Federal Signal Corp 10-Q for FY2020 Q3

Federal Signal Corp (FSS)

10-Q 2020-10-29 For: 2020-09-30

Added on April 08, 2026

About this 10-Q

Federal Signal Corp filed this 10-Q on October 29, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).

Headline figures

Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $279.8M; down 9.4% from $308.8M a year earlier
Net income: $25.3M; down 10.9% from net income of $28.4M a year earlier
Diluted EPS: $0.41; down 10.9% from $0.46 a year earlier

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Delaware						36-1063330
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	FSS	New York Stock Exchange


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019	3
	Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements	8
	Note 1 – Summary of Significant Accounting Policies	8
	Note 2 – Acquisitions	9
	Note 3 – Revenue Recognition	10
	Note 4 – Inventories	10
	Note 5 – Debt	11
	Note 6 – Income Taxes	12
	Note 7 – Pension and Other Post-Employment Plans	12
	Note 8 – Commitments and Contingencies	13
	Note 9 – Earnings Per Share	18
	Note 10 – Stockholders’ Equity	19
	Note 11 – Segment Information	22
	Note 12 – Fair Value Measurements	22
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38

SIGNATURE		39


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data)	2020		2019		2020		2019
Net sales	$	279.8	$	308.8	$	836.0	$	906.9
Cost of sales	207.2		226.8		618.3		665.6
Gross profit	72.6		82.0		217.7		241.3
Selling, engineering, general and administrative expenses	38.4		43.0		118.0		128.7
Acquisition and integration-related expenses	0.2		0.4		0.8		1.9
Restructuring	—		—		1.3		—
Operating income	34.0		38.6		97.6		110.7
Interest expense	1.2		2.1		4.5		6.1


Other (income) expense, net	(0.1)		0.2		2.1		0.5
Income before income taxes	32.9		36.3		91.0		104.1
Income tax expense	7.6		7.9		20.9		25.4


Net income	$	25.3	$	28.4	$	70.1	$	78.7
Earnings per share:


Basic	$	0.42	$	0.47	$	1.16	$	1.31



Diluted	0.41		0.46		1.14		1.28
Weighted average common shares outstanding:
Basic	60.3		60.2		60.3		60.1
Diluted	61.3		61.4		61.5		61.3


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019
Net income	$	25.3	$	28.4	$	70.1	$	78.7
Other comprehensive income (loss):
Change in foreign currency translation adjustment	4.4		(3.8)		(0.5)		(3.0)
Change in unrecognized net actuarial loss and prior service cost related to pension benefit plans, net of income tax expense of $0.2, $0.2, $0.6 and $0.5, respectively	0.3		1.3		3.0		2.8
Change in unrealized gain or loss on interest rate swaps, net of income tax expense (benefit) of $0.0, $(0.1), $(1.1) and $(0.5), respectively	0.1		(0.1)		(3.3)		(1.3)
Total other comprehensive income (loss)	4.8		(2.6)		(0.8)		(1.5)
Comprehensive income	$	30.1	$	25.8	$	69.3	$	77.2


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	September 30, 2020		December 31, 2019
(in millions, except per share data)	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	66.2	$	31.6
Accounts receivable, net of allowances for doubtful accounts of $3.0 and $2.4, respectively	145.0		134.2
Inventories	196.6		182.9
Prepaid expenses and other current assets	9.9		12.0



Total current assets	417.7		360.7
Properties and equipment, net of accumulated depreciation of $133.0 and $125.5, respectively	105.6		91.9
Rental equipment, net of accumulated depreciation of $40.9 and $33.6, respectively	115.4		115.4
Operating lease right-of-use assets	22.4		27.6
Goodwill	392.0		388.8
Intangible assets, net of accumulated amortization of $29.4 and $22.1, respectively	155.4		162.9
Deferred tax assets	7.7		10.0
Deferred charges and other long-term assets	8.2		7.9
Long-term assets of discontinued operations	0.3		0.3
Total assets	$	1,224.7	$	1,165.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Current portion of long-term borrowings and finance lease obligations	$	0.2	$	0.2
Accounts payable	71.1		65.0
Customer deposits	11.5		11.5


