
$5.01 — $10.00
1.1

 
6.1
 
$
6.73

 
1.0

 
$
6.52

10.01 — 15.00
0.5

 
6.2
 
13.11

 
0.3

 
12.18

15.01 — 20.00
0.5

 
7.0
 
16.22

 
0.1

 
16.60

 
2.1

 
6.3
 
$
10.29

 
1.4

 
$
8.47

The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2015 was $10.6 million .
The total compensation expense related to all stock option compensation plans was $ 2.0 million , $ 1.7 million and $ 1.5 million for the years ended December 31, 2015 , 2014 and 2013 , respectively. As of December 31, 2015 , there was $2.4 million of total

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unrecognized compensation cost related to stock options that is expected to be recognized over the weighted-average period of approximately 1.8 years.
Restricted Stock
Restricted stock awards and restricted stock units (collectively, “restricted stock”) are granted to employees at no cost. Restricted stock primarily cliff vests at the third anniversary from the date of grant, provided the recipient is still employed by the Company on the vesting date. The cost of restricted stock, based on the fair market value of the underlying shares at the date of grant, is charged to expense over the respective vesting periods. Shares associated with non-vested restricted stock awards have the same voting rights as the Company’s common stock and have non-forfeitable rights to dividends. Shares associated with non-vested restricted stock units do not have voting or dividend rights.
The following table summarizes restricted stock activity for the year ended December 31, 2015 :
 
Number of
Restricted Shares
 
Weighted Average
Price per Share
 
(in millions)
 
 
Outstanding and non-vested, at December 31, 2014
0.3

 
$
8.63

Granted
0.1

 
16.18

Vested
(0.2
)
 
8.35

Forfeited
—

 
11.66

Outstanding and non-vested, at December 31, 2015
0.2

 
$
12.70

The total compensation expense related to all restricted stock compensation plans was $1.2 million , $1.0 million and $1.1 million for the years ended December 31, 2015 , 2014 and 2013 , respectively. As of December 31, 2015 , there was $0.8 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over the weighted-average period of approximately 1.7 years.
Performance Awards
In each of the three years in the period ended December 31, 2015 , the Company granted performance-based restricted stock unit awards (“PSUs”) to certain executives and other non-executive officers. Performance targets associated with PSUs are set annually and approved by the CBC. At the Company’s discretion, actual payment of the awards earned shall be in cash or in common stock of the Company, or in a combination of both. The Company intends to settle all such awards by issuing shares of its common stock. The number of shares of common stock that the Company may issue in connection with these PSUs can range from 0% to 200% of target, depending upon achievement against the performance targets. Shares associated with non-vested PSUs do not have voting or dividend rights until issuance. The Company assesses the probability of vesting, based on expected achievement against these performance targets, on a quarterly basis.
The cost of PSUs, based on their fair market value at the date of grant, is charged to expense over the respective vesting periods, which is the three -year period ended December 31, 2015 for the 2013 grants, the three -year period ended December 31, 2016 for the 2014 grants and the three -year period ended December 31, 2017 for the 2015 grants.
The PSUs granted in 2015 have a three -year performance period ending December 31, 2017, in which the Company must achieve certain cumulative EPS from continuing operations and a certain average return on invested capital, which are performance conditions per ASC 718. If earned, these shares would vest in full on December 31, 2017.
The PSUs granted in 2014 have a two -year performance period ending December 31, 2015, in which the Company must achieve certain cumulative EPS from continuing operations and a certain average return on invested capital, which are performance conditions per ASC 718, followed by a one -year service requirement (i.e., if earned, these shares would vest in full on December 31, 2016). Based on the achievement of EPS and return on invested capital during the two -year performance period at the maximum level, 200% of the target shares are considered to have been earned. The PSUs granted in 2014 will vest on December 31, 2016, provided that the requisite service requirement is satisfied.
The PSUs granted in 2013 had a one -year performance period ending December 31, 2013, in which a certain EPS from continuing operations was targeted, followed by a two -year service requirement. The EPS threshold associated with the 2013 grants was achieved at the maximum level, and 200% of the target shares were earned. The PSUs granted in 2013 became fully vested on December 31, 2015. The underlying shares were issued to participants in the first quarter of 2016.
Compensation expense included in the Consolidated Statements of Operations for the PSUs in the years ended December 31, 2015 , 2014 and 2013 was $3.5 million , $3.4 million and $1.4 million , respectively.

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As of December 31, 2015 and 2014 , there was $2.6 million and $3.6 million of total unrecognized compensation cost related to PSUs, respectively, that is expected to be recognized over the weighted-average period of 1.5 years and 1.7 years, respectively.
The following table summarizes PSU activity for the year ended December 31, 2015 :
 
Number of PSUs
 
Weighted Average Price per Share
 
(in millions)
 
 
Outstanding and non-vested, at December 31, 2014
0.4

 
$
10.89

Granted (a)
0.4

 
11.62

Vested
(0.5
)
 
8.66

Forfeited
—

 
11.26

Outstanding and non-vested, at December 31, 2015
0.3

 
$
15.28

(a)
Includes 0.2 million PSUs, representing the effect of the PSUs granted in 2013 being earned at 200% of target. The PSUs granted in 2013 vested on December 31, 2015.
Excess Tax Benefits
For income tax purposes, stock-based compensation expense is deductible in the year of exercise or vesting based on the intrinsic value of the award on the date of exercise or vesting. For financial reporting purposes, stock-based compensation expense is based upon grant-date fair value and amortized over the vesting period. Excess tax benefits represent the excess tax deduction received by the Company resulting from the difference between the stock-based compensation expense deductible for income tax purposes and the stock-based compensation expense recognized for financial reporting purposes. Excess tax benefits are recorded to Capital in excess of par value on the Consolidated Statements of Stockholders’ Equity. Excess tax benefits for the years ended December 31, 2015 and 2014 were  $1.6 million and $2.2 million , respectively, and are presented as a cash outflow from operating activities and as a cash inflow from financing activities on the Consolidated Statements of Cash Flows.
NOTE  12  — STOCKHOLDERS’ EQUITY
The Company’s Board of Directors (the “Board”) 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 64.8 million and 64.2 million common shares issued as of December 31, 2015 and 2014 , respectively. Of those amounts, 62.2 million and 62.5 million common shares were outstanding as of December 31, 2015 and 2014 , respectively.
The Board 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 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 designated or issued any preference stock as of December 31, 2015 .
Dividends
In 2014, the Board reinstated the Company’s quarterly cash dividend. In the aggregate, the Company declared and paid dividends totaling $15.6 million and $5.6 million during 2015 and 2014 , respectively.
On February 9, 2016, the Board declared a quarterly cash dividend of $0.07 per common share payable on March 17, 2016 to holders of record at the close of business on March 1, 2016.
Stock Repurchase Program
In April 2014, the Board authorized a stock repurchase program (the “April 2014 program”) of up to $15.0 million of the Company’s common stock. The April 2014 program was intended primarily to facilitate a reduction in the investment in Company stock within the Company’s U.S. defined benefit pension plan portfolio and to reduce dilution resulting from issuances of stock under the Company’s employee equity incentive programs. During the year ended December 31, 2014 , the Company repurchased 696,263 shares for a total of $10.3 million under the April 2014 program.

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In November 2014, the Board authorized an additional stock repurchase program (the “November 2014 program”) of up to $75.0 million of the Company’s common stock. The November 2014 program is intended primarily to facilitate opportunistic purchases of Company stock as a means to provide cash returns to stockholders, enhance stockholder returns and manage the Company’s capital structure.
During the year ended December 31, 2015 , the Company repurchased 724,792 shares for a total of $10.6 million under the authorized stock repurchase programs. During the second quarter of 2015, cumulative stock repurchases under the April 2014 program reached the maximum authorized level of $15.0 million . No additional stock repurchases will be made under that program.
Under its stock repurchase programs, the Company is authorized to repurchase, from time to time, shares of its outstanding common stock in the open market or through privately negotiated transactions. Stock repurchases by the Company are subject to market conditions and other factors and may be commenced, suspended or discontinued at any time.
Accumulated Other Comprehensive Loss
The following tables summarize the changes in each component of Accumulated other comprehensive loss, net of tax:
(in millions) (a)
Actuarial Losses
 
Foreign
Currency Translation
 
Unrealized
Gain (Loss) on
Derivatives
 
Total
Balance at January 1, 2015
$
(79.8
)
 
$
0.2

 
$
0.1

 
$
(79.5
)
Other comprehensive loss before reclassifications
(0.6
)
 
(13.5
)
 
—

 
(14.1
)
Amounts reclassified from accumulated other comprehensive loss
4.8

 
—

 
—

 
4.8

Net current-period other comprehensive income (loss)
4.2

 
(13.5
)
 
—

 
(9.3
)
Balance at December 31, 2015
$
(75.6
)
 
$
(13.3
)
 
$
0.1

 
$
(88.8
)
(in millions)  (a)
Actuarial Losses
 
Foreign
Currency Translation
 
Unrealized
Gain (Loss) on
Derivatives
 
Total
Balance at January 1, 2014
$
(58.1
)
 
$
16.0

 
$
0.2

 
$
(41.9
)
Other comprehensive loss before reclassifications
(24.6
)
 
(15.8
)
 
(0.1
)
 
(40.5
)
Amounts reclassified from accumulated other comprehensive loss
2.9

 
—

 
—

 
2.9

Net current-period other comprehensive loss
(21.7
)
 
(15.8
)
 
(0.1
)
 
(37.6
)
Balance at December 31, 2014
$
(79.8
)
 
$
0.2

 
$
0.1

 
$
(79.5
)
(a)
Amounts in parenthesis indicate debits.
Following the sale of Bronto, the Company expects to recognize the foreign currency translation amount attributable to the Fire Rescue Group and include it in the calculation of the associated gain on disposal in the first quarter of 2016. At December 31, 2015, a foreign currency translation loss of $7.4 million was attributable to the Fire Rescue Group, and was included within Accumulated other comprehensive loss.
The following table summarizes the amount of actuarial losses reclassified from Accumulated other comprehensive loss, net of tax, and the affected line item in the Consolidated Statements of Operations:
Details about Accumulated Other Comprehensive Loss Components
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item in Consolidated Statements of Operations
 
2015
 
2014
 
 
 
(in millions)  (a)
 
 
Amortization of actuarial losses of defined benefit pension plans
 
$
(7.5
)
 
$
(5.5
)
 
(b)
Amortization of actuarial gains of retiree medical plans
 
0.1

 
0.2

 
SEG&A expenses
Total before tax
 
(7.4
)
 
(5.3
)
 
 
Income tax benefit
 
2.6

 
2.4

 
Income tax (expense) benefit
Total reclassifications for the period, net of tax
 
$
(4.8
)
 
$
(2.9
)
 
 
(a)
Amount in parenthesis indicate debits to profit/loss.

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(b)
The actuarial loss components of Accumulated other comprehensive loss are included in the computation of net periodic pension cost for the period, as disclosed in Note 7 – Pensions.
NOTE  13  — SEGMENT INFORMATION
The Company has two operating segments as defined under ASC Topic 280 , Segment Reporting (“ASC 280”) . The Company’s reportable segments are consistent with its operating segments. 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 Company’s operating segments are as follows:
Environmental Solutions  — Our Environmental Solutions Group is a leading manufacturer and supplier of a full range of street sweeper vehicles, sewer cleaner and vacuum loader trucks, hydro-excavation trucks and high-performance waterblasting equipment. Products are sold to both municipal and industrial customers under the Elgin ® , Vactor ® , Guzzler ® and Jetstream TM brand names. The Group manufactures vehicles and equipment in the U.S.
Safety and Security Systems  — Our Safety and Security Systems Group is a leading manufacturer and supplier of comprehensive systems and products that law enforcement, fire rescue, emergency medical services, campuses, military facilities and industrial sites use to protect people and property. Offerings include systems for campus and community alerting, emergency vehicles, first responder interoperable communications and industrial communications, as well as command and municipal networked security. Specific products include vehicle lightbars and sirens, public warning sirens, general alarm systems, public address systems and public safety software. Products are sold under the Federal Signal TM , Federal Signal VAMA TM and Victor TM brand names. The Group operates manufacturing facilities in the U.S., Europe and South Africa.
Corporate contains those items that are not included in our operating segments.
Net sales by operating segment reflect sales of products and services to external customers, as reported in the Company’s 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, deferred tax assets and fixed assets. The accounting policies of each operating segment are the same as those described in Note 1 – Summary of Significant Accounting Policies.
Revenues attributed to customers located outside of the U.S. aggregated $191.2 million in 2015 , $198.5 million in 2014 and $175.8 million in 2013 , of which sales exported from the U.S. aggregated $146.2 million , $152.5 million and $131.1 million , respectively.

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The following tables summarize the Company’s continuing operations by segment, including net sales, operating income, depreciation and amortization, total assets and capital expenditures:  
(in millions)
2015
 
2014
 
2013
Net sales:
 
 
 
 
 
Environmental Solutions
$
534.1

 
$
536.6

 
$
474.0

Safety and Security Systems
233.9

 
242.5

 
238.9

Total net sales
$
768.0

 
$
779.1

 
$
712.9

Operating income:
 
 
 
 
 
Environmental Solutions
$
96.9

 
$
81.9

 
$
58.2

Safety and Security Systems
32.3

 
32.1

 
26.1

Corporate and eliminations
(26.0
)
 
(25.3
)
 
(22.7
)
Total operating income
103.2

 
88.7

 
61.6

Interest expense
2.3

 
3.6

 
8.9

Debt settlement charges
—

 
—

 
8.7

Other expense, net
1.0

 
1.7

 
0.1

Income before income taxes
$
99.9

 
$
83.4

 
$
43.9

(in millions)
2015
 
2014
 
2013
Depreciation and amortization:
 
 
 
 
 
Environmental Solutions
$
7.3

 
$
6.8

 
$
6.1

Safety and Security Systems
4.8

 
4.5

 
4.2

Corporate
0.2

 
0.2

 
0.7

Total depreciation and amortization
$
12.3

 
$
11.5

 
$
11.0

(in millions)
2015
 
2014
 
2013
Total assets:
 
 
 
 
 
Environmental Solutions
$
250.6

 
$
254.2

 
$
236.0

Safety and Security Systems
209.6

 
208.3

 
213.4

Corporate and eliminations
99.2

 
69.0

 
73.6

Total assets of continuing operations
559.4

 
531.5

 
523.0

Total assets of discontinued operations
107.1

 
127.2

 
121.8

Total assets
$
666.5

 
$
658.7

 
$
644.8

(in millions)
2015
 
2014
 
2013
Capital expenditures:
 
 
 
 
 
Environmental Solutions
$
4.5

 
$
6.2

 
$
4.5

Safety and Security Systems
3.9

 
6.3

 
5.4

Corporate
1.2

 
1.2

 
1.7

Total capital expenditures
$
9.6

 
$
13.7

 
$
11.6

The following table summarizes net sales by geographic region based on the location of the end customer:
(in millions)
2015
 
2014
 
2013
Net sales:
 
 
 
 
 
U.S.
$
576.8

 
$
580.6

 
$
537.1

Europe/Other
115.3

 
131.4

 
119.3

Canada
75.9

 
67.1

 
56.5

Total net sales
$
768.0

 
$
779.1

 
$
712.9


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The following table summarizes long-lived assets (excluding deferred tax and intangible assets) by geographic region based on the location of the Company’s subsidiaries:
(in millions)
2015
 
2014
 
2013
Long-lived assets (excluding deferred tax and intangible assets):
 
 
 
 
 
U.S.
$
53.3

 
$
53.5

 
$
46.1

Europe
2.6

 
2.5

 
5.2

Other
0.3

 
0.4

 
0.4

Total long-lived assets
$
56.2

 
$
56.4

 
$
51.7

NOTE  14  — DISCONTINUED OPERATIONS
The Company recorded a net loss from discontinued operations and disposal of $2.3 million in the year ended December 31, 2015 . The net loss was primarily driven by tax expense associated with recording a net deferred tax liability of $6.3 million , partially offset by net income generated by the Fire Rescue Group, which was discontinued in 2015, and the receipt of funds from the escrow associated with the 2012 sale of the Company’s former Federal Signal Technologies Group (“FSTech”).
In each of the years ended December 31, 2014 and 2013 , the Company recorded net gains from discontinued operations and disposal of $4.0 million and $7.5 million , respectively. The net gains in each period were primarily driven by net income generated by the Fire Rescue Group, as well as adjustments of estimated product liability obligations of previously discontinued businesses, resulting from updated actuarial valuations. The activity of the Company’s discontinued operations in each of the years ended December 31, 2015 , 2014 and 2013 is described further below:
FSTech
In connection with the sale of FSTech, $22.0 million was placed into escrow as security for indemnification obligations provided by the Company pursuant to the sale agreement. A significant portion of the escrow identified for general indemnification obligations was held for a period of 18 months following the sale date with the remaining general escrow funds to be held for 36 months following the sale date.
In 2014 , the Company received $7.4 million from the escrow identified for general indemnification obligations. In the third quarter of 2015, the Company received the remaining general escrow funds of $4.0 million and recorded this income as a component of (Loss) gain from discontinued operations and disposal, net of tax expense of $1.5 million within its Consolidated Statement of Operations for the year ended December 31, 2015 . There are no amounts remaining in escrow as of December 31, 2015 .
Fire Rescue Group
On December 11, 2015, the Company announced that it has signed a definitive agreement to sell Bronto to Morita for € 80.0 million in cash (approximately $87 million ), subject to certain post-closing working capital and net debt adjustments. Prior to sale, Bronto was the only remaining operation in the Company’s Fire Rescue Group, which was previously identified as an operating segment of the Company as defined under ASC 280. Upon completion of the transaction, the Company will no longer operate the Fire Rescue Group, which the Company considers a significant strategic shift in the Company’s operations. In accordance with ASC Topic 360, Impairment and Disposal of Long-Lived Assets , the Company met the held for sale criteria as of December 31, 2015 and the Fire Rescue Group is being presented as a discontinued operation in the Company’s consolidated financial statements.
On January 29, 2016, the Company completed the sale, initially receiving proceeds of € 76 million in cash (approximately $83 million ), with the remaining purchase price expected to be paid, in connection with the payment of the working capital and net debt adjustments, by the end of the second quarter of 2016.
Under the terms of the sale, the Company and Morita agreed that the Company will remain in control of negotiations and proceedings relating to the appeal of the ruling issued in the Latvian commercial dispute, discussed further in Note 9 – Legal Proceedings, and also fund the legal costs associated therewith. The Company also agreed to compensate Morita for half of any liability resulting from a final and non-appealable decision of a court of competent jurisdiction, less half of legal fees incurred by the Company between the date or sale and the date of receiving such decision.
On December 16, 2015, the Company entered into a foreign currency forward contract to mitigate its foreign exchange exposure related to the receipt of the euro-denominated sales proceeds. The derivative is being marked-to-market on a quarterly basis, with related gains or losses reported in the Company’s Consolidated Statement of Operations. The forward contract had a

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notional contract value of € 76.0 million and a fair value of $0.6 million at  December 31, 2015 . An asset of $0.6 million has been included as a component of Prepaid expenses and other current assets on the Consolidated Balance Sheet as of December 31, 2015 , with a corresponding gain recorded as a component of Other expense, net in the Consolidated Statement of Operations for the year ended December 31, 2015 . The fair value of the forward contract was determined using readily available pricing sources for comparable instruments (Level 2 within the fair value hierarchy described within Note  1 – Summary of Significant Accounting Policies).
In accordance with ASC 740, a tax liability should be recognized for the excess of the financial reporting basis over the tax basis (or the tax benefit when the tax basis exceeds the financial reporting basis) of an investment in a subsidiary (outside basis difference) when it is apparent that the temporary differences will reverse in the foreseeable future. In connection with presenting the Fire Rescue Group as a discontinued operation as of December 31, 2015 , the Company was required to re-evaluate its position related to the recognition of a deferred tax asset or liability for the outside basis differences of the Bronto entities being sold to Morita. In prior years, deferred taxes for such outside basis differences had not been recognized, either because of the Company’s assertion of permanent reinvestment, or because recognition was not required applying one of the exceptions provided for in ASC 740. Due to the pending sale, these exceptions no longer applied at December 31, 2015 , as the outside basis differences were expected to reverse in the foreseeable future. As a result, a net deferred tax liability of $6.3 million was recorded as a component of long-term liabilities of discontinued operations as of December 31, 2015 .
After recognition of the accumulated foreign currency translation loss attributable to the Fire Rescue Group, as described in Note 12 – Stockholders’ Equity, the actuarial losses described in Note 7 – Pensions, as well as applicable income tax expense, the Company anticipates recognizing a modest net gain on disposal of the Fire Rescue Group upon closing the transaction in the first quarter of 2016.
The following table presents the operating results of the Company’s discontinued Fire Rescue Group for each of the three years in the period ended December 31, 2015 :
(in millions)
2015
 
2014
 
2013
Net sales
$
100.0

 
$
139.4

 
$
138.4

Cost of sales
80.8

 
114.8

 
109.3

Gross profit
19.2

 
24.6

 
29.1

Selling, engineering, general and administrative expenses
17.1

 
20.7

 
20.1

Restructuring
0.8

 
—

 
—

Operating income
1.3

 
3.9

 
9.0

Interest expense (income), net
—

 
0.2

 
(0.1
)
Other expense (income), net
(0.2
)
 
(0.2
)
 
—

Income before income taxes
1.5

 
3.9

 
9.1

Income tax expense
0.3

 
0.6

 
1.4

Net income from operations
$
1.2

 
$
3.3

 
$
7.7

Assets and liabilities of discontinued operations
The following table presents the assets and liabilities of the Company’s discontinued operations, which include the Fire Rescue Group, as well as other operations discontinued in prior periods, as of December 31, 2015 and 2014 :

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2015
 
2014
(in millions)
Fire Rescue
 
Other
 
Total
 
Fire Rescue
 
Other
 
Total
Cash and cash equivalents
$
5.0

 
$
—

 
$
5.0

 
$
6.3

 
$
—

 
$
6.3

Accounts receivable, net
15.5

 
—

 
15.5

 
34.0

 
—

 
34.0

Inventories
40.4

 
—

 
40.4

 
33.4

 
—

 
33.4

Prepaid expenses
2.7

 
—

 
2.7

 
2.4

 
—

 
2.4

Other current assets
0.2

 
—

 
0.2

 
—

 
0.1

 
0.1

Current assets of discontinued operations
$
63.8

 
$
—

 
$
63.8

 
$
76.1

 
$
0.1

 
$
76.2

 
 
 
 
 
 
 
 
 
 
 
 
Properties and equipment, net
$
13.4

 
$
—

 
$
13.4

 
$
16.8

 
$
—

 
$
16.8

Goodwill
28.3

 
—

 
28.3

 
31.1

 
—

 
31.1

Deferred tax assets
—

 
1.6

 
1.6

 
—

 
3.1

 
3.1

Long-term assets of discontinued operations
$
41.7

 
$
1.6

 
$
43.3

 
$
47.9

 
$
3.1

 
$
51.0

 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
7.3

 
$
—

 
$
7.3

 
$
9.0

 
$
—

 
$
9.0

Customer deposits
10.6

 
—

 
10.6

 
7.1

 
—

 
7.1

Accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
Compensation and withholding taxes
4.3

 
—

 
4.3

 
5.6

 
—

 
5.6

Other current liabilities
4.0

 
2.4

 
6.4

 
9.5

 
1.7

 
11.2

Current liabilities of discontinued operations
$
26.2

 
$
2.4

 
$
28.6

 
$
31.2

 
$
1.7

 
$
32.9

 
 
 
 
 
 
 
 
 
 
 
 
Long-term pension and other post-retirement benefit liabilities
$
0.7

 
$
—

 
$
0.7

 
$
0.9

 
$
—

 
$
0.9

Other long-term liabilities
5.5

 
9.1

 
14.6

 
4.9

 
5.0

 
9.9

Long-term liabilities of discontinued operations
$
6.2

 
$
9.1

 
$
15.3

 
$
5.8

 
$
5.0

 
$
10.8

The Company retains certain liabilities for other operations discontinued in prior periods, primarily for environmental remediation and product liability. Included in liabilities of discontinued operations at December 31, 2015 and 2014 is $0.9 million and $1.3 million , respectively, related to environmental remediation at the Pearland, Texas facility, and $2.3 million and $3.0 million , respectively, relating to estimated product liability obligations of the discontinued North American refuse truck body business.
Long-term assets of discontinued operations at December 31, 2015 and 2014 include gross deferred tax assets of $3.5 million and $4.2 million , respectively, offset by a full valuation allowance. These assets primarily relate to Canadian net operating loss carryforwards that were largely generated by the discontinued North American refuse truck body business. These net operating loss carryforwards begin to expire in 2026. As it is currently not considered more likely than not that such deferred tax assets will be realized, a full valuation allowance has been recorded, such that the net deferred tax assets included assets of discontinued operations is zero at December 31, 2015 and 2014 . However, tax planning strategies or acquisitions may result in these assets being realized as part of the Company’s continuing operations in future periods.
NOTE  15  — NEW ACCOUNTING PRONOUNCEMENTS
In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . This update revises the required criteria for reporting disposals as discontinued operations, whereby such disposals must represent strategic shifts that had (or will have) a major effect on an entity’s operations and financial results. The guidance also requires additional disclosures about discontinued operations, including expanded disclosure of any significant ongoing involvement. The new requirements are effective prospectively for all disposals that occur within fiscal years beginning on or after December 15, 2014, and for interim periods within those fiscal years. The Company adopted this guidance on January 1, 2015 and applied it in concluding that the Fire Rescue Group should be presented as a discontinued operation in the 2015 consolidated financial statements. See Note  14 – Discontinued Operations for further discussion.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is

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recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The FASB decided to allow either a “full retrospective” adoption, in which the standard is applied to all periods presented in the financial statements, or a “modified retrospective” adoption, in which the guidance is applied retrospectively only to the most current period presented in the financial statements, with the cumulative effect of initially applying the new standard being recognized as an adjustment to the opening balance of retained earnings. As originally proposed, this guidance was effective for annual reporting periods beginning on or after December 15, 2016, including interim periods within that reporting period, and early adoption was not permitted. In July 2015, the FASB voted to approve a one-year deferral of the effective date, to annual reporting periods beginning on or after December 15, 2017, including interim periods within that reporting period. The final ASU 2015-14 also allows companies to adopt the guidance early, but no earlier than the original effective date. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs , which requires that debt issuance costs be presented in the balance sheets as a direct deduction from the carrying amount of the related debt liability. The new requirement is effective for fiscal years beginning on or after December 15, 2015, and for interim periods within those fiscal years. Retrospective presentation is required for all comparable periods presented. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-15, Interest – Imputation of Interest (Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements , which presents the SEC staff’s opinion, in response to ASU No. 2015-03, that debt issuance costs associated with line-of-credit arrangements may be deferred, presented as an asset, and subsequently amortized ratably over the respective term, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The effective date of this guidance, and the expected impact upon adoption, is consistent with that discussed above with respect to ASU No. 2015-03.
In November 2015, the FASB issued ASU No. 2015-17,  Balance Sheet Classification of Deferred Taxes , requiring that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. This new guidance is effective for annual reporting periods beginning on or after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The Company early adopted the ASU for the year ended December 31, 2015 on a retrospective basis. See Note 6 – Income Taxes for more detail.
No other new accounting pronouncements issued or effective during 2015 have had or are expected to have a material impact on the Company’s results of operations, financial position or cash flow.
NOTE  16  — SELECTED QUARTERLY DATA (UNAUDITED)
The Company reports its interim quarterly periods on a 13-week basis ending on a Saturday with the fiscal year ending on December 31. The effects of this practice exist only within a reporting year. For ease of presentation, the Company uses “March 31,” “June 30,” “September 30” and “December 31” to refer to its results of operations for the quarterly periods then ended. In 2015 , the Company’s interim quarterly periods ended March 28, June 27, September 26 and December 31. In 2014 , the Company’s interim quarterly periods ended March 29, June 28, September 27 and December 31.
The following table summarizes the quarterly results of operations, including earnings per share:
 
2015
(in millions, except per share data)
March 31
 
June 30 (a)
 
September 30
 
December 31 (b)
Net sales
$
196.5

 
$
205.4

 
$
179.7

 
$
186.4

Gross profit
54.9

 
60.7

 
54.7

 
55.3

Income from continuing operations
14.4

 
18.2

 
15.8

 
17.4

Gain (loss) from discontinued operations and disposal, net
0.5

 
0.1

 
3.0

 
(5.9
)
Net income
14.9

 
18.3

 
18.8

 
11.5

Diluted earnings per share:
 
 
 
 
 
 
 
Earnings from continuing operations
$
0.22

 
$
0.29

 
$
0.25

 
$
0.27

Earnings (loss) from discontinued operations
0.01

 
0.00

 
0.05

 
(0.09
)
Net earnings per share
$
0.23

 
$
0.29

 
$
0.30

 
$
0.18

(a)
Income from continuing operations includes restructuring charges of $0.4 million .

