Company Quick10K Filing
Federal Signal
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 61 $1,644
10-Q 2019-10-31 Quarter: 2019-09-30
10-Q 2019-07-31 Quarter: 2019-06-30
10-Q 2019-05-02 Quarter: 2019-03-31
10-K 2019-02-28 Annual: 2018-12-31
10-Q 2018-11-06 Quarter: 2018-09-30
10-Q 2018-08-07 Quarter: 2018-06-30
10-Q 2018-05-08 Quarter: 2018-03-31
10-K 2018-02-28 Annual: 2017-12-31
10-Q 2017-11-02 Quarter: 2017-09-30
10-Q 2017-08-08 Quarter: 2017-06-30
10-Q 2017-04-27 Quarter: 2017-03-31
10-K 2017-02-28 Annual: 2016-12-31
10-Q 2016-11-01 Quarter: 2016-09-30
10-Q 2016-07-28 Quarter: 2016-06-30
10-Q 2016-05-03 Quarter: 2016-03-31
10-K 2016-02-29 Annual: 2015-12-31
10-Q 2015-11-03 Quarter: 2015-09-30
10-Q 2015-07-28 Quarter: 2015-06-30
10-Q 2015-04-30 Quarter: 2015-03-31
10-K 2015-03-02 Annual: 2014-12-31
10-Q 2014-11-05 Quarter: 2014-09-30
10-Q 2014-07-29 Quarter: 2014-06-30
10-Q 2014-05-01 Quarter: 2014-03-31
10-K 2014-03-05 Annual: 2013-12-31
10-Q 2013-11-06 Quarter: 2013-09-30
10-Q 2013-08-09 Quarter: 2013-06-30
10-Q 2013-05-06 Quarter: 2013-03-31
10-K 2013-03-15 Annual: 2012-12-31
10-Q 2012-11-09 Quarter: 2012-09-30
10-Q 2012-08-03 Quarter: 2012-06-30
10-Q 2012-05-04 Quarter: 2012-03-31
10-K 2012-03-14 Annual: 2011-12-31
8-K 2019-11-04 Regulation FD, Exhibits
8-K 2019-07-01 Other Events, Exhibits
8-K 2019-05-13 Other Events, Exhibits
8-K 2019-03-07 Regulation FD, Exhibits
8-K 2019-02-18 Officers, Other Events, Exhibits
8-K 2018-12-17 Officers, Exhibits
8-K 2018-12-06 Officers
8-K 2018-11-07 Regulation FD, Exhibits
8-K 2018-05-01 Officers, Shareholder Vote
8-K 2018-03-19 Regulation FD, Exhibits
FSS 2019-09-30
Part I. Financial Information
Item 1. Financial Statements (Unaudited).
Note 1 - Summary of Significant Accounting Policies
Note 2 - Acquisitions
Note 3 - Revenue Recognition
Note 4 - Leases
Note 5 - Inventories
Note 6 - Goodwill and Other Intangible Assets
Note 7 - Debt
Note 8 - Income Taxes
Note 9 - Pensions
Note 10 - Commitments and Contingencies
Note 11 - Earnings per Share
Note 12 - Stockholders' Equity
Note 13 - Segment Information
Note 14 - Fair Value Measurements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 fss-2019930x10qexx311.htm
EX-31.2 fss-2019930x10qexx312.htm
EX-32.1 fss-2019930x10qexx321.htm
EX-32.2 fss-2019930x10qexx322.htm
EX-99.1 fss-2019930x10qexhx991.htm
EX-99.2 federalsignalq32019earni.htm

