UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
on
Form 10-K

  [X] 10-K/A
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
                                       OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

        For the transition period from __________ to __________

                          2004
Commission File Number 1-6003
FEDERAL SIGNAL CORPORATION
           (Exact
(Exact name of the RegistrantCompany as specified in its charter)

             DELAWARE                               36-1063330
  (State or other jurisdiction of                  (I.R.S. Employer
  incorporation or organization)                   Identification No.)

      1415 West 22nd Street,
        Oak Brook, Illinois                           60523
(Address of principal executive offices)            (Zip Code)

Delaware
36-1063330
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1415 West 22nd Street,
Oak Brook, Illinois
(Address of principal executive offices)
60523
(Zip Code)
The Registrant'sCompany’s telephone number, including area code
(630) 954-2000
Securities registered pursuant to Section 12(b) of the Act:

                                                   Name of Each Exchange
     Title of Each Class                            on Which Registered

Common  Stock,  par value$1.00 per share,         New York Stock Exchange
with preferred share purchase rights

Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per share,
with preferred share purchase rights
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
      Indicate by check mark whether the RegistrantCompany (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the RegistrantCompany was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes Xþ          No ___o
      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant'sCompany’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     [X]o
      Indicate by check mark whether the Company is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes þ          No o
      State the aggregate market value of voting stock held by nonaffiliates of the RegistrantCompany as of June 30, 2002.2004: Common stock, $1.00 par value -- $889,617,080— $876,612,549
      Indicate the number of shares outstanding of each of the Registrant'sCompany’s classes of common stock, as of March 1, 2003.January 31, 2005: Common stock, $1.00 par value - 47,967,626— 48,139,256 shares
Documents Incorporated byBy Reference

Portions of the Annual Report  to  Shareholders  for the year ended December 31,
2002 are  incorporated  by  reference  into Parts I & II.
      Portions of the proxy statement for the Annual Meeting of Shareholders to be held on April 17, 200327, 2005 are incorporated by reference in PartParts II and III.
EXPLANATORY NOTE
      On March 16, 2005, the Registrant filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2004. This Amendment No. 1 to Annual Report on Form 10-K/A is being filed by the Registrant solely for the purpose of correcting inadvertent clerical errors contained in the third and penultimate tables relating to deferred tax assets and liabilities contained in “Note F — Income Taxes” to the Registrant’s consolidated financial statements included under “Item 8. Financial Statements and Supplementary Data”. The remainder of the information in the Registrant’s consolidated financial statements and the related notes thereto remains unchanged.
FEDERAL SIGNAL CORPORATION
Index to Form 10-K/A
PART I

Item 1.    Business.II
Page
Item 8.
Financial Statements and Supplementary Data
21
PART IV
Signatures
59
Exhibit Index
61
Consent of Independent Registered Public Accounting Firm
Section 302 CEO Certification
Section 302 CFO Certification
Section 906 CEO Certification
Section 906 CFO Certification
Item 8.
Financial Statements and Supplementary Data.
FEDERAL SIGNAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
22
Consolidated Balance Sheets as of December 31, 2004 and 2003
24
Consolidated Statements of Income (Loss) for the Years Ended December 31, 2004, 2003 and 2002
25
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2004, 2003 and 2002
26
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002
27
Notes to Consolidated Financial Statements
28
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
of Federal Signal Corporation  founded
      We have audited the accompanying consolidated balance sheets of Federal Signal Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income (loss), shareholders’ equity and cash flows for each of the three years in 1901,  was  reincorporatedthe period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Federal Signal Corporation and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with US generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a Delawarewhole, presents fairly in all material respects the information set forth therein.
      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Federal Signal Corporation’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2005 expressed an unqualified opinion thereon.
Chicago, Illinois
March 9, 2005
except for Note E, as to which the date is
March 15, 2005
22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
of Federal Signal Corporation
      We have audited management’s assessment, included in 1969.Item 9A(b) of the accompanying Form 10-K, that Federal Signal Corporation maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Federal Signal Corporation’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. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
      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.
      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
      In our opinion, management’s assessment that Federal Signal Corporation maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Federal Signal Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.
      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2004 and 2003, and the related consolidated statements of income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2004 of Federal Signal Corporation and our report dated March 9, 2005, except for Note E, as to which the date is March 15, 2005, expressed an unqualified opinion thereon.
Chicago, Illinois
March 9, 2005
23
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
 