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(b)
Income from continuing operations includes a $1.4 million net benefit from special tax items, comprised of a $4.2 million net tax benefit associated with tax planning strategies, offset by a $2.4 million adjustment of deferred tax assets and $0.4 million of expense associated with a change in the enacted tax rate in the U.K. Gain (loss) from discontinued operations and disposal, net includes tax expense of $6.3 million associated with recognizing a net deferred tax liability for the outside basis differences of entities being sold as part of the sale of Bronto.
 
2014
(in millions, except per share data)
March 31
 
June 30
 
September 30
 
December 31 (a)
Net sales
$
175.7

 
$
200.5

 
$
193.8

 
$
209.1

Gross profit
42.6

 
54.4

 
54.1

 
57.6

Income from continuing operations
7.9

 
16.9

 
15.0

 
19.9

(Loss) gain from discontinued operations and disposal, net
(0.5
)
 
0.2

 
0.4

 
3.9

Net income
7.4

 
17.1

 
15.4

 
23.8

Diluted earnings per share:
 
 
 
 
 
 
 
Earnings from continuing operations
$
0.13

 
$
0.27

 
$
0.23

 
$
0.31

(Loss) earnings from discontinued operations
(0.01
)
 
0.00

 
0.01

 
0.06

Net earnings per share
$
0.12

 
$
0.27

 
$
0.24

 
$
0.37

(a)
Income from continuing operations includes a tax benefit of $3.5 million relating to the release of valuation allowance previously recorded against the Company’s foreign deferred tax assets.




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NOTE  17  — SUBSEQUENT EVENTS
Acquisition of Westech Vac Systems Ltd.
On January 5, 2016 , the Company completed the acquisition of 100% of the stock of Westech Vac Systems, Ltd. (“Westech”), a Canadian manufacturer of high-quality, rugged vacuum trucks, from Advance Engineered Products Ltd. for an initial purchase price of C $8.0 million (approximately U.S. $5.8 million ), subject to certain working capital adjustments. At closing, the Company paid an additional C $0.7 million (approximately U.S. $0.5 million ) as a preliminary working capital adjustment. Any additional working capital adjustment is expected to be finalized in the first quarter of 2016. The preliminary purchase price allocation has not been completed at this time, due to the proximity of the date of acquisition to the date of issuance of the consolidated financial statements. The Company expects that Westech will provide an efficient entry into a new line of product offerings and access to new markets. The post-acquisition operating results of Westech are expected to be included within the Environmental Solutions Group.
Execution of 2016 Credit Agreement
See Note  5 – Debt for discussion of the execution of the 2016 Credit Agreement on January 27, 2016 .
Sale of Bronto
See Note  14 – Discontinued Operations for discussion of the completion of the sale of Bronto on January 29, 2016 .

Execution of Definitive Agreement to Acquire Joe Johnson Equipment (“JJE”)
On February 29, 2016 , the Company announced the signing of a definitive agreement to acquire substantially all of the assets and operations of JJE, a Canadian-based distributor of maintenance equipment for municipal and industrial markets, for initial consideration of C $108.0 million (approximately U.S. $79 million ), subject to certain post-closing adjustments. In addition, there is a deferred payment of C $8.0 million and a contingent earn-out payment of up to C $10.0 million . The earn-out payment is contingent upon the achievement of certain financial targets and objectives. The Company anticipates that the transaction will close by the end of the second quarter of 2016.
Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a)
Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act Rule 13a-15(e)) as of December 31, 2015 .
Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2015 .
(b)
Management’s Annual Report on Internal Control over Financial Reporting and Attestation Report of the Registered Public Accounting Firm
The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an assessment of the Company’s internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013) . Based on the assessment, management concluded that, as of December 31, 2015 , the Company’s internal control over financial reporting is effective.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10-K and, as part of their audit, has issued its report, included herein, on the effectiveness of the Company’s internal control over financial reporting. See “Report of Independent Registered Public Accounting Firm” under Item 8 of Part II of this Form 10-K.

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(c)
Changes in Internal Control over Financial Reporting
From time to time, the Company may make changes aimed at enhancing the effectiveness of the controls and to ensure that the systems evolve with the business. There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B.   Other Information.
On February 29, 2016 , the Company issued a press release announcing its financial results for the three months and year ended December 31, 2015 . In addition, the presentation slides for the 2015 fourth quarter earnings call were posted on the Company’s website at that time. The full text of the press release and earnings presentation is included as Exhibits 99.1 and 99.2, respectively, to this Form 10-K.

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PART III
Item 10.   Directors, Executive Officers and Corporate Governance.
A list of our executive officers and biographical information appears in Item 1 of Part I of this Form 10-K. Information regarding directors and nominees for directors is set forth in the Company’s definitive proxy statement for its 2016 Annual Meeting of Stockholders and is incorporated herein by reference.
Information regarding Compliance with Section 16(a) of the Exchange Act is set forth in the Company’s 2016 definitive proxy statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference. Information regarding the (i) Audit Committee, (ii) Nominating and Governance Committee and (iii) Compensation and Benefits Committee of the Company’s Board of Directors is set forth in the Company’s 2016 definitive proxy statement under the caption “Information Concerning the Board of Directors” and is incorporated herein by reference.
The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. This code of ethics and the Company’s corporate governance policies are posted on the Company’s website at www.federalsignal.com. The Company intends to satisfy its disclosure requirements regarding amendments to or waivers from its code of ethics by posting such information on this website. The charters of the (i) Audit Committee, (ii) Nominating and Governance Committee and (iii) Compensation and Benefits Committee of the Company’s Board of Directors are available on the Company’s website and are also available in print free of charge.
Item 11.   Executive Compensation.
The information contained under the captions “Information Concerning the Board of Directors,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Compensation and Benefits Committee Report” and “Executive Compensation” of the Company’s 2016 definitive proxy statement is incorporated herein by reference.
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding security ownership of (i) certain beneficial owners, (ii) all directors and nominees, (iii) named executive officers and (iv) directors and executive officers as a group is set forth in the Company’s 2016 definitive proxy statement under the caption “Ownership of Our Common Stock” and is incorporated herein by reference. Information regarding our equity compensation plans is set forth in the Company’s 2016 definitive proxy statement under the caption “Equity Compensation Plan Information” and is incorporated herein by reference.
Item 13.   Certain Relationships and Related Transactions, and Director Independence.
Information regarding certain relationships is hereby incorporated by reference from the Company’s 2016 definitive proxy statement under the headings “Information Concerning the Board of Directors” and “Certain Relationships and Related Party Transactions.”
Item 14.   Principal Accountant Fees and Services.
Information regarding principal accountant fees and services is incorporated by reference from the Company’s 2016 definitive proxy statement under the heading “Accounting Fees.”

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PART IV
Item 15.   Exhibits, Financial Statement Schedules.
1.
Financial Statements
The following consolidated financial statements of the Company and the “Report of the Independent Registered Public Accounting Firm” contained under Item 8 of Part II this Form 10-K are incorporated herein by reference:
(a)
Consolidated Statements of Operations for the Years Ended December 31, 2015 , 2014 and 2013 ;
(b)
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015 , 2014 and 2013 ;
(c)
Consolidated Balance Sheets as of December 31, 2015 and 2014 ;
(d)
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015 , 2014 and 2013 ;
(e)
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2015 , 2014 and 2013 ; and
(f)
Notes to Consolidated Financial Statements.
2.
Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts of the Company for the three years ended December 31, 2015 is filed as a part of this Annual Report in response to Item 15(a)(2):
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.
3.
Exhibits
See Exhibit Index.

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SCHEDULE II
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the years ended December 31, 2015, 2014 and 2013
 
(in millions)
Balance at
Beginning
of Year
 
Additions
Charged to
Costs and
Expenses
 
Deductions
Accounts
Written off
Net of
Recoveries
 
Balance
at End
of Year
Allowance for doubtful accounts:
 
 
 
 
 
 
 
Year Ended December 31, 2015
$
0.7

 
$
0.6

 
$
(0.5
)
 
$
0.8

Year Ended December 31, 2014
1.4

 
0.3

 
(1.0
)
 
0.7

Year Ended December 31, 2013
1.3

 
0.2

 
(0.1
)
 
1.4

Income tax valuation allowances:
 
 
 
 
 
 
 
Year Ended December 31, 2015
$
3.8

 
$
2.1

 
$
—

 
$
5.9

Year Ended December 31, 2014
9.3

 
—

 
(5.5
)
 
3.8

Year Ended December 31, 2013
131.2

 
2.5

 
(124.4
)
 
9.3


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Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
FEDERAL SIGNAL CORPORATION
 
 
By:
/s/    Jennifer L. Sherman
 
Jennifer L. Sherman
 
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 29, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated, as of February 29, 2016 .
/s/    Jennifer L. Sherman
 
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Jennifer L. Sherman
 
 
 
 
/s/    Brian S. Cooper
 
Senior Vice President, Chief Financial Officer
(Principal Financial Officer)
Brian S. Cooper
 
 
 
 
/s/    Ian A. Hudson
 
Vice President, Corporate Controller
(Principal Accounting Officer)
Ian A. Hudson
 
 
 
 
/s/    Dennis J. Martin
 
Executive Chairman and Director
Dennis J. Martin
 
 
 
 
 
/s/    James E. Goodwin
 
Director
James E. Goodwin
 
 
 
 
 
/s/    Paul W. Jones
 
Director
Paul W. Jones
 
 
 
 
 
/s/    Bonnie C. Lind
 
Director
Bonnie C. Lind
 
 
 
 
 
/s/    Richard R. Mudge
 
Director
Richard R. Mudge
 
 
 
 
 
/s/    William F. Owens
 
Director
William F. Owens
 
 
 
 
 
/s/    Brenda L. Reichelderfer
 
Director
Brenda L. Reichelderfer
 
 
 
 
 
/s/    John L. Workman
 
Director
John L. Workman
 
 

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EXHIBIT INDEX
The following exhibits, other than those incorporated by reference, have been included in the Company’s Form 10-K filed with the Securities and Exchange Commission.
3.
a.
Restated Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed April 30, 2010.
 
b.
Amended and Restated By-Laws of the Company. Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed February 9, 2016.
10.
a. *
Supplemental Pension Plan. Incorporated by reference to Exhibit 10.C to the Company’s Form 10-K for the year ended December 31, 1995.
 
b. *
Executive Disability, Survivor and Retirement Plan. Incorporated by reference to Exhibit 10.D to the Company’s Form 10-K for the year ended December 31, 1995.
 
c. *
Savings Restoration Plan, as amended and restated January 1, 2007. Incorporated by reference to Exhibit 10.FF to the Company’s Form 10-K for the year ended December 31, 2008.
 
d. *
First Amendment of the Federal Signal Corporation Savings Restoration Plan. Incorporated by reference to Exhibit 10.MM to the Company’s Form 10-K for the year ended December 31, 2008.
 
e. *
Second Amendment to Federal Signal Corporation Savings Restoration Plan. Incorporated by reference to Exhibit 10.NN to the Company’s Form 10-K for the year ended December 31, 2008.
 
f. *
Third Amendment to Federal Signal Corporation Savings Restoration Plan. Incorporated by reference to Exhibit 10.OO to the Company’s Form 10-K for the year ended December 31, 2008.
 
g. *
Executive General Severance Plan, as amended and restated August 2012. Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2012.
 
h. *
Form of 2008 Executive Change-In-Control Severance Agreement (Tier 1) with certain executive officers. Incorporated by reference to Exhibit 10.HH to the Company’s Form 10-K for the year ended December 31, 2008.
 
i. *
Form of 2008 Executive Change-In-Control Severance Agreement (Tier 2) with certain executive officers. Incorporated by reference to Exhibit 10.II to the Company’s Form 10-K for the year ended December 31, 2008.
 
j. *
Form of 2010 Executive Change-In-Control Severance Agreement with certain executive officers (Tier 1). Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2010.
 
k. *
Form of 2010 Executive Change-In-Control Severance Agreement with certain executive officers (Tier 2). Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2010.
 
l. *
Federal Signal Corporation Executive Incentive Performance Plan, as amended and restated. Incorporated by reference to Appendix C to the Company’s Definitive Proxy Statement filed on Schedule 14A filed March 25, 2010.
 
m. *
Short Term Incentive Bonus Plan. Incorporated by reference to Exhibit 10.hh to the Company’s Form 10-K for the year ended December 31, 2012.
 
n.
Credit Agreement dated as of March 13, 2013, by and among the Company, as Borrower, the Lenders referred to therein, as Lenders, and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender, General Electric Capital Corporation, as Syndication Agent, Wells Fargo Securities, LLC, and GE Capital Markets, Inc., as Joint Lead Arrangers and Joint Book Managers. Incorporated by reference to Exhibit 10.ii to the Company’s Form 10-K for the year ended December 31, 2012.
 
o.
Amendment No. 2, dated April 18, 2014, to the Credit Agreement dated as of March 13, 2013, by and among the Company, as Borrower, the Lenders referred to therein, as Lenders, and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender, General Electric Capital Corporation, as Syndication Agent, Wells Fargo Securities, LLC, and GE Capital Markets, Inc., as Joint Lead Arrangers and Joint Book Managers. Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2014.
 
p. *
Federal Signal Corporation 2015 Executive Incentive Compensation Plan. Incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed on Schedule 14A filed March 18, 2015.
 
q. *
Form of Equity Award Agreements. Incorporated by reference to Exhibits 10.1, 10.2, 10.3 and 10.4 to the Company’s Form 10-Q for the quarter ended March 31, 2015 and Exhibits 10.1 and 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 2015.
 
r. *
Federal Signal Corporation Retirement Savings Plan, as amended and restated effective as of January 1, 2015.

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s. *
Form of Director Distribution Election.
 
t.
Share Sale and Purchase Agreement dated as of December 11, 2015, by and among Morita Holdings Corporation, the Company and certain of its subsidiaries identified on the signature pages thereto. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated December 11, 2015.
 
u. *
Separation Agreement and General Release, effective January 7, 2016, by and between Bryan L. Boettger and the Company. Incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated January 11, 2016.
 
v.
Amended and Restated Credit Agreement, dated as of January 27, 2016, by and among the Company and certain of its foreign subsidiaries, as Borrowers, the Lenders referred to therein, as Lenders, Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender, JPMorgan Chase Bank, N.A., as Syndication Agent, KeyBank National Association, as Documentation Agent, and Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as Joint Lead Arrangers and Joint Bookrunners. Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed February 2, 2016.
14.
 
Code of Ethics for Chief Executive Officer and Senior Financial Officers, as amended. Incorporated by reference to Exhibit 14 to the Company’s Form 10-K for the year ended December 31, 2003.
21.
 
Subsidiaries of the Registrant.
23.
 
Consent of Independent Registered Public Accounting Firm.
31.1
 
CEO Certification under Section 302 of the Sarbanes-Oxley Act.
31.2
 
CFO Certification under Section 302 of the Sarbanes-Oxley Act.
32.1
 
CEO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act.
32.2
 
CFO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act.
99.1
 
Fourth Quarter Financial Results Press Release dated February 29, 2016.
99.2
 
Fourth Quarter Earnings Call Presentation Slides.
101.INS
 
XBRL Instance Document.
101.SCH
 
XBRL Taxonomy Extension Schema Document.
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document.
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
 
XBRL Taxonomy Label Linkbase Document.
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document.
*
Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of Form 10-K.


81
EXHIBIT 10. r. FEDERAL SIGNAL CORPORATION RETIREMENT SAVINGS PLAN (As Amended and Restated Effective as of January 1, 2015)

 
C E R T I F I C A T E Federal Signal Corporation, acting through its duly authorized member of the Benefits Planning Committee, hereby adopts this amendment and restatement of the Federal Signal Retirement Savings Plan in the form attached hereto. Dated this 23rd day of December, 2015. FEDERAL SIGNAL CORPORATION /s/ Julie A. Cook for the Federal Signal Corporation Benefits Planning Committee

 
TABLE OF CONTENTS PAGE -i- SECTION 1 ................................................................................................................................ 1 INTRODUCTION ......................................................................................................... 1 1.1 Background, Purpose of Plan, and Applicable Requirements ......................................................................................... 1 1.2 Effective Date and Plan Year ................................................................. 1 1.3 Trustee and Trust ................................................................................... 1 1.4 Plan Administration ............................................................................... 2 1.5 Plan Supplements ................................................................................... 2 SECTION 2 ................................................................................................................................ 3 DEFINITIONS ............................................................................................................... 3 SECTION 3 .............................................................................................................................. 15 ELIGIBILITY AND PARTICIPATION ..................................................................... 15 3.1 Participation Prior to Effective Date .................................................... 15 3.2 Eligibility for Participant and Matching Contributions ....................... 15 3.3 Eligibility for Retirement Contributions .............................................. 16 3.4 Ineligible Employees ........................................................................... 16 3.5 Period of Participation ......................................................................... 16 3.6 Reemployment ..................................................................................... 17 SECTION 4 .............................................................................................................................. 19 PARTICIPANT AND MATCHING CONTRIBUTIONS .......................................... 19 4.1 Pre-Tax Contributions .......................................................................... 19 4.2 After-Tax Contributions....................................................................... 20 4.3 Catch-Up Contributions ....................................................................... 20 4.4 Rules Applicable to Participant Contributions .................................... 20 4.5 Timing of Participant Contributions .................................................... 21 4.6 Rollover Contributions......................................................................... 21 4.7 Uniformed Service Absence ................................................................ 22 SECTION 5 .............................................................................................................................. 23 EMPLOYER CONTRIBUTIONS ............................................................................... 23 5.1 Matching Contributions ....................................................................... 23 5.2 Retirement Contributions ..................................................................... 24 5.3 Payment, Limitations, Verification, and Form of Payment of Employer Contributions .................................................................. 25 SECTION 6 .............................................................................................................................. 26 INVESTMENT AND FEDERAL SIGNAL STOCK PROVISIONS ......................... 26 6.1 Investment Funds ................................................................................. 26 6.2 Investment Fund Elections and Transfers ............................................ 26 6.3 Election Procedures ............................................................................. 26 6.4 Administration of Federal Signal Stock Fund ..................................... 27

 
TABLE OF CONTENTS PAGE -ii- 6.5 Dividend Election ................................................................................ 27 6.6 Voting of Shares in Federal Signal Stock Fund ................................... 28 6.7 Tendering of Shares in Federal Signal Stock Fund ............................. 28 6.8 Confidentiality of Voting and Tender Directions ................................ 29 6.9 Invalidity of Voting or Tender Procedures .......................................... 29 6.10 Unitized Federal Signal Stock Fund .................................................... 29 6.11 Valuation of Investment Funds ............................................................ 30 6.12 Voting of Shares in Mutual Funds ....................................................... 30 SECTION 7 .............................................................................................................................. 31 ACCOUNTS ................................................................................................................ 31 7.1 Participants’ Accounts ......................................................................... 31 7.2 ESOP Subaccounts............................................................................... 32 7.3 Adjustment of Accounts ...................................................................... 32 7.4 Statement of Account ........................................................................... 33 7.5 Accounts for Alternate Payees ............................................................. 33 7.6 Order and Timing of Withdrawals, Loans, and Distributions ......................................................................................... 33 SECTION 8 .............................................................................................................................. 34 CONTRIBUTION AND BENEFIT LIMITATIONS .................................................. 34 8.1 Contribution Limitations ...................................................................... 34 8.2 Combining of Plans.............................................................................. 34 8.3 Dollar Limitations on Pre-Tax Contributions ...................................... 34 8.4 Percentage Limitations on Pre-Tax Contributions ............................... 35 8.5 Percentage Limitations on Matching and After-Tax Contributions........................................................................................ 36 8.6 Calculating Income Allocable to Excess Deferrals and Contributions........................................................................................ 37 8.7 Corrective Contributions/Reallocations ............................................... 37 SECTION 9 .............................................................................................................................. 39 VESTING AND FORFEITURES ............................................................................... 39 9.1 Participant Contributions ..................................................................... 39 9.2 Matching Contributions ....................................................................... 39 9.3 Retirement Contributions ..................................................................... 41 9.4 Qualified Nonelective Contributions ................................................... 42 9.5 Prior Plan ESOP Contributions ............................................................ 42 9.6 Amendments to Vesting Schedule ....................................................... 43 9.7 Forfeitures ............................................................................................ 43 9.8 Reinstatement of Accounts for Rehires ............................................... 43 9.9 Death Benefits under Qualified Military Service ................................ 43

 
TABLE OF CONTENTS PAGE -iii- SECTION 10 ............................................................................................................................ 44 PAYMENTS ................................................................................................................ 44 10.1 Form of Payment.................................................................................. 44 10.2 Time of Payment .................................................................................. 44 10.3 Direct Rollover of Eligible Rollover Distribution ............................... 45 10.4 Designation of Beneficiary .................................................................. 46 10.5 Minimum Distribution Requirements .................................................. 47 10.6 Missing Persons ................................................................................... 49 10.7 Recovery of Benefits............................................................................ 49 10.8 Facility of Payment .............................................................................. 49 SECTION 11 ............................................................................................................................ 51 IN-SERVICE WITHDRAWALS ................................................................................ 51 11.1 Hardship Withdrawals ......................................................................... 51 11.2 Withdrawals Upon Attainment of Age 59½ ........................................ 52 11.3 Withdrawals Upon Attainment of Normal Retirement Age ................ 52 11.4 Withdrawals From After-Tax Account ................................................ 53 11.5 Withdrawals From Rollover Account and After-Tax Rollover Account ................................................................................. 53 11.6 Withdrawals From Balances Transferred from a Prior Plan ................ 53 11.7 Distributions To Individuals Performing Military Service .................. 53 11.8 Application for In-Service Withdrawals .............................................. 54 SECTION 12 ............................................................................................................................ 55 LOANS ........................................................................................................................ 55 12.1 Terms and Conditions of Loans ........................................................... 55 12.2 Amount of Loans ................................................................................. 55 12.3 Repayment of Loans ............................................................................ 55 12.4 Unpaid Loans ....................................................................................... 56 SECTION 13 ............................................................................................................................ 57 ADMINISTRATION OF PLAN ................................................................................. 57 13.1 Plan Administrator ............................................................................... 57 13.2 Indemnification .................................................................................... 58 13.3 Organization of Committee.................................................................. 58 13.4 Committee Actions .............................................................................. 58 13.5 Committee General Powers, Rights, and Duties .................................. 59 13.6 Reports ................................................................................................. 60 13.7 Information Required by Committee ................................................... 60 13.8 Allocations and Delegations of Responsibility .................................... 60 13.9 Interested Committee Member ............................................................ 60 13.10 Removal or Resignation ....................................................................... 60 13.11 Compensation and Expenses................................................................ 61 13.12 Uniform Application of Rules ............................................................. 61 13.13 Committee’s Decision Final ................................................................ 61

 
TABLE OF CONTENTS PAGE -iv- SECTION 14 ............................................................................................................................ 62 Claims Procedures ....................................................................................................... 62 14.1 Initial Retirement Benefit Claims ........................................................ 62 14.2 Initial Disability Benefit Claims .......................................................... 62 14.3 Initial Claim Processing and Appeal.................................................... 62 14.4 Appeal Procedures for Retirement Benefits ........................................ 63 14.5 Appeal Procedures for Disability Benefits .......................................... 63 14.6 Appeals Processing .............................................................................. 63 SECTION 15 ............................................................................................................................ 65 MANAGEMENT OF TRUSTS ................................................................................... 65 15.1 Trustee and Trust Agreement............................................................... 65 15.2 Restrictions as to Reversion of Trust Fund to the Employers ............................................................................................ 65 SECTION 16 ............................................................................................................................ 66 AMENDMENT AND TERMINATION ..................................................................... 66 16.1 Amendment .......................................................................................... 66 16.2 Plan Termination .................................................................................. 66 16.3 Nonforfeitability and Distribution on Termination.............................. 67 16.4 Plan Merger, Consolidation, or Spin-Off ............................................. 67 SECTION 17 ............................................................................................................................ 68 MISCELLANEOUS .................................................................................................... 68 17.1 Non-Alienation of Benefits .................................................................. 68 17.2 Absence of Guaranty............................................................................ 68 17.3 Employment Rights ............................................................................. 68 17.4 Litigation by Participants or Other Persons ......................................... 68 17.5 Evidence ............................................................................................... 68 17.6 Waiver of Notice .................................................................................. 68 17.7 Controlling Law ................................................................................... 69 17.8 Statutory References ............................................................................ 69 17.9 Severability .......................................................................................... 69 17.10 Action By Employers ........................................................................... 69 17.11 Gender and Number ............................................................................. 69 17.12 Examination of Documents.................................................................. 69 17.13 Manner of Delivery .............................................................................. 69 17.14 Effect on Other Benefits ...................................................................... 69 17.15 Headings .............................................................................................. 70 17.16 No Third-Party Beneficiaries ............................................................... 70 SECTION 18 ............................................................................................................................ 71 TOP HEAVY RULES ................................................................................................. 71 18.1 Purpose and Effect ............................................................................... 71 18.2 Top Heavy Plan.................................................................................... 71

 
TABLE OF CONTENTS PAGE -v- 18.3 Key Employee ...................................................................................... 71 18.4 Minimum Vesting ................................................................................ 72 18.5 Minimum Employer Contribution ....................................................... 72 18.6 Aggregation of Plans............................................................................ 72 SUPPLEMENT A Special Provisions Applicable to the Federal Signal Technologies Division of the Company

 
-1- FEDERAL SIGNAL CORPORATION RETIREMENT SAVINGS PLAN SECTION 1 INTRODUCTION 1.1 Background, Purpose of Plan, and Applicable Requirements The Company maintains the Plan so that eligible Employees of the Company and the other Employers under the Plan may accumulate funds for their retirement. The Plan was originally established as the Federal Signal 401(k) Retirement Plan, effective as of July 1, 1976. The Plan was amended and restated in its entirety several times, including effective as of January 1, 1997 for compliance purposes, January 1, 2002 for benefit provisions, and January 1, 2010 for a Prior Plan merger and various other changes considered desirable by the Company. Effective as of June 1, 2002, a portion of the Plan is designed to be primarily invested in Federal Signal Common Stock through the Federal Signal Stock Fund, except that the Trustee may hold some of the assets of the Federal Signal Stock Fund in cash pending investment, distribution, reallocation or transfer. This portion of the Plan is intended to satisfy the requirements of a non-leveraged employee stock ownership plan set forth in Code Sections 401(a), 409, and 4975(e). The remaining portion of the Plan is a profit sharing plan intended to satisfy all requirements of Code Section 401(a) and includes a cash or deferred arrangement intended to satisfy the requirements of Code Section 401(k). Effective January 1, 2007, the Plan was renamed the Federal Signal Corporation Retirement Savings Plan. The Plan as reflected herein, effective as of January 1, 2015, except as otherwise indicated, is an amendment, restatement and continuation of the Plan. Defined terms used in this Section are defined in SECTION 2. 1.2 Effective Date and Plan Year Except as otherwise required to comply with applicable law or as specifically provided herein, this amendment and restatement is effective as of January 1, 2015. The rights and benefits of any Participant who had a Severance From Service prior to this restatement date shall be determined under the Plan in effect at the time of such Severance From Service, except as otherwise expressly provided below. The Plan is administered on the basis of a Plan Year. 1.3 Trustee and Trust Amounts contributed under the Plan are held and invested, until distributed, by the Trustee. The Trustee acts in accordance with the terms of the Trust Agreement and Trust, which implement and form a part of the Plan. The provisions of and benefits under the Plan are subject to the terms and provisions of the Trust Agreement and Trust.

 
-2- 1.4 Plan Administration The Committee shall be the “plan administrator” (as that term is defined in ERISA Section 3(16)(A)) of the Plan and shall be responsible for the administration of the Plan except where another entity has been assigned a specific responsibility in the Plan; provided, however, that the Committee may delegate all or any part of its powers, rights, and duties under the Plan to such person or persons as it may deem advisable. Any notice or document relating to the Plan which is to be filed with the plan administrator may be delivered, or mailed by registered or certified mail, postage pre-paid, to: Benefits Administration Committee c/o Federal Signal Corporation 1415 West 22nd Street, Suite 1100 Oak Brook, IL 60523 1.5 Plan Supplements The provisions of the Plan may be modified by supplements to the Plan. The terms and provisions of each supplement are a part of the Plan and supersede the other provisions of the Plan to the extent necessary to eliminate inconsistencies between such other Plan provisions and such supplement.