Federal Signal Earnings 2019-09-30

FSS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
NAV 2,946 7,294 10,954 11,788 2,071 323 884 6,178 18% 7.0 4%
FSS 1,644 1,096 516 1,147 300 104 174 1,815 26% 10.4 10%
REVG 681 1,406 889 2,411 263 -26 54 1,080 11% 20.1 -2%
SPAR 360 395 207 941 101 12 24 364 11% 14.9 3%
KNDI 257 409 190 97 24 -23 -13 252 25% -19.3 -6%
WKHS 188 36 81 0 -15 -66 -30 173 -3,610% -5.8 -186%
PCAR 0 27,168 17,533 25,152 0 2,372 4,088 -3,219 0% -0.8 9%
NIU
NIO
SOLO 29 7 0 0 0 0 -2 0%

Document
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Table of Contents


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________ 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
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
  _____________________________________________
 fsslogocoverq22015a07.jpg
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
(Address of principal executive offices)
60523
(Zip code)
(630954-2000
(Registrant’s telephone number, including area code)
  _____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1.00 per share
FSS
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
 
 
Accelerated filer
Non-accelerated filer
 
 
 
Smaller reporting company
Emerging growth company
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of September 30, 2019, the number of shares outstanding of the registrant’s common stock was 60,508,293.
 


Table of Contents


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


Table of Contents


FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) is being filed by Federal Signal Corporation and its subsidiaries (referred to collectively as the “Company,” “we,” “our” or “us” herein, unless the context otherwise indicates) with the United States (“U.S.”) Securities and Exchange Commission (the “SEC”), and includes comments made by management that may contain words such as “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “project,” “estimate” and “objective” or similar terminology, or the negative thereof, concerning the Company’s future financial performance, business strategy, plans, goals and objectives. These expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning the Company’s possible or assumed future performance or results of operations and are not guarantees. While these statements are based on assumptions and judgments that management has made in light of industry experience as well as perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances, they are subject to risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different.
These risks and uncertainties, some of which are beyond the Company’s control, include the risk factors described under Part I, Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 28, 2019, and as updated in Part II, Item 1A, Risk Factors of this Form 10-Q. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Company operates in a continually changing business environment and new factors emerge from time to time. The Company cannot predict such factors, nor can it assess the impact, if any, of such factors on its results of operations, financial condition or cash flow. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results. The Company disclaims any responsibility to update any forward-looking statement provided in this Form 10-Q.
ADDITIONAL INFORMATION
The Company is subject to the reporting and information requirements of the Exchange Act and, as a result, is obligated to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and information with the SEC, as well as amendments to those reports. The Company makes these filings available free of charge through our website at www.federalsignal.com as soon as reasonably practicable after such materials are filed with, or furnished to, the SEC. Information on our website does not constitute part of this Form 10-Q.

1

Table of Contents


PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited).
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions, except per share data)
2019

2018
 
2019
 
2018
Net sales
$
308.8


$
269.4

 
$
906.9

 
$
810.1

Cost of sales
226.8


200.4

 
665.6

 
600.0

Gross profit
82.0


69.0

 
241.3

 
210.1

Selling, engineering, general and administrative expenses
43.0


38.2

 
128.7

 
120.7

Acquisition and integration-related expenses
0.4

 
0.4

 
1.9

 
1.3

Operating income
38.6

 
30.4

 
110.7

 
88.1

Interest expense
2.1

 
2.2

 
6.1

 
7.2

Other expense, net
0.2



 
0.5

 
0.5

Income before income taxes
36.3


28.2

 
104.1

 
80.4

Income tax expense
7.9


6.5

 
25.4

 
18.9

Net income
$
28.4


$
21.7

 
$
78.7

 
$
61.5

Earnings per share:



 
 
 
 
Basic
$
0.47


$
0.36

 
$
1.31

 
$
1.03

Diluted
0.46


0.36

 
1.28

 
1.01

Weighted average common shares outstanding:



 
 
 
 
Basic
60.2


60.0

 
60.1

 
59.9

Diluted
61.4


61.1

 
61.3

 
61.0

See notes to condensed consolidated financial statements.

