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Postretirement Benefits
 12 Months Ended
Dec. 31, 2012
Postretirement Benefits

NOTE 7 — PENSIONS

The Company and its subsidiaries sponsor a number of defined benefit pension plans covering certain salaried and hourly employees. Benefits under these plans are primarily based on final average compensation and years of service as defined within the provisions of the individual plans. The Company also participates in a retirement plan that provides defined benefits to employees under certain collective bargaining agreements.

The components of net periodic pension expense for each of the three years in the period ended December 31, are summarized as follows ($ in millions):

 

     U.S. Benefit Plans     Non-U.S. Benefit Plan  
     2012     2011     2010     2012     2011     2010  

Company-sponsored plans

             

Service cost

    $   -         $   -        $   -        $ 0.2      $ 0.1      $ 0.2   

Interest cost

      7.4        7.4        7.4        2.6        2.9        2.7   

Expected return on plan assets

      (8.1 )      (7.2 )      (8.2 )      (2.6 )      (3.3 )      (3.1 ) 

Amortization of actuarial loss

      5.5        4.5        3.5        0.8        0.9        0.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     4.8        4.7        2.7        1.0        0.6        0.6   

Multi-employer plans

      0.3        0.3        0.2        -            -           -      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net periodic pension expense

    $ 5.1      $ 5.0      $ 2.9      $ 1.0      $ 0.6      $ 0.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The Company, through its subsidiaries, participates in certain multiemployer pension plans under U.S. collective bargaining agreements. None of these plans are considered individually significant to the Company. Contributions to these plans totaled $0.3 million, $0.3 million and $0.2 million for 2012, 2011 and 2010, respectively.

The following table summarizes the weighted-average assumptions used in determining pension costs in each of the three years for the period ended December 31:

 

     U.S. Benefit Plans     Non-U.S. Benefit Plan  
     2012     2011     2010     2012     2011     2010  

Discount rate

      5.0 %      5.8 %      6.0 %      4.6 %      5.4 %      5.7 % 

Rate of increase in compensation levels *

      3.5 %      3.5 %      3.5 %      N/A        N/A        N/A   

Expected long term rate of return on plan assets

      8.1 %      8.2 %      8.5 %      5.3 %      6.5 %      6.5 % 

 

* Non-U.S. plan benefits are not adjusted for compensation level changes.

 

The following summarizes the changes in the projected benefit obligation and plan assets, the funded status of the Company-sponsored plans, and the major assumptions used to determine these amounts at December 31 ($ in millions):

 

     U.S. Benefit Plans     Non-U.S. Benefit Plan  
     2012     2011         2012             2011      

Change in Benefit Obligation

         

Benefit obligation, beginning of year

    $ 156.6      $ 138.4      $ 57.1      $ 52.6   

Service cost

      -            -            0.2        0.1   

Interest cost

      7.7        7.8        2.6        2.9   

Actuarial loss

      22.4        17.4        5.9        4.9   

Benefits paid

      (7.0 )      (7.0 )      (2.9 )      (2.5 ) 

Translation and other

      -            -            2.7        (0.9 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Benefit obligation, end of year

    $ 179.7      $ 156.6      $ 65.6      $ 57.1   
  

 

 

    

 

 

    

 

 

    

 

 

  

Accumulated benefit obligation, end of year

    $ 177.2      $ 154.5      $ 65.6      $ 57.1   
  

 

 

    

 

 

    

 

 

    

 

 

  

The following table summarizes the weighted-average assumptions used in determining benefit obligations as of December 31:

 

     U.S. Benefit Plans     Non-U.S. Benefit Plan  
     2012     2011     2012     2011  

Discount rate

      4.2 %      5.0 %      4.1 %      4.6 % 

Rate of increase in compensation levels

      3.5 %      3.5 %      N/A        N/A   

 

     U.S. Benefit Plans     Non-U.S. Benefit Plan  
     2012     2011         2012             2011      

Change in Plan Assets ($ in millions)

         

Fair value of plan assets, beginning of year

    $ 97.0      $ 104.8      $ 47.9      $ 50.6   

Actual return on plan assets

      13.0        (3.5 )      5.3        (0.8 ) 

Company contribution

      9.2        2.7        2.3        1.1   

Benefits and expenses paid

      (7.0 )      (7.0 )      (2.9 )      (2.5 ) 

Translation and other

      -            -            2.2        (0.5 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Fair value of plan assets, end of year

    $ 112.2      $ 97.0      $ 54.8      $ 47.9   
  

 

 

    

 

 

    

 

 

    

 

 

  

The amounts included in translation and other in the preceding tables reflect the impact of the foreign exchange translation for the non-U.S. benefit plan.

