Federal Signal (FSS) 10-K2023 FY Annual report

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.

Federal Signal Corporation, founded in 1901, was reincorporated as a Delaware corporation in 1969. The Company designs, manufactures and supplies a suite of products and integrated solutions for municipal, governmental, industrial and commercial customers. The Company’s portfolio of products that it manufactures includes (i) vehicles and equipment for maintenance and infrastructure end-markets, including sewer cleaners, industrial vacuum loaders, vacuum- and hydro-excavation trucks (collectively, “safe-digging trucks”), street sweepers, waterblasting equipment, road-marking and line-removal equipment, dump truck bodies, trailers, metal extraction support equipment and multi-purpose tractors, and (ii) public safety equipment, such as vehicle lightbars and sirens, industrial signaling equipment, public warning systems and general alarm/public address systems. In addition, the Company engages in the sale of parts, service and repair, equipment rentals and training as part of a comprehensive aftermarket offering to its customers. The Company operates 23 principal manufacturing facilities in five countries and provides products and integrated solutions to customers in all regions of the world.

Products manufactured and supplied, and services rendered, by the Company are divided into two reportable 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 the Company’s reportable segments.

During the year ended December 31, 2023, the Company completed the acquisitions of substantially all of the assets and operations of Trackless Vehicles Limited and Trackless Vehicles Asset Corp, and the wholly-owned subsidiary Work Equipment Ltd. (collectively, “Trackless”) and substantially all of the assets and operations of Blasters, Inc. and Blasters Technologies, LLC (collectively, “Blasters”).

Depending primarily on the type and geographic location of the end-customer, the Environmental Solutions Group uses either a dealer network or direct sales to serve customers. The dealer network serves both municipal and industrial end-markets. Within municipal markets, the majority of the Company’s dealers operate exclusively in their assigned territory. In conjunction with selling vehicles to end-customers, dealer representatives demonstrate vehicle functionality and capability and provide vehicle service. In addition to selling products manufactured by the Company, certain of our businesses distribute and re-sell products manufactured by other companies. The Company believes its regional, national and global dealer networks for vehicles is a distinguishing factor from its competitors. The Company has an ownership interest in certain dealers.

No single customer accounted for 10% or more of the Company’s net sales in any year within the three-year period ended December 31, 2023.

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 its purchases are currently 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. However, a transition to a new supplier may cause the Company to incur supply disruptions and unanticipated costs.

Within the Environmental Solutions Group, Elgin is recognized as a market leader among domestic sweeper competitors and differentiates itself primarily on product performance. The Vactor, TRUVAC 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. Joe Johnson Equipment, Inc. with Joe Johnson Equipment (USA), Inc., (collectively, “JJE”), is a leading Canadian-based distributor of maintenance equipment for municipal and industrial markets. Blasters is a leading U.S. manufacturer of truck-mounted waterblasting equipment. MRL is a U.S. manufacturer of truck-mounted and ride-on road-marking and line-removal equipment. Trackless is a leading Canadian manufacturer of off-road, multi-purpose tractors and attachments. Ground Force and TowHaul are leading manufacturers of specialty vehicles that support the extraction of metals. TBEI includes a portfolio of regional dump truck body and trailer brands with market leadership positions in distinct geographies and product categories, differentiating itself with its broad regional distribution network, focus on customer responsiveness and operational expertise.

As of December 31, 2023, the Company employed approximately 4,500 people in its businesses located in five countries, with the Company’s U.S. hourly employees accounting for approximately 54% of its total workforce. As of December 31, 2023, approximately 9% of the Company’s U.S. hourly workers were represented by unions.

The Company is committed to respecting and upholding the internationally recognized human rights principles of the United Nations’ Guiding Principles on Business and Human Rights and the Universal Declaration of Human Rights. In every state and country where the Company operates, it upholds standards that meet or exceed those established by local, state, and national legal frameworks, and the Company expects its partners, suppliers, vendors, and contractors to do the same. The Company has published a human rights policy, setting forth its commitment to equality and nondiscrimination, elimination of all forms of forced or compulsory labor, the effective abolition of childhood labor, workers’ rights to freedom of association and unionization, and protecting employees’ ability to confidentially report policy violations.

The Company is committed to promoting and supporting an inclusive culture throughout the organization, and believes that hearing different voices, and seeking different perspectives and ideas, leads to better results. The Company is proud of the diversity on its Board of Directors, senior management and in leadership roles throughout the Company. Currently, two of the

Company’s eight directors self-identify as members of a minority group.