2

Table of Contents


FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions)
2019
 
2018
 
2019
 
2018
Net income
$
28.4

 
$
21.7

 
$
78.7

 
$
61.5

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
(3.8
)
 
(0.4
)
 
(3.0
)
 
(3.6
)
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, $0.5 and $0.6, respectively
1.3

 
1.0

 
2.8

 
2.8

Change in unrealized gain on derivatives, net of income tax (benefit) expense of $(0.1), $0.0, $(0.5) and $0.3, respectively
(0.1
)
 
0.1

 
(1.3
)
 
1.1

Total other comprehensive (loss) income
(2.6
)
 
0.7

 
(1.5
)
 
0.3

Comprehensive income
$
25.8

 
$
22.4

 
$
77.2

 
$
61.8

See notes to condensed consolidated financial statements.

3

Table of Contents


FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
September 30,
2019
 
December 31,
2018
(in millions, except per share data)
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
35.9

 
$
37.4

Accounts receivable, net of allowances for doubtful accounts of $2.4 and $1.6, respectively
142.5

 
124.4

Inventories
189.1

 
157.3

Prepaid expenses and other current assets
12.7

 
9.4

Total current assets
380.2

 
328.5

Properties and equipment, net of accumulated depreciation of $123.3 and $116.0, respectively
81.1

 
62.0

Rental equipment, net of accumulated depreciation of $42.1 and $30.0, respectively
111.7

 
96.6

Operating lease right-of-use assets
28.5

 

Goodwill
392.1

 
375.1

Intangible assets, net of accumulated amortization of $19.7 and $13.4, respectively
165.1

 
143.1

Deferred tax assets
10.4

 
12.5

Deferred charges and other long-term assets
4.1

 
5.6

Long-term assets of discontinued operations
0.4

 
0.4

Total assets
$
1,173.6

 
$
1,023.8

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term borrowings and finance lease obligations
$
0.2

 
$
0.2

Accounts payable
70.5

 
66.1

Customer deposits
12.7

 
10.1

Accrued liabilities:
 
 
 
Compensation and withholding taxes
30.2

 
29.5

Other current liabilities
50.2

 
52.7

Current liabilities of discontinued operations
0.2

 
0.2

Total current liabilities
164.0

 
158.8

Long-term borrowings and finance lease obligations
249.1

 
209.9

Long-term operating lease liabilities
21.9

 

Long-term pension and other postretirement benefit liabilities
54.4

 
54.6

Deferred gain

 
6.8

Deferred tax liabilities
56.6

 
46.3

Other long-term liabilities
22.2

 
15.9

Long-term liabilities of discontinued operations
1.2

 
1.4

Total liabilities
569.4

 
493.7

Stockholders’ equity:
 
 
 
Common stock, $1 par value per share, 90.0 shares authorized, 66.9 and 66.4 shares issued, respectively
66.9

 
66.4

Capital in excess of par value
225.5

 
217.0

Retained earnings
503.2

 
432.5

Treasury stock, at cost, 6.4 and 6.2 shares, respectively
(92.6
)
 
(88.5
)
Accumulated other comprehensive loss
(98.8
)
 
(97.3
)
Total stockholders’ equity
604.2

 
530.1

Total liabilities and stockholders’ equity
$
1,173.6

 
$
1,023.8

See notes to condensed consolidated financial statements.

4

Table of Contents


FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Nine Months Ended 
 September 30,
(in millions)
2019
 
2018
Operating activities:



Net income
$
78.7

 
$
61.5

Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation and amortization
30.1


27.0

Deferred financing costs
0.3


0.3

Deferred gain


(1.4
)
Stock-based compensation expense
5.9


5.8

Pension expense, net of funding
(0.1
)

(7.6
)
Changes in fair value of contingent consideration and deferred payment
0.8

 
0.8

Payments for acquisition-related activity
(3.1
)
 

Deferred income taxes
8.6


1.8

Changes in operating assets and liabilities
(62.6
)