 
-3- SECTION 2 DEFINITIONS The following words and phrases have the respective meanings stated below unless a different meaning is plainly required by the context: 2.1 Account(s) Except as may be stated elsewhere in the Plan, “Account(s)” means all accounts and subaccounts maintained for a Participant, Alternate Payee or a Beneficiary under Subsection 7.1. 2.2 After-Tax Account “After-Tax Account” means any one of the Accounts so designated and provided for in Paragraph 7.1(a). 2.3 After-Tax Contributions “After-Tax Contributions” mean any contributions a Participant elects to make on an after-tax basis as described in Subsection 4.2. Not withstanding the foregoing, for purposes of implementing the required limitations of Code Sections 401(m) and 415 contained in Subsections 8.5 and 8.1, respectively, After-Tax Contributions shall not include contributions made pursuant to Code Section 414(u) by reason of an eligible Employee’s qualified military service. 2.4 After-Tax Rollover Account “After-Tax Rollover Account” means any one of the Accounts so designated and provided for in Paragraph 7.1(b). 2.5 After-Tax Rollover Contributions “After-Tax Rollover Contributions” mean after-tax contributions attributable to part or all of a Rollover Contribution transferred to this Plan pursuant to Subsection 4.6. 2.6 Alternate Payee “Alternate Payee” means any Spouse, former Spouse, child or other dependent of a Participant who is recognized by a Qualified Domestic Relations Order as having a right to receive all or a portion of a Participant’s benefits payable under the Plan. 2.7 Annual Addition Subject to Subsection 8.1, “Annual Addition” for any Limitation Year means the sum of the Pre-Tax Contributions, After-Tax Contributions, Matching Contributions, and Retirement Contributions, as applicable, credited to a Participant’s Account for that Limitation Year. Annual Additions attributable to corrective contributions described in Subsection 8.7 shall be treated as Annual Additions for the appropriate Limitation Year as required by Code Section 415

 
-4- and the Treasury Regulations issued thereunder; provided, however, that amounts attributable to lost earnings with respect to any such corrective contributions shall not be treated as Annual Additions. 2.8 Approved Form of Election “Approved Form of Election” means a request or an election made through the voice response system, Internet, intranet or other electronic media, or on a written election form, approved by the Committee or its designee and filed with the Employer. Notwithstanding the foregoing, no request or election shall be deemed to have been made until all required documentation, information, signatures, consents, notarizations and attestations required for such request or election are provided to the Committee or its designee. 2.9 Beneficiary “Beneficiary” means the person or persons designated by a Participant, Beneficiary or Alternate Payee to receive any benefits under the Plan which may be due upon the Participant’s, Beneficiary’s or Alternate Payee’s death. 2.10 Benefits Planning Committee “Benefits Planning Committee” means the Benefits Planning Committee of the Company. 2.11 Board of Directors “Board of Directors” means the Board of Directors of the Company. 2.12 Break in Service A “Break in Service” means any period commencing with the Participant’s Severance From Service and continuing for at least twelve consecutive months until he or she again completes an Hour of Service. Notwithstanding the foregoing, effective as of October 1, 2010, “Break in Service” means, with respect to each Participant who was a participant in the VESystems 401(k) Plan on or before October 1, 2010, any Plan Year during which such Participant does not complete more than 500 Hours of Service. 2.13 Business Day “Business Day” means any day on which the New York Stock Exchange is open. 2.14 Catch-Up Account “Catch-Up Account” means any one of the Accounts so designated and provided for in Paragraph 7.1(c).

 
-5- 2.15 Catch-Up Contributions “Catch-Up Contributions” mean the compensation deferrals under Code Section 414(v) an eligible Participant elects to make pursuant to Subsection 4.3. 2.16 Close of Business “Close of Business” means the normal closing time of the New York Stock Exchange or such other time as is designated by the Committee. 2.17 Code “Code” means the Internal Revenue Code of 1986, as amended from time to time. 2.18 Code Section 415 Compensation “Code Section 415 Compensation” for a Limitation Year means a Participant’s compensation within the meaning of Treasury Regulation Section 1.415(c)-2(d)(4), including, effective as of January 1, 2009, any differential wage payments (as defined in Code Section 3401(h)(2)), that is actually paid or made available during such Limitation Year, subject to the following: (a) Code Section 415 Compensation shall exclude amounts paid after a Participant’s severance from employment, except for the following amounts paid within the later of 2-½ months after the Participant’s severance from employment or the end of the Limitation Year that includes the date of the Participant’s severance from employment: (i) Payments of unpaid wages, overtime, bonuses and commissions; and (ii) Payments of unused accrued bona fide sick, vacation and paid time off leave that the Participant would have been able to use if employment had continued. (b) Compensation shall not include amounts in excess of the limitation under Code Section 401(a)(17) in effect for the Limitation Year. 2.19 Committee “Committee” means the Benefits Administration Committee as described in SECTION 13. 2.20 Company “Company” means Federal Signal Corporation, a Delaware corporation, its successors and assigns.

 
-6- 2.21 Compensation “Compensation” means compensation as defined in Treasury Regulation Section 1.414(s)-1(c)(4), but without regard to any recruiting or sign-on bonus, if applicable. Notwithstanding the foregoing, with respect to Participants who are Guzzler Union Employees, IAM Local 701 Employees or Sheet Metal Workers Local 265 Employees, “Compensation” means regular straight time pay, bonus, commissions and overtime pay. Each Participant’s Compensation shall include, effective as of January 1, 2009, any differential wage payments (as defined in Code Section 3401(h)(2)). Such Compensation shall exclude amounts paid after a Participant’s severance from employment, except for payments of unpaid wages, overtime, bonuses, commissions and accrued vacation leave that the Participant would have been able to use if employment had continued that are paid within the later of 2-½ months after the Participant’s severance from employment or the end of the Plan Year that includes the date of the Participant’s severance from employment. In no event shall Compensation include the following payments paid after the Participant’s severance from employment: unused accrued bona fide sick and paid time off leave that the Participant would have been able to use if employment had continued and long-term disability payments. Each Participant’s Compensation shall be limited to $265,000 in each Plan Year (as adjusted to reflect the dollar amount applicable under Code Section 401(a)(17)). 2.22 Disability “Disability,” as determined by the Committee or its designee, means the inability to engage in any substantial, gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months. The permanence and degree of such impairment shall be supported by medical evidence. Notwithstanding the foregoing, with respect to each Participant who was a participant in the PIPs Technology, Inc. 401(k) Plan on or before January 1, 2008, “Disability” shall mean (i) a physical or mental disability that renders such Participant unable to perform the duties of his or her customary position of employment (or unable to engage in any substantial gainful activity) for an indefinite period which the Committee considers shall be of long continued duration, or (ii) the incurrence of a Separation From Service and the permanent loss or loss of use of a member or function of the body, or permanent disfigurement. The Committee may require a Participant to submit to a physical examination in order to confirm Disability. Notwithstanding the foregoing, effective as of October 1, 2010, with respect to each Participant who was a participant in the VESystems 401(k) Plan on or before October 1, 2010, “Disability” shall mean eligibility for disability benefits under the Social Security Act. 2.23 Employee “Employee” means any person who is employed by an Employer who is on the regular U.S. payroll of an Employer, and whose wages from such Employer are reported for Federal income tax purposes on Internal Revenue Service Form W-2 (or a successor or equivalent form). Notwithstanding any provision of the Plan to the contrary, an individual who performs services

 
-7- for a Non-Participating Employer but who is paid by an Employer under a common paymaster arrangement with such Non-Participating Employer shall not be considered an Employee for purposes of the Plan. An Employer’s classification as to whether an individual constitutes an Employee shall be determinative for purposes of an individual’s eligibility under the Plan. An individual who is classified as an independent contractor or Leased Employee (or other non- employee classification) shall not be considered an Employee and shall not be eligible to participate in the Plan, regardless of any subsequent reclassification of such individual as an employee of an Employer by an Employer, any government agency, court, or other third-party. Any such reclassification shall not have a retroactive effect for purposes of the Plan. An Employee shall be eligible to participate in the Plan pursuant to SECTION 3. 2.24 Employer “Employer” means the Company, Elgin Sweeper Company, Guzzler Manufacturing, Inc., Jetstream of Houston, Inc., Vactor Manufacturing, Inc., Victor Products USA, Inc. and each other Related Employer who extends the Plan to its Employees with the consent of the Benefits Planning Committee. 2.25 Employment or Reemployment Date “Employment or Reemployment Date” means the first day an Employee performs an Hour of Service. 2.26 ERISA “ERISA” means the Employee Retirement Income Security Act of 1974, as amended. 2.27 ESOP “ESOP” means the portion of the Plan that is designed to be primarily invested in Federal Signal Common Stock through investment in the Federal Signal Stock Fund, except that the Trustee may hold some of the assets of the Federal Signal Stock Fund in cash pending investment, distribution, reallocation or transfer. The ESOP is intended to satisfy the requirements of a non-leveraged employee stock ownership plan set forth in Code Sections 401(a), 409, and 4975(e). The ESOP consists of all amounts credited to Participants’ Accounts that are invested in the Federal Signal Stock Fund. 2.28 Federal Signal Common Stock “Federal Signal Common Stock” means the common stock of the Company and any other common stock into which it may be reclassified. Federal Signal Common Stock is readily tradable on an established securities market and meets the definition of an “employer security” under Code Section 409(l). 2.29 Federal Signal Stock Fund “Federal Signal Stock Fund” means the portion of the Trust Fund so designated and provided for in Subsection 6.1 and which fund is designed to be primarily invested in Federal

 
-8- Signal Common Stock, except that the Trustee may hold some of the assets of the Federal Signal Stock Fund in cash pending investment, distribution, reallocation or transfer. 2.30 Fiduciary “Fiduciary” means the Company, each Employer, the Board of Directors, and the board of directors of each Employer, the Benefits Planning Committee, the Committee, the Investment Committee and the Trustee, but only with respect to the specific responsibilities of each as described in SECTION 13 and SECTION 14. The term “Fiduciary” also includes any Participant, Beneficiary or Alternate Payee, but only to the extent such Participant, Beneficiary or Alternate Payee is acting with respect to the exercise of voting rights of shares held in the Federal Signal Stock Fund or the tender, deposit, sale, exchange or transfer of such shares. 2.31 Guzzler Union Employee “Guzzler Union Employee” means an Employee whose employment with the Guzzler Manufacturing, Inc. is governed by a collective bargaining agreement that provides for his or her participation in the Plan. 2.32 Highly Compensated Employee “Highly Compensated Employee” means a highly compensated employee as defined in Code Section 414(q) and the Treasury Regulations thereunder. Generally, a Highly Compensated Employee shall be any present or former employee of a Related Employer who: (a) Was a 5% owner (as defined in Code Section 414(q)(2)) at any time during the current or immediately preceding Plan Year; or (b) Received Code Section 415 Compensation from the Related Employers for the immediately preceding Plan Year in excess of $120,000 (or such greater amount as may be determined by the Commissioner of Internal Revenue) and was in the top-paid 20% of employees for such year. A former employee shall be treated as a Highly Compensated Employee if such employee was a Highly Compensated Employee when such employee incurred a Severance From Service or if such employee was a Highly Compensated Employee at any time after attaining age 55. 2.33 Hour of Service “Hour of Service” means: (a) Each hour for which an Employee is paid or entitled to payment for the performance of duties for a Related Employer. These hours shall be credited to the Employee for the computation period or periods in which the duties are performed; (b) Each hour for which an Employee is paid or entitled to payment by a Related Employer on account of a period of time during which no duties are performed

 
-9- (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including Disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service shall be credited under this Paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours under this Paragraph shall be calculated and credited pursuant to Department of Labor Regulation Section 2530.200b-2, which is incorporated by reference; and (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by a Related Employer. The same Hours of Service shall not be credited under Paragraph (a) or Paragraph (b) and under this Paragraph (c). These hours shall be credited to the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. Solely for purposes of determining whether a Break in Service has occurred, an Employee who is absent from work for Parental Leave shall receive credit for the Hours of Service which would otherwise have been credited to him or her but for his or her Parental Leave. In any case in which such Hours of Service cannot be determined, the Employee shall receive credit for eight Hours of Service for each day of Parental Leave. Hours of Service credited under this paragraph shall be credited in the Plan Year in which the Parental Leave begins, if necessary to prevent a Break in Service in such year, or the immediately following Plan Year. 2.34 IAM Local 701 Employee “IAM Local 701 Employee” means an Employee whose employment with the Company or a Related Employer is governed by the collective bargaining agreement between the Company and Automobile Mechanics’ Local 701 IAM & AW that provides for his or her participation in the Plan. 2.35 IBEW Local 134 Employee “IBEW Local 134 Employee” means an Employee whose employment with the Company or a Related Employer is governed by the collective bargaining agreement between the Company and Local 134, International Brotherhood of Electrical Workers that provides for his or her participation in the Plan. 2.36 Investment Committee “Investment Committee” means the Investment Committee of the Company. 2.37 Investment Fund(s) “Investment Fund(s)” means the funds described in Subsection 6.1 held under the Trust Fund.

 
-10- 2.38 Leased Employee “Leased Employee” means any individual who is not an employee of an Employer, but who has provided services to an Employer under the primary direction or control of the Employer on a substantially full-time basis for a period of at least one year, pursuant to an agreement between the Employer and a leasing organization. A Leased Employee shall be deemed an Employee for purposes of crediting Vesting Service and Years of Eligibility Service, but shall not be eligible for benefits under the Plan unless he or she otherwise satisfies the criteria for eligibility under Subsection 3.1 as an Employee. 2.39 Limitation Year “Limitation Year” means the Plan Year. 2.40 Match Account “Match Account” means any one of the Accounts so designated and provided for in Paragraph 7.1(d). 2.41 Matching Contributions “Matching Contributions” mean any contributions made to the Match Account of a Participant by an Employer as provided for in Subsection 5.1. Notwithstanding the foregoing, for purposes of implementing the required limitations of Code Sections 401(m) and 415 contained in Subsections 8.5 and 8.1, respectively, Matching Contributions shall not include contributions made pursuant to Code Section 414(u) by reason of an eligible Employee’s qualified military service. 2.42 Non-ESOP “Non-ESOP” means the portion of the Plan that constitutes a profit sharing plan intended to satisfy all requirements of Code Section 401(a) and includes a cash or deferred arrangement intended to satisfy the requirements of Code Section 401(k). The Non-ESOP consists of all amounts credited to Participants’ Accounts that are not invested in the Federal Signal Stock Fund. 2.43 Non-Participating Employer “Non-Participating Employer” means any Related Employer which is not an Employer. 2.44 Normal Retirement Age “Normal Retirement Age” means age 65. 2.45 Parental Leave “Parental Leave” means an absence: (i) by reason of the pregnancy of the individual; (ii) by reason of a birth of a child of the individual; (iii) by reason of the placement of a child with

 
-11- the individual in connection with the adoption of such child by such individual or for purposes of caring for such child for a period beginning immediately following such birth or placement. The Employee shall be required to furnish the Committee with such timely information as the Committee may reasonably require to establish both that the absence from work is for Parental Leave and the number of days for which there was such an absence. 2.46 Participant “Participant” means an Employee or former Employee who has met the requirements of participation in the Plan for at least one type of contribution as provided in SECTION 3. 2.47 Plan “Plan” means this Federal Signal Corporation Retirement Savings Plan. 2.48 Plan Year “Plan Year” means the calendar year. 2.49 Pre-Tax Account “Pre-Tax Account” means any one of the Accounts so designated and provided for in Paragraph 7.1(e). 2.50 Pre-Tax Contributions “Pre-Tax Contributions” mean the compensation deferrals under Code Section 401(k) a Participant elects to make pursuant to Subsection 4.1. Notwithstanding the foregoing, for purposes of implementing the required limitations of Code Sections 401(k), 402(g), and 415 contained in Subsections 8.4, 8.1 and 8.1, respectively, Pre-Tax Contributions shall not include Catch-Up Contributions or deferrals made pursuant to Code Section 414(u) by reason of an eligible Employee’s qualified military service. 2.51 Prior Plan “Prior Plan” means the applicable plan qualified under Code Section 401(a) that has merged with and into the Plan. Effective as of October 1, 2010, the VESystems 401(k) Plan and Trust merged with and into the Plan. Such merger complied with the provisions of Code Sections 401(a)(12), 401(l), and 411(d)(6) of the Code. 2.52 Prior Plan ESOP Account “Prior Plan ESOP Account” means any one of the Accounts so designated and provided for in Paragraph 7.1(f). 2.53 Qualified Domestic Relations Order “Qualified Domestic Relations Order” means any domestic relations order (as defined in Code Section 414(p)) that creates, recognizes or assigns to an Alternate Payee the right to receive

 
-12- all or a portion of a Participant’s benefits payable hereunder and that meets the requirements of Code Section 414(p), as determined by the Committee. 2.54 Qualified Nonelective Account “Qualified Nonelective Account” means any one of the Accounts so designated and provided for in Paragraph 7.1(g). 2.55 Related Employer “Related Employer” means the Company and any corporation or other business entity which is included in a controlled group of corporations with the Company, as provided in Code Section 414(b) (as modified for purposes of Subsection 8.1 by Code Section 415(h)), or which is a trade or business under common control with the Company, as provided in Code Section 414(c) (as modified, for purposes of Subsection 8.1, by Code Section 415(h)), or which constitutes a member of an affiliated service group within which the Company is also included, as provided in Code Section 414(m), or which is required to be aggregated with the Company pursuant to Treasury Regulations issued under Code Section 414(o). 2.56 Retirement Account “Retirement Account” means any one of the Accounts so designated and provided for in Paragraph 7.1(h). 2.57 Retirement Contributions “Retirement Contributions” mean any contributions made to the Retirement Account of a Participant by an Employer as provided for in Subsection 5.2. 2.58 Rollover Account “Rollover Account” means any of the Accounts so designated and provided for in Paragraph 7.1(i). 2.59 Rollover Contributions “Rollover Contributions” mean amounts (other than After-Tax Rollover Contributions) attributable to part or all of a Rollover Contribution to this Plan pursuant to Subsection 4.6. 2.60 Seasonal Employee “Seasonal Employee” means each Employee who the Committee determines, in its sole discretion, to be a seasonal employee. The Committee’s determination of Seasonal Employees shall be applied uniformly to all similarly situated Employees. 2.61 Severance From Service “Severance From Service” means the earlier of the following dates:

 
-13- (a) The date on which a Participant terminates employment with all Related Employers, is discharged, retires or dies; or (b) The first anniversary of the first day of a period in which an Employee remains absent from service (with or without pay) with all Related Employers for any reason other than one listed in Paragraph (a) above. For purposes of this Plan, an Employee who is absent from service for twelve consecutive months due to illness, injury, or Disability shall be deemed to have had a Severance From Service. A Participant who is performing qualified military service (as defined in Code Section 414(u)(5)) shall not incur a Severance From Service until the time at which a Participant’s reemployment rights as a member of the armed forces cease to be protected by law. An Employee shall not incur a Severance From Service due to a Parental Leave until the second anniversary of the first date of such absence. A transfer from employment with one Related Employer to another Related Employer or a change in status from Employee to Leased Employee does not constitute a Severance From Service for purposes of SECTION 10. 2.62 Sheet Metal Workers Local 265 Employee “Sheet Metal Workers Local 265 Employee” means an Employee whose employment with the Company or a Related Employer is governed by the collective bargaining agreement between the Company and Sheet Metal Workers International Association Local No. 265 that provides for his or her participation in the Plan. 2.63 Spouse Unless the provisions of any Qualified Domestic Relations Order provide otherwise, “Spouse” means the person to whom the Participant is legally married at the earlier of the date of the Participant’s death or the date payment of the Participant’s benefits commenced and who is living on the date of the Participant’s death. A person of the same sex as the Participant shall be a Spouse, provided the couple was legally married in a jurisdiction that authorizes same-sex marriage. Notwithstanding the foregoing, a person of the same sex as the Participant shall not be a Spouse for Plan purposes prior to June 26, 2013. 2.64 Testing Compensation “Testing Compensation” means the amount of compensation the Committee determines for all eligible Employees for a Plan Year under Treasury Regulation Section 1.414(s)-1(c)(4), including, effective as of January 1, 2009, any differential wage payments (as defined in Code Section 3401(h)(2)). 2.65 Trust “Trust” means the trust agreement between the Company and the Trustee, as it may be amended from time to time, and the trust created thereby.

 
-14- 2.66 Trust Fund “Trust Fund” means all money, stocks, bonds, securities, and other property held or acquired by the Trustee in accordance with the Plan and the Trust. 2.67 Trustee “Trustee” means the person appointed to act as Trustee under the Trust, including any successor Trustee. 2.68 Vesting Service “Vesting Service” means service credited for purposes of determining a Participant’s right to a nonforfeitable benefit under the Plan, as determined in accordance with SECTION 8. Vesting Service means service as an Employee with any Related Employer, determined as the aggregate of all time period(s) commencing with the Employee’s Employment or Reemployment Date and ending on the date on which the Employee incurs a Separation From Service. Fractional periods of a year shall be expressed in terms of months or days. If an Employee was employed by an entity that was subsequently acquired by a Related Employer, such Employee shall not receive Vesting Service for service with such entity prior to its acquisition by the Related Employer, except as determined by the Committee in its sole discretion, provided such determination is applied uniformly to all similarly situated Employees. Notwithstanding the foregoing, effective as of October 1, 2010, each Participant who was a participant in the VESystems 401(k) Plan on or before October 1, 2010 shall earn one year of Vesting Service for each Plan Year in which he or she completes 1,000 Hours of Service. Such Participant shall be credited with 190 hours of Vesting Service for each month in which he or she performs an Hour of Service. Such Participant’s period of employment with VESystems, LLC that would have been taken into account as “Years of Service” under the VESystems 401(k) Plan prior to October 1, 2010 shall be counted in full for purposes of determining such Participant’s Vesting Service. 2.69 Year of Eligibility Service “Year of Eligibility Service” means any consecutive twelve-month period of employment during which an Employee completes 1,000 or more Hours of Service. The first consecutive twelve-month period to be taken into account for this purpose shall be the consecutive twelve- month period commencing with the Employee’s Employment or Reemployment Date. All subsequent periods to be taken into account for this purpose shall be the consecutive twelve- month periods commencing on the anniversaries of the Employee’s Employment or Reemployment Date. An Employee does not complete a Year of Eligibility Service before the end of the twelve-consecutive month period regardless of when during such period the Employee completes the required number of Hours of Service.

 
-15- SECTION 3 ELIGIBILITY AND PARTICIPATION 3.1 Participation Prior to Effective Date Each Employee who was a Participant in the Plan immediately prior to the Effective Date shall continue to as a Participant on and after the Effective Date, subject to Subsection 3.4. 3.2 Eligibility for Participant and Matching Contributions If otherwise permitted by the Plan or the applicable Employer, each Employee who is not described in Subsection 3.1 shall become a Participant with respect to Pre-Tax, After-Tax, Catch-Up and Matching Contributions (if applicable) on his or her Employment or Reemployment Date, subject to Paragraphs (a), (b), (c) and (d) below: (a) Except as provided in Paragraph (b), (c) or (d) below, each Seasonal Employee shall become a Participant with respect to Pre-Tax, After-Tax, Catch-Up and Matching Contributions on the first day following the date on which he or she completes one Year of Eligibility Service or any day thereafter. (b) Each IAM Local 701 Employee and each Sheet Metal Workers Local 265 Employee shall become a Participant with respect to Pre-Tax, After-Tax, Catch- Up or Matching Contributions on the first day of the calendar quarter following his or her Employment or Reemployment Date or any day thereafter; provided, however, that each such Employee who is a Seasonal Employee shall become a Participant with respect to Pre-Tax, After-Tax, Catch-Up and Matching Contributions on the first day of the calendar quarter following the date on which he or she completes a Year of Eligibility Service or any day thereafter. (c) Each Guzzler Union Employee shall become a Participant with respect to Pre- Tax, After-Tax or Catch-Up Contributions on the first day of the calendar quarter following his or her Employment or Reemployment Date or any day thereafter; provided, however, that each such Employee who is a Seasonal Employee shall become a Participant with respect to Pre-Tax, After-Tax or Catch-Up Contributions on the first day of the calendar quarter following the date on which he or she completes a Year of Eligibility Service or any day thereafter. In no event shall a Guzzler Union Employee become a Participant with respect to Matching Contributions. (d) Each IBEW Local 134 Employee shall become a Participant with respect to Pre- Tax, After-Tax, Catch-Up or Matching Contributions on his or her 91st day of employment with an Employer or any day thereafter; provided, however, that each such Employee who is a Seasonal Employee shall become a Participant with respect to Pre-Tax, After-Tax, Catch-Up and Matching Contributions on the 91st day of employment with an Employer following the date on which he or she completes a Year of Eligibility Service or any day thereafter.

 
-16- 3.3 Eligibility for Retirement Contributions If otherwise permitted by the Plan or the applicable Employer, each Employee who is not described in Subsection 3.1 shall become a Participant with respect to Retirement Contributions (if applicable) after completing 30 days of employment with the Employer, regardless of whether the Participant has elected to make Pre-Tax Contributions, subject to Paragraphs (a), (b) and (c) below: (a) Except as provided in Paragraph (b) or (c) below, each Seasonal Employee shall become a Participant with respect to Retirement Contributions on the first day following the date on which he or she completes one Year of Eligibility Service or any day thereafter. (b) Each IBEW Local 134 Employee shall become a Participant with respect to Retirement Contributions on his or her 91st day of employment with an Employer or any day thereafter; provided, however, that each such Employee who is a Seasonal Employee shall become a Participant with respect to Retirement Contributions on the 91st day of employment with an Employer following the date on which he or she completes a Year of Eligibility Service or any day thereafter. (c) Notwithstanding any provision of the Plan to the contrary, the following Employees are not eligible to become Participants with respect to Retirement Contributions: IAM Local 701 Employees, Sheet Metal Workers Local 265 Employees and Guzzler Union Employees. 3.4 Ineligible Employees Notwithstanding any provision of the Plan to the contrary, the following Employees shall not become Participants for any purpose: (a) Non-union apprentices; (b) Student interns; and (c) Employees whose employment is governed by a collective bargaining agreement that does not provide for participation in the Plan. If an Employee ceases to be covered under a collective bargaining agreement but continues as an Employee, such Employee shall become a Plan Participant on the later of the applicable date determined in the above Subsections and the date he or she ceases to be covered under a collective bargaining agreement, in each case provided he or she is an Employee on that date. 3.5 Period of Participation An Employee who becomes a Participant shall continue as a Participant until the later to occur of the date of the Participant’s Severance From Service or the date on which all the Participant’s Accounts have been distributed. For all purposes of the Plan:

 
-17- (a) A period of leave of absence shall not interrupt continuity of participation; (b) A determination that a Participant has a Disability shall not interrupt continuity of participation; and (c) The transfer of employment from an Employer to a Related Employer shall not interrupt continuity of participation. If a Participant incurs a Severance From Service, he or she shall be ineligible to make or receive Plan contributions except as provided in SECTION 5, ineligible to initiate a new Plan loan, and ineligible to receive an in-service withdrawal. 3.6 Reemployment If a Participant incurs a Severance From Service and is subsequently reemployed by a Related Employer, his or her Years of Eligibility Service and Vesting Service shall be reinstated, as follows: (a) If the Participant is reemployed within twelve months after the date he or she is first absent from active employment, his or her Years of Eligibility Service and Vesting Service at his or her Severance From Service date shall be reinstated upon his or her reemployment. The Participant shall receive credit for Vesting Service for the period between the date he or she is first absent from active employment and the date of his or her reemployment. (b) If the Participant is reemployed after twelve months have elapsed from the date he or she is first absent from active employment and: (i) The Employee made Pre-Tax Contributions or was at least partially vested in any Matching Contributions or Retirement Contributions made to the Plan on his or her behalf, and the consecutive years of the Participant’s Break in Service were less than five: (A) His or her Years of Eligibility Service shall be reinstated; and (B) His or her pre-Break in Service Vesting Service and post- Break in Service Vesting Service shall apply with respect to any Matching Contributions and Retirement Contributions made before and after his or her reemployment. (ii) The Participant made Pre-Tax Contributions or was at least partially vested in any Matching Contributions or Retirement Contributions made to the Plan on his or her behalf, and the consecutive years of the Participant’s Break in Service were equal to or greater than five:

 
-18- (A) His or her Years of Eligibility Service shall be reinstated; and (B) His or her pre-Break in Service Vesting Service shall be reinstated with respect to Matching Contributions and Retirement Contributions made after his or her reemployment, but any post-Break in Service Vesting Service with which the Participant is credited shall not apply to Matching Contributions or Retirement Contributions made before his or her reemployment. (iii) The Participant did not make Pre-Tax Contributions or was not vested in any Matching Contributions or Retirement Contributions made on his or her behalf to the Plan, and the consecutive years of his or her Break in Service were equal to or greater than five, the Participant shall be considered a new Employee for purposes of Years of Eligibility Service and Vesting Service.