In addition, three of the Company’s directors are female, placing the Company ahead of the 29% average for companies in the Russell 3000 Index. Of the companies in the Russell 3000 Index, approximately 7% have a female Chief Executive Officer (“CEO”), and the Company is proud to be among that group. In addition, 50% of the Company’s current executive officers are female, including the Company’s President and CEO, Vice President and General Counsel, and Vice President, Chief Accounting Officer and Controller.

The Company’s cultural philosophy is further evidenced by its policies related to various aspects of employment, including, but not limited to, recruiting, selecting, hiring, employment placement, job assignment, compensation, access to benefits, selection for training, use of facilities, and participation in Company-sponsored employee activities. In recent years, the Company’s Executive Leadership Team, comprised of business leaders from across the organization, completed a comprehensive educational awareness training led by an industry expert and completed supplemental training on the importance of building inclusive workplaces. Additionally, the Company piloted training at a key manufacturing location in 2022 and provided facilitated training at another key manufacturing location in 2023.

The Company believes that identifying and developing the next generation of business leaders is important to its long-term success, and is proud to support its employees in furthering their education with tuition reimbursement programs and training.

The Company’s recruitment program follows a defined process to attract and hire top talent, including a college internship program designed to identify and cultivate an early-in-career pipeline of talent, and employee referral bonus programs. The Company additionally engages external professional recruiting firms to supplement its internal recruiting efforts, as needed.

The Company provides extensive training to employees within its facilities, ranging from topics such as workplace safety, anti-fraud, anti-discrimination and anti-harassment training, to advanced instruction in lean manufacturing principles and inside sales training programs. On average, the Company’s employees each receive more than 10 hours of job training per year, with some employees of certain business units each averaging nearly 80 hours of training per year.

Through its Tuition Assistance Program, the Company also aims to assist and encourage employees to expand their knowledge, skills, and job effectiveness by continuing their education at local accredited institutions of higher learning. Certain of the Company’s businesses also partner with nearby universities, from time to time, to offer courses and programs directly related to the employee’s growth in the business.

The Company maintains a robust annual performance management process across the organization. Employees start the process by working with their supervisors to set individual performance goals. Progress against those objectives is tracked throughout the year, culminating in the year-end performance review process, which involves the completion of an employee self-assessment and a discussion between the employee and their supervisor on goal accomplishment and defined core competencies. In addition, the Company’s annual talent and succession management processes are designed to identify and develop next-level successors through a variety of assignments and experiential learning.

The Company actively seeks opportunities for regular engagement and communication with its CEO and other senior executive leaders with its broader employee population. In addition, many of the Company’s businesses perform employee engagement surveys that provide valuable feedback to the management teams.

The Company is committed to the communities in which it operates, and to developing a strong pipeline from which it can recruit new talent. Many of the Company’s businesses support their local high schools with cooperative learning extension programs at their manufacturing plants, hosting in-person or virtual tours of our facilities, and providing scholarships and “signing-day” offers to high school seniors. The Company’s employees raise funds and donate time to a variety of community engagement initiatives and support expanded outreach to diverse communities.

The Company’s employees also donate time and expertise through volunteering and mentorship programs, and work with local colleges on training programs to teach valuable technical skills that can be applied in the workplace. Many of the Company’s businesses also recruit summer interns from regional universities, providing hands-on experience in a manufacturing setting and building a pipeline for future engineers, information technology (“IT”) specialists and financial analysts. These programs attempt to help the Company’s next generation, and others, understand what career paths may be available to them and to explore future job opportunities with the Company.

The Company considers the safety of its employees a significant focus and strives to have zero workplace injuries. The Company has established an enterprise-wide Safety Council, which includes representatives from several of our manufacturing facilities. The Safety Council meets regularly to collaborate and implement safety improvement measures, including workplace hazard reduction programs and awards focusing on continuous improvement initiatives and the reduction of incident frequency.

The Company endeavors to establish environmentally-friendly policies and objectives, and believes that these actions are also consistent with cost-effective operating practices. With the application of these policies, the Company believes it 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 2023 attributable to compliance with such laws were not material. The Company also 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.

Certain of the Company’s businesses are susceptible to the influences of seasonal factors, including buying patterns, delivery patterns and productivity influences from holiday periods and weather. In general, the Company tends to have lower equipment sales in the first calendar quarter of each year compared to other quarters as a result of these factors. In addition, rental income and parts sales are generally higher in the second and third quarters of the year, because many of the Company’s products are used for maintenance activities in North America, where usage is typically lower during periods of harsher weather conditions.

The following is a list of the Company’s executive officers, including their ages, business experience and positions as of February 1, 2024:

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.