(16.4
)
Net cash provided by operating activities
58.6


71.8

Investing activities:



Purchases of properties and equipment
(21.2
)
 
(10.1
)
(Payments for) proceeds from acquisition-related activity
(49.6
)
 
3.0

Other, net
0.5

 

Net cash used for investing activities
(70.3
)

(7.1
)
Financing activities:



Increase (decrease) in revolving lines of credit, net
37.5


(53.6
)
Payments of debt financing fees
(1.0
)


Purchases of treasury stock
(1.0
)


Redemptions of common stock to satisfy withholding taxes related to stock-based compensation
(1.9
)

(0.4
)
Payments for acquisition-related activity
(10.3
)
 

Cash dividends paid to stockholders
(14.5
)

(13.8
)
Proceeds from stock-based compensation activity
1.7


1.1

Other, net


0.1

Net cash provided by (used for) financing activities
10.5


(66.6
)
Effects of foreign exchange rate changes on cash and cash equivalents
(0.3
)

(0.6
)
Decrease in cash and cash equivalents
(1.5
)

(2.5
)
Cash and cash equivalents at beginning of year
37.4


37.5

Cash and cash equivalents at end of period
$
35.9


$
35.0

See notes to condensed consolidated financial statements.

5

Table of Contents


FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

 
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

 
Three Months Ended September 30, 2018
(in millions)
Common
Stock
 
Capital in
Excess of
Par
Value
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balance at July 1, 2018
$
66.3

 
$
212.7

 
$
377.4

 
$
(86.7
)
 
$
(77.3
)
 
$
492.4

Net income
 
 
 
 
21.7

 
 
 
 
 
21.7

Total other comprehensive income
 
 
 
 
 
 
 
 
0.7

 
0.7

Cash dividends declared ($0.08 per share)
 
 
 
 
(4.8
)
 
 
 
 
 
(4.8
)
Stock-based payments:
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
1.8

 
 
 
 
 
 
 
1.8

Stock option exercises and other

 
0.4

 
 
 
(0.4
)
 
 
 

Balance at September 30, 2018
$
66.3

 
$
214.9

 
$
394.3

 
$
(87.1
)
 
$
(76.6
)
 
$
511.8

 
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



6

Table of Contents


 
Nine Months Ended September 30, 2018
(in millions)
Common
Stock
 
Capital in
Excess of
Par
Value
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balance at January 1, 2018
$
66.1

 
$
207.7

 
$
346.6

 
$
(86.1
)
 
$
(76.9
)
 
$
457.4

Net income
 
 
 
 
61.5

 
 
 
 
 
61.5

Total other comprehensive income
 
 
 
 
 
 
 
 
0.3

 
0.3

Cash dividends declared ($0.23 per share)
 
 
 
 
(13.8
)
 
 
 
 
 
(13.8
)
Stock-based payments:
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
5.1

 
 
 
 
 
 
 
5.1

Stock option exercises and other
0.2

 
2.1

 
 
 
(1.0
)
 
 
 
1.3

Balance at September 30, 2018
$
66.3

 
$
214.9

 
$
394.3

 
$
(87.1
)
 
$
(76.6
)
 
$
511.8

See notes to condensed consolidated financial statements.