 
-19- SECTION 4 PARTICIPANT AND MATCHING CONTRIBUTIONS 4.1 Pre-Tax Contributions Each Participant may make Pre-Tax Contributions by electing to defer an amount of Compensation before the imposition of Federal income taxes. Subject to the conditions and limitations of the Plan, each Participant may elect on an Approved Form of Election to make Pre-Tax Contributions for each Plan Year in whole percentages of 1% up to 40% of Compensation. For this purpose, Compensation shall only include Compensation paid during the period that the Participant’s election to make Pre-Tax Contributions is in effect. An Employee is not required to make Pre-Tax Contributions in order to participate in the Plan. (a) Deemed Pre-Tax Contribution Rate. Each Participant whose participation in the Plan is not subject to a collective bargaining agreement and who does not make an affirmative Pre-Tax Contribution election (including an election to not make Pre-Tax Contributions) within 30 days of first becoming eligible shall be deemed to have elected an Pre-Tax Contribution rate of 2% of Compensation for the Plan Year. Prior to the date on which such deemed Pre-Tax Contribution rate becomes effective, each Participant described in the preceding sentence shall be provided with a notice explaining his or her right to not make Pre-Tax Contributions (or to elect a different Pre-Tax Contribution rate) and, after receiving such notice, shall have a reasonable period before the deemed Pre-Tax Contribution rate becomes effective in which to elect to receive the Compensation in the form of cash in lieu of making Pre-Tax Contributions. (b) Carryover Pre-Tax Contribution Rate. Each Participant, who, immediately before becoming a Participant in this Plan, was an active participant in a Prior Plan and had an election to make Code Section 401(k) compensation deferrals on file under the Prior Plan, shall be deemed to have elected the same percentage of Pre-Tax Contributions as he or she elected under the Prior Plan until he or she makes a Pre-Tax Contribution election under this Subsection 4.1. Each Participant who was eligible to participate in a Prior Plan but did not have an election to make Code Section 401(k) compensation deferrals on file under the Prior Plan shall be deemed to have elected a Pre-Tax Contribution rate of 2% of Compensation for the Plan Year. Prior to the date on which such deemed Pre-Tax Contribution rate becomes effective, each Participant described in the preceding sentence shall be provided with a notice explaining his or her right to not make Pre-Tax Contributions (or to elect a different Pre-Tax Contribution rate) and, after receiving such notice, shall have a reasonable period before the deemed Pre-Tax Contribution rate becomes effective in which to elect to receive the Compensation in the form of cash in lieu of making Pre-Tax Contributions. Notwithstanding the foregoing, if a Participant described in this Paragraph was ineligible to make Code Section 401(k) compensation deferrals under the Prior Plan immediately before the date the Prior Plan merged into the Plan because he or she had taken a hardship withdrawal under the Prior Plan, then he or she shall become eligible to

 
-20- make Pre-Tax Contributions in accordance with this Paragraph (b) immediately following the end of the six-month period commencing on the effective date of the hardship withdrawal. (c) Automatic Annual Increase in Pre-Tax Contribution Rate. Subject to the conditions and limitations of the Plan, each Participant whose participation in the Plan is not subject to a collective bargaining agreement shall be deemed to have elected to increase his or her Pre-Tax Contribution rate by one percentage point effective each January 1; provided, that such automatic annual increase shall not apply to the extent such increase would cause the Participant’s Pre-Tax Contribution rate to exceed 10%. Prior to the commencement of the automatic annual increase (and each subsequent January 1), each eligible Participant shall be provided with a notice explaining his or her right to decline participation in the automatic annual increase and, after receiving such notice, shall have a reasonable period before the automatic annual increase becomes effective to decline participation. This automatic annual increase shall not apply in future years to a Participant who has previously declined participation, unless such Participant makes an affirmative election to participate in the automatic annual increase or ceases to be eligible to participate in the Plan and again becomes a Participant under Subsection 3.2. 4.2 After-Tax Contributions Each Participant may also make After-Tax Contributions by electing to contribute an amount from his or her Compensation after the imposition of Federal income taxes. Subject to the conditions and limitations of the Plan, each Participant may elect on an Approved Form of Election to make After-Tax Contributions in whole percentages of 1% to 6% of Compensation. A Participant’s After-Tax Contributions may be made by regular payroll deductions or in any other method approved by the Committee. 4.3 Catch-Up Contributions All Participants who are eligible to make Pre-Tax Contributions and who have attained (or shall attain) age 50 before the close of the Plan Year may elect on an Approved Form of Election to make Catch-Up Contributions for each Plan Year in whole percentages of 1% to 40% of Compensation, subject to the limitations of Code Section 414(v). The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Code Section 401(k)(3), 410(b), or 416, as applicable, by reason of a Participant’s Catch-Up Contributions. 4.4 Rules Applicable to Participant Contributions An Employer may limit the maximum contribution percentage of Pre-Tax, After-Tax, and Catch-Up Contributions, provided such policy does not impermissibly discriminate against Employees who are not Highly Compensated Employees. Each Participant may elect to change, discontinue or resume Pre-Tax, After-Tax, or Catch-Up Contributions at any time by an Approved Form of Election; provided, however, that a Participant who is also a participant in the Federal Signal Corporation Savings Restoration Plan may not change, cease or otherwise modify

 
-21- the amount of his or her Pre-Tax Contribution election after December 31 for Compensation that otherwise would have been payable to him or her in the subsequent taxable year or years. Any Approved Form of Election shall be effective on the first day of the first payroll period for which the Employer can process such election. The Committee may establish additional rules regarding the timing and frequency of a change in the amount of Pre-Tax, After-Tax or Catch-Up Contributions, provided such policy is applied uniformly to all similarly situated Participants. 4.5 Timing of Participant Contributions Each Employer shall make a contribution to the Plan equal to the amount of Pre-Tax, After-Tax, and Catch-Up Contributions made by each Participant employed by that Employer. Such contributions shall be paid to the Trustee as soon as practicable following the reduction in Participants’ Compensation, but in no event more than 15 business days after the end of the month in which the reduction in Compensation is made. 4.6 Rollover Contributions At the direction of the Committee, at such time as the Committee determines, and in accordance with such rules as the Committee may establish from time to time, the Plan shall accept Rollover Contributions on behalf of an Employee who is eligible to make Pre-Tax Contributions. A Rollover Contribution may be made from: (a) A tax-qualified plan described in Code Sections 401(a) or 403(a), including after- tax employee contributions (“After-Tax Rollover Contribution”), but excluding designated Roth contributions made under a qualified Roth contribution program; (b) An annuity contract described in Code Section 403(b), excluding after-tax employee contributions and designated Roth contributions made under a qualified Roth contribution program; (c) An eligible plan under Code Section 457(b) that is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state; and (d) An individual retirement account or annuity described in Code Sections 408(a) or (b) that is eligible to be rolled over to a plan qualified under Code Section 401(a) and that would otherwise be includible in gross income. An eligible Employee may make a Rollover Contribution provided that such distribution is received by the Trustee within 60 days after the Employee’s receipt of such payment, or such amount is directly transferred to the Trust Fund from such other above plan, provided that After- Tax Rollover Contributions must be directly transferred to the Plan. The Plan shall separately account for Rollover Contributions and After-Tax Rollover Contributions. The Employee must furnish the Employer or its designee an Approved Form of Election, including a written statement that the contribution is a Rollover Contribution and such other statements and information as may be required by the Committee or its designee in order to establish that such Rollover Contribution otherwise meets the requirements of law. If the Committee learns that all or part of a Rollover Contribution did not meet the requirements of the Code and the Treasury

 
-22- Regulations and rulings thereunder, the Committee shall direct the Trustee to distribute to the Participant the ineligible portion of the Rollover Contribution (and earnings thereon) that was credited to the Participant’s Account. 4.7 Uniformed Service Absence Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service shall be provided in accordance with Code Section 414(u) and, effective as of January 1, 2007, the Heroes Earnings Assistance Relief Tax Act of 2008.

 
-23- SECTION 5 EMPLOYER CONTRIBUTIONS 5.1 Matching Contributions The Employers shall make Matching Contributions to the Plan in accordance with Paragraphs (a), (b) and (c) below: (a) General Rule. Subject to the conditions and limitations of the Plan, the Employer of each eligible Participant who is not an IAM Local 701 Employee, a Sheet Metal Workers Local 265 Employee or an IBEW Local 134 Employee shall make Matching Contributions each payroll period in an amount equal to 50% of the first 6% of Compensation that the Participant contributes as Pre-Tax Contributions during the applicable pay period. (b) IAM Local 701 Employees and Sheet Metal Workers Local 265 Employees. Subject to the conditions and limitations of the Plan, the Employer of each eligible Participant who is an IAM Local 701 Employee or a Sheet Metal Workers Local 265 Employee shall make Matching Contributions each payroll period in an amount computed in accordance with the following table, based on the first 3% of Compensation that the Participant contributes as Pre-Tax Contributions during the applicable pay period: Years of Plan Participation Matching Contribution Percentage Less than 1 50% 1 but less than 2 55% 2 but less than 3 65% 3 but less than 4 80% 4 or more 100% (c) IBEW Local 134 Employees. Subject to the conditions and limitations of the Plan, the Employer of each eligible Participant who is an IBEW Local 134 Employee shall make Matching Contributions each payroll period in an amount computed in accordance with the following table, based on the first 3% of Compensation that the Participant contributes as Pre-Tax Contributions during the applicable pay period: Years of Plan Participation Matching Contribution Percentage Less than 1 50% 1 but less than 3 75% 3 or more 100%

 
-24- No Matching Contributions shall be paid on Catch-Up Contributions, including Catch-Up Contributions that are recharacterized as Pre-Tax Contributions because a Code or Plan limit was not met. If, because of the limitations of Subsection 8.3, a Participant is prevented from making Pre-Tax Contributions of 6% of his or her Compensation for any pay period, any Pre-Tax Contributions in excess of such applicable percentage of his or her Compensation that he or she had made previously during the Plan Year shall be treated, for purposes of this Subsection, as though they were made (up to the applicable percentage of his or her Compensation) during the pay period the Participant was so prevented from making Pre-Tax Contributions. 5.2 Retirement Contributions The Employers shall make Retirement Contributions to the Plan in accordance with Paragraphs (a) and (b) below: (a) General Rule. Subject to the conditions and limitations of the Plan, the Employer of each eligible Participant who is not an IBEW Local 134 Employee shall make Retirement Contributions each payroll period in an amount calculated as a percentage of the Participant’s Compensation, using a points-weighted formula based on the Participant’s age and full years of Vesting Service determined each January 1, in accordance with the following table: Points as of January 1 (Age + Years of Vesting Service) Retirement Contribution Percentage 35 or less 1% 36 to 50 2% 51 or more 4% (b) IBEW Local 134 Employees. Subject to the conditions and limitations of the Plan, the Employer of each eligible Participant who is an IBEW Local 134 Employee shall make Retirement Contributions each payroll period in an amount calculated based on the Participant’s years of Vesting Service, including years of Vesting Service with a Related Employer prior to January 1, 2009, in accordance with the following table: Years of Vesting Service as of January 1 Retirement Contribution Percentage 0-5 1% 6-14 3% 15 or more 4%

 
-25- 5.3 Payment, Limitations, Verification, and Form of Payment of Employer Contributions (a) Matching Contributions for a payroll period shall be paid to the Trustee and shall be credited to the Participant’s Match Account in accordance with such rules as the Committee shall establish. (b) Retirement Contributions for a payroll period shall be paid to the Trustee and shall be credited to the Participant’s Retirement Account in accordance with such rules as the Committee shall establish. (c) The certificate of an independent certified public accountant selected by the Committee as to the accuracy of any amount or calculation under this SECTION 5 shall be conclusive on all persons. (d) In no event shall an Employer’s share of the contributions described in this SECTION 5 exceed an amount equal to the maximum amount deductible on account thereof by that Employer for purposes of Federal income taxes for the fiscal year for which the contribution is made. (e) Payment to the Trustee of part or all of an Employer’s share of the contributions described in this SECTION 5 shall be made in cash. (f) Matching and Retirement Contributions for any Plan Year shall be due on the last day of the fiscal year for which the contribution is made and, unless paid before, may be paid then or as soon as practicable thereafter, without interest, but no later than the time prescribed by law for filing the Employer’s Federal income tax returns for such fiscal year, including extensions thereof.

 
-26- SECTION 6 INVESTMENT AND FEDERAL SIGNAL STOCK PROVISIONS 6.1 Investment Funds The ESOP portion of the Plan is designed to be primarily invested in the Federal Signal Stock Fund, except that the Trustee may hold some of the assets of the Federal Signal Stock Fund in cash pending investment, distribution, reallocation or transfer. The Non-ESOP portion of the Plan shall be invested in one or more Investment Funds designated by the Investment Committee in its discretion for the investment of Participants’ Accounts. The Investment Committee, in its discretion, may from time to time establish new Investment Funds or eliminate existing Investment Funds. Contributions to the Plan may be uninvested pending allocation to the Investment Funds. The investment manager of each Investment Fund, or the Trustee if there is no investment manager, may invest the Investment Fund in short term investments or hold the assets thereof in cash pending investment, distribution, reallocation or transfer. 6.2 Investment Fund Elections and Transfers Each Participant may elect to invest his or her Accounts in whole multiples of 1% up to 100% in any one or more of the Investment Funds. The Participant’s investment election shall apply to all contributions to his or her Accounts. If a Participant fails to make an investment election, his or her Accounts shall be invested in the default investment arrangement specified by the Investment Committee in accordance with ERISA Section 404(c)(5) and related regulations until the Participant elects to change the investment of such Accounts in accordance with this Subsection. In accordance with rules established from time to time by the Committee, a Participant may elect to change his or her investment election (in whole multiples of 1% up to 100%) with respect to future contributions or transfer (in whole multiples of 1% up to 100% or in any dollar amount) all or a part of his or her Accounts from one or more Investment Fund to one or more different Investment Funds. Furthermore, pursuant to rules established by the Plan or an Investment Fund, the Investment Fund may restrict a Participant from transferring into or out of the Investment Fund if the Plan or Investment Fund determines that the Participant’s transfer activity would be detrimental to the Investment Fund. Effective as of January 1, 2007, for any period during which the Plan is an applicable defined contribution plan (as defined in Code Section 401(a)(35)) by virtue of holding publicly traded employer securities, the Committee shall permit Participants and applicable beneficiaries to direct the investment of their Accounts in accordance with Code Section 401(a)(35) and applicable Treasury Regulations or other guidance issued thereunder. 6.3 Election Procedures Any election to invest Accounts, change investment for new contributions, or make interfund transfers within the Plan (other than an automatic investment election) must be made through an Approved Form of Election. Any such election made before the Close of Business on a Business Day shall be effective and valued as of the day such election is made. Any such

 
-27- election made on a day other than a Business Day, or after the Close of Business on a Business Day, shall be effective and valued as of the next Business Day. Notwithstanding the foregoing, any election with respect to the Federal Signal Stock Fund shall be subject to the availability of short-term investments in such Fund. 6.4 Administration of Federal Signal Stock Fund Except as otherwise provided in Subsection 6.5, distribution of the Participant’s ESOP subaccounts, regardless of the Accounts in which they are held, shall be made in-kind or in cash as directed by the Participant. Any in-kind distribution shall be based on: (i) the total number of shares of Federal Signal Common Stock in the Federal Signal Stock Fund that are attributable to such Participant’s Accounts, valued in accordance with Subsection 6.10 as of the date of distribution, and (ii) cash in the amount equal to the value of a distributable fraction of a share of Federal Signal Common Stock in the Federal Signal Stock Fund attributable to his or her Accounts. The Participant shall at all times have the right to demand that the distribution of his or her ESOP subaccounts be made in the form of shares of Federal Signal Common Stock. Notwithstanding the previous sentence, if the Company’s charter or by-laws restrict the ownership of substantially all outstanding shares of Federal Signal Common Stock to employees or a trust defined in Code Section 401(a), the Committee shall make the entire distribution in cash or in the form of shares of Federal Signal Common Stock, subject to the requirement that such shares be immediately put to the Company under a fair valuation formula. If Federal Signal Common Stock is distributed in the form of cash, the Participant shall receive cash equal to the amount of the “fair market value” of the Federal Signal Common Stock, valued in accordance with Subsection 6.10 as of the date of distribution. For purposes of the shares of Federal Signal Common Stock, which are readily tradable on an established securities market, the term “fair market value” shall be determined based on the prevailing market price. A Participant may elect to diversify any portion of his or her Accounts that is invested in the Federal Signal Stock Fund into one or more different Investment Funds offered under the Plan. To the extent practicable, the Trustee shall follow all instructions with respect to the sale or purchase of Federal Signal Common Stock held in the Federal Signal Stock Fund. However, any election with respect to the Federal Signal Stock Fund shall be subject to the availability of short-term investments, including but not limited to cash, in such fund. 6.5 Dividend Election Any cash dividends paid with respect to shares of Federal Signal Common Stock attributable to any of the Participant’s Accounts invested in the Federal Signal Stock Fund may, as elected by the Participant, be paid in cash to (i) the Plan and reinvested in Federal Signal Common Stock (through the Federal Signal Stock Fund), (ii) the Participant on the dividend payable date, or (iii) the Trustee and distributed by the Trustee to the Participant no later than 90 days after the end of the Plan Year in which paid to the Trustee. If a Participant fails to make an affirmative election under this Subsection, the Participant shall be deemed to have elected to have the dividend paid to the Plan and reinvested in the Federal Signal Stock Fund. The Committee shall establish rules and procedures for the election, including the procedures for determining the number of shares of Federal Signal Common Stock in each Participant’s ESOP subaccounts on the record date of the dividend. Notwithstanding any other provision of the Plan

 
-28- to the contrary, the dividends to which this election applies shall be fully vested. Reinvested dividends shall be paid to the Plan and credited to the Participant’s ESOP subaccounts in proportion to the interest in the Federal Signal Stock Fund attributable to each Participant’s Account. 6.6 Voting of Shares in Federal Signal Stock Fund The Trustee shall notify each Participant of each meeting of the Company’s shareholders and shall furnish to each Participant copies of the proxy statements and other communications distributed to shareholders in connection with any such meeting. Each Participant shall be entitled to direct the Trustee as to the manner in which any voting rights of shares of Federal Signal Common Stock attributable to his or her proportionate interest (vested or unvested) in the Federal Signal Stock Fund are to be exercised. The Trustee shall exercise the voting rights of such shares in accordance with the most recent and timely direction received by the Trustee from such Participant. If the Trustee does not receive direction with respect to the voting of shares held in the Federal Signal Stock Fund within the time specified in the notification, the Trustee shall vote such shares in the same manner and in the same proportion as the shares for which the Trustee received voting instructions. 6.7 Tendering of Shares in Federal Signal Stock Fund The Trustee shall notify each Participant of any tender offer for, exchange of, or a request or invitation for tenders of Federal Signal Common Stock and shall request from each Participant instructions for the Trustee as to the tendering of Federal Signal Common Stock credited to the Participant’s Accounts. A “tender offer” shall mean any tender or exchange offer for, or request or invitation for tenders or exchanges of, shares of Federal Signal Common Stock and shall include any tender offer made by or on behalf of the Company. Each Participant shall direct the Trustee on the tendering, depositing, selling, exchanging or transferring of shares of Federal Signal Common Stock attributable to the Participant’s proportionate interest in the Federal Signal Stock Fund pursuant to any tender offer. The Trustee shall tender, deposit, sell, exchange or transfer such shares (or shall retain such shares in the Federal Signal Stock Fund) pursuant to a tender offer only in accordance with the most recent and timely direction received by such Participant. However, if the Trustee does not receive tender directions with respect to shares held in the Federal Signal Stock Fund within the time specified in the notification, the Participants to which such shares are attributable shall be deemed to have directed the Trustee that such shares be retained in the Federal Signal Stock Fund subject to all provisions of the Plan, the Trust Agreement, and applicable law. The proceeds of any sale, exchange or transfer of shares of Federal Signal Common Stock pursuant to the direction of a Participant in accordance with this Subsection shall be allocated to Accounts in the same manner, in the same proportion, and as of the same date as the shares were sold, exchanged or transferred. Pending receipt of directions as to which of the remaining Investment Funds the proceeds should be invested in, the proceeds shall be invested in the default investment arrangement specified by the Investment Committee in accordance with ERISA Section 404(c)(5) and related regulations.

 
-29- 6.8 Confidentiality of Voting and Tender Directions Except to the extent necessary to provide the Employers with information necessary to accurately maintain Plan and Participant records, the Trustee shall use its best efforts (i) to keep confidential the direction (or the absence thereof) from each Participant in connection with the exercise of voting rights of shares held in the Federal Signal Stock Fund, or with respect to any tender offer, and the identity of such Participant, and (ii) not to divulge such direction or identity to any person or entity, including, without limitation, the Company, any other Employer and any Non-Participating Employer and any director, officer, employee or agent thereof. It is the intent of this Subsection that the Company, each other Employer, and each Non-Participating Employer and their directors, officers, employees and agents not be able to ascertain the direction given (or not given) by any Participant in connection with the exercise of voting rights of such shares or with respect to any tender offer. To the extent that a Participant, Beneficiary or Alternate Payee acts with respect to the exercise of voting rights of shares held in the Federal Signal Stock Fund or the tender, deposit, sale, exchange or transfer of such shares only, such Participant, Beneficiary or Alternate Payee shall be a Fiduciary. 6.9 Invalidity of Voting or Tender Procedures To the extent the Trustee exercises any fiduciary responsibility with respect to the voting, tendering, or withdrawal of tender of shares held in the Federal Signal Stock Fund, the Trustee shall, unless pursuant to the requirements of ERISA or otherwise it is unlawful to do so, (i) take into account directions timely received from Participants as valid direction with respect to the exercise of voting rights or a tender offer, and (ii) to the extent that the Trustee deems it appropriate, take into consideration any relevant non-financial factors (in addition to any financial factors) bear in the exercise voting rights or in the sale, exchange, transfer, or tender or in the exercise of withdrawal rights. 6.10 Unitized Federal Signal Stock Fund Participants invested in the Federal Signal Stock Fund hold units of such fund. A unit of the Federal Signal Stock Fund holds shares of Federal Signal Common Stock and cash. Each day, Additions to and Reductions from (each as defined below) the Federal Signal Stock Fund are totaled. If the cash in the Federal Signal Stock Fund is above or below the amount required to settle these trades, shares of Federal Signal Common Stock are traded on the open market. At the Close of Business on each Business Day, all transactions for such day are combined and the total value of the Federal Signal Stock Fund is divided by the number of units in such fund to determine the fund’s Net Asset Value (“NAV”). NAV is the price used to determine the value of Participants’ ESOP subaccounts. The number of shares of Federal Signal Common Stock in the Federal Signal Stock Fund attributable at any particular time to the interest of a Participant shall be the approximate product of the total number of shares then held in the Federal Signal Stock Fund multiplied by a fraction, the numerator of which is the value of the Federal Signal Stock Fund then in the Participant’s ESOP subaccount and the denominator of which is the total value of the Federal Signal Stock Fund. The value of a unit in the Federal Signal Stock Fund (“Closing Unit Value”) shall be determined on each Business Day by dividing the fair market value of such fund by the number

 
-30- of units in such fund before taking into account Additions to and Reductions from such fund. After the Closing Unit Value is determined at the Close of Business on each Business Day, the total number of units in the Federal Signal Stock Fund shall be re-determined to take into account new units resulting from Additions to such fund and canceled units resulting from Reductions from such fund. As of the Close of Business on such Business Day, the total number of new units resulting from Additions to the Federal Signal Stock Fund shall equal the total amount of the Additions to such fund divided by the Closing Unit Value. As of the Close of Business on such Business Day, the total number of units to be canceled under the Federal Signal Stock Fund shall equal the total amount of Reductions from such fund divided by the Closing Unit Value. Whenever all or any part of the balances in the Federal Signal Stock Fund is reduced as a result of a Reduction, the reduced amount shall equal the Closing Unit Value multiplied by the number of whole and fractional units credited to such Accounts. For purposes of this Subsection, “Addition” means any amounts added to the Federal Signal Stock Fund during the day as a result of contributions to, reinstatement of Accounts and interfund transfers since the Close of Business on the immediately preceding Business Day. For purposes of this Subsection, “Reduction” means any amounts reduced from the Federal Signal Stock Fund as a result of any in-service withdrawals, loans, distributions, interfund transfers, return of any excess amounts, and forfeitures since the Close of Business on the immediately preceding Business Day. 6.11 Valuation of Investment Funds As of each Business Day, the Trustee shall report to the Investment Committee the fair market value of the assets of each Investment Fund and the number and value of units in the Federal Signal Stock Fund. The fair market value of an Investment Fund shall be the value of such Investment Fund as of the Close of Business on such Business Day. The number and value of units in the Federal Signal Stock Fund shall be determined in accordance with Subsection 6.10. 6.12 Voting of Shares in Mutual Funds Shares of mutual funds held in a Participant’s Accounts shall be voted on his or her behalf by the Trustee. In making voting decisions on the mutual fund shares, the Trustee shall vote the shares in the long-term, economic best interests of Plan Participants.

