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 multi-employer pension plans that provide defined benefits to employees under U.S. collective bargaining agreements. None of these plans are considered individually significant to the Company. Contributions to these plans totaled $0.2 million, $0.2 million and $0.3 million for 2014, 2013 and 2012, respectively.

The following table summarizes net periodic pension expense for U.S. and non-U.S. benefit plans:



	U.S. Benefit Plan									Non-U.S. Benefit Plans
(in millions)	2014			2013			2012			2014			2013			2012
Company-sponsored plans:
Service cost	$	—		$	—		$	—		$	0.4		$	0.3		$	0.2
Interest cost	7.9			7.3			7.4			2.6			2.5			2.6
Expected return on plan assets	(9.1		)	(8.8		)	(8.1		)	(3.6		)	(2.6		)	(2.6		)
Amortization of actuarial loss	5.1			7.5			5.5			0.4			0.9			0.8
Total company-sponsored plans	3.9			6.0			4.8			(0.2		)	1.1			1.0
Multi-employer plans	0.2			0.2			0.3			—			—			—
Net periodic pension expense	$	4.1		$	6.2		$	5.1		$	(0.2	)	$	1.1		$	1.0

The following table summarizes the weighted-average assumptions used in determining pension costs:



	U.S. Benefit Plan						Non-U.S. Benefit Plans
	2014		2013		2012		2014		2013		2012
Discount rate	5.1	%	4.2	%	5.0	%	4.5	%	4.1	%	4.6	%
Rate of increase in compensation levels	3.5	%	3.5	%	3.5	%	—		—		—
Expected long-term rate of return on plan assets	7.6	%	7.9	%	8.1	%	5.9	%	5.1	%	5.3	%

The following table summarizes the changes in the projected benefit obligation and plan assets:



	U.S. Benefit Plan						Non-U.S. Benefit Plans
(in millions)	2014			2013			2014			2013
Benefit obligation, beginning of year	$	159.3		$	179.7		$	61.0		$	65.6
Service cost	—			—			0.4			0.3
Interest cost	7.9			7.3			2.6			2.5
Actuarial loss (gain)	28.6			(17.6		)	6.8			(5.3		)
Benefits and expenses paid	(9.5		)	(10.1		)	(3.1		)	(3.1		)
Foreign currency translation	—			—			(4.1		)	1.0
Benefit obligation, end of year	$	186.3		$	159.3		$	63.6		$	61.0
Accumulated benefit obligation, end of year	$	184.4		$	157.3		$	63.1		$	60.4

The following table summarizes the weighted-average assumptions used in determining benefit obligations:



	U.S. Benefit Plan				Non-U.S. Benefit Plans
	2014		2013		2014		2013
Discount rate	4.2	%	5.1	%	3.5	%	4.5	%
Rate of increase in compensation levels	3.5	%	3.5	%	—		—

The following summarizes the changes in the fair value of plan assets:



	U.S. Benefit Plan						Non-U.S. Benefit Plans
(in millions)	2014			2013			2014			2013
Fair value of plan assets, beginning of year	$	129.4		$	112.2		$	62.4		$	54.8
Actual return on plan assets	5.9			20.5			2.2			7.6
Company contribution	8.2			6.8			1.2			1.7
Benefits and expenses paid	(9.5		)	(10.1		)	(3.1		)	(3.1		)
Foreign currency translation	—			—			(3.7		)	1.4
Fair value of plan assets, end of year	$	134.0		$	129.4		$	59.0		$	62.4

As more fully described within Note 1 – Significant Accounting Policies, the Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.

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


•	Cash and cash equivalents are comprised of cash on deposit and a money market fund, that invests principally in short-term instruments. The money-market fund is valued at the net asset value (“NAV”) of the shares in the fund.

•

Equity investments represent domestic and foreign securities, including common stock, which are publicly traded on active exchanges and are valued based on quoted market prices. Certain equity securities, which are valued using a model that takes the underlying security’s “best” price, divides it by the applicable exchange rate and multiplies the result by a depository receipt factor, are categorized within Level 2 of the fair value hierarchy.