7

Table of Contents


FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of the Business
Federal Signal Corporation was founded in 1901 and was reincorporated as a Delaware corporation in 1969. References herein to the “Company,” “we,” “our” or “us” refer collectively to Federal Signal Corporation and its subsidiaries.
Products manufactured and services rendered by the Company are divided into two reportable segments: Environmental Solutions Group and Safety and Security Systems Group. The individual operating businesses are organized as such because they share certain characteristics, including technology, marketing, distribution and product application, which create long-term synergies. These segments are discussed in Note 13 – Segment Information.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements represent the consolidation of Federal Signal Corporation and its subsidiaries included herein and have been prepared by the Company pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures presented herein are adequate to ensure the information presented is not misleading. Except as otherwise noted, these condensed consolidated financial statements have been prepared in accordance with the Company’s accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and should be read in conjunction with those consolidated financial statements and the notes thereto.
In addition, as discussed in Note 2 – Acquisitions, on July 1, 2019, the Company completed the acquisition of substantially all of the assets and operations of Mark Rite Lines Equipment Company, Inc. (“MRL”), a U.S. manufacturer of truck-mounted and ride-on road-marking equipment, including its wholly-owned subsidiary HighMark Traffic Services, Inc. The Condensed Consolidated Balance Sheet as of September 30, 2019 includes preliminary fair values assigned to the assets acquired and liabilities assumed in connection with the acquisition, whereas the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 include the post-acquisition operating results of MRL.
These condensed consolidated financial statements include all normal and recurring adjustments that we considered necessary to present a fair statement of our results of operations, financial condition and cash flow. Intercompany balances and transactions have been eliminated in consolidation.
The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. While we label our quarterly information using a calendar convention whereby our first, second and third quarters are labeled as ending on March 31, June 30 and September 30, respectively, it is our longstanding practice to establish interim quarterly closing dates based on a 13-week period ending on a Saturday, with our fiscal year ending on December 31. The effects of this practice are not material and exist only within a reporting year.
Recent Accounting Pronouncements and Accounting Changes
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), which supersedes the lease accounting requirements in Accounting Standards Codification (“ASC”) 840, Leases (“Topic 840”). Topic 842 requires organizations that are lessees in operating lease arrangements to recognize right-of-use assets and lease liabilities on the balance sheet and requires disclosure of key qualitative and quantitative information about leasing arrangements by both lessors and lessees. The Company adopted Topic 842 effective January 1, 2019, using the alternative transition method outlined in ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which permits application of the new guidance at the beginning of the period of adoption, with comparative periods continuing to be reported under Topic 840. See Note 4 – Leases for further discussion.
No other new accounting pronouncements issued, but not yet adopted, are expected to have a material impact on the Company’s results of operations, financial position or cash flow.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

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.
As described in Note 2 – Acquisitions, amounts allocated to certain assets acquired and liabilities assumed in connection with the acquisition of MRL are considered preliminary as of September 30, 2019 and are subject to change during the measurement period.
Significant Accounting Policies
Following the adoption of Topic 842, the Company’s lease accounting policy is and will be disclosed as a significant accounting policy. See Note 4 – Leases for further discussion. There have been no other changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
NOTE 2ACQUISITIONS
Acquisition of MRL
On July 1, 2019, the Company completed the acquisition of substantially all of the assets and operations of MRL, a U.S. manufacturer of truck-mounted and ride-on road-marking equipment, including its wholly-owned subsidiary HighMark Traffic Services, Inc. The Company expects that the acquisition will provide an efficient entry into a new line of product offerings and access to new markets. As the acquisition closed on July 1, 2019, the assets and liabilities of MRL have been consolidated into the Condensed Consolidated Balance Sheet as of September 30, 2019, while the post-acquisition results of operations have been included in the Condensed Consolidated Statements of Operations, within the Environmental Solutions Group.
The initial cash consideration paid by the Company to acquire MRL was approximately $49.8 million, net of certain preliminary closing adjustments, including working capital. Any additional closing adjustments are expected to be finalized before the end of the fourth quarter of 2019. In addition, the transaction may include additional consideration of up to $15.5 million, contingent upon the achievement of specified financial results in future reporting periods (i.e., an earn-out). The contingent earn-out payment, if earned, would be due to be paid following the third anniversary of the closing.
The acquisition is being accounted for in accordance with ASC 805, Business Combinations. Accordingly, the total purchase price has been allocated on a preliminary basis to assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values as of the completion of the acquisition. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The Company’s judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. Due to the proximity of the date of acquisition to the date of issuance of the condensed consolidated financial statements, the Company’s purchase price allocation as of September 30, 2019 reflects various provisional estimates that were based on the information that was available as of the acquisition date and the filing date of this Form 10-Q. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, however the determination of those fair values is not yet finalized. Thus, the preliminary measurements of fair value set forth in the table below are subject to change during the measurement period as valuations are finalized. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable.