 
-31- SECTION 7 ACCOUNTS 7.1 Participants’ Accounts The Committee shall maintain or cause to be maintained the following separate Accounts for each Participant, as applicable: (a) After-Tax Account. An After-Tax Account shall be maintained for each Participant on whose behalf any After-Tax Contributions are made to this Plan and/or any after-tax contributions were made under a Prior Plan. Such contributions, and any earnings and losses on those contributions, shall be allocated to the Participant’s After-Tax Account. (b) After-Tax Rollover Account. An After-Tax Rollover Account shall be maintained for each Participant on whose behalf any After-Tax Rollover Contributions have been made to this Plan and/or any after-tax contributions have been transferred or rolled over from a Prior Plan. Such contributions, and any earnings and losses on those contributions, shall be allocated to the Participant’s After-Tax Rollover Account. (c) Catch-Up Account. A Catch-Up Account shall be maintained for each Participant on whose behalf any Catch-Up Contributions are made to this Plan and/or any catch-up contributions were made under a Prior Plan. Such contributions, and any earnings and losses on those contributions, shall be allocated to the Participant’s Pre-Tax Account. (d) Match Account. A Match Account shall be maintained for each Participant on whose behalf any Matching Contributions are made to this Plan and/or any matching contributions were made under a Prior Plan. Such contributions, and any earnings and losses on those contributions, shall be allocated to the Participant’s Match Account. (e) Pre-Tax Account. A Pre-Tax Account shall be maintained for each Participant on whose behalf any Pre-Tax Contributions are made to this Plan and/or any pre- tax contributions were made under a Prior Plan. Such contributions, and any earnings and losses on those contributions, shall be allocated to the Participant’s Pre-Tax Account. (f) Prior Plan ESOP Account. A Prior Plan ESOP Account shall be maintained for each Participant on whose behalf contributions were made under an employee stock ownership plan, which was maintained by Elgin Sweeper Company and merged into this Plan. Such contributions, and any earnings and losses on those contributions, shall be allocated to the Participant’s Prior Plan ESOP Account. (g) Qualified Nonelective Account. A Qualified Nonelective Account shall be maintained for each Participant on whose behalf any qualified nonelective

 
-32- contributions are made to this Plan, any special retirement contributions were made to this Plan prior to the Effective Date, and/or any qualified nonelective contributions were made under a Prior Plan. Such contributions, and any earnings and losses on those contributions, shall be allocated to the Participant’s Qualified Nonelective Account. Such Account shall satisfy the vesting requirements of Treasury Regulation Section 1.401(k)-1(c) and be subject to the distribution requirements of Treasury Regulation Section 1.401(k)-1(d). (h) Retirement Account. A Retirement Account shall be maintained for each Participant on whose behalf any Retirement Contributions are made to this Plan, any retirement transition contributions were made to this Plan prior to the Effective Date, and/or any profit sharing contributions were made under a Prior Plan. Such contributions, and any earnings and losses on those contributions, shall be allocated to the Participant’s Retirement Account. (i) Rollover Account. A Rollover Account shall be maintained for each Participant on whose behalf any Rollover Contributions (other than After-Tax Rollover Contributions) have been made to this Plan and/or any rollover contributions (other than after-tax rollover contributions) have been transferred or rolled over from a Prior Plan. Such contributions, and any earnings and losses on those contributions, shall be allocated to the Participant’s Rollover Account. The Committee may establish such rules and procedures relating to the maintenance, adjustment, and liquidation of Participants’ Accounts, and the crediting of contributions and income, losses, expenses, appreciation, and depreciation attributable thereto, as are considered necessary or advisable. In addition to the Accounts described above, the Committee may maintain such other Accounts in the names of Participants or otherwise as the Committee considers necessary or desirable. 7.2 ESOP Subaccounts The Committee shall maintain or cause to be maintained separate subaccounts in the Accounts of each Participant to reflect the value of the Participant’s balances in the ESOP portion of the Plan and the Non-ESOP portion of the Plan. The ESOP subaccount shall reflect the portion of each Account invested in the Federal Signal Stock Fund. The Non-ESOP subaccount shall reflect the portion of each Account invested in all Investment Funds other than the Federal Signal Stock Fund. 7.3 Adjustment of Accounts Pursuant to rules established by the Committee and applied on a uniform basis, and subject to a Participant’s dividend election under Subsection 6.5, a Participant’s or Beneficiary’s Accounts shall be adjusted on each Business Day to reflect the fair market value (as defined in Subsection 6.4) of the various Investment Funds as of such date, including adjustments to reflect any distributions (including withdrawals), contributions, rollovers, loans, transfers between Investment Funds, income, losses, expenses, appreciation or depreciation with respect to such

 
-33- Accounts since the previous Business Day. Such Accounts shall continue to be so adjusted until all amounts in such Accounts are paid. 7.4 Statement of Account At such times and in such manner as determined by the Committee, each Participant shall be furnished with a statement reflecting the condition of his or her Accounts in the Trust Fund. 7.5 Accounts for Alternate Payees A separate Account shall be established for an Alternate Payee entitled to any portion of a Participant’s Account under a Qualified Domestic Relations Order in accordance with procedures established by the Committee and applicable law. Such separate Account shall be valued and accounted for in the same manner as any other Account. Pursuant to the terms of the Qualified Domestic Relations Order, an Alternate Payee may receive a distribution of his or her benefits in the same manner as if such Alternate Payee were a Participant at any time after the Qualified Domestic Relations Order has been approved by the Committee, without regard to whether such distribution is made or commences prior to the Participant’s earliest retirement age (as defined in Code Section 414(p)(4)(B)). If a separate Account has been established on behalf of an Alternate Payee but all of the amounts in the Account have not yet been distributed, the Alternate Payee may direct the investment of such Account in the same manner as if such Alternate Payee were a Participant. Subject to the Committee’s rules, an Alternate Payee may designate one or more Beneficiaries to receive payment of the Alternate Payee’s separate Account under the Plan in the same manner as if such Alternate Payee were a Participant, except that the Alternate Payee may designate an alternate Beneficiary other than his or her Spouse without such Spouse’s consent. 7.6 Order and Timing of Withdrawals, Loans, and Distributions Any amounts to be paid to a Participant, a Beneficiary, or an Alternate Payee shall be withdrawn from his or her Accounts on a pro rata basis or in such other order established by the Committee for withdrawals, loans, and distributions from the Plan. The withdrawal, loan, or distribution shall be valued or processed (i) as of the day on which such request is received by the Committee or its designee, if such request is received before the Close of Business on a Business Day, or (ii) as of the next Business Day, if such request is received by the Committee or its designee on a day other than a Business Day or after the Close of Business on a Business Day. In addition, each payment shall be charged against the Investment Funds in the applicable Account on a pro rata basis.

 
-34- SECTION 8 CONTRIBUTION AND BENEFIT LIMITATIONS 8.1 Contribution Limitations For each Limitation Year, the Annual Addition to a Participant’s Account shall not exceed the lesser of $53,000 (as adjusted for cost-of-living increases under Code Section 415(d)) or 100% of the Participant’s Code Section 415 Compensation for the Limitation Year, subject to the following: (a) The compensation limit described above shall not apply to any contribution for medical benefits (within the meaning of Code Section 401(h) or Code Section 419A(f)(2)) after severance from employment that is otherwise treated as an Annual Addition. (b) The Committee shall take any actions it deems advisable to avoid an Annual Addition in excess of Code Section 415; provided, however, if a Participant’s Annual Addition for a Limitation Year actually exceeds the limitations of this Subsection, the Committee shall correct such excess in accordance with applicable guidance issued by the Internal Revenue Service. Any such correction of excess Annual Additions shall be charged against the Investment Funds in the applicable Account on a pro rata basis; provided, however, that the reduction of an excess Annual Addition of a director, officer or other principal stockholder of the Company subject to the requirements of Section 16(b) of the Securities Exchange Act of 1934 shall not decrease his or her interest in the Federal Signal Stock Fund. (c) Annual Additions shall be subject to Code Section 415 and applicable Treasury Regulations issued thereunder, the requirements of which are incorporated herein by reference to the extent not specifically provided above or in Subsection 8.2. 8.2 Combining of Plans In applying the limitations set forth in Subsection 8.1, reference to the Plan shall mean this Plan and all other defined contribution plans (whether or not terminated) maintained by the Related Employers. In complying with the requirements of Subsection 8.1, a Participant’s Annual Additions shall be limited by first reducing annual additions under the plan under which the Participant is then currently covered (or was most recently covered) as an active employee, then under the next most recent plan that covered the Participant as an active employee, and so on in reverse chronological order through all aggregated plans, until the Participant’s Annual Additions have been reduced sufficiently to comply with Code Section 415 and Subsection 8.1. 8.3 Dollar Limitations on Pre-Tax Contributions No Participant shall make Pre-Tax Contributions under this Plan, or elective deferrals under any other qualified plan maintained by an Employer, during any calendar year in excess of $18,000 (or such other amount as the Secretary of the Treasury shall specify from time to time

 
-35- pursuant to Code Section 402(g)), excluding Catch-Up Contributions. As of each December 31, the Committee or its designee shall determine the total Pre-Tax Contributions made by each Participant during the calendar year. In the event that the Pre-Tax Contributions for a Participant exceeds the above limitation, such Excess Deferrals (and any income allocable thereto determined in accordance with Subsection 8.6) shall be paid to the Participant by the following April 15. If a Participant’s total Pre-Tax Contributions under this Plan and any other plan of another employer for any calendar year exceed the maximum annual amount described above, the Participant may notify the Committee in writing (on or before March 1 of the next following calendar year) of the Participant’s election to have all or a portion of the Participant’s Pre-Tax Contributions (and the income allocable thereto determined in accordance with Subsection 8.6) under this Plan distributed in accordance with this Subsection. In addition, any Matching Contributions attributable to amounts distributed under this Subsection (and any income allocable thereto determined in accordance with Subsection 8.6) shall be forfeited and shall be used to reduce future Matching Contributions of the Participant’s Employer under the Plan or to pay expenses of the Plan. 8.4 Percentage Limitations on Pre-Tax Contributions In no event shall the Average Deferral Percentage (defined below) of the Participants who are Highly Compensated Employees for any Plan Year exceed the greater of: (a) The Average Deferral Percentage of all other Participants for such Plan Year multiplied by 1.25; or (b) The Average Deferral Percentage of all other Participants for such Plan Year multiplied by 2.0, provided that the Average Deferral Percentage of the Participants who are Highly Compensated Employees does not exceed that of all other eligible Participants by more than two percentage points. In accordance with applicable Treasury Regulations, an eligible Employee’s “Average Deferral Percentage” for a Plan Year means the ratio of A to B, where A equals the sum of the Pre-Tax Contributions actually paid to the Trust on behalf of each such eligible Employee for a Plan Year, and B equals the eligible Employee’s Testing Compensation for such Plan Year. From time to time during the Plan Year, the Committee may determine whether the limitation of this Subsection shall be satisfied and may limit the Pre-Tax Contributions to be withheld on behalf of Highly Compensated Employees or may refund Pre-Tax Contributions previously withheld. If, after the end of the Plan Year, the limitations of this Subsection are not satisfied, the Committee shall either refund Pre-Tax Contributions previously withheld on behalf of Highly Compensated Employees or an Employer may make qualified nonelective employer contributions. If Pre-Tax Contributions made on behalf of Highly Compensated Employees are refunded to satisfy the limitations of this Subsection, the Committee shall determine the amount of Excess Pre-Tax Contributions and shall refund such amounts on the basis of the Highly Compensated Employees’ contribution amounts. “Excess Pre-Tax Contributions” mean the amount by which Pre-Tax Contributions for a Plan Year made on behalf of Highly Compensated Employees exceeds the above limitations. Excess Pre-Tax Contributions previously withheld (and any income allocable thereto determined in accordance with Subsection 8.6) shall be distributed

 
-36- within 2½ months after the close of the Plan Year to which they relate. In addition, any Matching Contributions attributable to such Excess Pre-Tax Contributions (and any income allocable thereto determined in accordance with Subsection 8.6) shall be forfeited and shall be used to reduce future Matching Contributions of the Participant’s Employer or to pay Plan expenses. In order to meet the above requirements and the requirements described in the following Subsection, any Employer may establish a special rate of qualified nonelective employer contributions applicable only to certain Participants who are not Highly Compensated Employees of such Employer. The timing and amount of such qualified nonelective employer contributions shall satisfy the requirements of Treasury Regulations. 8.5 Percentage Limitations on Matching and After-Tax Contributions Except for Participants subject to a collective bargaining agreement, in no event shall the Average Contribution Percentage (defined below) of the Participants who are Highly Compensated Employees for any Plan Year exceed the greater of: (a) The Average Contribution Percentage of all other Participants for such Plan Year multiplied by 1.25; or (b) The Average Contribution Percentage of all other Participants for such Plan Year multiplied by 2.0, provided that the Average Contribution Percentage of the Participants who are Highly Compensated Employees does not exceed that of all other Participants by more than two percentage points. In accordance with applicable Treasury Regulations, an eligible Employee’s “Average Contribution Percentage” for a Plan Year means the ratio of A to B, where A equals the After- Tax and Matching Contributions made by or on behalf of each such eligible Employee for a Plan Year, and B equals the eligible Employee’s Testing Compensation received by the Employee for such Plan Year. From time to time during the Plan Year, the Committee may determine whether the limitation of this Subsection shall be satisfied and, to the extent necessary to ensure compliance with such limitation, may limit the After-Tax Contributions to be withheld on behalf of Highly Compensated Employees not subject to a collective bargaining agreement or may refund After-Tax Contributions previously withheld. If, after the end of the Plan Year, the limitations of this Subsection are not satisfied, the Committee may refund After-Tax Contributions previously withheld on behalf of Highly Compensated Employees not subject to a collective bargaining agreement. If the limitation of this Subsection still is not satisfied after application of the preceding sentence, the Committee may refund Matching Contributions previously credited to Highly Compensated Employees not subject to a collective bargaining agreement. If After-Tax Contributions or Matching Contributions made on behalf of such Highly Compensated Employees are refunded to satisfy the limitation of this Subsection, the Committee shall determine the amount of “Excess After-Tax Contributions” or “Excess Matching Contributions” and shall refund such amounts on the basis of such Highly Compensated Employees’ contribution amounts. “Excess After-Tax Contributions” and “Excess Matching

 
-37- Contributions” mean the amount by which After-Tax Contributions or Matching Contributions for a Plan Year made by or on behalf of Highly Compensated Employees exceed the above limitations. Excess After-Tax and Matching Contributions previously withheld (and any income allocable thereto determined in accordance with Subsection 8.6) shall be distributed within 2½ months after the close of the Plan Year to which they relate. In lieu of distributing Excess After-Tax or Matching Contributions, an Employer may make qualified nonelection employer contributions described in the preceding Subsection. 8.6 Calculating Income Allocable to Excess Deferrals and Contributions The income allocable to a distribution to a Participant for a Plan Year (as required under Subsections 8.1, 8.3, 8.4, and 8.5) shall be determined under any method permitted under Treasury Regulations and selected by the Committee, provided such method does not discriminate in favor of Highly Compensated Employees, is used consistently for all Participants and for all corrective distributions for the Plan Year, and is based on the method for allocating income to Participants’ Accounts. No income or loss shall be allocated to Excess Deferrals, Excess Pre-Tax Contributions, Excess After-Tax Contributions, or Excess Matching Contributions for the period between the end of the Plan Year in which such Excess Deferrals, Excess Pre-Tax Contributions, Excess After-Tax Contributions and/or Excess Matching Contributions arose and the date of distribution of such amounts. 8.7 Corrective Contributions/Reallocations In addition to the powers described in Subparagraph 13.5(j), the Committee may take the following actions to correct errors in the administration of the Plan: (a) If, with respect to any Plan Year, an administrative error results in a Participant’s Account not being properly credited with Pre-Tax Contributions, After-Tax Contributions, Rollover Contributions, Matching Contributions or Retirement Contributions, or earnings on any such amounts, the Committee may take corrective action, including, but not limited to, one or more of the following corrective actions, in order to place such Participant’s Account in the position that the Account would have been in had no error occurred: (i) Direct additional contributions to be made to such Participant’s Accounts; (ii) Reallocate existing contributions among the Accounts of affected Participants; or (iii) Such other actions as it considers desirable under the circumstances as are consistent with the principles of the Employee Plans Compliance Resolution System set forth in Revenue Procedure 2008-50 and/or subsequent guidance published in the Internal Revenue Bulletin. (b) If, with respect to any Plan Year, an administrative error results in an amount being credited to the Account of a Participant or any other individual who is not

 
-38- otherwise entitled to such amount, the Committee may take corrective action, including but not limited to: (i) Direct the forfeiture of amounts erroneously credited (with such forfeitures to be used to reduce future Employer contributions or other contributions to the Plan); (ii) Reallocate such erroneously credited amounts to other Participants’ Accounts; or (iii) Such other actions as it considers desirable under the circumstances as are consistent with the principles of the Employee Plans Compliance Resolution System set forth in Revenue Procedure 2008-50 and/or subsequent guidance published in the Internal Revenue Bulletin.

 
-39- SECTION 9 VESTING AND FORFEITURES 9.1 Participant Contributions A Participant shall at all times be 100% vested in his or her Pre-Tax, After-Tax, Catch- Up, Rollover and After-Tax Rollover Accounts. 9.2 Matching Contributions Each Participant, who terminates employment with the Related Employers on or after Normal Retirement Age or by reason of death or Disability (or by reason of death (effective as of January 1, 2007) or Disability while performing qualified military service (within the meaning of Code Section 414(u)(5)), shall be 100% vested in the Matching Contributions made to his or her Match Account. Each other Participant shall vest in his or her Matching Contributions as described below. (a) Except as provided in Paragraph (b), (c), (d), (e) or (f) below, each Participant shall vest in his or her Match Account in accordance with the following table: Number of Years of Vesting Service Vesting Percentage Less than 3 0% 3 or more 100% (b) Each Participant described in Subparagraphs (i), (ii), (iii) and (iv) below shall vest in his or her Match Account in accordance with the following table: Number of Years of Vesting Service Vesting Percentage Less than 1 0% 1 but less than 2 50% 2 but less than 3 75% 3 or more 100% (i) Each Participant who is an IAM Local 701 Employee or a Sheet Metal Workers Local 265 Employee; (ii) Each Participant who is an IBEW Local 134 Employee (with respect to Matching Contributions received prior to January 1, 2009 only); (iii) Each Participant who received Matching Contributions prior to January 1, 2007; and

 
-40- (iv) Each Participant who was an eligible Employee of ClappDico Corporation, Dayton Progress Corporation, Manchester Tool Company, On Time Machining Company, or PCS Company. (c) Each Participant who is an IBEW Local 134 Employee shall vest in his or her Match Account, with respect to Matching Contributions made on or after January 1, 2009 only, in accordance with the following table: Number of Years of Vesting Service Vesting Percentage 1 or less 50% Greater than 1, but less than 3 75% 3 or more 100% (d) (d) Effective as of October 1, 2010, each Participant who was a participant in the VESystems 401(k) Plan on or before October 1, 2010 shall vest in his or her Match Account in accordance with the following table: Number of Years of Vesting Service Vesting Percentage Less than 1 0% 1 but less than 2 40% 2 or more 100% (e) Effective as of the date a Prior Plan merges with and into the Plan, each Participant who was a participant in such Prior Plan shall be 100% vested in the portion of his or her Match Account attributable to matching contributions transferred from such Prior Plan. (f) The following Participants shall be 100% vested in their Match Accounts: (i) each Participant who was employed by Jamestown Precision Tooling, Inc. and terminated employment due to a plant closing after March 1, 2003; (ii) each Participant who was employed by Federal Sign, Inc. on April 30, 2003; (iii) each Participant who was employed by E-One New York, Inc. as of September 18, 2004 and who worked until his or her scheduled termination date; (iv) each Participant who was employed by Technical Tooling, Inc. on December 3, 2004; (v) each Participant who was employed by Justrite Manufacturing Company LLC on December 15, 2004; (vi) each Participant who was employed by Allied Tool Products, Inc. on December 28, 2004; (vii) each Participant who was employed by ClappDico Corporation, Manchester Tool Company or On Time Machining Company on January 31, 2007; (viii) each Participant who was a participant in the PIPs Technology, Inc. 401(k) Plan on or before January 1, 2008; (ix) each Participant who was employed by Dayton Progress Corporation or PCS Company on April 21, 2008; (x) each Participant who was employed by E-One, Inc. on

 
-41- August 4, 2008, and (xi) each Participant who was employed by Pauluhn Electric Manufacturing Company, LLP on November 23, 2009, and (xii) each Participant who was employed by Federal APD, Inc., PIPs Technology, Inc., Sirit Corp. or VESystems, LLC on September 4, 2012. 9.3 Retirement Contributions Each Participant, who terminates employment with the Related Employers on or after Normal Retirement Age or by reason of death or Disability (or by reason of death (effective as of January 1, 2007) or Disability while performing qualified military service (within the meaning of Code Section 414(u)(5)), shall be 100% vested in the Retirement Contributions made to his or her Retirement Account. Each other Participant shall vest in his or her Retirement Contributions as described below. (a) Except as provided in Paragraph (b), (c), (d) or (e) below, each Participant shall vest in his or her Retirement Account in accordance with the following table: Number of Years of Vesting Service Vesting Percentage Less than 3 0% 3 or more 100% (b) Each Participant described in Subparagraphs (i) and (ii) below shall vest in his or her Retirement Account in accordance with the following table: Number of Years of Vesting Service Vesting Percentage Less than 1 0% 1 but less than 2 50% 2 but less than 3 75% 3 or more 100% (i) Each Participant who is a non-union Employee of Manchester Tool Company; or (ii) Each Participant who received Retirement Contributions prior to January 1, 2007 and was employed by Elgin Sweeper Company, Jamestown Precision Tooling, Inc., Justrite Manufacturing Company LLC, Technical Tooling, Inc., or, with respect to Retirement Contributions received prior to January 1, 2003 only, E-One, Inc. or Victor Products USA, Inc. (c) Each Participant who is an IBEW Local 134 Employee shall vest in his or her Retirement Account in accordance with the following table:

 
-42- Number of Years of Vesting Service Vesting Percentage 1 or less 50% Greater than 1, but less than 3 75% 3 or more 100% (d) Effective as of the date a Prior Plan merges with and into the Plan, each Participant who was a participant in such Prior Plan shall be 100% vested in the portion of his or her Retirement Account attributable to profit sharing contributions transferred from such Prior Plan. (e) The following Participants shall be 100% vested in their Retirement Accounts: (i) with respect to Retirement Contributions received on or after January 1, 2003 only, each Participant who was employed by E-One, Inc., E-One New York, Inc. or Victor Products USA, Inc.; (ii) each Participant who was employed by Jamestown Precision Tooling, Inc. and terminated employment due to a plant closing after March 1, 2003; (iii) each Participant who was employed by E-One New York, Inc. as of September 18, 2004 and who worked until his or her scheduled termination date; (iv) each Participant who was employed by Technical Tooling, Inc. on December 3, 2004; (v) each Participant who was employed by Justrite Manufacturing Company LLC on December 15, 2004; (vi) each Participant who was employed by Manchester Tool Company on January 31, 2007; (vii) each Participant who was a participant in the PIPs Technology, Inc. 401(k) Plan on or before January 1, 2008; (viii) each Participant who was employed by E-One, Inc. on August 4, 2008; and (ix) each Participant who was employed by Pauluhn Electric Manufacturing Company, LLP on November 23, 2009; and (x) each Participant who was employed by Federal APD, Inc., PIPs Technology, Inc., Sirit Corp. or VESystems, LLC on September 4, 2012. 9.4 Qualified Nonelective Contributions A Participant shall at all times be 100% vested in his or her Qualified Nonelective Account. 9.5 Prior Plan ESOP Contributions A Participant shall vest in his or her Prior Plan ESOP Account in accordance with the following table: Number of Years of Vesting Service Vesting Percentage Less than 1 0% 1 but less than 2 50% 2 but less than 3 75% 3 or more 100%

 
-43- 9.6 Amendments to Vesting Schedule No amendment to the Plan’s vesting schedules shall deprive a Participant of nonforfeitable rights to benefits accrued prior to the date of such amendment. If the Plan’s vesting schedule is amended, each Participant with at least three years of Vesting Service may elect to have his or her nonforfeitable percentage determined without regard to such amendment. The period during which the election may be made shall commence with the date the amendment is adopted and shall end on the later of 60 days after the amendment is adopted, 60 days after the amendment is effective, and 60 days after the Participant receives written notice of the amendment. 9.7 Forfeitures Any portion of a Participant’s Accounts that do not vest shall be regarded as forfeitures upon such Participant’s Severance From Service. All forfeited amounts shall be used to reduce contributions of the Participant’s Employer or to pay Plan expenses. Pending allocation to reduce Employer contributions, such amounts shall be invested as directed by the Investment Committee or its designee. 9.8 Reinstatement of Accounts for Rehires If an inactive Participant who has made Pre-Tax Contributions resumes employment and again becomes a Participant at any time, or if an inactive Participant who was partially vested in any Matching Contributions or Retirement Contributions resumes employment and again becomes a Participant before incurring a Break in Service of five years, the portion of the Participant’s Accounts that was previously forfeited shall be reinstated if (i) such Participant has not received a distribution from the Plan, or (ii) such Participant received a distribution of less than the full amount of his or her Accounts repays in cash the amount of his or her previously distributed Accounts. Any such repaid amount shall be nonforfeitable. Reinstated amounts shall be invested in the default investment arrangement specified by the Investment Committee in accordance with ERISA Section 404(c)(5) and related regulations until such Participant makes an investment election on an Approved Form of Election with respect to such amounts. 9.9 Death Benefits under Qualified Military Service Notwithstanding any provision of the Plan to the contrary, effective as of January 1, 2007, in the case of a Participant who dies while performing qualified military service (as defined in Code Section 414(u)), the survivor(s) of the Participant shall be entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) provided under the Plan had the Participant resumed and then terminated employment on account of death.

 
-44- SECTION 10 PAYMENTS 10.1 Form of Payment Subject to Subsections 10.2 and 10.5, after each Participant’s Severance From Service, the vested value of the Participant’s Accounts shall be paid to or for the benefit of the Participant or his or her Beneficiary in one or more of the following forms of payment as the Participant or his or her Beneficiary elects: (a) By a single payment in cash; (b) By monthly, quarterly, semi-annual or annual installments in cash during a period not to exceed the life expectancy of the Participant or the joint life expectancy of the Participant and his or her designated Beneficiary determined at the date payments begin; provided, however, that unless the Participant elects otherwise, all distributions of the Participant’s ESOP Subaccounts shall be made over a period not longer than five years, in compliance with Code Section 409(o); or (c) By one or more payments in accordance with Paragraph (a) or (b) above, except that such payment(s) shall be made in whole shares of Federal Signal Common Stock, to the extent that the portion of such Participant’s Account balances allocated to the Federal Signal Stock Fund is evenly divisible by the fair market value of such stock on the Business Day as of which such value is determined, and the remainder of such Participant’s Account in cash. 10.2 Time of Payment Following a Participant’s Severance From Service, distribution of the balance of a Participant’s Account shall be made or commence as follows: (a) Consent Required. Payment of a Participant’s Accounts (as determined pursuant to Subsection 10.1) shall be made pursuant to the Participant’s request for payment and within the time frame established by the Committee. If the vested value of a Participant’s Accounts exceeds $5,000, such vested value shall not be paid without his or her consent. Unless a Participant elects otherwise, payment of the Participant’s Accounts shall be paid in a single cash payment not later than the 60th day after the close of the Plan Year in which the latest of: (i) the Participant’s attainment of Normal Retirement Age; (ii) the tenth anniversary of the Participant’s participation in the Plan, and (iii) the Participant’s Severance From Service date. (b) Mandatory Distributions. Notwithstanding any other provision of this SECTION 10 to the contrary, the following rules shall apply to a Participant, Beneficiary or Alternate Payee if the vested value of his or her Accounts does not exceed $5,000 (excluding the balance in his or her Rollover Account and After-

 
-45- Tax Rollover Account) and he or she does not make a distribution election within the time frame established by the Committee: (i) Account Balance of $1,000 or Less. If the Participant incurs a Severance From Service and if the vested value of his or her Accounts (including the value of his or her Rollover Account and After-Tax Rollover Account) does not exceed $1,000, he or she shall receive payment of such vested value in a single cash payment in accordance with rules and procedures established by the Committee; provided, that if the vested value of a Participant’s Accounts is zero, then such vested value shall be deemed paid to the Participant immediately. (ii) Account Balance Over $1,000. If the Participant incurs a Severance From Service and if the vested value of his or her Accounts (excluding the value of his or her Rollover Account and After-Tax Rollover Account) is greater than $1,000 but less than or equal to $5,000, such vested value shall be paid in a direct rollover to an individual retirement plan designated by the Committee in accordance with rules and procedures established by the Committee, unless the Participant otherwise elects to have the value of his or her Accounts paid in a single payment in cash or rolled over to an eligible retirement plan in accordance with Subsection 10.3. 10.3 Direct Rollover of Eligible Rollover Distribution If payment of a Participant’s benefits constitutes an Eligible Rollover Distribution, then the Participant or other Eligible Distributee may elect to have such distribution paid directly to an Eligible Retirement Plan. (a) Eligible Distributee means (i) an Employee or former Employee, (ii) an Employee’s or former Employee’s surviving Spouse, (iii) the Employee’s or former Employee’s Spouse or former Spouse who is the Alternate Payee under a Qualified Domestic Relations Order, and (iv) an individual who is a non-Spouse designated Beneficiary (as defined by Section 401(a)(9)(E) of the Code) of the Employee or former Employee. (b) Eligible Retirement Plan means (i) an individual retirement account described in Code Section 408(a), (ii) an individual retirement annuity described in Code Section 408(b) (other than an endowment contract), (iii) an annuity plan described in Code Section 403(a), (iv) a qualified trust described in Code Section 401(a), (v) an annuity contract described in Code Section 403(b), (vi) an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state, or (vii) a Roth IRA as described in Code Section 408A. The definition of an Eligible Retirement Plan shall also apply in the case of a distribution to a surviving Spouse, or to a Spouse or former Spouse who is the alternate payee under a Qualified Domestic Relations Order. In the case of a non-Spouse

 
-46- designated Beneficiary, an Eligible Retirement Plan includes only an individual retirement account or annuity described in Code Section 408(a) or (b) or 408A, solely to the extent permitted under Code Section 402(c)(11) and the Treasury Regulations and other guidance issued thereunder. (c) Eligible Rollover Distribution means any distribution of all or any portion of the balance to the credit of the Eligible Distributee, except that an Eligible Rollover Distribution does not include: (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Eligible Distributee or the joint lives (or joint life expectancies) of the Eligible Distributee and the Eligible Distributee’s designated Beneficiary, or for a specified period of ten years or more, (ii) any distribution to the extent such distribution is required under Code Section 401(a)(9), (iii) any distribution made on account of financial hardship, and (iv) any distribution of less than $200. A portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of After-Tax Contributions which are not includible in gross income. However, such portion may be transferred to an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b) (other than an endowment contract), an annuity plan or contract described in Code Section 403(a) or 403(b), a qualified plan described in Code Section 401(a), or a Roth IRA (solely to the extent allowed under the Code), only if such individual retirement account, individual retirement annuity, annuity plan or contract, qualified trust, or Roth IRA agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible. A rollover distribution to a Roth IRA must satisfy the requirements of Code Sections 402(c) and 408A. 10.4 Designation of Beneficiary At any time before payment of a Participant’s Accounts or, if installment payments have begun, then at any time before payment of the last installment, a Participant may designate a Beneficiary or Beneficiaries (who may be executors or trustees and who shall be the same person or persons for each of the Participant’s Accounts) on an Approved Form of Election. The Participant may change or revoke any such designation on an Approved Form of Election at any time before payment of his or her Accounts or, if installment payments have begun, then at any time before payment of the last installment. A Participant’s Spouse shall in all cases be deemed to be his or her Beneficiary unless (i) the Participant has filed an Approved Form of Election designating a non-Spouse Beneficiary, (ii) the Spouse of the Participant has consented in writing to such designation, (iii) the consent acknowledges the effect of the designation and is witnessed by a notary public, and (iv) such election designates a Beneficiary that may not be changed without further spousal consent, unless the Spouse executed a general written consent expressly permitting changes of the Beneficiary without any requirement of further consent of the Spouse. Notwithstanding the foregoing, the spousal consent requirements shall not apply if the Participant establishes to the