In 2023, we generated approximately 78% 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 federal, state and local political circumstances, budgetary constraints, changing priorities, actual or potential government shutdowns 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 to 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. In addition, the extent of any potential changes to policies, tax laws and regulations and how any such changes may impact the Company’s financial results and operations, is currently uncertain. For example, the Organization for Economic Co-operation and Development has issued Pillar Two model rules introducing a new global minimum corporate tax of 15% intended to be effective on January 1, 2024. While the U.S. has not yet adopted the Pillar Two rules, various non-U.S. governments are enacting legislation. As currently designed, Pillar Two would apply to our worldwide operations. We currently do not expect these rules to materially increase our global tax costs because we do not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum. We continue to monitor U.S. and global legislative action related to Pillar Two for potential impacts.

Government administrations and agencies, political figures, the investment community, employees and other stakeholders have had an increased focus on sustainability issues and initiatives. Regulatory and other legal changes in laws in response to such matters could require material efforts and costs by us, and our suppliers, to comply with such changes. The costs of compliance with the various laws, regulations and policies applicable to us could be significant and penalties for non-compliance could significantly impact our business.

Our business is subject to fluctuations in demand and changing international economic, legal and political conditions that are beyond our control. In 2023, approximately 22% 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, and changes in these laws, regulations and policies by the U.S. and foreign governments. In addition, we may be exposed to risks and adverse economic effects associated with changes in tax laws, geopolitical conflicts, actual or threatened imposition of tariffs or trade barriers on our products or materials incorporated into our products, actual or threatened trade disputes, including so-called “trade wars,” political and economic instability in the jurisdictions in which we operate, foreign receivables collection risk and local labor market conditions.

We are exposed to inflation effects, which could negatively affect our business, financial condition and results of operation. The United States and other jurisdictions have experienced high levels of inflation in recent years. If the inflation rate increases, it will likely affect our expenses, including, but not limited to, employee compensation and labor expenses and increased costs for supplies, and we may not be successful in offsetting such cost increases through pricing actions.

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 services. Further, certain government agencies, including the U.S. Treasury, have previously implemented and may continue to implement policies that have resulted and may continue to result in significantly increased interest rates and borrowing costs. 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.

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 purchase from suppliers raw materials, component parts and finished goods to be used in the manufacturing and sale of our products. In addition, we may incorporate vehicle chassis provided directly by our customers in our production process. Although the vast majority of our raw materials and component parts are sourced domestically, certain of our suppliers are based overseas, and certain of our domestic suppliers may source subcomponents from overseas. Global markets for various products and goods have suffered, and are continuing to suffer, material disruptions to certain supply chains, in part due to the coronavirus pandemic and geopolitical conflicts, including the war between Russia and Ukraine and the war between Israel and Hamas. Changes in our relationships with suppliers, shortages in availability of materials, production delays, regulatory restrictions, public health crises, labor stoppages or other supply chain disruptions, whether due to our suppliers or customers, could have a material adverse effect on our ability to timely manufacture and deliver products to our customers. 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.

Challenges within global logistics networks, including trucking and chassis shortages and shortages in labor availability, have also contributed to delays in receiving key manufacturing components, increased order backlogs and higher transportation costs. Such logistical disruption may cause us to incur higher freight costs to expedite the receipt of components from our suppliers or the delivery of products to our customers, and may also result in longer lead times for our customers.

As economies around the world recovered following the most significant effects of the pandemic, sharp increases in demand created significant disruption to the global supply chain, which adversely affected our ability to receive goods on a timely basis and increased our material costs. Throughout 2023, supply chain conditions have continued to gradually improve. However, we continue to experience supply shortages and extended lead times for some components and raw materials, including certain classes of chassis and electronic components that are important to our manufacturing processes. When facing supply-related challenges, we may increase our inventory levels and purchase commitments to shorten lead times and to help maintain adequate inventory levels to meet customer expectations. While we actively monitor and take steps in an effort to mitigate supply chain risk, there can be no assurance that our ongoing mitigation plans will prevent disruptions that may arise from shortages of materials that we use in the production of our products.

Global supply chain disruptions may continue to adversely affect our business and our outlook. If we are unable to recover a substantial portion of the increase in material and transportation costs from our customers through price adjustments and/or

surcharges, our business or results of operations could be adversely affected. We may also experience an increase in order cancellations if any such pricing actions are not accepted by our customers.