The plan asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Following is a description of the valuation methodologies used for assets measured at fair value for the U.S. benefit plan:

 

  •  

Cash and Cash Equivalents — Valued at net asset value as provided by the administrator of the fund.

 

  •  

U.S. Government and agency securities — Valued at the closing price reported on the active market on which the security is traded or valued by the trustee at year-end using various pricing services of financial institutions.

 

  •  

Common stock — Valued at the closing price reported on the active market on which the security is traded.

 

  •  

Collective/Common trust — Valued at the net asset value, based on quoted market value of the underlying assets, of shares held by the plan at year end.

 

  •  

Mutual funds — Valued at the net asset value, based on quoted market prices in active markets, of shares held by the plan at year end.

Plan assets for the non-U.S. benefit plans are based on quoted prices in active markets for identical assets.

The following table summarizes the Company’s pension assets in a three-tier fair value hierarchy for its benefit plan as of December 31 ($ in millions):

 

     U. S. Benefit Plans  
     2012      2011  
     Level 1      Level 2      Level 3      Total      Level 1      Level 2      Level 3      Total  

Cash and Cash Equivalents

    $ 3.7         $-         $ -       $ 3.7         $ -       $ 3.9       $ -       $ 3.9   

Equities

                        

U.S. Large Cap

      32.7           -           -         32.7         27.7           -           -         27.7   

U.S. Small and Mid Cap

      11.9           -           -         11.9         9.9           -           -         9.9   

Federal Signal Common Stock

      7.1           -           -         7.1         3.9           -           -         3.9   

Developed International

      6.6           -           -         6.6         3.7           -           -         3.7   

Emerging Markets

      4.5           -           -         4.5         3.3           -           -         3.3   

Fixed Income

                        

Government Bonds

      5.7           -           -         5.7         4.5           -           -         4.5   

Asset  -backed Securities

      -         5.9           -         5.9         -         6.7           -         6.7   

Collective/Common Trust and Other

                        

Mutual Funds

      34.1           -           -         34.1         33.3         0.1           -         33.4   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total assets at fair value

    $ 106.3       $ 5.9       $  -       $ 112.2       $ 86.3       $ 10.7       $  -       $ 97.0   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

     Non-U. S. Benefit Plan  
     2012      2011  
     Level 1      Level 2      Level 3      Total      Level 1      Level 2      Level 3      Total  

Cash and cash equivalents

    $ 10.6         $ -       $  -       $ 10.6       $ 8.6         $ -       $  -       $ 8.6   

Equity Securities

      4.8         29.7           -         34.5         4.0         25.1           -         29.1   

Government Securities

      4.1           -           -         4.1         4.9           -           -         4.9   

Company Bonds and Debt Securities

      5.6           -           -         5.6         5.3           -           -         5.3   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 25.1       $ 29.7       $ -       $ 54.8       $ 22.8       $ 25.1       $ -       $ 47.9   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

During 2010, the Company adopted a structured derisking investment strategy for the U.S. pension plans to improve alignment of assets and liabilities that includes: (1) maintaining a diversified portfolio that can provide a near-term weighted-average target return of 8.1% or more; (2) maintaining liquidity to meet obligations; and (3) prudently managing administrative and management costs. The plan invests in equity, mutual funds, and fixed income instruments.