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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
(in millions)
 
Purchase price, inclusive of preliminary closing adjustments (a)
$
49.8

Estimated fair value of additional consideration (b)
7.9

Total consideration
57.7

 
 
Cash
0.2

Accounts receivable
3.2

Inventories
12.9

Prepaid expenses and other current assets
0.3

Properties and equipment
6.4

Operating lease right-of-use assets
4.6

Other long-term assets
0.1

Customer relationships (c)
17.7

Trade names (d)
9.0

Other intangible assets
1.4

Operating lease liabilities
(4.6
)
Accounts payable
(3.7
)
Accrued liabilities
(1.0
)
Customer deposits
(5.9
)
Deferred tax liabilities
(1.4
)
Net assets acquired
39.2

 
 
Goodwill (e)
$
18.5

(a)
The initial purchase price was funded with borrowings under the Company’s revolving credit facility.
(b)
Represents the preliminary estimated fair value of the contingent earn-out payment as of the acquisition date, which is included as a component of Other long-term liabilities on the Condensed Consolidated Balance Sheet. See Note 14 – Fair Value Measurements for discussion of the methodology used to determine the fair value of the contingent earn-out payment.
(c)
Represents the preliminary fair value assigned to customer relationships, which are considered to be definite-lived intangible assets, with a preliminary estimated useful life of approximately 12 years.
(d)
Represents the preliminary fair value assigned to trade names, which are considered to be indefinite-lived intangible assets.
(e)
Goodwill, the majority of which is tax-deductible, has been allocated to the Environmental Solutions Group on the basis that the synergies identified will primarily benefit this segment.
In the period between the July 1, 2019 closing date and September 30, 2019, MRL generated approximately $22.6 million of net sales and $2.3 million of operating income. The Company has included the operating results of MRL within the Environmental Solutions Group in its condensed consolidated financial statements since the closing date.
Acquisition of JJE
In connection with the June 3, 2016 acquisition of substantially all of the assets and operations of Joe Johnson Equipment, Inc. and Joe Johnson Equipment (USA), Inc. (collectively, “JJE”), the Company paid initial cash consideration of approximately $96.6 million. During the third quarter of 2019, the Company paid additional consideration of C$10 million (approximately $7.6 million) to settle the contingent consideration liability, based on the achievement of specified financial results over the three-year period following the closing of the acquisition. During the third quarter of 2019, the Company also paid C$7.6 million (approximately $5.8 million) to fund substantially all of the deferred payment. Of the total $13.4 million of additional consideration funded during the third quarter of 2019, $3.1 million has been included as a component of Net cash provided by operating activities within the Condensed Consolidated Statements of Cash Flows, with the remaining $10.3 million, representing the fair value of the additional consideration established in the Company’s purchase price allocation, being included as a component of Net cash provided by (used for) financing activities.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

NOTE 3REVENUE RECOGNITION
The following table presents the Company’s Net sales disaggregated by geographic region, based on the location of the end customer, and by major product line:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions)
2019
 
2018
 
2019
 
2018
Geographic Region:
 
 
 
 
 
 
 
U.S.
$
252.6

 
$
215.2

 
$
705.6

 
$
632.5

Canada
35.6

 
34.5

 
131.2

 
112.7

Europe/Other
20.6

 
19.7

 
70.1

 
64.9

Total net sales
$
308.8

 
$
269.4

 
$
906.9

 
$
810.1

Major Product Line:
 
 
 
 
 
 
 
Environmental Solutions
 
 
 
 
 
 
 