Accrued liabilities:
Compensation and withholding taxes	27.8		31.1
Current operating lease liabilities	8.1		8.2
Other current liabilities	39.7		44.0
Current liabilities of discontinued operations	0.2		0.2
Total current liabilities	158.6		160.2
Long-term borrowings and finance lease obligations	238.7		220.3
Long-term operating lease liabilities	16.2		21.6
Long-term pension and other postretirement benefit liabilities	44.6		50.9

Deferred tax liabilities	58.1		52.7
Other long-term liabilities	27.8		17.3
Long-term liabilities of discontinued operations	0.9		0.9
Total liabilities	544.9		523.9
Stockholders’ equity:
Common stock, $1 par value per share, 90.0 shares authorized, 67.8 and 66.9 shares issued, respectively	67.8		66.9
Capital in excess of par value	237.4		228.6
Retained earnings	583.8		528.2
Treasury stock, at cost, 7.3 and 6.4 shares, respectively	(119.3)		(93.0)
Accumulated other comprehensive loss	(89.9)		(89.1)
Total stockholders’ equity	679.8		641.6
Total liabilities and stockholders’ equity	$	1,224.7	$	1,165.5


	Three Months Ended September 30, 2020
(in millions)	Common Stock		Capital in Excess of Par Value		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance at July 1, 2020	$	67.5	$	234.7	$	563.3	$	(115.4)	$	(94.7)	$	655.4
Net income					25.3						25.3
Total other comprehensive income									4.8		4.8
Cash dividends declared ($0.08 per share)					(4.8)						(4.8)
Stock-based payments:
Stock-based compensation			1.5								1.5
Stock option exercises and other	0.3		1.2				(3.7)				(2.2)

Stock repurchase program							(0.2)				(0.2)
Balance at September 30, 2020	$	67.8	$	237.4	$	583.8	$	(119.3)	$	(89.9)	$	679.8


	Three Months Ended September 30, 2019
(in millions)	Common Stock		Capital in Excess of Par Value		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance at July 1, 2019	$	66.7	$	221.3	$	479.7	$	(91.4)	$	(96.2)	$	580.1
Net income					28.4						28.4
Total other comprehensive loss									(2.6)		(2.6)
Cash dividends declared ($0.08 per share)					(4.9)						(4.9)

Stock-based payments:
Stock-based compensation			1.7								1.7
Stock option exercises and other	0.2		2.5				(1.2)				1.5


Balance at September 30, 2019	$	66.9	$	225.5	$	503.2	$	(92.6)	$	(98.8)	$	604.2


	Nine Months Ended September 30, 2020
(in millions)	Common Stock		Capital in Excess of Par Value		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance at January 1, 2020	$	66.9	$	228.6	$	528.2	$	(93.0)	$	(89.1)	$	641.6
Net income					70.1						70.1
Total other comprehensive loss									(0.8)		(0.8)
Cash dividends declared ($0.24 per share)					(14.5)						(14.5)
Stock-based payments:
Stock-based compensation			5.4								5.4
Stock option exercises and other	0.7		3.6				(9.7)				(5.4)
Performance share unit transactions	0.2		(0.2)				(2.9)				(2.9)
Stock repurchase program							(13.7)				(13.7)
Balance at September 30, 2020	$	67.8	$	237.4	$	583.8	$	(119.3)	$	(89.9)	$	679.8


	Nine Months Ended September 30, 2019
(in millions)	Common Stock		Capital in Excess of Par Value		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance at January 1, 2019	$	66.4	$	217.0	$	432.5	$	(88.5)	$	(97.3)	$	530.1
Net income					78.7						78.7
Total other comprehensive loss									(1.5)		(1.5)
Cash dividends declared ($0.24 per share)					(14.5)						(14.5)
Impact of adoption of ASU 2016-02					6.5						6.5
Stock-based payments:
Stock-based compensation			5.2								5.2
Stock option exercises and other	0.4		3.4				(2.2)				1.6
Performance share unit transactions	0.1		(0.1)				(0.9)				(0.9)
Stock repurchase program							(1.0)				(1.0)
Balance at September 30, 2019	$	66.9	$	225.5	$	503.2	$	(92.6)	$	(98.8)	$	604.2