 
 
2004
 
2003
 
 
 
 
 
 
 
($ in millions)
ASSETS
Manufacturing activities:
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
14.9
 
 
$
10.0
 
 
 
Accounts receivable, net of allowances for doubtful accounts of $2.3 million and $2.5 million, respectively
 
 
200.6
 
 
 
185.9
 
 
 
Inventories — Note B
 
 
178.2
 
 
 
172.5
 
 
 
Other current assets
 
 
24.7
 
 
 
19.2
 
 
 
 
 
 
 
 
 
 
Total current assets
 
 
418.4
 
 
 
387.6
 
 
Properties and equipment — Note C
 
 
110.9
 
 
 
118.7
 
 
Other assets
 
 
 
 
 
 
 
 
 
 
Goodwill, net of accumulated amortization
 
 
352.5
 
 
 
350.6
 
 
 
Other deferred charges and assets
 
 
47.6
 
 
 
61.0
 
 
 
 
 
 
 
 
 
Total manufacturing assets
 
 
929.4
 
 
 
917.9
 
Net assets of discontinued operations
 
 
 
 
 
 
23.0
 
Financial services activities — Lease financing and other receivables, net of allowances for doubtful accounts of $3.9 million and $2.5 million, respectively, and net of unearned finance revenue — Note D
 
 
196.5
 
 
 
230.1
 
 
 
 
 
 
 
 
Total assets
 
$
1,125.9
 
 
$
1,171.0
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Manufacturing activities:
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Short-term borrowings — Note E
 
$
18.9
 
 
$
68.6
 
 
 
Accounts payable
 
 
79.6
 
 
 
76.2
 
 
 
Accrued liabilities
 
 
 
 
 
 
 
 
 
 
 
Compensation and withholding taxes
 
 
30.8
 
 
 
30.4
 
 
 
 
Customer deposits
 
 
24.5
 
 
 
21.2
 
 
 
 
Other
 
 
75.9
 
 
 
65.6
 
 
 
Income taxes
 
 
 
 
 
 
2.6
 
 
 
 
 
 
 
 
 
 
Total current liabilities
 
 
229.7
 
 
 
264.6
 
 
Long-term borrowings — Note E
 
 
215.7
 
 
 
194.1
 
 
Long-term pension and other liabilities
 
 
34.3
 
 
 
49.1
 
 
Deferred income taxes — Note F
 
 
55.1
 
 
 
39.4
 
 
 
 
 
 
 
 
 
Total manufacturing liabilities
 
 
534.8
 
 
 
547.2
 
 
Financial services activities — Borrowings — Note E
 
 
178.4
 
 
 
201.3
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
713.2
 
 
 
748.5
 
Shareholders’ equity — Notes I and J
 
 
 
 
 
 
 
 
 
Common stock, $1 par value per share, 90.0 million shares authorized, 48.6 million and 48.4 million shares issued, respectively
 
 
48.6
 
 
 
48.4
 
 
Capital in excess of par value
 
 
94.4
 
 
 
91.9
 
 
Retained earnings — Note E
 
 
295.8
 
 
 
317.4
 
 
Treasury stock, .4 million and .5 million shares, respectively, at cost
 
 
(13.6
)
 
 
(14.8
)
 
Deferred stock awards
 
 
(3.1
)
 
 
(2.3
)
 
Accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
 
 
3.1
 
 
 
(3.7
)
 
 
Net derivative loss, cash flow hedges
 
 
1.7
 
 
 
(.2
)
 
 
Minimum pension liability
 
 
(14.2
)
 
 
(14.2
)
 
 
 
 
 
 
 
 
 
Total
 
 
(9.4
)
 
 
(18.1
)
 
 
 
 
 
 
 
 
Total shareholders’ equity
 
 
412.7
 
 
 
422.5
 
 
 
 
 
 
 
 
Total liabilities and shareholders’ equity
 
$
1,125.9
 
 
$
1,171.0
 
 
 
 
 
 
 
 
See notes to consolidated financial statements.
24
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Years Ended December 31,
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
 
 
($ in millions, except per share data)
Net sales
 
$
1,139.0
 
 
$
1,150.7
 
 
$
1,001.6
 
Costs and expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
 
 
(895.7
)
 