We are engaged in an industry that will be affected by future technological developments. The introduction of products or processes utilizing new technologies, including those resulting from any new environmental, safety and other regulations, artificial intelligence and machine learning, could require us and our suppliers to make significant changes to existing products or processes in order for them to remain marketable and competitive. Our success will depend upon our ability to source, develop and introduce on a timely and cost-effective basis new products, applications and processes that keep pace with technological developments, applicable regulations and address increasingly sophisticated customer requirements. We may not be successful in identifying, sourcing, developing and marketing new products, applications and processes and product or process enhancements. Further, if we implement emerging technologies such as artificial intelligence and machine learning into our products and services, we may not be able to anticipate vulnerabilities, flaws or security threats resulting from the use of such technology and develop adequate protection measures. 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 condition, results of operations or cash flow could be materially and adversely affected if we or our suppliers 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.

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 the related product diversification effort.

We rely on national and global dealer networks to market certain of our products and services. As a result, our business with respect to these products and services is influenced by our ability to manage new and existing relationships with dealers. While we have relatively low turnover of dealers, from time to time, we or a dealer may choose to terminate the relationship as a result of difficulties that our dealers experience in operating their businesses due to economic conditions or other factors. While we do not believe our business is dependent on any single dealer, 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. Recent significant increases in interest rates and any future deterioration in the liquidity or credit worthiness of our dealers could have a significant adverse effect on our business. From time to time, we may provide financing assistance to dealers or consider taking ownership positions. 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.

Our long-term strategy includes exploring acquisitions 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, especially with interest rates at comparatively high levels. 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.

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 expected. In these circumstances, we cannot assure that our rights to indemnification will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the businesses or property acquired. Further, these liabilities could result in unexpected legal or regulatory exposure, unexpected increases in taxes or other adverse effects on our business. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our financial condition, results of operations or cash flow.

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.

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. 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.

Additionally, availability of labor in the markets in which we operate has declined in recent years and competition for such labor has increased. A significant increase in wages paid by competitors for employees similar to our work force could result in insufficient availability of workers and/or increase our labor costs. In the event prevailing wage rates continue to increase in the markets in which we operate, we may be required to concurrently increase the wages paid to our employees to maintain the quality of our work force and customer service. If the supply of skilled labor is constrained or our costs of attracting and maintaining a workforce increase, our profit margins could decrease as well as our ability to maximize production and meet customer demand.

As a portion of our workforce is unionized, we are subject to risk of work stoppages and other labor relations matters. As of December 31, 2023, approximately 9% of our U.S. hourly workers were represented by labor unions and were covered by collective bargaining agreements with various unions. 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. In addition, the stoppage of work for a prolonged period of time at one, or several, of our principal manufacturing facilities, due to public health concerns, or any other reason, could materially adversely affect our business.

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 88% as of December 31, 2023. Funding of the Company’s U.S. defined benefit pension plan is determined in accordance with guidelines set forth in the Employee Retirement Income Security Act. 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 become legally required to make increased cash contributions to the pension plans, and these contributions could be material and negatively affect our cash flow.

We rely upon IT systems and networks, some of which are managed by third parties, to support a variety of business processes and activities, and to comply with regulatory, legal and tax requirements. Additionally, in the ordinary course of business, we collect and store sensitive information relating to our businesses, customers, suppliers and employees. Sensitive information may also be stored by our vendors and on the platforms and networks of third-party providers. The secure operation of these IT systems and networks and processing and maintenance of this information is critical to the Company’s business operations and strategy.

These IT systems and networks may be susceptible to damage, disruptions or shutdowns due to hardware failures, computer viruses, cybersecurity attacks, telecommunication failures, user errors, catastrophic events or other factors. Further, IT security threats are growing in frequency and sophistication. Accordingly, we have implemented and continue to implement measures to address cybersecurity incidents and mitigate potential risks to our systems from these IT-related disruptions. Despite the information security measures we have taken, our systems and networks remain potentially vulnerable to cybersecurity incidents, as do those of our vendors and third-party providers. Cybersecurity incidents with respect to the Company, our vendors or our third-party providers could potentially result in the compromising of confidential information, misuse of our systems and networks, manipulation and destruction of data, misappropriation of assets or production stoppages and supply shortages, which in turn could adversely affect our reputation, financial condition, results of operations or cash flow.

Although we have not suffered any significant cybersecurity incidents that have had a material business impact, we and our vendors have been the target of malicious cybersecurity threats and attacks. While various procedures and controls have been and are being utilized to mitigate IT risks, there can be no guarantee that the actions and controls that we and our third-party providers have implemented will be sufficient to protect our systems, information or other property.

We rely on a combination of patents, trademarks, copyrights, nondisclosure agreements, IT 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.

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 product liability or warranty 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.