Vehicles and equipment (a)
$
198.3

 
$
170.9

 
$
585.7

 
$
511.7

Parts
34.4

 
30.0

 
101.0

 
92.2

Rental income (b)
12.1

 
11.2

 
35.1

 
30.6

Other (c)
9.2

 
4.2

 
18.9

 
11.7

Total
254.0

 
216.3

 
740.7

 
646.2

Safety and Security Systems
 
 
 
 
 
 
 
Public safety and security equipment
31.6

 
29.7

 
98.6

 
97.0

Industrial signaling equipment
15.1

 
13.2

 
45.1

 
39.9

Warning systems
8.1

 
10.2

 
22.5

 
27.0

Total
54.8

 
53.1

 
166.2

 
163.9

Total net sales
$
308.8

 
$
269.4

 
$
906.9

 
$
810.1


(a)
Includes net sales from the sale of new and used vehicles and equipment, including sales of rental equipment.
(b)
Represents income from vehicle and equipment lease arrangements with customers.
(c)
Primarily includes revenues from services, such as maintenance and repair work, and the sale of extended warranty contracts.
Contract Balances
The Company recognizes contract liabilities when cash payments, such as customer deposits, are received in advance of the Company’s satisfaction of the related performance obligations. Contract liabilities are recognized as Net sales when the related performance obligations are satisfied, which generally occurs within three to six months of the cash receipt. Contract liability balances are not materially impacted by any other factors. The Company’s contract liabilities were $15.0 million and $12.1 million as of September 30, 2019 and December 31, 2018, respectively. Contract assets, such as unbilled receivables, were not material as of any of the periods presented herein.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

NOTE 4LEASES
Impact of the Adoption of Topic 842
On January 1, 2019, the Company adopted Topic 842, using the alternative transition method under ASU 2018-11, which permits application of the new guidance at the beginning of the period of adoption, with comparative periods continuing to be reported under Topic 840. The Company elected to apply the practical expedient package outlined in the transition guidance which, among other things, allows for the carryforward of historical lease classifications. In addition, the Company elected to separately account for non-lease and associated lease components and apply the short-term lease exception, whereby the Company does not recognize a right-of-use asset or lease liability for leases with an initial term of 12 months or less.
Upon adoption, the Company recognized operating lease right-of-use assets and liabilities on its Condensed Consolidated Balance Sheet of $27.1 million and $29.5 million, respectively. In addition, the Company recognized the remaining deferred gain of $8.7 million associated with the sale-leaseback transactions that the Company entered into in July 2008 for its Elgin, Illinois and University Park, Illinois plant locations, net of the related deferred tax asset of $2.2 million, as a cumulative effect adjustment to opening retained earnings as of the January 1, 2019 adoption date. Prior to the adoption of Topic 842, the deferred gain, which initially totaled $29.0 million, had been amortized through the Company’s Condensed Consolidated Statements of Operations on a straight-line basis over the 15-year life of the respective leases. Effective in 2019, approximately $1.9 million of the deferred gain, which had been recognized each year since 2008, will no longer be recognized through the Condensed Consolidated Statements of Operations.
Other than the aforementioned elimination of the deferred gain recognition, the adoption of Topic 842 did not have a material impact on the Company’s results of operations or cash flows. Further, the adoption of Topic 842 did not have an impact on the Company’s liquidity or debt-covenant compliance under its current arrangements.
Description of Leases
The Company leases certain facilities within the U.S., Europe and Canada from which the Company manufactures vehicles and equipment, and provides sales, service and/or equipment rentals. Some of the Company’s lease agreements contain options to renew. The Company also leases vehicles and various other equipment. The Company’s lease agreements may contain lease and non-lease components, which are accounted for separately.
In connection with the 2016 acquisition of JJE, the Company entered into lease agreements for two facilities owned by affiliates of the sellers of JJE. Both agreements include an annual rent that is considered market-based and were for an initial lease term of five years, with options to renew. The total lease liability under these agreements to the former owners of JJE, certain of whom are now employees of the Company, was $0.5 million as of September 30, 2019.
In connection with the current-year acquisition of MRL, the Company entered into lease agreements for five facilities owned by affiliates of the sellers of MRL. With the exception of one lease, which has a term of one year, all such lease agreements have lease terms of five years. All lease agreements contain an annual rent that is considered to be market-based and include options to renew. In the three and nine months ended September 30, 2019, total rent paid under these agreements to the former owners of MRL, certain of whom are now employees of the Company, was $0.3 million, and the total lease liability was $4.4 million as of September 30, 2019.
The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the respective lease term.