 
(849.8
)
 
 
(719.2
)
 
Selling, general and administrative
 
 
(228.4
)
 
 
(234.4
)
 
 
(205.1
)
 
Restructuring charges
 
 
(15.4
)
 
 
(4.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
 
 
(.5
)
 
 
61.7
 
 
 
77.3
 
Interest expense
 
 
(20.8
)
 
 
(19.4
)
 
 
(19.8
)
Other expense, net
 
 
(4.0
)
 
 
(.3
)
 
 
(.6
)
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
 
(25.3
)
 
 
42.0
 
 
 
56.9
 
Income taxes — Note F
 
 
12.6
 
 
 
(6.9
)
 
 
(13.4
)
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
 
(12.7
)
 
 
35.1
 
 
 
43.5
 
Discontinued operations — Note L:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from operations, net of taxes of $2.2 million, $1.4 million and $1.4 million, respectively
 
 
3.7
 
 
 
2.6
 
 
 
2.7
 
 
Gain (loss) on dispositions, net of taxes (benefit) of $7.9 million and $(.2) million, respectively
 
 
6.7
 
 
 
(.4
)
 
 
 
 
Cumulative effect of change in accounting, net of taxes
 
 
 
 
 
 
 
 
 
 
(8.0
)
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(2.3
)
 
$
37.3
 
 
$
38.2
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted income (loss) per share
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
(.26
)
 
$
.73
 
 
$
.95
 
 
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from operations, net of taxes
 
 
.08
 
 
 
.05
 
 
 
.06
 
 
 
Gain (loss) on dispositions, net of taxes
 
 
.14
 
 
 
(.01
)
 
 
 
 
 
Cumulative effect of change in accounting, net of taxes
 
 
 
 
 
 
 
 
 
 
(.17
)
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)*
 
$
(.05
)
 
$
.78
 
 
$
.83
 
 
 
 
 
 
 
 
 
 
 
* 
amounts may not add to total due to rounding
See notes to consolidated financial statements.
25
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common
 
Capital in
 
 
 
 
 
 
 
Accumulated
 
 
 
 
Stock
 
Excess of
 
 
 
 
 
Deferred
 
Other
 
 
 
 
Par
 
Par
 
Retained
 
Treasury
 
Stock
 
Comprehensive
 
 
 
 
Value
 
Value
 
Earnings
 
Stock
 
Awards
 
Loss
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($ in millions)
Balance at December 31, 2001
 
$
47.4
 
 
$
73.2
 
 
$
312.2
 
 
$
(45.5
)
 
$
(2.2
)
 
$
(25.7
)
 
$
359.4
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
 
 
 
38.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38.2
 
 
Foreign currency translation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7.6
 
 
 
7.6
 
 
Unrealized losses on derivatives, net of $1.2 million tax benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2.1
)
 
 
(2.1
)
 
Minimum pension liability, net of $8.1 million tax benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(13.8
)
 
 
(13.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29.9
 
Issuance of stock for purchase of companies
 
 
.8
 
 
 
12.8
 
 
 
 
 
 
 
29.9
 
 
 
 
 
 
 
 
 
 
 
43.5
 
Cash dividends declared
 
 
 
 
 
 
 
 
 
 
(36.7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(36.7
)
Compensation plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options
 
 
.2
 
 
 
4.0
 
 
 
 
 
 
 
(1.3
)
 
 
 
 
 
 
 
 
 
 
2.9
 
 
Stock awards granted
 
 
.1
 
 
 
2.4
 
 
 
 
 
 
 
 
 
 
 
(2.5
)
 
 
 
 
 
 
—
 
 
Related tax benefits
 
 
 
 
 
 
.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
.1
 
 
Amortization of deferred stock awards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.5
 
 
 
 
 
 
 
1.5
 
Treasury stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.9
 
 
 
 
 
 
 
 
 
 
 
1.9
 
 
Purchases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(4.4
)
 
 
 
 
 
 
 
 
 
 
(4.4
)
 
Retirement
 
 
(.1
)
 
 
(1.4
)
 
 
 
 
 
 
1.5
 
 
 
 
 
 
 
 
 
 
 
—
 
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(.1
)
 
 
 
 
 
 
 
 
 