•

Fixed income investments include corporate bonds, asset-backed securities and treasury bonds. Corporate bonds are valued using pricing models that include bids provided by brokers or dealers, benchmark yields, base spreads and reported trades. Asset-backed securities are valued using models with readily observable data as inputs. Treasury bonds are valued based on quoted market prices in active markets.


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


•	Real estate investments include public real estate investment trusts (“REIT”) and exchange traded REIT funds, which are publicly traded on active exchanges and are valued based on quoted market prices.

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

•

Equity investments represent domestic and foreign securities, which are publicly traded on active exchanges and are valued based on quoted market prices. The inputs used to value certain other non-U.S. investments in equity securities both in the U.K. and other overseas markets are based on observable market information consistent with Level 2 of the fair value hierarchy inputs. Specifically, they are valued using the NAV as of the last business day of the year. The NAV is based on the underlying value of the assets owned by the fund minus its liabilities, and then divided by the number of shares outstanding. The value of the underlying assets is based on quoted prices in active markets.


•	Fixed income investments include treasury securities, which are valued based on quoted market prices in active markets, and corporate bonds which are either valued based on quoted market prices in active markets or other readily observable market data.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following summarizes the Company’s pension assets in a three-tier fair value hierarchy for its benefit plans:



	U. S. Benefit Plan
	2014								2013
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	2.5	$	—	$	—	$	2.5	$	2.9	$	—	$	—	$	2.9
Equity securities:
U.S. Large Cap	40.1		0.1		—		40.2		37.1		—		—		37.1
U.S. Small and Mid Cap	15.9		—		—		15.9		15.3		—		—		15.3
Federal Signal common stock	3.6		—		—		3.6		13.6		—		—		13.6
Developed international	9.9		4.5		—		14.4		9.6		0.1		—		9.7
Emerging markets	10.7		0.2		—		10.9		2.7		—		—		2.7
Fixed income:
Government securities	1.1		—		—		1.1		6.8		—		—		6.8
Asset-backed securities	—		7.1		—		7.1		—		3.5		—		3.5
Corporate bonds	—		19.2		—		19.2		—		—		—		—
Mutual funds	1.2		—		—		1.2		18.0		—		—		18.0
Other investments:
Mutual funds	13.9		—		—		13.9		19.8		—		—		19.8
Real estate	3.7		—		—		3.7		—		—		—		—
Total assets at fair value ^(a)	$	102.6	$	31.1	$	—	$	133.7	$	125.8	$	3.6	$	—	$	129.4


(a)	Total assets at fair value at December 31, 2014 in the table above excludes a net receivable of $0.3 million.



	Non-U. S. Benefit Plans
	2014								2013
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	$	11.5	$	—	$	—	$	11.5	$	10.7	$	—	$	—	$	10.7
Equity securities	6.0		35.9		—		41.9		6.3		36.9		—		43.2
Fixed income:
Government securities	2.9		—		—		2.9		4.0		—		—		4.0
Corporate bonds	1.6		1.1		—		2.7		4.5		—		—		4.5
Total assets at fair value	$	22.0	$	37.0	$	—	$	59.0	$	25.5	$	36.9	$	—	$	62.4

The Company maintains a structured derisking investment strategy for the U.S. pension plan to improve alignment of assets and liabilities that includes: (i) maintaining a diversified portfolio that can provide a near-term weighted-average target return of approximately 7.8% or more, (ii) maintaining liquidity to meet obligations and (iii) prudently managing administrative and management costs. The target asset allocations for the U.S. pension plan are (i) between 45% and 75% equity securities, (ii) between 15% and 45% fixed income securities and (iii) between 0% and 20% in other investments, with the remainder represented by cash and cash equivalents. Other investments may include real estate investments and mutual funds investing in real estate, commodities or hedge funds.

Plan assets for the non-U.S. benefit plans consist principally of a diversified portfolio of equity securities, U.K. government securities, company bonds and debt securities. The target asset allocations for the non-U.S. benefit plan assets are between 50% and 70% equity securities and between 30% and 50% debt securities.

