Federal Signal (FSS) Risk Analysis

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 93% as of December 31, 2024. 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 purchase raw materials, component parts, and finished goods from suppliers 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 could continue to suffer, material disruptions to certain supply chains, in part due to geopolitical conflicts, including the war between Russia and Ukraine and the ongoing conflicts in the Middle East. Additionally, the war in Ukraine has led to economic sanctions imposed against Russia by the U.S. and certain European nations, including a prohibition on doing business with certain Russian companies which may lead to retaliatory trade restrictions from Russia. Such sanctions may impact companies in many sectors and lead to disruption and volatility in the U.S. and global markets. For example, the U.S. indicated it intends to impose additional tariffs on imports from Canada, Mexico, and China. The imposition of these tariffs and any response from other countries is still evolving, and there is a possibility that such sanctions, tariffs, or trade restrictions may be expanded, or new sanctions, tariffs, or trade restrictions may be imposed by the U.S., Russia, Canada, Mexico, China, or other countries, which could further disrupt supply chains and increase volatility of pricing. 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 could decrease if prices of purchased raw materials, component parts, and/or finished goods increase and we are unable to pass on those increases to our customers. Challenges within global logistics networks, including shortages in trucking and chassis and in labor availability, have contributed to, and could continue to contribute to, delays in receiving key manufacturing components, increases in 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. Although supply chain conditions improved in 2023 and 2024 as compared to prior years, certain of our businesses continue to experience supply challenges and extended lead times for some components and raw materials, including certain classes of chassis that are important to our manufacturing processes, especially in light of geopolitical conflicts discussed elsewhere. 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 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 are exposed to inflation effects, which could negatively affect our business, financial condition, and results of operation. The U.S. 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.