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. Increased public awareness and concern regarding climate change and other related matters at numerous levels of government in various jurisdictions may lead to additional international, national, regional and local legislative and regulatory responses, and compliance with any new rules could be difficult and costly. These regulations could include environmental requirements applicable to manufacturing and vehicle emissions and regulations impacting our supply chain both nationally and internationally. Complying with environmental, safety and other regulations has added and will continue to add to the cost of our products, could increase the capital required to support our business and could affect the products and services that we offer. 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. Further, climate change regulations at the federal, state or local level or in international jurisdictions could require us to limit emissions, change our manufacturing processes or product offerings, or undertake other activities which may require us to incur additional expense. These requirements may increase the cost of our products, which may diminish demand for those products. Additionally, uneven application of environmental, safety and other regulations could place our products at a cost or features disadvantage, which could reduce our revenues and profitability.

None.

The Company’s processes for identifying, assessing, and managing material cybersecurity risks are incorporated into its overall Enterprise Risk Management process. The Company maintains a comprehensive cybersecurity risk management program, overseen by the Chief Information Officer (“CIO”) and Chief Information Security Officer (“CISO”), to support the security, confidentiality, integrity and availability of its critical information technology (“IT”) systems and information.

The Company conducts internal risk assessments, with the assistance of independent third parties, against standards including the National Institute of Standards and Technology Cybersecurity Framework. The assessment results are used to develop responsive cybersecurity controls and risk mitigation strategies. The Company’s cybersecurity risk management program provides the structure for managing the respective risks through the use of a combination of automated tools, technologies and third-party monitoring, as well as ongoing employee education via cybersecurity training and security awareness communications.

The Company’s cybersecurity risk management program includes an incident response plan, which provides a documented framework to support the timely and effective resolution of actual or attempted cybersecurity incidents. Cybersecurity incidents across the Company, and relevant third-party service providers, are tracked and significant incidents, as applicable, are promptly escalated to a cross-functional cybersecurity task force so that decisions regarding public disclosure can be made in a timely manner by management and the Board of Directors.

The Company’s Internal Audit function performs audits to evaluate and report on compliance with cybersecurity policies and procedures, reviews internal control certifications from relevant third-party service providers, and tests IT system and network controls as part of its annual assessment of the effectiveness of the Company’s internal controls. Additionally, the Company engages third-party specialists to conduct periodic tests, incident simulations and assessments to verify and continuously enhance its cybersecurity risk management program.

The Board of Directors has overall responsibility for the oversight of risk management, and has delegated oversight of cybersecurity risk management to the Audit Committee. The Company’s CIO and CISO regularly report to the Audit Committee on cybersecurity risks, updates on key initiatives and progress toward the Company’s objectives. In addition, the CIO provides updates to the Board of Directors, at least annually, on the Company’s broader IT strategy and key initiatives.

The CIO and CISO have primary responsibility over the Company’s cybersecurity risk management program. Quarterly updates are provided to the Company’s IT Council, comprised of executive, business unit and IT leaders from across the organization, regarding IT initiatives and risk management processes.

As of December 31, 2023, the Company utilized 17 principal manufacturing plants located throughout the U.S., as well as two in Europe, three in Canada and one in South Africa. The Company also leases facilities within the U.S., Europe and Canada from which we provide sales, service and/or equipment rentals. As of December 31, 2023, the Company devoted approximately 2.5 million square feet to manufacturing and 1.2 million square feet to sales, service, warehousing and office space. Of the total square footage, approximately 84% is devoted to the Environmental Solutions Group and 16% to the Safety and Security Systems Group. Approximately 63% of the total square footage is owned by the Company with the remaining 37% being leased. Owned facilities are subject to liens under the Company’s Third Amended and Restated Credit Agreement dated October 21, 2022 (the “2022 Credit Agreement”).

The information concerning the Company’s legal proceedings included in Note 13 – Legal Proceedings to the accompanying consolidated financial statements is incorporated herein by reference.

Not applicable.

The Company’s common stock is listed and traded on the New York Stock Exchange under the symbol “FSS”.

As of January 31, 2024, there were 1,463 holders of record of the Company’s common stock.

Information concerning the Company’s equity compensation plans is included under Item 12 of Part III of this Form 10-K.

There were no sales of unregistered securities by the Company during the year ended December 31, 2023.

The following table provides a summary of the Company’s repurchase activity for its common stock during the three months ended December 31, 2023:

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, the S&P Industrials index, and the S&P 600 Capital Goods 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, 2018 and assumes reinvestment of all dividends through December 31, 2023.

Not applicable.

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.