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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

The following table summarizes the Company’s total lease costs and supplemental cash flow information arising from operating lease transactions:
(in millions)
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Total operating lease costs (a)
$
3.2

 
$
9.3

 
 
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
$
2.3

 
$
6.3

(a)
Includes short-term leases and variable lease costs, which are immaterial.
The following table summarizes the components of lease right-of-use assets and liabilities:
(in millions)
September 30, 2019
 
Affected Line Item in Condensed Consolidated Balance Sheets
Assets
 
 
 
Operating lease right-of-use assets
$
28.5

 
Operating lease right-of-use assets
Finance lease right-of-use assets
0.6

 
Properties and equipment, net of accumulated depreciation
Total lease right-of-use assets
$
29.1

 
 
 
 
 
 
Liabilities
 
 
 
Current:
 
 
 
Operating leases
$
8.8

 
Other current liabilities
Finance leases
0.2

 
Current portion of long-term borrowings and finance lease obligations
Noncurrent:
 
 
 
Operating leases
21.9

 
Long-term operating lease liabilities
Finance leases
0.4

 
Long-term borrowings and finance lease obligations
Total lease liabilities
$
31.3

 
 

As of September 30, 2019, the Company’s operating leases have a weighted-average remaining lease term of 4.0 years and a weighted-average discount rate of 3.8%.
Maturities of operating lease liabilities as of September 30, 2019 were as follows:
(in millions)
 
2019 (excluding the nine months ended September 30, 2019)
$
2.3

2020
8.9

2021
8.2

2022
7.2

2023
4.5

Thereafter
2.1

Total lease payments
33.2

Less: Imputed interest
2.5

Present value of operating lease liabilities
$
30.7


At December 31, 2018, minimum future rental commitments under operating leases having non-cancelable lease terms in excess of one year, as previously determined in accordance with Topic 840, aggregated $34.3 million and were payable as follows: $8.9 million in 2019$8.0 million in 2020$6.9 million in 2021$5.9 million in 2022$3.4 million in 2023 and $1.2 million thereafter.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

NOTE 5INVENTORIES
The following table summarizes the components of Inventories:
(in millions)
September 30,
2019
 
December 31,
2018
Finished goods
$
85.1

 
$
78.3

Raw materials
85.5

 
66.3

Work in process
18.5

 
12.7

Total inventories (a)
$
189.1

 
$
157.3


(a)
Amounts at September 30, 2019 include inventories acquired in the MRL acquisition - see Note 2 – Acquisitions.
NOTE 6GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes the carrying amount of goodwill, and the changes in the carrying amount of goodwill in the nine months ended September 30, 2019, by segment:
(in millions)
Environmental
Solutions
 
Safety & Security
Systems
 
Total
Balance at January 1, 2019
$
263.2

 
$
111.9

 
$
375.1

Translation adjustments
0.1

 
(1.6
)
 
(1.5
)
Acquisitions
18.5

 

 
18.5

Balance at September 30, 2019
$
281.8

 
$
110.3

 
$
392.1


The following table summarizes the gross carrying amount and accumulated amortization of intangible assets for each major class of intangible assets:
 
September 30, 2019
 
December 31, 2018
(in millions)
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships (a)
$