 
-47- satisfaction of the Committee that such written consent may not be obtained because there is no Spouse, the Spouse cannot be located, or other circumstances (as described in Treasury Regulations under Code Sections 401(a)(11) and 417) preclude the necessity of the Spouse’s consent. If the Spouse of a Participant is legally incompetent to give consent, such consent may be given by the Spouse’s legal guardian, which shall include the Participant if he or she is the Spouse’s legal guardian. If the Participant is legally separated or has been abandoned, as provided by a court order, spousal consent shall not be required, except where required provided by a Qualified Domestic Relations Order. Upon a Participant’s death, a Beneficiary may designate a secondary Beneficiary or Beneficiaries to receive payment of the Participant’s Accounts upon the primary Beneficiary’s death. Such designation must be made on an Approved Form of Election prior to entire payment of the Participant’s Accounts. If a deceased Participant failed to designate a Beneficiary as provided above, or if the Beneficiary dies before the Participant or before complete payment of the Participant’s Accounts, the Participant’s Accounts shall be distributed in the following order. (a) To the Participant’s surviving Spouse (determined as of the date of the Participant’s death). (b) If Paragraph (a) does not apply because the Participant does not have a Spouse on the date of his or her death, to the legal representative or representatives of the estate of the last to die of the Participant and the Participant’s designated Beneficiary (the “Surviving Payee”) or, if an estate is not opened on behalf of the Participant or Beneficiary, to the duly authorized individual properly designated by any applicable small estate affidavit or similar documentation issued pursuant to applicable state law. (c) If an estate is not opened on behalf of the Surviving Payee, to the duly authorized individual properly designated by any applicable small estate affidavit or similar documentation issued pursuant to applicable state law. (d) If there is no duly authorized individual properly designated by any applicable small estate affidavit or similar documentation issued pursuant to applicable state law, to or for the benefit of one or more of the Surviving Payee’s relatives by blood, adoption or marriage in such proportions as the Committee (or its delegate) determines. 10.5 Minimum Distribution Requirements Notwithstanding any provision of the Plan to the contrary, with respect to distributions made for calendar years beginning on or after January 1, 2003, the Plan shall apply the minimum distribution requirements of Code Section 401(a)(9) in accordance with final and temporary Treasury Regulations under Code Section 401(a)(9) that were issued by the Internal Revenue Service on April 17, 2002 and June 15, 2004 (as corrected on November 22, 2004), including Treasury Regulation Sections 1.401(a)(9)-2 through 1.401(a)(9)-9 and the incidental death benefit requirements of Code Section 401(a)(9)(G). Any provisions of the Plan that are

 
-48- inconsistent with Code Section 401(a)(9) and the Treasury Regulations thereunder shall be deemed inoperative. The Participant’s entire interest shall be distributed, or begin to be distributed, to the Participant no later than the Participant’s required beginning date, which is generally the later of the April 1 following the Participant’s attainment of age 70½ or the date the Participant has a Severance From Service. However, if the Participant is a 5% owner, Plan distributions must commence no later than the April 1 following the Participant’s attainment of age 70½. Benefits must be paid over a period not extending beyond the life expectancy of the Participant or the joint life expectancies of the Participant and his or her Beneficiary. If the Participant dies after installment distributions have begun, payments shall continue under the elected payment form. If the Participant dies before distributions begin, the Participant’s entire interest shall be distributed, or begin to be distributed, no later than the following: (a) If the Participant’s surviving Spouse is the Participant’s sole Beneficiary, distributions to the surviving Spouse shall begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70½, if later. (b) If the Participant’s surviving Spouse is not the Participant’s sole Beneficiary, distributions to the Beneficiary shall begin by December 31 of the calendar year immediately following the calendar year in which the Participant died. (c) If there is no designated Beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest shall be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death. If the Participant’s Spouse is the sole Beneficiary and dies after the Participant but before distributions have begun, then Paragraphs (b) and (c) above shall apply as if the Spouse were the Participant. Notwithstanding any provision of this Subsection to the contrary, effective as of January 1, 2009, a Participant or Beneficiary who would have been required to receive required minimum distributions for 2009 but for the enactment of Code Section 401(a)(9)(H) (“2009 RMDs”), and who would have satisfied that requirement by receiving distributions that are (i) equal to the 2009 RMDs or (ii) one or more payments in a series of substantially equal distributions (that include the 2009 RMDs) made at least annually and expected to last for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancy) of the Participant and the Participant’s designated Beneficiary, or for a period of at least ten years (“Extended RMDs”), shall receive those distributions for 2009 unless the Participant or Beneficiary chooses not to receive such distributions. Participants and Beneficiaries described in the preceding sentence shall be given the opportunity to elect not to receive the distributions described in the preceding sentence. In addition, 2009 RMDs and Extended RMDs shall be treated as Eligible Rollover Distributions under Subsection 10.3, but shall not be eligible for a direct rollover.

 
-49- 10.6 Missing Persons The Employers and the Committee shall not be required to search for or locate a Participant, Spouse, Alternate Payee or Beneficiary. Each Participant, Spouse, Alternate Payee, and Beneficiary must file with the Committee from time to time in writing his or her post office address and each change of post office address. Any communication, statement, or notice addressed to a Participant, Spouse, Alternate Payee, or Beneficiary at the last post office address filed with the Committee, or if no address is filed with the Committee, then in the case of a Participant, at the Participant’s last post office address as shown on the Employers’ records, shall be considered a notification for purposes of the Plan and shall be binding on the Participant, Spouse, Alternate Payee and Beneficiary for all purposes of the Plan. If the Committee notifies a Participant, Spouse, Alternate Payee, or Beneficiary, and if such person fails to claim Plan benefits or make such person’s whereabouts known to the Committee within two years after the notification, the benefits of the Participant, Spouse, or Beneficiary may be disposed of, to the extent permitted by applicable law, by one or more of the following methods: (a) By retaining such benefits in the Plan; (b) By paying such benefits to a court of competent jurisdiction for judicial determination of the right thereto; (c) By forfeiting such benefits in accordance with procedures established by the Committee. If a Participant, Spouse, Alternate Payee or Beneficiary is subsequently located, such benefits shall be restored to the Participant, Spouse, Alternate Payee or Beneficiary under the Plan; or (d) By any equitable manner permitted by law under rules adopted by the Committee. 10.7 Recovery of Benefits In the event a Participant, Spouse, Alternate Payee, or Beneficiary receives a benefit payment from the Plan that is in excess of the benefit payment that should have been made to such Participant, Spouse, Alternate Payee, or Beneficiary or in the event a person other than a Participant, Spouse, Alternate Payee, or Beneficiary receives an erroneous payment from the Plan, the Committee shall have the right, on behalf of the Plan, to recover the amount of the excess or erroneous payment from the recipient. To the extent permitted under applicable law, the Committee may, at its option, deduct the amount of such excess or erroneous payment from any future benefits payable on behalf of a Participant, regardless of whether such amount would otherwise be paid to a Participant, Spouse, or Alternate Payee, Beneficiary who did not receive the overpayment. 10.8 Facility of Payment When a person entitled to benefits under the Plan is under legal disability, or, in the Committee’s opinion, is in any way incapacitated so as to be unable to manage his or her financial affairs, the Committee may direct the Trustee to pay the benefits to such person’s legal representative, or to a relative or friend of such person for such person’s benefit, or the Committee may direct the application of such benefits for the benefit of such person. Any

 
-50- payment made in accordance with the preceding sentence shall be a full and complete discharge of any liability for such payment under the Plan.

 
-51- SECTION 11 IN-SERVICE WITHDRAWALS 11.1 Hardship Withdrawals A Participant may, prior to his or her Severance From Service, apply for a hardship withdrawal of all or any part of his or her Pre-Tax Account (excluding earnings credited on Pre- Tax Contributions after December 31, 1988), Rollover Account, After-Tax Rollover Account and Prior Plan ESOP Account, as applicable. Notwithstanding the foregoing, effective as of October 1, 2010, each Participant who was a participant in the VESystems 401(k) Plan on or before October 1, 2010 may apply for a hardship withdrawal of all or any part of his or her vested Account balances transferred from the VESystems 401(k) Plan. If a hardship withdrawal is made pursuant to this Subsection, the Participant may not make Pre-Tax, Catch-Up, or After- Tax Contributions for a period of six months following the date he or she receives the payment. A hardship withdrawal must be for an immediate and heavy financial need of the Participant for which funds are not reasonably available from other resources of the Participant. A Participant shall be deemed to have an immediate and heavy financial need if the hardship is on account of: (a) Payment of unreimbursed medical expenses described in Code Section 213(d) (determined without regard to whether the expenses exceed 7.5% of adjusted gross income) previously incurred by the Participant, his or her Spouse, any dependents of the Participant (as defined in Code Section 152 without regard to Code Sections 152(b)(1), (b)(2), and (d)(1)(B)), including any non-custodial child who is subject to the special rule of Code Section 152(e), or Primary Beneficiary, or payment of unreimbursed expenses necessary for these persons to obtain medical care described in Code Section 213(d); (b) Purchase (excluding mortgage payments) of the principal residence of the Participant; (c) Payment of tuition, related educational fees, and room and board expenses, for the next twelve months of post-secondary education for the Participant, his or her Spouse, the Participant’s dependents (as defined in Code Section 152 without regard to Code Sections 152(b)(1), (b)(2), and (d)(1)(B)), or Primary Beneficiary; (d) Prevention of the eviction of the Participant from his or her principal residence or prevention of the foreclosure on the mortgage on his or her principal residence; (e) Payment of burial or funeral expenses for the Participant’s deceased parent, Spouse, children, dependents (as defined in Code Section 152 without regard to the change in definition under Code Section 152(d)(1)(B)), or Primary Beneficiary; (f) Payment of expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under Code Section 165

 
-52- (determined without regard to whether the loss exceeds 10% of adjusted gross income); or (g) Other events provided for in revenue rulings, notices or other documents of general applicability published by the Commissioner of Internal Revenue. For purposes of this Subsection, “Primary Beneficiary” means an individual who a Participant has named as his or her Beneficiary under Subsection 10.4 and who has an unconditional right to all or a portion of the Participant’s Account balances upon the Participant’s death (a contingent or secondary Beneficiary does not qualify). A Participant shall be deemed to have established that the amount is not reasonably available from other resources if the Participant has elected to receive a cash distribution of the dividends paid on the shares of Federal Signal Common Stock attributable to his or her proportionate interest in the Federal Signal Stock Fund and has obtained all other in-service withdrawals, distributions and nontaxable loans available under this Plan and any other plan maintained by his or her Employer. The Committee shall determine whether a financial hardship exists and the amount to be paid as a result of the hardship. When making this determination, the Committee may rely on the Participant’s written representation that his or her immediate and heavy financial need could not be satisfied in whole or in part from other resources reasonably available to him or her. Financial hardship determinations shall be made in accordance with the Code and the applicable Treasury Regulations and using a uniform and nondiscriminatory standard. If the Committee or its designee approves the hardship withdrawal, the hardship withdrawal shall not exceed the amount required to meet the need created by the hardship, including any amounts necessary to pay any Federal income taxes or penalties reasonably anticipated to result from the withdrawal. Notwithstanding any provision of the Plan to the contrary, a Participant who is also a participant in the Federal Signal Corporation Savings Restoration Plan may not request a hardship withdrawal under this Subsection. 11.2 Withdrawals Upon Attainment of Age 59½ Before a Severance From Service, but after attainment of age 59½, a Participant may withdraw of all or any portion of the balance in his or her Pre-Tax Account. Notwithstanding the foregoing, effective as of October 1, 2010, a Participant who was a participant in the VESystems 401(k) Plan on or before such date may also withdraw all or any portion of his or her Account balances transferred from the VESystems 401(k) Plan after attainment of age 59½. 11.3 Withdrawals Upon Attainment of Normal Retirement Age Before a Severance From Service, but after attainment of Normal Retirement Age, a Participant may withdraw of all or any portion of the balances in his or her Accounts.

 
-53- 11.4 Withdrawals From After-Tax Account Before a Severance From Service, a Participant may withdraw all or any portion of the balances in his or her After-Tax Account once per calendar year. If the Participant withdraws After-Tax Contributions made to the Plan before January 1, 1987, the withdrawal shall come first from the Participant’s After-Tax Contributions, and then, once all of such contributions have been withdrawn, from the investment earnings on such contributions. If the Participant withdraws After-Tax Contributions made to the Plan after December 31, 1986, the withdrawal shall come, pro rata, from both the Participant’s After-Tax Contributions and the investment earnings on those contributions. 11.5 Withdrawals From Rollover Account and After-Tax Rollover Account Before a Severance From Service, a Participant may withdraw all or any portion of the balances in his or her Rollover Account and After-Tax Rollover Account once per calendar year. 11.6 Withdrawals From Balances Transferred from a Prior Plan Before a Severance From Service, a Participant who was a participant in the PIPs Technology, Inc. 401(k) Plan (the “PIPs Plan”) on or before April 1, 2008 may withdraw all or any portion of his or her Accounts attributable to balances transferred to the Plan from the PIPs Plan if such Participant incurs a Disability. 11.7 Distributions To Individuals Performing Military Service A Participant, who receives a distribution that meets the requirements of Paragraph (a) below, shall be treated as having received a distribution under Paragraph (a) even if the distribution would also have been permitted under Paragraph (b). (a) Qualified Reservist Distributions: A Participant may withdraw all or a portion of the balances in his or her Pre-Tax Account if: (i) such Participant is a member of a reserve component (as defined in Section 101 of Title 37, United States Code) that is ordered or called to active duty after September 11, 2001, and (ii) the Participant’s tour of active duty has a duration in excess of 179 days or an indefinite period. This withdrawal may only be made during the period that begins on the date of the Participant’s order or call to active duty and ends on the date of the Participant’s active duty. (b) Distributions Related to Deemed Severance From Service: During any period in which the Participant is performing qualified military service described in Code Section 414(u)(5) for more than 30 days, the Participant shall be treated as having incurred a Severance From Service for purposes of receiving a distribution from his or her Pre-Tax Account. If such Participant elects to receive a distribution from his or her Pre-Tax Account, the Participant cannot make Pre-Tax, Catch-Up or After-Tax Contributions for six months following election and payment of such distribution.

 
-54- 11.8 Application for In-Service Withdrawals An application for any in-service withdrawal under this SECTION 11 must be made through an Approved Form of Election. The minimum amount of any in-service withdrawal is $300. Any withdrawal payment shall be made as soon as practicable.

 
-55- SECTION 12 LOANS 12.1 Terms and Conditions of Loans Pursuant to procedures the Committee shall establish for loan applications and processing, the Committee may approve loans to Participants, subject to the following terms and conditions. (a) Any application for a loan must be made through an Approved Form of Election. (b) A loan shall be evidenced by a promissory note in a form approved by the Committee and shall provide for repayment over a fixed period and interest at the prevailing rate, which payment period and interest rate shall be determined by the Committee in a uniform manner. (c) At any one time, a Participant may not have outstanding more than one loan. (d) The Participant shall pledge a portion of his or her vested Accounts as security for such loan, and shall pay from such Accounts all reasonable fees related to the processing of any loan. (e) The Committee may permit loan rollovers in cases of acquisitions or dispositions for certain groups during certain periods. 12.2 Amount of Loans The principal amount of any loan made to a Participant, together with the unpaid balance of any other outstanding loans under the Plan and all other qualified employer plans (as defined in Code Section 72(p)(4)) sponsored by a Related Employer, on the date the loan is made, shall not exceed the lesser of (a) or (b) below: (a) $50,000, reduced by the excess (if any) of: (i) the highest outstanding balance of loans under the Plan and all other qualified employer plans during the twelve- month period ending the day before such loan was made, minus (ii) the outstanding balance of such outstanding loans on the date on which such loan was made; or (b) One-half of the total balance of the Participant’s vested Accounts. The minimum loan amount to a Participant shall not be less than $1,000. 12.3 Repayment of Loans A loan shall specify a repayment period that shall not extend beyond five years after the date the loan is made, unless the proceeds of the loan are used to purchase the Participant’s

 
-56- principal place of residence, in which case such loan must be repaid within ten years after the date the loan is made. Repayment of each loan shall be made by payroll deduction. Each loan shall require substantially level amortization with payments not less frequently than quarterly. Prepayment of all or a portion of the loan is permitted at any time without penalty by certified check or money order made payable to the Trustee. Pursuant to rules established by the Committee, if a Participant is on an unpaid Approved Leave of Absence, he or she may be permitted to defer repayments for up to one year, and may be given a grace period to repay the loan if a payment is missed. Notwithstanding the foregoing, if a Participant is on an Approved Leave of Absence due to qualified military service, his or her loan repayments may be suspended in accordance with Code Section 414(u)(4), and for the duration of his or her qualified military service, the interest rate on his or her outstanding loan shall be capped at the lesser of the original loan rate or 6%. Loan repayments shall be credited to the Participant’s Accounts from which the loan was made as of the date such payment is received by the Trustee on a pro rata basis. Loan repayments shall be credited to the Investment Funds in accordance with the Participant’s investment election under Subsection 6.2 in effect at the time of loan repayment, and, in the absence of such investment election, to the default investment arrangement specified by the Investment Committee in accordance with ERISA Section 404(c)(5) and related regulations. 12.4 Unpaid Loans A loan which is not repaid when due shall be deemed to be in default and shall be treated as a “deemed distribution” if not repaid within the cure period specified in uniform rules and guidelines established by the Committee. Upon distribution of a Participant’s Accounts before a loan is repaid in full, the unpaid loan balance, together with loan interest, shall become due and payable, and the Trustee shall first satisfy the indebtedness from the Participant’s Account before making any payments to Participant. If a loan defaults, foreclosure on the promissory note and attachment of security on such loan shall not occur until a distributable event occurs under the Plan.

 
-57- SECTION 13 ADMINISTRATION OF PLAN 13.1 Plan Administrator The Fiduciaries shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under this Plan or the Trust Agreement or delegated to them by the Company. The Company may delegate all or any part of its powers, rights and duties under the Plan to such person or persons as it may deem advisable, including the Benefits Planning Committee, the Committee, the Investment Committee, the Trustee, and such other individuals or entities determined by the Company. The Board of Directors has the sole authority to appoint and remove the members of the Benefits Planning Committee, the Committee, and the Investment Committee. (a) Committee. The Committee shall be the “plan administrator” as defined under ERISA Section 3(16) and the “named fiduciary” as defined under ERISA Section 402(a) of the Plan, except as such duties are delegated to other Fiduciaries under the terms of the Plan. The Committee is responsible for the general administration of the Plan and the carrying out of its provisions. No person shall be ineligible to be a member of the Committee because he or she is, was, or may become a Participant of the Plan. (b) Benefits Planning Committee. The Benefits Planning Committee shall be responsible for carrying out settlor functions reserved by the Company with respect to the Plan, including, without limitation, the authority to amend, modify or terminate the Plan. The Benefits Planning Committee shall also be the “named fiduciary” as defined under ERISA Section 402(a) with respect to oversight of the investment of Plan assets. (c) Investment Committee. The Investment Committee shall be the “named fiduciary” as defined under ERISA Section 402(a) with respect to the investment of Plan assets in accordance with the investment policy established by the Benefits Planning Committee, as it may be amended from time to time. The Investment Committee shall have the sole authority to appoint investment managers and select Investment Funds. The Investment Committee may remove an investment manager at any time, upon reasonable notice. Upon such removal, or upon the resignation of an investment manager, the Investment Committee may appoint another investment manager. (d) Trustee and Investment Managers. The Trustee shall be appointed by the Committee from time to time. The Committee may remove a Trustee at any time, upon reasonable notice, and upon such removal, or upon the resignation of a Trustee, the Committee shall appoint a successor Trustee. The Trustee shall have the sole responsibility for the administration of the Trust and the management of the Trust assets, except that, if the Investment Committee appoints one or more investment managers, each investment manager shall have sole authority and

 
-58- responsibility for the investment and reinvestment of such portion of the Investment Funds as the Investment Committee directs. Except as otherwise provided in Subsection 6.12, the investment managers shall have the sole authority to exercise the right to vote proxies with respect to any securities held in the Trust, other than proxies with respect to Federal Signal Stock Fund. (e) Employers. In general, the respective Employers shall have the sole responsibility for making contributions. Each Fiduciary may rely upon any direction, information or action of another Fiduciary with respect to matters within the responsibility of such other Fiduciary and is not required under this Plan or the Trust to inquire into the propriety of any such direction, information or action. To the maximum extent permitted by law, each Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under this Plan and shall not be responsible for any act or failure to act of another Fiduciary. To the maximum extent permitted by ERISA, no other Fiduciary shall be liable for any loss which may result from a decision of an investment manager with respect to Plan assets under its control. 13.2 Indemnification To the maximum extent permitted by law, the Fiduciaries, those persons to whom a Fiduciary properly delegates any portion of its responsibilities under the Plan and any persons who were, are or become directors, officers or employees of any Employer, and each of them, shall be indemnified and saved harmless by the Employers (to the extent not indemnified of saved harmless under any liability insurance contracts or indemnification arrangements) from and against any and all liability or claim to which the Fiduciaries or such other persons may be subjected by reason of any act done or omitted to be done in good faith with respect to Plan administration other than any liability or claim resulting from such person’s gross negligence or willful misconduct. Such indemnification shall include, but not be limited to, all expenses reasonably incurred in their defense in the event that the Employers failed to provide such defense after having been requested in writing to do so. 13.3 Organization of Committee The Vice President, Human Resources shall act as Chairman of the Committee. Any person appointed by the Chairperson, who may but need not be a member of the Committee, shall act as Secretary. 13.4 Committee Actions The Committee shall hold meetings upon such notice, at such place or places (including by telephone, videoconference, or other electronic means) and at such time or times, as it may from time to time determine. A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. All resolutions adopted or other action taken by the Committee shall be by vote of a majority of the members of the Committee present at any meeting. Any action required or permitted to be taken by the Committee at a meeting may be taken without a meeting if all members of the Committee unanimously consent in writing to the adoption of a resolution authorizing such action.

 
-59- 13.5 Committee General Powers, Rights, and Duties Except as otherwise specifically provided in the Plan, and in addition to the powers, rights, and duties specifically given to the Committee elsewhere in the Plan and the Trust, the Committee shall have the following powers, rights, and duties, which shall be exercisable in the sole discretion of the Committee: (a) To adopt and enforce such rules, procedures, and regulations as in its opinion may be necessary for the proper and efficient administration of the Plan and Trust and as are consistent with the Plan and Trust, and to change, alter, or amend such rules, procedures, and regulations. (b) To construe and interpret the provisions of the Plan and make factual determinations, including the remedying of ambiguous provisions. (c) To determine all questions arising in the administration of the Plan, including the power to determine the rights or eligibility of Employees or Participants or any other persons, and the amounts of their benefits (if any) under the Plan, and to remedy ambiguities, inconsistencies, or omissions, correct any defect and supply any information, and any such determination shall be binding on all parties. (d) To employ and suitably compensate such agents, attorneys, accountants, actuaries, recordkeepers, or other persons (who also may be employed by the Employers or the Trustee) to render advice and perform other services as the Committee may deem necessary or advisable to carry out its powers, rights, and duties. (e) To hear, review, and decide claims for benefits (including benefit claims appeals) under the Plan. (f) To direct the Trustee regarding payments or distributions from the Trust Fund in accordance with the provisions of the Plan and Trust. (g) To furnish the Employers and other Fiduciaries with such information as may be required by them for tax or other purposes in connection with the Plan, and to obtain from Fiduciaries and Participants such information as is necessary for the proper administration of the Plan. (h) To prepare reports in accordance with Subsection 13.6. (i) To communicate the Plan and its requirements to Participants in accordance with applicable law. (j) To take such actions as the Committee may deem necessary or advisable to correct any errors in the operation of the Plan.

 
-60- 13.6 Reports The Committee shall prepare an annual report showing in reasonable detail the assets of the Plan and giving a brief account of the operation of the Plan for the preceding Plan Year. The Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with ERISA, the Code and applicable governmental regulations relating to records of Participants’ employment, Accounts and the percentages thereof which are vested under the Plan; notifications to Participants; annual reports to the Department of Labor; and any and all other reports necessary or desirable to maintain the tax-qualified status of the Plan. 13.7 Information Required by Committee The Employers shall furnish the Committee with such data and information as the Committee may deem necessary or desirable in order to administer the Plan. The records of the Employers as to an Employee’s or Participant’s period of employment, termination of employment and the reason therefore, Approved Leave of Absence, reemployment, date of birth, marital status and compensation shall be conclusive on all persons unless determined to the Committee’s satisfaction to be incorrect. 13.8 Allocations and Delegations of Responsibility The Committee may delegate from time to time to such person or persons as it may deem advisable for the efficient administration of the Plan and Trust all or part of the Committee’s powers, rights, and duties under the Plan and the Trust and may authorize such person to delegate such powers, rights, and duties to other person or persons. Any such delegation may be made to an individual, a committee, or subcommittee established by the Committee, a third party, or any other entity selected by the Committee. The Committee at any time may modify or revoke any such delegation. Any action of a delegatee in the exercise of its delegated responsibilities shall have the same force and effect for all purposes hereunder as if such action had been taken by the Committee. Except as otherwise provided by applicable law, the Committee shall not be liable for any acts or omissions of any such delegatee. The delegatee shall periodically report to the Committee concerning the discharge of its delegated responsibilities. Unless otherwise provided, references in the Plan to the Committee shall include delegatees and designees of the Committee. 13.9 Interested Committee Member If a member of the Committee (or one of its delegatees or designees) also is a Participant in the Plan, he or she may not decide or determine any matter or question concerning distributions of any kind to be made to him or her or the nature or mode of settlement of his or her benefits unless such decision or determination could be made by him or her under the Plan if he or she were not serving on the Committee. 13.10 Removal or Resignation The Committee, or any member thereof, shall hold office until the earlier of (i) his or her termination of employment with the Company, or (ii) until the date that the Committee charter is amended to remove the person from membership of the Committee.

 
-61- 13.11 Compensation and Expenses The Committee shall perform its duties without compensation. Unless paid by the Employers and except as otherwise provided below, all reasonable costs, charges, and expenses incurred in the administration of this Plan, including expenses incurred by the Committee, compensation to the Trustee, compensation to an investment manager, and any compensation to agents, attorneys, actuaries, accountants, recordkeepers, and other persons performing services on behalf of this Plan or for the Committee shall be paid from the Trust Fund in such portions as the Committee may direct. As directed by the Committee, expenses to be paid from the Trust Fund may be drawn from (i) Participants’ Accounts, in the form of a flat fee, charges for specific services, or a percentage of the value of each Account, (ii) earnings or gains in each Investment Fund or (iii) forfeitures under Subsection 9.7. Expenses directly related to the investment of a particular Investment Fund (such as brokerage, postage, express and insurance charges, and transfer taxes) shall be paid from that Investment Fund. 13.12 Uniform Application of Rules The Committee shall administer the Plan on a reasonable basis. Any rules, procedures, or regulations established by the Committee shall be applied uniformly to all persons similarly situated. 13.13 Committee’s Decision Final Benefits under the Plan shall be paid only if the Committee, or its delegate, decides in its sole discretion that a Participant or Beneficiary (or other claimant) is entitled to them. Subject to applicable law, any interpretation of the provisions of the Plan and any decisions on any matter within the discretion of the Committee made by the Committee, or its delegate, in good faith shall be binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known and the Committee shall make such adjustment on account thereof as it considers equitable and practicable.