The Company is a leading global manufacturer and supplier of (i) vehicles and equipment for maintenance and infrastructure end-markets, including sewer cleaners, industrial vacuum loaders, safe-digging trucks, street sweepers, waterblasting equipment, road-marking and line-removal equipment, dump truck bodies, trailers, metal extraction support equipment and multi-purpose tractors, and (ii) public safety equipment, such as vehicle lightbars and sirens, industrial signaling equipment, public warning systems and general alarm/public address systems. In addition, we engage in the sale of parts, service and repair, equipment rentals and training as part of a comprehensive aftermarket offering to our customer base. We operate 23 manufacturing facilities in five countries and provide products and integrated solutions to municipal, governmental, industrial and commercial customers in all regions of the world.

Conditions in our end markets remained strong throughout 2023, with demand for our products and services at unprecedented levels. We continued to execute against our organic growth initiatives, and with contributions from our recent value-added acquisitions and additional efficiency gains resulting from the application of our eighty-twenty initiatives, we were able to sustain a high level of financial performance. As the year progressed, we saw improvement in supply chain conditions, which facilitated increased production levels at several of our facilities and, despite some lingering supply chain-related operational inefficiencies, we were able to deliver record financial results for our stockholders, with double-digit year-over-year top line and earnings growth, margin expansion and significant improvement in cash flow generation.

Included among the Company’s highlights in 2023 were the following:

The following table summarizes our Consolidated Statements of Operations as of, and for the years ended, December 31, 2023, 2022 and 2021, and illustrates the key financial indicators used to assess our consolidated financial results:

A discussion of changes in the Company’s financial condition and results of operations during the year ended December 31, 2022 compared to the year ended December 31, 2021 has been omitted from this Form 10-K, but may be found under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023.

Net sales for the year ended December 31, 2023 increased by $287.9 million, or 20%, compared to the prior year, inclusive of the effects of acquisitions, pricing actions and increased chassis sales. The Environmental Solutions Group reported a net sales increase of $247.3 million, or 21%, primarily due to a $66.2 million improvement in aftermarket revenues and increases in sales of street sweepers, sewer cleaners, refuse trucks, multi-purpose tractors, metal extraction support equipment, industrial vacuum loaders, safe-digging trucks, trailers and road-marking and line-removal equipment of $38.6 million, $35.0 million, $31.1 million, $21.4 million, $17.2 million, $16.3 million, $15.5 million, $10.5 million and $7.4 million, respectively. Partially offsetting these improvements was a reduction in sales of hoists and waterblasting equipment of $7.9 million and $5.1 million, respectively, as well as a $6.4 million unfavorable foreign currency translation impact. Within the Safety and Security Systems

Group, net sales increased by $40.6 million, or 17%, primarily due to improvements in sales of public safety equipment, industrial signaling equipment and warning systems of $22.7 million, $11.0 million and $6.8 million, respectively.

For the year ended December 31, 2023, cost of sales increased by $182.6 million, or 17%, compared to the prior year, largely due to an increase of $162.3 million, or 17%, within the Environmental Solutions Group, primarily related to increased sales volumes, inclusive of the effects of acquisitions, increased chassis costs and a $3.2 million increase in depreciation expense, partially offset by a $6.2 million favorable foreign currency translation impact. Within the Safety and Security Systems Group, cost of sales increased by $20.3 million, or 13%, primarily related to higher sales volumes, benefits from pricing actions and lower freight costs.

For the year ended December 31, 2023, gross profit increased by $105.3 million, or 31%, compared to the prior year, primarily due to a $85.0 million improvement within the Environmental Solutions Group and a $20.3 million increase within the Safety and Security Systems Group. Gross profit as a percentage of net sales (“gross profit margin”) for the year ended December 31, 2023 was 26.1%, compared to 24.0% in the prior year, primarily driven by improvements within the Environmental Solutions Group and Safety and Security Systems Group of 220 basis points and 180 basis points, respectively.

For the year ended December 31, 2023, SEG&A expenses increased by $38.4 million, or 22%, compared to the prior year, primarily due to increases of $16.8 million, $6.3 million and $15.3 million within the Environmental Solutions Group, the Safety and Security Systems Group and Corporate, respectively. As a percentage of net sales, SEG&A expenses increased from 12.0% in the prior year, to 12.2% in the current year.

Operating income for the year ended December 31, 2023 increased by $63.7 million, or 40%, compared to the prior year, largely due to the $105.3 million improvement in gross profit, partially offset by the $38.4 million increase in SEG&A expenses, a $2.3 million increase in amortization expense and a $0.9 million increase in acquisition-related costs. Consolidated operating margin for the year ended December 31, 2023 was 13.0%, compared to 11.2% in the prior year.

Interest expense for the year ended December 31, 2023 increased by $9.4 million, or 91%, compared to the prior year, largely due to an increase in interest rates.

