FEDERAL SIGNAL CORP /DE/FSS
FEDERAL SIGNAL CORP /DE/ Fair Value Disclosure
FAIR VALUE MEASUREMENTS
(a) Included as a component of Acquisition and integration-related expenses, net on the Consolidated Statements of Operations.
The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. The three levels of inputs are classified as follows:
•Level 1 — quoted prices in active markets for identical assets or liabilities;
•Level 2 — observable inputs, other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and
•Level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company’s assets and liabilities measured at fair value and their classification in the valuation hierarchy are summarized below:
Cash Equivalents
Cash equivalents primarily consist of time-based deposits and interest-bearing instruments with maturities of three months or less. The Company classified cash equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based on quoted prices in active markets for identical assets.
Interest Rate Swaps
As described in Note 9 – Debt, the Company may, from time to time, execute interest rate swaps as a means of fixing the floating interest rate component on a portion of its floating-rate debt. The Company classifies its interest rate swaps as Level 2 due to the use of a discounted cash flow model based on the terms of the contract and the interest rate curve (Level 2 inputs) to calculate the fair value of the swaps. The Company had no interest rate swaps outstanding as of December 31, 2025.
Contingent Consideration
As of December 31, 2025, the Company had contingent obligations to transfer up to $3.9 million, $4.8 million, $15.0 million, and $54.0 million to the former owners of Blasters, Standard, Hog, and New Way, respectively, if specified financial results are met over future reporting periods (i.e., an earn-out). The Blasters, Standard, Hog, and New Way acquisitions were completed on January 3, 2023, October 4, 2024, February 12, 2025, and November 25, 2025, respectively. The Blasters contingent earn-out payments, if earned, would be due to be paid annually, in each of the three years following the anniversary of the closing date. There was no contingent earn-out payable for the first or second annual measurement periods. The third and final annual measurement period ended on January 3, 2026, and the applicable contingent earn-out payment, if any, is expected to be finalized in the second quarter of 2026. The Standard contingent earn-out payment, if earned, would be due to be paid following the end of the performance period, which concludes on January 1, 2027. The Hog contingent earn-out payment is expected to be earned in full based on the achievement of certain financial targets over the performance period, which ended on December 31, 2025. The Hog contingent earn-out payment is expected to be made during the first half of 2026. The New Way contingent earn-out payment, if earned, would be due to be paid following the end of the performance period, which concludes on December 31, 2027.
The Company also previously had contingent obligations to transfer up to $7.5 million to the former owners of Deist Industries, Inc., Bucks Fabricating, LLC, Roll-Off Parts, LLC, and Switch-N-Go LLC (collectively, “Deist”) and up to C$6.0 million to the former owner of Trackless. The applicable performance period for the Deist earn-out ended on December 30, 2024, the third anniversary of the closing date. During the year ended December 31, 2025, the Company determined that no additional consideration was payable to the former owners of Deist. The applicable performance period for the Trackless earn-out ended on April 3, 2025, the second anniversary of the closing date. During the year ended December 31, 2025, the Company determined that, based on the achievement of certain financial results, the full amount of the contingent consideration had been earned, and paid an additional C$6.0 million (approximately $4.4 million) to the former owner of Trackless. See Note 2 - Acquisitions for additional information.
Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred. Subsequent changes in fair value are included as a component of Acquisition and integration-related expenses, net on the Consolidated Statements of Operations.
The Company uses an income approach to value the contingent consideration obligation based on the present value of risk-adjusted future cash flows under either a scenario-based or option-pricing method, as appropriate. Due to the lack of relevant observable market data over fair value inputs, such as prospective financial information or probabilities of future events as of December 31, 2025, the Company has classified the contingent consideration liability within Level 3 of the fair value hierarchy outlined in ASC 820, Fair Value Measurements. As further described in Note 2 – Acquisitions, the Company has recognized preliminary estimates of the fair value of certain contingent consideration liabilities as of the applicable acquisition dates. These preliminary estimates are subject to change during the measurement period as the applicable third-party valuations are finalized.
The following tables summarize the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2025 and 2024:
| Fair Value Measurement at December 31, 2025 Using | |||||||||||||||||||||||
| (in millions of dollars) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents | $ | 12.2 | $ | — | $ | — | $ | 12.2 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration | — | — | 29.6 | 29.6 | |||||||||||||||||||
| Fair Value Measurement at December 31, 2024 Using | |||||||||||||||||||||||
| (in millions of dollars) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents | $ | 30.3 | $ | — | $ | — | $ | 30.3 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration | — | — | 4.8 | 4.8 | |||||||||||||||||||
| Interest rate swaps | — | 0.3 | — | 0.3 | |||||||||||||||||||
The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements for the years ended December 31, 2025 and 2024:
| (in millions of dollars) | 2025 | 2024 | |||||||||
| Contingent consideration liability, at January 1 | $ | 4.8 | $ | 4.9 | |||||||
| Acquisitions, including measurement period adjustments | 22.2 | 0.4 | |||||||||
| Settlements of contingent consideration liabilities | (4.4) | — | |||||||||
| Foreign currency translation | 0.2 | (0.3) | |||||||||
| 6.8 | (0.2) | ||||||||||
| Contingent consideration liability, at December 31 | $ | 29.6 | $ | 4.8 | |||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 28, 2017 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.