Plan assets for the non-U.S. benefit plan consist principally of a diversified portfolio of equity securities, U.K. government securities, company bonds and debt securities. During 2012, the Company determined the inputs used to value certain non-U.S. investments in equity securities both in the U.K. and overseas markets were based on observable market information consistent with Level 2 of the fair value hierarchy, rather than Level 1 as reported in the 2011 financial statements. Accordingly, the amounts shown in the 2011 table above have been revised to reflect the correct presentation.

 

As of December 31, 2012 and 2011, equity securities included 0.9 million and 0.9 million shares of the Company’s common stock valued at $7.1 million and $3.9 million, respectively. Dividends paid on the Company’s common stock to the pension trusts aggregated $0.1 million in the year ended December 31, 2011 and none in the year ended December 31, 2012.

 

     U.S. Benefit Plans     Non-U.S. Benefit Plan  
         2012             2011             2012             2011      

Funded status, end of year ($ in millions):

         

Fair value of plan assets

    $ 112.2      $ 97.0      $ 54.8      $ 47.9   

Benefit obligations

      179.7        156.6        65.6        57.1   
  

 

 

    

 

 

    

 

 

    

 

 

  

Funded status

    $ (67.5 )    $ (59.6 )    $ (10.8 )    $ (9.2 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

 

     U.S. Benefit Plans     Non-U.S. Benefit Plan  
         2012             2011             2012             2011      

Amounts recognized in the balance sheet consist of ($ in millions):

         

Long term pension liabilities

    $ (67.5 )    $ (59.6 )    $ (10.8 )    $ (9.2 ) 

Accumulated other comprehensive loss, pre-tax

      91.5        79.3        26.8        23.2   
  

 

 

    

 

 

    

 

 

    

 

 

  

Net amount recognized

    $ 24.0      $ 19.7      $ 16.0      $ 14.0   
  

 

 

    

 

 

    

 

 

    

 

 

  

Amounts recognized in accumulated other comprehensive income consist of ($ in millions):

         

Net actuarial loss

    $ 91.5      $ 79.3      $ 26.8      $ 23.2   

Prior service cost

      -        -        -        -   
  

 

 

    

 

 

    

 

 

    

 

 

  

Net amount recognized, pre-tax

    $ 91.5      $ 79.3      $ 26.8      $ 23.2   
  

 

 

    

 

 

    

 

 

    

 

 

  

The Company expects $8.1 million relating to amortization of the actuarial loss to be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2013.

The Company expects to contribute up to $6.8 million to the U.S. benefit plans and up to $2.3 million to the non-U.S. benefit plan in 2013. Future contributions to the plans will be based on such factors as annual service cost as well as return on plan asset values, interest rate movements, and benefit payments.

The following table presents the benefits expected to be paid under the Company’s defined benefit plans in each of the next five years, and in aggregate for the five years thereafter ($ in millions):

 

     U.S. Benefit
Plans		      Non-U.S.
Benefit Plan		  

2013

    $ 7.9       $ 2.7   

2014

      8.1         2.8   

2015

      8.8         2.9   

2016

      8.7         3.0   

2017

      9.5         3.1   

2018-2022

      51.8         16.8   

The Company also sponsors a defined contribution retirement plan covering a majority of its employees. Participation is via automatic enrollment; employees may elect to opt out of the plan. Company contributions to the plan are based on employees’ age and service as well as a percentage of employee contributions. The cost of these plans during each of the three years in the period ended December 31, 2012, was $6.3 million in 2012, $5.8 million in 2011 and $5.5 million in 2010.

Prior to September 30, 2003, the Company also provided medical benefits to certain eligible retired employees. These benefits are funded when the claims are incurred. Participants generally became eligible for these benefits at age 60 after completing at least 15 years of service. The plan provided for the payment of specified percentages of medical expenses reduced by any deductible and payments made by other primary group coverage and government programs. Effective September 30, 2003, the Company amended the retiree medical plan and effectively canceled coverage for all eligible active employees except for retirees and a limited group that qualified under a formula based on age and years of service. Accumulated postretirement benefit liabilities of $1.0 million and $1.0 million at December 31, 2012 and 2011, respectively, were fully accrued. The net periodic postretirement benefit costs have not been significant during the three-year period ended December 31, 2012.