For the year ended December 31, 2023, Other expense (income), net, increased by $2.2 million compared to the prior year, primarily due to a $1.0 million increase in net periodic pension expense, a $0.8 million increase in estimated environmental remediation costs associated with a business discontinued in 2009, and a $0.4 million increase in foreign currency transaction losses.

Net income for the year ended December 31, 2023 increased by $37.0 million, or 31%, compared to the prior year, largely due to the increased operating income, partially offset by increases in income tax expense, interest expense and other expense of $15.1 million, $9.4 million and $2.2 million, respectively.

Adjusted EBITDA for the year ended December 31, 2023 was $286.0 million, compared to $215.0 million in the prior year. Adjusted EBITDA margin for the year ended December 31, 2023 was 16.6%, compared to 15.0% in the prior year.

The following table summarizes the Environmental Solutions Group’s operating results as of, and for the years ended, December 31, 2023, 2022 and 2021:

Total orders increased by $133.8 million, or 9%, for the year ended December 31, 2023, inclusive of the effects of acquisitions and pricing actions. U.S. orders increased by $73.1 million, or 6%, primarily due to improvements in orders for street sweepers, road-marking and line-removal equipment, dump truck bodies, multi-purpose tractors, industrial vacuum loaders and refuse trucks of $26.9 million, $22.9 million, $19.5 million, $12.0 million, $9.5 million and $6.4 million, respectively. Additionally, aftermarket demand increased by $43.2 million. Partially offsetting these improvements were reductions in orders for trailers,

safe-digging trucks and wasterblasting equipment of $36.9 million, $28.8 million and $7.4 million, respectively. Non-U.S. orders increased by $60.7 million, or 25%, primarily due to improvements in orders for refuse trucks, multi-purpose tractors and sewer cleaners of $45.0 million, $8.7 million and $4.8 million, respectively. Additionally, aftermarket demand increased by $14.2 million. Partially offsetting these improvements was a $5.6 million reduction in orders for street sweepers and a $7.8 million unfavorable foreign currency translation impact.

The following table summarizes the Safety and Security Systems Group’s operating results as of, and for the years ended, December 31, 2023, 2022 and 2021:

Total orders increased by $44.1 million, or 18%, for the year ended December 31, 2023. U.S. orders increased by $16.9 million, or 11%, compared to the prior year, driven by improvements in orders for public safety equipment, warning systems and industrial signaling equipment of $10.8 million, $4.9 million and $1.2 million, respectively. Non-U.S. orders increased by $27.2 million, or 31%, primarily due to a $23.9 million improvement in orders for public safety equipment, inclusive of a large fleet order from a customer in Mexico, as well as a $2.8 million improvement in orders for warning systems.

Corporate operating expenses were $39.5 million, $24.5 million and $22.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The Company uses 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 2022 Credit Agreement will provide funds sufficient for these purposes. The net cash flows associated with the Company’s rental equipment transactions are included in cash flow from operating activities.

The following table summarizes the Company’s contractual obligations and payments due by period as of December 31, 2023:

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.

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 more frequently if indicators of impairment exist. The Company performed its annual goodwill impairment test as of October 31, 2023.

An intangible asset determined to have an indefinite useful life is not amortized. Indefinite-lived intangible assets are tested for impairment on an annual basis at year-end, or more frequently if an event occurs or circumstances change that indicate the fair value of an indefinite-lived intangible asset could be below its carrying amount. The Company’s indefinite-lived intangible assets include trade names associated with acquisitions.

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.

The Company has certain debt instruments which subject it to market risk associated with movements in interest rates. The fair value of the Company’s total debt obligations held at December 31, 2023 was $299.0 million. From time to time, the Company may enter into interest rate swaps as a means of fixing the floating interest rate component on its variable-rate debt. At December 31, 2023, the Company had two interest rate swaps outstanding. The swaps had an aggregate notional amount of $150.0 million, and fixed the floating interest rate component on $150.0 million of the Company’s variable-rate debt. See Note 9 – Debt to the accompanying consolidated financial statements for a description of the Company’s debt agreements and interest rate swaps that were in place during 2023. A hypothetical 1% increase or decrease in variable interest rates on the Company’s total debt obligations as of December 31, 2023 would increase or decrease annual interest expense by approximately $1.5 million.

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 Canadian Dollar, Euro and British Pound. The impact of currency movements on the Company’s financial results is largely mitigated by natural hedges in its operations. The Canadian operations of JJE and Trackless primarily conduct business in Canadian dollars. Almost all other 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. Approximately 78% of the Company’s net sales are conducted within the U.S. and are transacted in U.S. dollars. The Company estimates that a 10% appreciation of the U.S. dollar against other currencies would reduce full-year net sales by approximately 2% and operating income by approximately 1%.