 
-62- SECTION 14 CLAIMS PROCEDURES 14.1 Initial Retirement Benefit Claims In the event of a dispute between the Trustee or Committee and a Participant or Beneficiary over the amount of benefits payable under the Plan, the Participant or Beneficiary may file a claim for benefits by notifying the Committee of such claim. Such notification must be in writing and shall set forth the basis of such claim. The Committee shall decide whether to grant a claim within 90 days of the date on which the claim is received, unless special circumstances require a longer period for review of the claim, and the claimant is notified in writing of the extension of time within the first 90-day period; provided, however, that no extension shall be longer than an additional 90 days beyond the original response deadline. 14.2 Initial Disability Benefit Claims If the claim is for Disability benefits, the Committee shall review the claim within 45 days of the date on which the claim is received. If special circumstances require a longer period for review, and the claimant is notified in writing of the extension of time within the 45-day period, the Committee may extend the time period for responding to the claim by an additional 30 days. If a decision still cannot be made within this 30-day extension period due to circumstances outside the Committee’s control, the Committee may extend the time period for responding to the claim by an additional 30 days, provided that the Committee notifies the claimant in writing of such additional extension prior to the expiration of the original 30-day extension period. 14.3 Initial Claim Processing and Appeal If a claimant has not submitted sufficient information to the Committee to process a benefit claim, the claimant shall be notified of the incomplete claim and given time to submit additional information. This shall extend the time in which the Committee has to respond to the claim from the date the notice of insufficient information is sent to the claimant until the date the claimant responds to the request. If the claimant does not submit the requested missing information to the Committee within a reasonable time period, the claim shall be denied. Whenever a claim for benefits is denied, written notice, prepared in a manner calculated to be understood by the claimant, shall be provided to the claimant, setting forth the specific reasons for the denial, referring to the specific Plan provisions on which the denial is based, explaining the procedures for review of the decision made by the Committee, and explaining the claimant’s right to bring a civil action under ERISA Section 502(a) following a denial on appeal. If the denial is based upon submission of information insufficient to support a decision, the Committee shall specify the information which is necessary to perfect the claim and its reasons for requiring such additional information. Benefits shall be paid only if the Committee determines in its discretion that a claimant is entitled them.

 
-63- Any request for review must be in writing and shall be addressed to the Committee. The request for review shall set forth all of the grounds upon which it is based, all facts in support thereof, and any other matters which the claimant deems pertinent. The Committee may require the claimant to submit such additional facts, documents, or other material as the Committee may deem necessary or appropriate in making its review. 14.4 Appeal Procedures for Retirement Benefits Any individual whose claim for benefits is denied in whole or in part (or such person’s authorized representative) may appeal the denial by submitting to the Committee a written request for review of the application within 60 days after receiving written notice of the denial from the Committee. The Committee shall give the claimant (or the claimant’s representative) an opportunity to review pertinent documents and to submit written comments and other information (even if such information was not submitted in connection with the initial claim) in preparing such request for review. The Committee shall act upon each request for review within 60 days after receipt thereof unless special circumstances require an extension of time of up to an additional 60 days for processing the request for review. If such an extension of time for review is required, written notice of the extension shall be furnished to the claimant prior to the end of the initial 60-day period; provided, however that such review shall be made no later than 120 days after the Committee’s receipt of the claimant’s written request for review. 14.5 Appeal Procedures for Disability Benefits Any individual whose application for Disability benefits is denied in whole or in part (or such person’s authorized representative) may appeal the denial by submitting to the Committee a written request for review of the application within 180 days after receiving written notice of the denial from the Committee. The Committee shall give the claimant (or the claimant’s representative) an opportunity to review pertinent documents and to submit written comments and other information (even if such information was not submitted in connection with the initial claim) in preparing such request for review. The Committee shall act upon each request for review of a Disability claim within 45 days after receipt thereof unless special circumstances require an extension of time of up to an additional 45 days for processing the request for review. If such an extension of time for review is required, written notice of the extension shall be furnished to the claimant prior to the end of the initial 45-day period; provided, however that such review shall be made no later than 90 days after the Committee’s receipt of the claimant’s written request for review. 14.6 Appeals Processing Within the applicable time periods described above, the Committee shall give written notice of its appeal decision to the claimant. In the event the Committee confirms the denial of the application for benefits in whole or in part, such notice shall set forth, in a manner calculated to be understood by the claimant, the specific reasons for such denial, specific references to the Plan provisions on which the decision was based, a statement that the claimant is entitled to receive, upon request and free of charge, access to and copies of all documents, records, and

 
-64- other information relevant to the benefit claim, and a statement regarding the claimant’s right to bring a civil action under ERISA Section 502(a) following a denial on appeal. In the event that the Committee determines that the claim for benefits should not have been denied in whole or in part, the Committee shall take appropriate remedial action. The Committee shall establish rules and procedures, consistent with the Plan and with ERISA, as it may deem necessary or appropriate in carrying out its responsibilities under this Section. The Committee may require a claimant who wishes to submit additional information in connection with a claim or appeal to do so at the claimant’s own expense. No action at law or in equity shall be brought to recover benefits under the Plan until the claim and review process in this SECTION 14 has been exercised and until the Plan benefits requested in such review have been denied in whole or in part. If any judicial proceeding is undertaken to appeal the denial of a claim or bring any other action under ERISA other than a breach of fiduciary duty claim, the evidence presented shall be strictly limited to the evidence timely presented to the Committee. In addition, any such judicial proceeding must be filed no later than the earliest of (i) 90 days after the Committee’s final decision regarding the claim appeal, (ii) three years after the date on which the Participant or other claimant commenced payment of the Plan benefits at issue in the judicial proceeding, or (iii) the statutory deadline for filing a claim or lawsuit with respect to the Plan benefits at issue in the judicial proceeding as determined by applying the most analogous statute of limitations for the state of Illinois. All decisions and communications to Participants, Spouses, Beneficiaries, or other persons regarding a claim for benefits under the Plan shall be held strictly confidential by the Participant, Spouse, Beneficiary (or other claimant), and the Committee, the Employers, and their agents.

 
-65- SECTION 15 MANAGEMENT OF TRUSTS 15.1 Trustee and Trust Agreement All Plan assets shall be held in the Trust. The Trust shall be held by a Trustee under a Trust Agreement approved by the Committee. The Trust Agreement may provide for the joint administration, and commingling, of the Trust Fund with the funds of any other defined contribution plan established by any Related Employer. The assets of the Trust shall be held, invested and disposed of in accordance with the terms of the Trust Agreement. 15.2 Restrictions as to Reversion of Trust Fund to the Employers Except as otherwise provided in this Subsection, all assets of the Trust Fund shall be retained for the exclusive benefit of Participants, Alternate Payees, and Beneficiaries. All the Employers shall have no right, title, or interest in the assets of the Trust Fund. No part of the assets of the Trust Fund at any time shall revert to, or be repaid to, the Employers, directly or indirectly, except as follows. (a) If the Internal Revenue Service initially determines that the Plan, as applied to an Employer, does not meet the requirements of a “qualified plan” under Code Section 401(a), the assets of the Trust Fund attributable to contributions made by the Employer under the Plan shall be returned to the Employer within one year of the date of denial of qualification of the Plan as applied to the Employer. (b) If a contribution or a portion of a contribution is made by an Employer as a result of a mistake of fact, such contribution or portion of a contribution shall not be considered to have been contributed to the Trust by the Employer and, after having been reduced by any losses of the Trust allocable thereto, shall be returned to the Employer within one year of the date the amount is paid to the Trust. (c) Each contribution made by an Employer is conditioned upon the deductibility of such contribution as an expense for Federal income tax purposes, to the extent the deduction for the contribution made by the Employer is disallowed, such contribution, or portion of such contribution, after having been reduced by any losses of the Trust allocable thereto, shall be returned to the Employer within one year of the date of disallowance of the deduction. In no event may the return of a contribution pursuant to Paragraph (b) or (c) above cause any Participant’s Accounts to be less than the amount had the contribution not been made under the Plan.

 
-66- SECTION 16 AMENDMENT AND TERMINATION 16.1 Amendment While the Employers expect and intend to continue the Plan, the Company, by action of the Benefits Planning Committee, reserves the right to amend the Plan, in whole or in part, from time to time, except as follows: (a) The duties and liabilities of the Committee under the Plan cannot be increased substantially without its consent. (b) No amendment shall reduce the value of a Participant’s accrued benefit (as adjusted for income, losses, expenses, appreciation, and depreciation) to less than the amount he or she would be entitled to receive if the Participant had resigned from employment with all of the Employers on the effective date of the amendment. (c) Except as provided in Subsection 15.2 or required by the Code or other applicable law, under no condition shall any amendment result in the return or repayment to any Employer of any part of the Trust Fund or the income therefrom, or result in the distribution of the Trust Fund for the benefit of anyone other than Participants and any other persons entitled to benefits under the Plan. No person has the authority to modify the terms of the Plan, except by means of authorized written amendments to the Plan. No verbal or written representations contrary to the terms of the Plan and its written amendments shall be binding upon the Employers or the Plan. 16.2 Plan Termination The Plan shall terminate as to all Employers on any date specified by the Company by action of the Benefits Planning Committee with 30 days’ advance written notice of the termination given to the Committee, the Trustee, and the other Employers. The Plan shall terminate as to an individual Employer on the first to occur of the following. (a) The date the Plan is terminated by that Employer. (b) The date that Employer is judicially declared bankrupt or insolvent. (c) The date that Employer completely discontinues contributions under the Plan. (d) The date that Employer ceases to be a Related Employer due to one of the following: (i) The sale of all or substantially all of the stock of that Employer to a person that is not a Related Employer;

 
-67- (ii) The sale of all or substantially all of the assets of that Employer to a person that is not a Related Employer; or (iii) The merger or consolidation of that Employer with a person that is not a Related Employer. Each Participant employed by an Employer that ceases to be a Related Employer shall be considered to have terminated employment with all Related Employers on such date and shall cease to accrue additional Plan contributions with respect to any period of time commencing on or after such date. 16.3 Nonforfeitability and Distribution on Termination Upon complete termination or partial termination of the Plan, or the complete discontinuance of all Plan contributions, the rights of all affected Participants to benefits accrued to the date of such termination, after all adjustments, shall be nonforfeitable. Upon such occurrence, the Committee may direct the Trustee to distribute to each Participant employed by that Employer his or her benefits under the Plan in a lump sum (unless he or she then is employed by a Related Employer). However, distributions under this Subsection shall be made only to the extent such distributions are permissible under Code Section 401(k) and applicable Treasury Regulations. All appropriate accounting provisions of the Plan shall continue to apply until all Participants’ Accounts have been distributed under the Plan. 16.4 Plan Merger, Consolidation, or Spin-Off In the case of any merger or consolidation with, or transfer of assets or liabilities to, any other retirement plan qualified under Code Section 401(a), each Participant’s benefit shall be equal to or greater than the benefit he or she would have been entitled to receive if the Plan had terminated immediately before the merger, consolidation, or transfer. If an operating unit of an Employer is sold and the purchaser agrees to a spin-off from the Plan, the Plan Accounts of Employees of such unit shall be transferred to a successor funding arrangement.

 
-68- SECTION 17 MISCELLANEOUS 17.1 Non-Alienation of Benefits The interests of persons entitled to benefits under the Plan are not subject to their debts or other obligations and, except as may be required by the tax withholding provisions of the Code or any state’s income tax act or pursuant to a Qualified Domestic Relations Order. Plan benefits may not be voluntarily or involuntarily sold, transferred, alienated, assigned, or encumbered. 17.2 Absence of Guaranty Neither the Committee, the Trustee, nor any Employer in any way guarantees the Trust Fund from loss or depreciation. Except as required by applicable law, the Committee and the Employers do not guarantee any payment to any person. The liability of a Trustee or the Committee to make any payment under the Plan shall be limited to the assets held by the Trustee which are available for that purpose. 17.3 Employment Rights The Plan does not constitute a contract of employment, and participation in the Plan shall not give any Employee the right to be retained in the employ of any Employer (or any Related Employer), nor any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. 17.4 Litigation by Participants or Other Persons If a legal action begun against a Fiduciary, a Related Employer, or any person or persons to whom the Fiduciary has delegated all or part of its duties hereunder, by or on behalf of any person results adversely to that person, or if a legal action arises because of conflicting claims to a Participant’s or other person’s benefits, the cost to the Fiduciary, a Related Employer, or any person or persons to whom the a Fiduciary has delegated all or part of its duties hereunder of defending the action shall be charged to the Accounts of individuals or Participants involved in the action to the extent permitted by law. 17.5 Evidence Evidence required of anyone under the Plan may be by certificate, affidavit, document, or other information that the person acting on it considers pertinent and reliable, and signed, made, or presented by the proper party or parties. 17.6 Waiver of Notice Any notice required under the Plan may be waived by the person entitled to such notice.

 
-69- 17.7 Controlling Law Except to the extent superseded by laws of the United States, the laws of Illinois shall be controlling in all matters relating to the Plan. 17.8 Statutory References Any reference in the Plan to a section of the Code or ERISA, or to a section of any other Federal law, shall include any comparable section or sections of any future legislation that amends, supplements, or supersedes that section. 17.9 Severability In case any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal and invalid provision had never been set forth in the Plan. 17.10 Action By Employers Any action required or permitted to be taken by an Employer under the Plan shall be by resolution of its board of directors, by resolution of a duly authorized committee of its board of directors, or by a person or persons authorized by resolution of its board of directors or such committee. 17.11 Gender and Number Where the context permits, words in the masculine gender shall include the feminine and neuter genders, the singular shall include the plural, and the plural shall include the singular. 17.12 Examination of Documents Copies of the Plan and Trust, and any amendments thereto, are on file at the office of the Company where they may be examined by any Participant or other person entitled to benefits under the Plan during normal business hours. 17.13 Manner of Delivery Each notice or statement provided to a Participant shall be delivered in any manner established by the Committee and in accordance with applicable law, including, but not limited to, electronic delivery. 17.14 Effect on Other Benefits Except as otherwise specifically provided under the terms of any other employee benefit plan of an Employer, a Participant’s participation in this Plan shall not affect the benefits provided under such other employee benefit plan.

 
-70- 17.15 Headings The headings of Sections, Subsections, and Paragraphs are included solely for reference and convenience and are not intended to modify or otherwise affect the text of the Plan. 17.16 No Third-Party Beneficiaries The Plan constitutes the entire agreement of the parties and supersedes all prior agreements and undertakings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof and are not intended to confer upon any other person any rights or remedies hereunder.

 
-71- SECTION 18 TOP HEAVY RULES 18.1 Purpose and Effect The purpose of this SECTION 18 is to comply with the requirements of Code Section 416. The provisions of this Section shall be effective for each Plan Year in which the Plan is a “Top-Heavy Plan” within the meaning of Code Section 416(g); provided, however, that this Section shall apply with respect to only those Participants whose employment is not subject to a collective bargaining agreement between the Employers and a union that provides for their participation in the Plan. 18.2 Top Heavy Plan In general, the Plan shall be a Top-Heavy Plan for any Plan Year if, as of the last day of the preceding Plan Year (the “Determination Date”), the aggregate Accounts of Participants who are Key Employees (as defined in Subsection 18.3) exceed 60% of the aggregate Accounts of all Participants. In making the foregoing determination, the following rules shall apply. (a) A Participant’s Accounts shall be increased by the aggregate distributions, if any, made with respect to the Participant during the one-year period ending on the Determination Date (including distributions under a terminated plan which, had it not been terminated, would have been aggregated with this Plan under Code Section 416(g)(2)(A)(i)). In the case of a distribution made for a reason other than Severance From Service, death or Disability, the one-year period shall be replaced with a five-year period. (b) The Account of, and distributions to, a Participant who was previously a Key Employee, but who is no longer a Key Employee, shall be disregarded. (c) The Account of a Beneficiary of a Participant shall be considered the Account of a Participant. (d) The Account of a Participant who did not perform any services for the Employers during the one-year period ending on the Determination Date shall be disregarded. (e) Any Catch-Up Contributions or any Rollover Contributions (or similar transfer) from a plan maintained by a corporation other than a Related Employer shall not be taken into account as part of the Participant’s aggregate Accounts. 18.3 Key Employee In general, a “Key Employee” is an Employee or former Employee (including any deceased Employee) who, at any time during the Plan Year that includes the Determination Date, was:

 
-72- (a) An officer of a Related Employer receiving annual Code Section 415 Compensation greater than $170,000 (as adjusted under Code Section 416(i)(l)); (b) A 5% owner of a Related Employer; or (c) A 1% owner of a Related Employer receiving annual Code Section 415 Compensation from any of the Related Employers of more than $150,000. The determination of who is a Key Employee shall be made in accordance with Code Section 416(i)(1) and the Treasury Regulations and other guidance issued thereunder. 18.4 Minimum Vesting For any Plan Year in which the Plan is a Top-Heavy Plan and each subsequent Plan Year, a Participant who has completed at least three years of Vesting Service shall be 100% vested in his or her Accounts. 18.5 Minimum Employer Contribution For any Plan Year in which the Plan is a Top-Heavy Plan, the Employer contribution, if any, credited to each Participant who is not a Key Employee shall not be less than 3% of such Participant’s Code Section 415 Compensation for that year. Notwithstanding the foregoing, in no event shall an Employer contribution credited in any year to a Participant who is not a Key Employee (expressed as a percentage of such Participant’s Code Section 415 Compensation) exceed the maximum Employer contribution credited in that year to a Key Employee (expressed as a percentage of such Key Employee’s Code Section 415 Compensation). For purposes of the foregoing, Pre-Tax, Catch-Up, and After-Tax Contributions shall not be considered Employer contributions, but Matching Contributions shall be considered Employer contributions and shall be taken into account for purposes of satisfying the minimum contribution requirements of Code Section 416(c)(2) and the Plan. The preceding sentence shall apply with respect to any Matching Contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan (including another plan that meets the requirements of Code Section 401(k)(12) and/or the requirements of Code Section 401(m)(11)), such other plan. Matching Contributions that are used to satisfy the minimum contribution requirements shall be treated as Matching Contributions for purposes of Subsection 8.5 and the other requirements of Code Section 401(m). If an Employer maintains more than one plan, the minimum Employer contribution otherwise required under this Subsection may be reduced in accordance with Treasury Regulations to either coordinate the minimum Employer contribution or prevent inappropriate duplications of minimum contributions or benefits. 18.6 Aggregation of Plans Each other defined contribution plan and defined benefit plan maintained by the Related Employers that covers a Key Employee as a participant, or that is maintained by the Related Employers in order for a Plan covering a Key Employee to qualify under Code Sections

 
-73- 401(a)(4) and 410, shall be aggregated with this Plan in determining whether this Plan is a Top- Heavy Plan. In addition, any other defined contribution plan or defined benefit plan of the Related Employers may be included if all such plans which are included when aggregated shall continue to qualify under Code Sections 401(a)(4) and 410.

 
A-1 SUPPLEMENT A Special Provisions Applicable to the Federal Signal Technologies Division of the Company A-1 Introduction. On the Closing Date (as defined in the Asset Purchase Agreement between the Company and 3M Company dated June 21, 2012 (the “Purchase Agreement”)), 3M Company (the “Buyer”) will purchase all of the assets of the Federal Signal Technologies division of the Company (“FST”) from the Company, and Federal APD, Inc., PIPs Technology, Inc., Sirit Corp. and VESystems, LLC will cease to be a subsidiaries of the Company on such date. As of the Closing Date, the Buyer will establish a defined contribution retirement plan (the “Buyer Plan”), which satisfies the requirements of Code Section 401(a) and contains a cash or deferred arrangement that satisfies the requirements of Code Section 401(k). Effective on the Closing Date (or such other date as designated by the Committee) (the “Transfer Date”), the portion of the Plan attributable to all Supplement A Account Holders (defined below) (the “Transfer Portion”) shall be merged into, and continued in the form of, the Buyer Plan. The merger of the Transfer Portion into the Buyer Plan (and the corresponding transfer of assets) shall comply with Code Sections 401(a)(12), 411(d)(6), and 414(l). A “Supplement A Account Holder” means each Transferring Employee (as defined in the Purchase Agreement) who is a Participant in the Plan. A-2 Cessation of Contributions and Participation. No contributions shall be made under the Plan by or on behalf of any Supplement A Account Holder for any Compensation earned, or any bonus or other special Compensation paid in connection with the sale of FST, on or after the Closing Date. Each Supplement A Account Holder shall cease active participation in the Plan as of the Closing Date; provided, however, no Supplement A Account Holder shall have the right to a distribution of his or her Account balance under the Plan prior to the Transfer Date (unless otherwise required under the terms of the Plan). A-3 Transfer of Account Balances. On the Transfer Date, liabilities equal to the aggregate Account balances, as adjusted through the Transfer Date, of each Supplement A Account Holder shall be transferred to the Buyer Plan and credited to the corresponding account maintained for each Supplement A Account Holder in the Buyer Plan. Thereafter, such accounts shall be subject to the terms and conditions of the Buyer Plan, and this Plan shall have no further liability with respect thereto. A-4 Transfer of Assets. On the Transfer Date, assets equal to the aggregate Account balances, as adjusted through the Transfer Date, of the Supplement A Account Holders shall be spun off and merged (in cash or in kind, as determined by the Committee and the plan administrator of the Buyer Plan) into the trust that funds the Buyer Plan. To facilitate this transfer, a Supplement A Account Holder may not make transfers among Investment Funds, receive in-service withdrawals, or obtain new loans in accordance with rules established by the Committee. A-5 Committee’s Actions. The Committee shall take such actions as it deems necessary or desirable to accomplish the transfer as described in this Supplement A.

 
A-2 A-6 Use of Terms. Terms used in this Supplement A shall, unless defined in this Supplement A or otherwise noted, have the meanings given to those terms in the Plan.

 


EXHIBIT 10. s.

Federal Signal Corporation
2015 Executive Incentive Compensation Plan
Distribution Election Form
2016 Stock Units

Director’s Name   (Please Print)
 
Social Security Number
 
 
 
 
 
First
Middle Initial
Last
 
 

I hereby elect to receive shares of stock of Federal Signal Corporation I am entitled to receive pursuant to any Stock Units awarded to me in 2016 under the Federal Signal Corporation 2015 Executive Incentive Compensation Plan (the “Shares”) as follows:

¨
In a single distribution transferable on _______________________, 20_____.
 
 
[Enter month, day and year]
 

Notwithstanding the foregoing election, in the event my service as a director is terminated before the date specified above, and such termination is a separation from service for purposes of Section 409A of the Internal Revenue Code, I hereby elect to receive the Shares on the date of my separation from service.

 
¨
YES
¨
NO

I understand that if I should die before the Shares have been transferred to me, such Shares shall become payable to my beneficiary or beneficiaries in a single distribution on the date of my death.

Shares transferable on a date specified above shall be transferred as soon as administratively feasible after such date; but no later than the later of (a) the end of the calendar year in which the specified date occurs; or (b) the 15 th  day of the third calendar month following such specified date and you (or your beneficiary) are not permitted to designate the taxable year of the payment. The transfer date may be postponed further if calculation of the amount of the payment is not administratively practicable due to events beyond the control of you (or your Beneficiary), and the payment is made in the first calendar year in which the calculation of the amount of the payment is administratively practicable.
    
I UNDERSTAND THAT THIS ELECTION SHALL BE IRREVOCABLE AFTER DECEMBER 31, 2015.

 
 
Signature of Director
Date

Acknowledgment of Receipt:
 
 
Plan Representative
Date

THIS FORM MUST BE RETURNED NO LATER THAN DECEMBER 31 st  IF YOU DESIRE TO ESTABLISH A PAYMENT ELECTION FOR ANY 2016 STOCK UNIT AWARD UNDER THE PLAN. IF NO ELECTION IS MADE, PAYMENT WILL BE MADE IN SHARES PROMPTLY FOLLOWING THE TERMINATION OF YOUR SERVICES AS A DIRECTOR.




Exhibit 21
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
______________________________
SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 2015
NAME OF SUBSIDIARY
 
JURISDICTION OF INCORPORATION
Bronto Skylift Oy Ab
 
Finland
Bronto Skylift, Inc.
 
Delaware
Elgin Sweeper Company
 
Delaware
Federal Signal Credit Corporation
 
Delaware
Federal Signal of Europe B.V.
 
Netherlands
Federal Signal of Europe B.V. Y CIA, S.C.
 
Spain
Federal Signal UK Holdings Limited
 
United Kingdom
Federal Signal VAMA, S.A.
 
Spain
FS Depot, Inc.
 
Wisconsin
Guzzler Manufacturing, Inc.
 
Alabama
IEES B.V.
 
Netherlands
Jetstream of Houston, Inc.
 
Delaware
Jetstream of Houston LLP
 
Texas
Vactor Manufacturing Inc.
 
Illinois
Victor Industrial Equipment (PTY) Limited
 
South Africa
Victor Products Holdings Ltd.
 
United Kingdom
Victor Products Ltd.
 
United Kingdom
Victor Products USA, Incorporated
 
Delaware





Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-127234, 333-204189, 333-168501, 333-190976 and 333-190977 on Form S-8 of our reports dated February 29, 2016 , relating to the consolidated financial statements and financial statement schedule of Federal Signal Corporation and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Federal Signal Corporation for the year ended December 31, 2015 .
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 29, 2016






Exhibit 31.1
CEO Certification Under Section 302 of the Sarbanes-Oxley Act
I, Jennifer L. Sherman, certify that:
1.
I have reviewed this annual report on Form 10-K of Federal Signal Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 29, 2016
 
/s/ Jennifer L. Sherman
 
Jennifer L. Sherman
 
President and Chief Executive Officer
 
(Principal Executive Officer)




Exhibit 31.2
CFO Certification under Section 302 of the Sarbanes-Oxley Act
I, Brian S. Cooper, certify that:
1.
I have reviewed this annual report on Form 10-K of Federal Signal Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 29, 2016
 
/s/ Brian S. Cooper
 
 
Brian S. Cooper
 
Senior Vice President and Chief Financial Officer
 
(Principal Financial Officer)





Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Annual Report of Federal Signal Corporation (the “Company”) on Form 10-K for the period ended December 31, 2015 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jennifer L. Sherman, President and Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d)); and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 29, 2016
 
/s/ Jennifer L. Sherman
 
 
Jennifer L. Sherman
 
President and Chief Executive Officer
 
( Principal Executive Officer)
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. This certification shall also not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference.




Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Annual Report of Federal Signal Corporation (the “Company”) on Form 10-K for the period ended December 31, 2015 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian S. Cooper, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d)); and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 29, 2016
 
/s/ Brian S. Cooper
 
 
Brian S. Cooper
 
Senior Vice President and Chief Financial Officer
 
( Principal Financial Officer)
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. This certification shall also not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference.





EXHIBIT 99.1
FOR IMMEDIATE RELEASE
Federal Signal Finishes Strong Year with Operating Income of $103 million, up 16%
•
Full-year operating income of $103.2 million , up 16% from $88.7 million in 2014
•
GAAP EPS of $0.27 per share for the quarter and $1.04 for the year
•
Adjusted EPS of $1.02 for the year, up 16% compared to $0.88 last year
•
Full-year operating margin of 13.4% , up 200 basis points from 11.4% in 2014
•
Full-year operating cash flow of $91 million , up 12% from $81 million last year
•
Signing announced today for acquisition of Joe Johnson Equipment
Oak Brook, Illinois, February 29, 2016 — Federal Signal Corporation (NYSE:FSS), a leader in environmental and safety solutions, today reported results for the fourth quarter and year ended December 31, 2015 .
Consolidated net sales for the fourth quarter were $186.4 million , down 11% versus the same quarter a year ago. Fourth quarter income from continuing operations was $17.4 million , equal to $0.27 per diluted share, compared to $19.9 million , or $0.31 per share, in the prior-year quarter. The Company also reported adjusted net income from continuing operations for the fourth quarter of $16.0 million , equal to $0.25 per diluted share, unchanged from the same quarter a year ago.
Consolidated net sales for the year ended December 31, 2015 were $768.0 million , down 1% compared to the prior year. Income from continuing operations for the year was $65.8 million , equal to $1.04 per diluted share, compared to $59.7 million , or $0.94 per share, in the prior year.
Adjusted net income from continuing operations for the year was $64.7 million , equal to $1.02 per diluted share, an increase of 16% compared to $55.8 million , or $0.88 per diluted share, in the prior year.