During the year ended December 31, 2014, the Company repurchased $10.3 million of its common stock from its U.S. benefit plan. The repurchases were made under the stock repurchase program further outlined in Note 12 – Stockholders’ Equity. As of December 31, 2014 and 2013, U.S. benefit plan assets included 0.2 million and 0.9 million shares of the Company’s common stock valued at $3.6 million and $13.6 million, respectively. Dividends of $0.1 million were paid on the Company’s common stock held in the U.S. benefit plan in the year ended December 31, 2014. No dividends were paid on the Company’s common stock held in the U.S. benefit plan in the year ended December 31, 2013.

The following summarizes the funded status of the Company-sponsored plans:



	U.S. Benefit Plan						Non-U.S. Benefit Plans
(in millions)	2014			2013			2014			2013
Fair value of plan assets, end of year	$	134.0		$	129.4		$	59.0		$	62.4
Benefit obligation, end of year	186.3			159.3			63.6			61.0
Funded status, end of year	$	(52.3	)	$	(29.9	)	$	(4.6	)	$	1.4

At December 31, 2014 and 2013, the Company’s non-U.S. benefit plans where the accumulated benefit obligation was in excess of the fair value of plan assets reflected an underfunded status of $4.6 million and $1.1 million, respectively.

The following summarizes the amounts recognized within our Consolidated Balance Sheets:



	U.S. Benefit Plan						Non-U.S. Benefit Plans
(in millions)	2014			2013			2014			2013
Amounts recognized in the balance sheet include:
Deferred charges and other assets	$	—		$	—		$	—		$	2.5
Long-term pension and other post-retirement benefit liabilities	(52.3		)	(29.9		)	(4.6		)	(1.1		)
Net (liability) asset recorded	$	(52.3	)	$	(29.9	)	$	(4.6	)	$	1.4
Amounts recognized in accumulated other comprehensive loss include:
Net actuarial loss	$	81.4		$	54.7		$	21.9		$	15.6
Net amount recognized, pre-tax	$	81.4		$	54.7		$	21.9		$	15.6

The Company expects $7.2 million relating to amortization of the actuarial loss to be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2015.

The Company expects to contribute up to $7.8 million to the U.S. benefit plan and up to $1.1 million to the non-U.S. benefit plans in 2015. Future contributions to the plans will be based on such factors as annual service cost, the financial return on plan assets, interest rate movements that affect discount rates applied to plan liabilities and the value of benefit payments made.

The following summarizes the benefits expected to be paid under the Company’s defined benefit plans in each of the next five years, and in aggregate for the five years thereafter:



(in millions)	U.S. Benefit Plan		Non-U.S. Benefit Plans
2015	$	8.9	$	2.6
2016	8.4		2.7
2017	9.1		2.8
2018	9.3		2.8
2019	10.0		2.9
2020-2024	54.7		16.1

The Company also sponsors a defined contribution retirement plan covering a majority of its employees. Participation is via automatic enrollment and employees may elect to opt out of the plan. Company contributions to the plan are based on employees’ age and service as well as a percentage of employee contributions. The cost of these plans was $7.1 million in 2014, $7.0 million in 2013 and $6.3 million in 2012.

Prior to September 30, 2003, the Company also provided medical benefits to certain eligible retired employees. These benefits are funded when the claims are incurred. Participants generally became eligible for these benefits at age 60 after completing at least 15 years of service. The plan provided for the payment of specified percentages of medical expenses reduced by any deductible and payments made by other primary group coverage and government programs. Effective September 30, 2003, the Company amended the retiree medical plan and effectively canceled coverage for all eligible active employees except for retirees and a limited group that qualified under a formula based on age and years of service. Accumulated post-retirement benefit liabilities of $0.5 million and $0.5 million at December 31, 2014 and 2013, respectively, were fully accrued. The net periodic post-retirement benefit costs have not been significant during the three-year period ended December 31, 2014.