(in millions)	September 30, 2020		December 31, 2019

2019 Credit Agreement (a)	$	238.2	$	219.9
Finance lease obligations	0.7		0.6
Total long-term borrowings and finance lease obligations, including current portion	238.9		220.5

Less: Current finance lease obligations	0.2		0.2
Total long-term borrowings and finance lease obligations	$	238.7	$	220.3


	September 30, 2020				December 31, 2019
(in millions)	Notional Amount		Fair Value		Notional Amount		Fair Value

Long-term borrowings (a)	$	238.9	$	238.9	$	220.5	$	220.5


	U.S. Benefit Plan								Non-U.S. Benefit Plan
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019		2020		2019		2020		2019
Service cost	$	—	$	—	$	—	$	—	$	—	$	—	$	0.1	$	0.1
Interest cost	$	1.5	1.7		4.3		5.1		0.2		0.3		0.7		1.0
Amortization of actuarial loss	0.8		0.8		2.4		2.0		0.2		0.2		0.4		0.5
Amortization of prior service cost	—		—		—		—		—		—		0.1		0.1
Expected return on plan assets	(2.3)		(2.1)		(6.9)		(6.5)		(0.5)		(0.5)		(1.4)		(1.5)
Net periodic pension (benefit) expense	$	—	$	0.4	(0.2)		0.6		$	(0.1)	$	—	(0.1)		0.2


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019
Geographic Region:
U.S.	$	219.1	$	252.6	$	650.7	$	705.6
Canada	41.6		35.6		113.4		131.2
Europe/Other	19.1		20.6		71.9		70.1
Total net sales	$	279.8	$	308.8	$	836.0	$	906.9
Major Product Line:
Environmental Solutions
Vehicles and equipment (a)	$	179.1	$	198.3	$	531.1	$	585.7
Parts	32.4		34.4		96.7		101.0
Rental income (b)	9.2		12.1		27.3		35.1
Other (c)	10.3		9.2		23.1		18.9
Total	231.0		254.0		678.2		740.7
Safety and Security Systems
Public safety and security equipment	29.5		31.6		97.6		98.6
Industrial signaling equipment	11.6		15.1		38.0		45.1
Warning systems	7.7		8.1		22.2		22.5

Total	48.8		54.8		157.8		166.2
Total net sales	$	279.8	$	308.8	$	836.0	$	906.9


(in millions)	September 30, 2020		December 31, 2019
Finished goods	$	99.8	$	86.8
Raw materials	79.5		79.5
Work in process	17.3		16.6
Total inventories	$	196.6	$	182.9


	Three Months Ended September 30,									Nine Months Ended September 30,
($ in millions)	2020			2019			Change			2020			2019			Change
Net sales	$	231.0		$	254.0		$	(23.0)		$	678.2		$	740.7		$	(62.5)
Operating income	33.0			35.9			(2.9)			91.0			106.4			(15.4)
Operating data:
Operating margin	14.3		%	14.1		%	0.2		%	13.4		%	14.4		%	(1.0)		%
Total orders	$	220.0		$	270.2		$	(50.2)		$	615.2		$	767.1		$	(151.9)
Backlog	292.6			337.8			(45.2)			292.6			337.8			(45.2)
Depreciation and amortization	10.4			10.0			0.4			30.6			27.5			3.1


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)
July 2020 (6/28/20 – 8/1/20)	7,227	$	27.71	7,227	$	90,524,049
August 2020 (8/2/20 – 8/29/20)	—	—		—	90,524,049
September 2020 (8/30/20 – 9/26/20)	—	—		—	90,524,049


(in millions) (a)	Actuarial Losses		Prior Service Costs		Foreign Currency Translation		Unrealized Gain (Loss) on Interest Rate Swaps		Total
Balance at July 1, 2020	$	(77.8)	$	(2.3)	$	(12.0)	$	(2.6)	$	(94.7)
Other comprehensive (loss) income before reclassifications	(0.4)		—		4.4		—		4.0
Amounts reclassified from accumulated other comprehensive loss	0.7		—		—		0.1		0.8
Net current-period other comprehensive income	0.3		—		4.4		0.1		4.8
Balance at September 30, 2020	$	(77.5)	$	(2.3)	$	(7.6)	$	(2.5)	$	(89.9)


Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss				Affected Line Item in Condensed Consolidated Statements of Operations
	2020		2019
(in millions) (a)
Amortization of actuarial losses of defined benefit pension plans	$	(1.0)	$	(1.0)	Other (income) expense, net
Amortization of prior service costs of defined benefit pension plans	—		—		Other (income) expense, net
Interest rate swaps	(0.2)		0.2		Interest expense
Total before tax	(1.2)		(0.8)
Income tax benefit	0.4		0.2		Income tax expense
Total reclassifications for the period, net of tax	$	(0.8)	$	(0.6)


(in millions)	As of September 30, 2020		As of December 31, 2019
Total assets:
Environmental Solutions	$	940.9	$	908.1
Safety and Security Systems	226.5		222.6
Corporate and eliminations	57.0		34.5
Total assets of continuing operations	1,224.4		1,165.2
Total assets of discontinued operations	0.3		0.3
Total assets	$	1,224.7	$	1,165.5


	Fair Value Measurement at Reporting Date Using
(in millions)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	34.4	$	—	$	—	$	34.4

Liabilities:
Contingent consideration	—		—		4.4		4.4
Interest rate swap	—		3.4		—		3.4


(in millions)	2020		2019 (a) (b)
Contingent consideration liability, at July 1	$	4.4	$	7.6
Issuance of contingent consideration in connection with acquisitions	—		7.9
Settlements of contingent consideration liabilities	—		(7.6)
Foreign currency translation	—		—
Total losses included in earnings	0.0		0.1
Contingent consideration liability, at September 30	$	4.4	$	8.0


	Three Months Ended September 30,									Nine Months Ended September 30,
($ in millions, except per share data)	2020			2019			Change			2020			2019			Change
Net sales	$	279.8		$	308.8		$	(29.0)		$	836.0		$	906.9		$	(70.9)
Cost of sales	207.2			226.8			(19.6)			618.3			665.6			(47.3)
Gross profit	72.6			82.0			(9.4)			217.7			241.3			(23.6)
Selling, engineering, general and administrative expenses	38.4			43.0			(4.6)			118.0			128.7			(10.7)
Acquisition and integration-related expenses	0.2			0.4			(0.2)			0.8			1.9			(1.1)
Restructuring	—			—			—			1.3			—			1.3
Operating income	34.0			38.6			(4.6)			97.6			110.7			(13.1)
Interest expense	1.2			2.1			(0.9)			4.5			6.1			(1.6)


Other (income) expense, net	(0.1)			0.2			(0.3)			2.1			0.5			1.6
Income before income taxes	32.9			36.3			(3.4)			91.0			104.1			(13.1)
Income tax expense	7.6			7.9			(0.3)			20.9			25.4			(4.5)


Net income	$	25.3		$	28.4		$	(3.1)		$	70.1		$	78.7		$	(8.6)
Operating data:
Operating margin	12.2		%	12.5		%	(0.3)		%	11.7		%	12.2		%	(0.5)		%
Diluted earnings per share	$	0.41		$	0.46		$	(0.05)		$	1.14		$	1.28		$	(0.14)
Total orders	265.8			328.8			(63.0)			771.0			935.8			(164.8)
Backlog	319.7			366.9			(47.2)			319.7			366.9			(47.2)
Depreciation and amortization	11.2			10.8			0.4			33.1			30.1			3.0


3.1						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.

3.2						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.

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						Third Quarter Financial Results Press Release, Dated October 29, 2020.

99.2						Third Quarter Earnings Call Presentation Slides.

101.INS						XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH						Inline XBRL Taxonomy Extension Schema Document.

101.CAL						Inline XBRL Taxonomy Calculation Linkbase Document.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB						Inline XBRL Taxonomy Label Linkbase Document.

101.PRE						Inline XBRL Taxonomy Presentation Linkbase Document.

104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).


		Federal Signal Corporation

Date:	October 29, 2020	/s/ Ian A. Hudson
		Ian A. Hudson
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)