All results presented herein are for continuing operations, and previously reported results have been recast to reflect the Fire Rescue Group as a discontinued operation following the sale of the Bronto Skylift business. In addition, the Company is reporting adjusted results to facilitate comparisons of underlying performance on a year-over-year basis. Adjusted net income and adjusted earnings per share from continuing operations in both years exclude the effects of certain special tax items. A reconciliation of these and other non-GAAP measures is provided at the conclusion of this news release.
Improved Fourth Quarter Margin Despite Softer Sales
“We wrapped up another year of impressive performance with solid fourth quarter results, in spite of weakening industrial market conditions,” said Jennifer L. Sherman, President and Chief Executive Officer. “We continue to benefit from our long-running 80/20 efforts and lean initiatives that drive profitability, and in spite of softer sales, we reported an improved consolidated operating margin for the quarter. Our cash flow for the year was outstanding, and our balance sheet is stronger than ever.”
Net sales were $186.4 million for the quarter, down 11% compared to the fourth quarter of 2014 . Environmental Solutions Group sales were down $18.3 million , or 13% , due to reduced sales of domestic vacuum trucks and sewer cleaners, while Safety and Security Systems Group sales were $4.4 million lower than the prior-year quarter.
On lower sales, consolidated fourth quarter operating income of $24.3 million was down 6% compared to the fourth quarter of 2014 . Consolidated fourth quarter operating margin improved to 13.0% , compared to 12.3% last year. The improvement is largely attributable to the Environmental Solutions Group, with an operating margin of 17.9% , up 240 basis points compared to last year. Corporate expenses of $7.1 million were in line with prior-year levels.
Net sales of $768.0 million for the year ended December 31, 2015 were down 1% compared to the prior year. Net sales in the Safety and Security Systems Group were $8.6 million lower than the prior year, but were essentially flat after excluding adverse foreign currency translation effects of $8.2 million. The Environmental Solutions Group reported a nominal year-over-

1




year net sales decrease on lower shipments of vacuum trucks and sewer cleaners, partially offset by improved sales of street sweepers.
Consolidated full-year operating income was $103.2 million , up 16% compared to the prior year. Consolidated full-year operating margin improved to 13.4% , compared to 11.4% in 2014 . Excluding special tax items, the effective income tax rate for the year was approximately 36%.
Orders were $179.3 million for the quarter, down 15% compared to last year. Consolidated backlog was $171 million , down 4% from the level at the end of the third quarter, but down 33% when compared to $255 million last year. The year-over-year reduction in backlog is associated primarily with lower orders for our products within the Environmental Solutions Group, resulting from reduced demand from oil and gas markets and the absence of certain large fleet orders received in the prior year.
Increased Financial Flexibility
Cash flow from continuing operations for the year was $91.1 million , up 12% from $81.1 million last year. On this strong cash flow, cash balances exceeded total debt by $31.9 million at the end of the year. This is a $58.0 million increase from December 31, 2014 , when total debt exceeded cash balances by $26.1 million . Cash and cash equivalents at December 31, 2015 were $76.0 million , compared to $24.1 million a year ago.
The Company funded $4.3 million for dividends during the quarter and $15.6 million during the year. The Company also funded $10.6 million of share repurchases in 2015 . In addition, as recently announced, the Board of Directors declared a dividend of $0.07 per share that will be payable in the first quarter of 2016.
2016 Changes Set Platform for Profitable Growth
“Our recent actions demonstrate and support our continued commitment to profitable growth,” noted Sherman. The Company has taken the following strategic actions since the beginning of the year:
•
Announced today in a separate news release the signing of a definitive agreement to acquire substantially all of the assets and operations of Joe Johnson Equipment (“JJE”), a leading Canadian-based distributor of maintenance equipment for municipal and industrial markets.
•
Completed the sale of its Bronto Skylift business for approximately $87 million.
•
Executed a new five-year $325 million revolving credit facility.
•
Closed the acquisition of Westech Vac Systems, Ltd., a Canadian manufacturer of high-quality, rugged vacuum trucks.
Outlook
“We continue to believe in our long-term operating margin targets,” Sherman continued. “Our municipal markets, which represent about 60% of our revenues, remain healthy. However, similar to other companies that have recently provided guidance, we expect 2016 industrial markets to be challenging. The broader impacts of the oil and gas downturn are expected to reduce our 2016 operating income by $12 to $14 million. In addition, we are entering the year with a diminished backlog and a less favorable mix. Considering these headwinds and the ongoing uncertainty in industrial markets, we currently expect adjusted earnings per share for the year to be between $0.70 and $0.80, including a modest contribution from JJE.
“As we move forward, we are expanding our focus on new markets, accelerating the introduction of new product offerings, managing our costs and maintaining our 80/20 efforts. Our strong cash flow, healthy balance sheet, Bronto sale proceeds and new credit agreement give us significant financial flexibility to invest in these growth initiatives, pursue strategic acquisitions and continue to return value to shareholders through dividends and share repurchases.”

CONFERENCE CALL
Federal Signal will host its fourth quarter conference call on Monday, February 29, 2016 at 11:00 a.m. Eastern Time. The call will last approximately one hour. The call may be accessed over the internet through Federal Signal’s website at http://www.federalsignal.com or by dialing phone number 1-888-505-4369 and entering the pin number 5375493. An archived replay will be available on Federal Signal’s website shortly after the call.

2




About Federal Signal
Federal Signal Corporation (NYSE: FSS) provides products and services to protect people and our planet. Founded in 1901, Federal Signal is a leading global designer and manufacturer of products and total solutions that serve municipal, governmental, industrial and commercial customers. Headquartered in Oak Brook, Ill., with manufacturing facilities worldwide, the Company operates two groups: Environmental Solutions and Safety and Security Systems. For more information on Federal Signal, visit: http://www.federalsignal.com .
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
This release contains unaudited financial information and various forward-looking statements as of the date hereof and we undertake no obligation to update these forward-looking statements regardless of new developments or otherwise. Statements in this release that are not historical are forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Such risks and uncertainties include but are not limited to: economic conditions in various regions; product and price competition; supplier and raw material prices; foreign currency exchange rate changes; interest rate changes; increased legal expenses and litigation results; legal and regulatory developments and other risks and uncertainties described in filings with the Securities and Exchange Commission.
Contact: Brian Cooper, Chief Financial Officer, +1-630-954-2000, bcooper@federalsignal.com


3




FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
(in millions, except per share data)
2015
 
2014
 
2015
 
2014
Net sales
$
186.4

 
$
209.1

 
$
768.0

 
$
779.1

Cost of sales
131.1

 
151.5

 
542.4

 
570.4

Gross profit
55.3

 
57.6

 
225.6

 
208.7

Selling, engineering, general and administrative expenses
31.0

 
31.8

 
122.0

 
120.0

Restructuring
—

 
—

 
0.4

 
—

Operating income
24.3

 
25.8

 
103.2

 
88.7

Interest expense
0.6

 
0.9

 
2.3

 
3.6

Other (income) expense, net
(0.6
)
 
0.9

 
1.0

 
1.7

Income before income taxes
24.3

 
24.0

 
99.9

 
83.4

Income tax expense
(6.9
)
 
(4.1
)
 
(34.1
)
 
(23.7
)
Income from continuing operations
17.4

 
19.9

 
65.8

 
59.7

(Loss) gain from discontinued operations and disposal, net of income tax expense of $6.6, $2.2, $8.3 and $1.0, respectively
(5.9
)
 
3.9

 
(2.3
)
 
4.0

Net income
$
11.5

 
$
23.8

 
$
63.5

 
$
63.7

Basic earnings per share:
 
 
 
 
 
 
 
Earnings from continuing operations
$
0.28

 
$
0.32

 
$
1.06

 
$
0.95

(Loss) gain from discontinued operations and disposal, net of tax
(0.09
)
 
0.06

 
(0.04
)
 
0.06

Net earnings per share
$
0.19

 
$
0.38

 
$
1.02

 
$
1.01

Diluted earnings per share:
 
 
 
 
 
 
 
Earnings from continuing operations
$
0.27

 
$
0.31

 
$
1.04

 
$
0.94

(Loss) gain from discontinued operations and disposal, net of tax
(0.09
)
 
0.06

 
(0.04
)
 
0.06

Net earnings per share
$
0.18

 
$
0.37

 
$
1.00

 
$
1.00

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
62.0

 
62.7

 
62.2

 
62.7

Diluted
63.3

 
63.6

 
63.4

 
63.6

Cash dividends declared per common share
$
0.07

 
$
0.03

 
$
0.25

 
$
0.09



4




FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
As of December 31,
(in millions, except per share data)
2015
 
2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
76.0

 
$
24.1

Accounts receivable, net of allowances for doubtful accounts of $0.8 and $0.7, respectively
73.0

 
73.6

Inventories
87.2

 
87.6

Prepaid expenses and other current assets
15.1

 
9.2

Current assets of discontinued operations
63.8

 
76.2

Total current assets
315.1

 
270.7

Properties and equipment, net
52.9

 
52.7

Goodwill
231.6

 
235.2

Deferred tax assets
20.1

 
45.1

Deferred charges and other assets
3.5

 
4.0

Long-term assets of discontinued operations
43.3

 
51.0

Total assets
$
666.5

 
$
658.7

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term borrowings and capital lease obligations
$
0.4

 
$
6.2

Accounts payable
38.0

 
41.7

Accrued liabilities:
 
 
 
Compensation and withholding taxes
18.6

 
22.6

Other current liabilities
31.6

 
35.7

Current liabilities of discontinued operations
28.6

 
32.9

Total current liabilities
117.2

 
139.1

Long-term borrowings and capital lease obligations
43.7

 
44.0

Long-term pension and other post-retirement benefit liabilities
55.2

 
62.6

Deferred gain
12.6

 
14.6

Other long-term liabilities
16.9

 
16.0

Long-term liabilities of discontinued operations
15.3

 
10.8

Total liabilities
260.9

 
287.1

Stockholders’ equity:
 
 
 
Common stock, $1 par value per share, 90.0 shares authorized, 64.8 and 64.2 shares issued, respectively
64.8

 
64.2

Capital in excess of par value
195.6

 
187.0

Retained earnings
274.9

 
227.0

Treasury stock, at cost, 2.6 million and 1.7 million shares, respectively
(40.9
)
 
(27.1
)
Accumulated other comprehensive loss
(88.8
)
 
(79.5
)
Total stockholders’ equity
405.6

 
371.6

Total liabilities and stockholders’ equity
$
666.5

 
$
658.7



5




FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Years Ended December 31,
(in millions)
2015
 
2014
Operating activities:
 
 
 
Net income
$
63.5

 
$
63.7

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Net loss (gain) on discontinued operations and disposal
2.3

 
(4.0
)
Depreciation and amortization
12.3

 
11.5

Deferred financing costs
0.4

 
0.5

Deferred gain
(1.9
)
 
(1.9
)
Stock-based compensation expense
6.8

 
6.1

Excess tax benefit from stock-based compensation
(1.6
)
 
(2.2
)
Pension expense, net of funding
(3.8
)
 
(5.9
)
Deferred income taxes, including change in valuation allowance
25.9

 
18.9

Changes in operating assets and liabilities, net of effects of discontinued operations:
 
 
 
Accounts receivable
(0.3
)
 
1.5

Inventories
(3.3
)
 
(15.5
)
Prepaid expenses and other current assets
1.0

 
(0.1
)
Accounts payable
(3.1
)
 
0.4

Accrued liabilities
(7.2
)
 
6.8

Income taxes
(1.5
)
 
(0.9
)
Other
1.6

 
2.2

Net cash provided by continuing operating activities
91.1

 
81.1

Net cash provided by (used for) discontinued operating activities
6.1

 
(8.8
)
Net cash provided by operating activities
97.2

 
72.3

Investing activities:
 
 
 
Purchases of properties and equipment
(9.6
)
 
(13.7
)
Proceeds from sales of properties and equipment
0.1

 
0.5

Proceeds from escrow receivable
4.0

 
7.4

Cash provided to customer
(6.0
)
 
—

Net cash used for continuing investing activities
(11.5
)
 
(5.8
)
Net cash used for discontinued investing activities
(1.3
)
 
(5.8
)
Net cash used for investing activities
(12.8
)
 
(11.6
)
Financing activities:
 
 
 
(Decrease) increase in revolving lines of credit, net
—

 
(20.0
)
Payments on long-term borrowings
(5.8
)
 
(21.6
)
Purchases of treasury stock
(10.6
)
 
(10.3
)
Redemptions of common stock to satisfy withholding taxes related to stock-based compensation
(3.2
)
 
—

Cash dividends paid to stockholders
(15.6
)
 
(5.6
)
Proceeds from stock-based compensation activity
1.0

 
2.6

Excess tax benefit from stock-based compensation
1.6

 
2.2

Other, net
(0.4
)
 
(1.0
)
Net cash used for financing activities
(33.0
)
 
(53.7
)
Effects of foreign exchange rate changes on cash and cash equivalents
(0.8
)
 
(0.4
)
Increase in cash and cash equivalents
50.6

 
6.6

Cash and cash equivalents at beginning of year
30.4

 
23.8

Cash and cash equivalents at end of year
81.0

 
30.4

Less: Cash and cash equivalents of discontinued operations at end of year
(5.0
)
 
(6.3
)
Cash and cash equivalents of continuing operations at end of year
$
76.0

 
$
24.1


6




FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
GROUP RESULTS
The following tables summarize group operating results as of and for the three and twelve months ended December 31, 2015 and 2014 :  
Environmental Solutions Group
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
($ in millions)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Net sales
$
124.3

 
$
142.6

 
$
(18.3
)
 
$
534.1

 
$
536.6

 
$
(2.5
)
Operating income
22.3

 
22.1

 
0.2

 
96.9

 
81.9

 
15.0

Operating data:
 
 
 
 
 
 
 
 
 
 
 
Operating margin
17.9
%
 
15.5
%
 
2.4
%
 
18.1
%
 
15.3
%
 
2.8
%
Total orders
$
120.2

 
$
149.3

 
$
(29.1
)
 
$
449.2

 
$
555.6

 
$
(106.4
)
Backlog
133.4

 
218.3

 
(84.9
)
 
133.4

 
218.3

 
(84.9
)
Depreciation and amortization
1.8

 
1.9

 
(0.1
)
 
7.3

 
6.8

 
0.5

Safety and Security Systems Group
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
($ in millions)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Net sales
$
62.1

 
$
66.5

 
$
(4.4
)
 
$
233.9

 
$
242.5

 
$
(8.6
)
Operating income
9.1

 
10.9

 
(1.8
)
 
32.3

 
32.1

 
0.2

Operating data:
 
 
 
 
 
 
 
 
 
 
 
Operating margin
14.7
%
 
16.4
%
 
(1.7
)%
 
13.8
%
 
13.2
%
 
0.6
%
Total orders
$
59.1

 
$
62.4

 
$
(3.3
)
 
$
236.9

 
$
251.8

 
$
(14.9
)
Backlog
37.9

 
36.4

 
1.5

 
37.9

 
36.4

 
1.5

Depreciation and amortization
1.3

 
1.1

 
0.2

 
4.8

 
4.5

 
0.3

Corporate Expenses
Corporate operating expenses were $7.1 million and $7.2 million for the three months ended December 31, 2015 and 2014 , respectively.
Corporate operating expenses were $26.0 million and $25.3 million for the years ended December 31, 2015 and 2014 , respectively. The year-over-year increase of $0.7 million was primarily due to higher employee costs.

7




SEC REGULATION G NON-GAAP RECONCILIATION
The financial measures presented below are unaudited and are not in accordance with U.S. generally accepted accounting principles (“GAAP”). The non-GAAP financial information presented herein should be considered supplemental to, and not a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company has provided this supplemental information to investors, analysts, and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the reconciliations below, and to provide an additional measure of performance which management considers in operating the business.
Adjusted net income and earnings per share from continuing operations (“EPS”):
The Company believes that modifying its 2015 and 2014 adjusted net income and diluted EPS provides an additional measure which is representative of the Company’s underlying performance and improves the comparability of results between 2015 and 2014 . Adjusted net income and adjusted EPS for the three and twelve months ended December 31, 2015 and 2014 exclude the effects of special tax items. Adjusted net income and adjusted EPS for the twelve months ended December 31, 2015 also exclude the effects of restructuring charges.
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
(in millions)
2015
 
2014
 
2015
 
2014
Income from continuing operations
$
17.4

 
$
19.9

 
$
65.8

 
$
59.7

Add:
 
 
 
 
 
 
 
Income tax expense
6.9

 
4.1

 
34.1

 
23.7

Income before income taxes
24.3

 
24.0

 
99.9

 
83.4

Add:
 
 
 
 
 
 
 
Restructuring
—

 
—

 
0.4

 
—

Adjusted income before income taxes
$
24.3

 
$
24.0

 
$
100.3

 
$
83.4

Adjusted income tax expense (a) (b)
(8.3
)
 
(8.0
)
 
(35.6
)
 
(27.6
)
Adjusted net income from continuing operations
$
16.0

 
$
16.0

 
$
64.7

 
$
55.8

 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
(dollars per diluted share)
2015
 
2014
 
2015
 
2014
EPS, as reported
$
0.27

 
$
0.31

 
$
1.04

 
$
0.94

Add:
 
 
 
 
 
 
 
Income tax expense
0.11

 
0.07

 
0.54

 
0.37

Income before income taxes
0.38

 
0.38

 
1.58

 
1.31

Add:
 
 
 
 
 
 
 
Restructuring
—

 
—

 
0.00

 
—

Adjusted income before income taxes
$
0.38

 
$
0.38

 
$
1.58

 
$
1.31

Adjusted income tax expense (a) (b)
(0.13
)
 
(0.13
)
 
(0.56
)
 
(0.43
)
Adjusted EPS
$
0.25

 
$
0.25

 
$
1.02

 
$
0.88

(a)
Adjusted income tax expense for the three and twelve months ended December 31, 2015 excludes a $1.4 million net benefit from special tax items, comprising of a $4.2 million net tax benefit associated with tax planning strategies, offset by a $2.4 million adjustment of deferred tax assets and $0.4 million of expense associated with a change in the enacted tax rate in the U.K. Adjusted income tax expense for the twelve months ended December 31, 2015 also excludes the tax effects of restructuring charges.
(b)
Adjusted income tax expense for the three and twelve months ended December 31, 2014 excludes the benefit of two special tax items: $3.5 million for the release of valuation allowance against foreign deferred tax assets and $0.4 million associated with a change in the Spanish income tax rate.
Total debt to adjusted EBITDA ratio:
The Company uses the ratio of total debt to adjusted EBITDA as one measure of its long-term financial stability. The Company uses the ratio to calibrate the magnitude of its debt and its debt capacity against adjusted EBITDA, which is used as an operating performance measure. We believe that investors use a version of this ratio in a similar manner. In addition, financial institutions (including the Company’s lenders) use the ratio in connection with debt agreements to set pricing and covenant limitations. For these reasons, the Company believes that the ratio is a meaningful metric to investors in evaluating the

8




Company’s long term financial performance and stability. The Company’s calculation methodology consists of dividing total debt by the trailing 12-month total of income from continuing operations before interest expense, restructuring charges, other expense, income tax expense, and depreciation and amortization. Other companies may use different methods to calculate total debt to EBITDA. The following table summarizes the Company’s ratio of total debt to adjusted EBITDA, and reconciles income from continuing operations to adjusted EBITDA:
 
Trailing Twelve Months Ending December 31,
($ in millions)
2015
 
2014
Total debt
$
44.1

 
$
50.2

 
 
 
 
Income from continuing operations
65.8

 
59.7

Add:
 
 
 
Interest expense
2.3

 
3.6

Restructuring
0.4

 
—

Other expense, net
1.0

 
1.7

Income tax expense
34.1

 
23.7

Depreciation and amortization
12.3

 
11.5

Adjusted EBITDA
$
115.9

 
$
100.2

 
 
 
 
Total debt to adjusted EBITDA ratio
0.4

 
0.5



9

Federal Signal Q4 2015 Earnings Call February 29, 2016 Dennis Martin, Executive Chairman Jennifer Sherman, President & Chief Executive Officer Brian Cooper, SVP, Chief Financial Officer

 
Safe Harbor This presentation contains unaudited financial information and various forward-looking statements as of the date hereof and we undertake no obligation to update these forward- looking statements regardless of new developments or otherwise. Statements in this presentation that are not historical are forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Such risks and uncertainties include but are not limited to: economic conditions in various regions, product and price competition, supplier and raw material prices, foreign currency exchange rate changes, interest rate changes, increased legal expenses and litigation results, legal and regulatory developments and other risks and uncertainties described in filings with the Securities and Exchange Commission. This presentation also contains references to certain non-GAAP financial information. Such items are reconciled herein and in our earnings news release provided as of the date of this presentation. 2

 
3 Executive Chairman’s Comments

 
2016 Actions Set Platform for Profitable Growth 4 Dennis Martin named Executive Chairman; Jennifer Sherman Appointed President and CEO Completion of acquisition of Westech Vac Systems Ltd. Entered into definitive agreement to acquire substantially all of the assets and operations of Joe Johnson Equipment Execution of new $325 million credit facility Completion of the sale of the Bronto Skylift business to Morita Corporation $ January 1, 2016 January 5, 2016 January 27, 2016 January 29, 2016 February 29, 2016 Staying True to Communicated Strategies

 
Built Infrastructure for Profitable Long-Term Growth 5 Federal Signal is well positioned for long-term growth with the ability to grow and mitigate through industrial and municipal cycles Succession planning and talent development Flexible manufacturing model New product development Portfolio realignment, Bronto divestiture Reinstated dividend Disciplined M&A process Strong Balance Sheet

 
Full-Year Highlights * • Net sales of $768 M, down 1% • Operating income of $103.2 M, up 16% • Operating margin of 13.4%, up from 11.4% • Adjusted EPS of $1.02, up 16% from $0.88 • Cash flow from operations of $91 M, up 12% from $81 M 6 * Comparisons versus full year 2014, unless otherwise noted

 
Q4 Highlights * • Net sales of $186 M, down 11% • Operating income of $24.3 M, down 6% • Operating margin of 13.0%, up from 12.3% • Adjusted EPS of $0.25, unchanged from last year • Orders of $179 M, down 15% • Backlog of $171 M, down 4% from Q3 7 * Comparisons versus Q4 of 2014, unless otherwise noted

 
8 Group and Corporate Results $ millions, except % Q4 2015 Q4 2014 % Chg ESG Orders 120.2 149.3 -19% Sales 124.3 142.6 -13% Operating income 22.3 22.1 1% Operating margin 17.9% 15.5% SSG Orders 59.1 62.4 -5% Sales 62.1 66.5 -7% Operating income 9.1 10.9 -17% Operating margin 14.7% 16.4% Corporate expenses 7.1 7.2 -1% Consolidated Orders 179.3 211.7 -15% Sales 186.4 209.1 -11% Operating income 24.3 25.8 -6% Operating margin 13.0% 12.3%

 
Income from Continuing Operations 9 $ millions, except % and per share Q4 2015 Q4 2014 Change % Chg Net sales 186.4 209.1 (22.7) -11% Gross profit 55.3 57.6 (2.3) -4% SEG&A expenses 31.0 31.8 (0.8) -3% Operating income 24.3 25.8 (1.5) -6% Interest expense 0.6 0.9 (0.3) -33% Other (income) expense, net (0.6) 0.9 (1.5) NM Income tax expense 6.9 4.1 2.8 68% Income from continuing operations 17.4 19.9 (2.5) -13% Diluted earnings per share from continuing operations $0.27 $0.31 ($0.04) -13% Diluted adjusted earnings per share from continuing operations $0.25 $0.25 $0.00 0% Gross margin 29.7% 27.5% Effective tax rate 28.4% 17.1%

 
10 Adjusted Earnings per Share ($ in millions) 2015 2014 2015 2014 Income from continuing operations 17.4$ 19.9$ 65.8$ 59.7$ Add: Income tax expense 6.9 4.1 34.1 23.7 Income before income taxes 24.3 24.0 99.9 83.4 Add: Restructuring - - 0.4 - Adjusted income before income taxes 24.3 24.0 100.3 83.4 Adjusted income tax expense (1) (2) (8.3) (8.0) (35.6) (27.6) Adjusted net income from continuing operations 16.0$ 16.0$ 64.7$ 55.8$ EPS from continuing operations (diluted) 0.27$ 0.31$ 1.04$ 0.94$ Adjusted EPS from continuing operations (diluted) 0.25$ 0.25$ 1.02$ 0.88$ Three Months Ended December 31, Twelve Months Ended December 31, (2) Adjusted income tax expense for the three and tw elve months ended December 31, 2014 excludes the benefit of tw o special tax items: $3.5 million for the release of valuation allow ance against foreign deferred tax assets and $0.4 million associated w ith a change in the Spanish income tax rate (1) Adjusted income tax expense for the three and tw elve months ended December 31, 2015 excludes a $1.4 million net benefit from special tax items, comprised of a $4.2 million benefit associated w ith a tax planning strategy, offset by a $2.4 million adjustment to correct an overstatement of deferred tax assets and $0.4 million of expense associated w ith a change in the enacted tax rate in the U.K. Adjusted income tax expense for the tw elve months ended December 31, 2015 also excludes the tax effects of restructuring charges.

 
• Full year cash flow from operations of $91 M, compared to $81 M in prior year • Cash balance at 12/31/15 of $76 M, up from $24 M last year • Total debt at 12/31/15 was $44 M, compared to $50 M last year  Cash on hand exceeded total debt by $32M at 12/31/15 • Paid $4.3 M for dividends, reflecting increase to $0.07 per share  YTD dividends of $15.6 M  YTD share repurchases of $10.6 M;  Aggregate remaining authorization $69 M (~ 8% of market capitalization) • Recently completed new five-year $325 million revolving credit facility • Completed sale of Bronto in January 2016, receiving initial proceeds of ~$83 M  Expect to receive additional proceeds of ~$4 M before end of Q2 11 Balance Sheet and Cash Flow * * As of or for the period ending 12/31/2015

 
2015 in Review and 2016 Headwinds 12 2015 Accomplishments 2015 Results* 2016 Headwinds * Comparison versus FY 2014

 
• Ongoing Initiatives to Grow Shareholder Value:  Create disciplined growth  Leverage invested capital  Diversify customer base  Improve manufacturing efficiencies and costs • Long-Range Goals:  Grow revenue faster than GDP, increasing industrial share  Strong Return on Invested Capital performance  Achieve consolidated operating margin of 12%  Grow EPS at an average rate in low to mid teens 13 Heading into 2016 – Initiatives and Goals

 
14 Joe Johnson Equipment (“JJE”) • Today announced signing a definitive agreement to acquire substantially all assets and operations of JJE • Headquartered in Canada, JJE is a distributor of new, used and remanufactured street sweepers, snow equipment, pump trucks, vacuum trucks and sewer cleaning equipment to municipalities and industrial contractors; also provides rental service, parts, services and ancillary equipment

 
Rental of Equipment Sewer & Street Maintenance Hydro Excavation, DOT & Industrial Vacuum Snow & Ice Control Refuse & Recycling Indoor Recreational Ice Products Industrial Service Sale of New Equipment Sale of Used Equipment Parts Full Maintenance Lease Programs Premier Infrastructure Maintenance Equipment Product Portfolio Infrastructure Efficiency Environment Safety JJE Overview Full Product and Service Offering Industry Segments 15

 
JJE Enhances Our Core Competencies  Expands product portfolio into new, adjacent markets Snow and Ice Control Refuse management  Adds platform for rental business  Fits with recent acquisition of Westech  Expands parts and service refurbishment footprint  Increases customer intimacy with direct connection to end customers  Provides channel capabilities for existing industrial products (Jetstream, Guzzler, Westech)  Brings well-established, customer focused management team  Significant addition of purchase options (rental, used)  Adds to North American Market Coverage (Canada)  Strengthens our U.S. industrial capabilities 16

 
+ Municipal markets healthy (~60% of revenue) + New product introductions: ParaDigm, Water Recycler, G-Series, trailer-mounted jetter + Modest contribution from JJE acquisition + Strong balance sheet  Adjustments to include items related to acquisitions  $10-15 million in capital expenditures  Income tax rate of ~36%  No further deterioration in industrial markets 2016 Outlook 17 Adjusted EPS ranging from $0.70 to $0.80 ‒ $12-14 million reduction of operating income related to oil and gas ‒ Reduced backlog with less favorable mix ‒ Increased hearing loss defense costs Major Assumptions Positive Factors Headwinds

 
Federal Signal Q4 2015 Earnings Call 18 Q&A February 29, 2016 Dennis Martin, Executive Chairman Jennifer Sherman, President & Chief Executive Officer Brian Cooper, SVP, Chief Financial Officer

 
Investor Information Stock Ticker - NYSE:FSS Company website: federalsignal.com/investors HEADQUARTERS 1415 West 22nd Street, Suite 1100 Oak Brook, IL 60523 INVESTOR RELATIONS CONTACTS 630-954-2000 Brian Cooper SVP, Chief Financial Officer BCooper@federalsignal.com Svetlana Vinokur VP, Treasurer and Corporate Development SVinokur@federalsignal.com 19