We have audited the accompanying consolidated balance sheets of Federal Signal Corporation and subsidiaries (the “Company”) as of December 31, 2023 and 2022, 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, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

A quantitative approach is performed by comparing the fair value of a reporting unit with its carrying amount (“quantitative assessment”).

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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A 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.

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.

The accompanying consolidated financial statements represent the consolidation of Federal Signal Corporation and its subsidiaries 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”).

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.

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.

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.

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.

The Company’s inventories are valued at the lower of cost and net realizable value. 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.

The Company enters into lease agreements with customers related to the rental of certain equipment. All of these leasing agreements are classified as operating leases and are for periods generally not to exceed five years. In accounting for these leases, the cost of the equipment purchased or manufactured by the Company is recorded as an asset and is depreciated over its estimated useful life. Rental income is recognized ratably over the term of the underlying leases.

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 more frequently if indicators of impairment exist. The Company performed its annual goodwill impairment test as of October 31, 2023.

Warranties are classified as either assurance-type or service-type warranties. A warranty is considered an assurance-type warranty if it provides the customer with assurance that the product will function as intended. A warranty that goes above and beyond ensuring basic functionality is considered a service-type warranty. The Company offers certain limited warranties that are assurance-type warranties and extended service arrangements that are service-type warranties. Assurance-type warranties are not accounted for as separate performance obligations under the revenue model. If a service-type warranty is sold with a product or separately, revenue is recognized over the life of the warranty.

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 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 and estimates of future mortality of plan participants.

See Note 3 – Revenue Recognition for discussion regarding the Company’s revenue recognition accounting policies.

Product shipping costs are expensed as incurred and are included within Cost of sales.

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 $12.4 million in 2023, $11.5 million in 2022 and $11.4 million in 2021, and are included within SEG&A expenses in the Consolidated Statements of Operations.

The Company has various stock-based compensation plans, described more fully in Note 15 – Stock-Based Compensation. Stock-based compensation expense is recorded net of estimated forfeitures in the Company’s Consolidated Statements of Operations. The Company estimates the forfeiture rate based on historical forfeitures of equity awards and adjusts the rate to reflect changes in facts and circumstances, if any. The Company revises its estimated forfeiture rate if actual forfeitures differ from its initial estimates.

The Company accounts 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 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.

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, results of operations or cash flows. 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. The Company accrues 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.

The assets and liabilities of Trackless have been consolidated into the Company’s Consolidated Balance Sheet as of December 31, 2023, and the post-acquisition results of operations have been included in the Consolidated Statements of Operations, within the Environmental Solutions Group.

The initial cash consideration paid by the Company to acquire Trackless was C$56.3 million (approximately $41.9 million), inclusive of certain closing adjustments. In addition, there is a contingent earn-out payment of up to C$6.0 million (approximately $4.5 million), based upon the achievement of certain financial targets over a specified performance period. The purchase price was funded through existing cash and borrowings under the Company’s credit agreement.

On January 3, 2023, the Company completed the acquisition of substantially all the assets and operations of Blasters, Inc. and Blasters Technologies, LLC (collectively, “Blasters”), a leading U.S. manufacturer of truck-mounted waterblasting equipment. The Company expects that the Blasters acquisition will further bolster its position as an industry leading diversified industrial manufacturer of specialized vehicles for maintenance and infrastructure markets with leading brands of premium, value-adding products, and a strong supporting aftermarket platform.

The assets and liabilities of Blasters have been consolidated into the Company’s Consolidated Balance Sheet as of December 31, 2023, and the post-acquisition results of operations have been included in the Consolidated Statements of Operations, within the Environmental Solutions Group.

The cash consideration paid by the Company to acquire Blasters was $13.0 million. In addition, there is a contingent earn-out payment of up to $8.0 million, based upon the achievement of certain financial targets over a specified performance period. The purchase price was funded through existing cash and borrowings under the Company’s credit agreement.

The cash consideration paid by the Company to acquire TowHaul was $43.3 million, which was funded through existing cash and borrowings under the Company’s revolving credit facility.

On October 4, 2021, the Company completed the acquisition of substantially all of the assets and operations of Ground Force Manufacturing LLC (“Ground Force”). Ground Force is a leading manufacturer of specialty material handling vehicles that support the extraction of metals. The Ground Force acquisition further bolstered the Company’s position as an industry leading diversified industrial manufacturer of specialized vehicles for maintenance and infrastructure markets with leading brands of premium, value-adding products, and a strong supporting aftermarket platform.

The cash consideration paid by the Company to acquire Ground Force was $43.1 million, which was funded through existing cash and borrowings under the Company’s credit facility.