 
(.1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2002
 
 
48.4
 
 
 
91.1
 
 
 
313.7
 
 
 
(18.0
)
 
 
(3.2
)
 
 
(34.0
)
 
 
398.0
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
 
 
 
37.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37.3
 
 
Foreign currency translation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14.4
 
 
 
14.4
 
 
Unrealized gains on derivatives, net of $1.1 million tax expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.9
 
 
 
1.9
 
 
Minimum pension liability, net of $.2 million tax benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(.4
)
 
 
(.4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53.2
 
Cash dividends declared
 
 
 
 
 
 
 
 
 
 
(33.6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(33.6
)
Compensation plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options
 
 
 
 
 
 
.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
.1
 
 
Stock awards granted
 
 
 
 
 
 
.8
 
 
 
 
 
 
 
 
 
 
 
(.8
)
 
 
 
 
 
 
—
 
 
Related tax benefits
 
 
 
 
 
 
.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
.2
 
 
Amortization of deferred stock awards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.2
 
 
 
 
 
 
 
1.2
 
Treasury stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.3
 
 
 
 
 
 
 
 
 
 
 
3.3
 
 
Purchases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(.1
)
 
 
 
 
 
 
 
 
 
 
(.1
)
 
Retirement
 
 
 
 
 
 
(.2
)
 
 
 
 
 
 
.2
 
 
 
 
 
 
 
 
 
 
 
—
 
Other
 
 
 
 
 
 
(.1
)
 
 
 
 
 
 
(.2
)
 
 
.5
 
 
 
 
 
 
 
.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2003
 
 
48.4
 
 
 
91.9
 
 
 
317.4
 
 
 
(14.8
)
 
 
(2.3
)
 
 
(18.1
)
 
 
422.5
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
 
 
 
 
 
 
 
 
 
(2.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2.3
)
 
Foreign currency translation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.8
 
 
 
6.8
 
 
Unrealized gains on derivatives, net of $1.2 million tax expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.9
 
 
 
1.9
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.4
 
Cash dividends declared
 
 
 
 
 
 
 
 
 
 
(19.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(19.3
)
Compensation plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options
 
 
.1
 
 
 
.4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
.5
 
 
Stock awards granted
 
 
.2
 
 
 
2.9
 
 
 
 
 
 
 
.1
 
 
 
(3.2
)
 
 
 
 
 
 
—
 
 
Related tax benefits
 
 
 
 
 
 
.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
.5
 
 
Amortization of deferred stock awards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.0
 
 
 
 
 
 
 
1.0
 
Other
 
 
(.1
)
 
 
(1.3
)
 
 
 
 
 
 
1.1
 
 
 
1.4
 
 
 
 
 
 
 
1.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2004
 
$
48.6
 
 
$
94.4
 
 
$
295.8
 
 
$
(13.6
)
 
$
(3.1
)
 
$
(9.4
)
 
$
412.7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See notes to consolidated financial statements.
26
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Years Ended
 
 
December 31,
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
 
 
($ in millions)
Operating activities
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(2.3
)
 
$
37.3
 
 
$
38.2
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative effect of change in accounting
 
 
 
 
 
 
 
 
 
 
8.0
 
 
(Gain) loss on disposition of discontinued operations
 
 
(6.7
)
 
 
.4
 
 
 
 
 
 
Depreciation and amortization
 
 
22.4
 
 
 
22.4
 
 
 
22.2
 
 
Non-cash restructuring charges
 
 
7.1
 
 
 
1.9
 
 
 
 
 
 
Loss on minority interest divestiture
 
 
2.9
 
 
 
 
 
 
 
 
 
 
Provision for doubtful accounts
 
 
3.3
 
 
 
3.2
 
 
 
1.7
 
 
Deferred income taxes
 
 
13.8
 
 
 
5.0
 
 
 
2.4
 
 
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions of companies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable
 
 
(14.5
)
 
 
(5.6
)
 
 
(5.1
)
 
 
Inventories
 
 
(6.1
)
 
 
6.8
 
 
 
(2.1
)
 
 
Other current assets
 
 
3.0
 
 
 
1.4
 
 
 
(4.2
)
 
 
Lease financing and other receivables
 
 
31.0
 
 
 
(5.1
)
 
 
13.7
 
 
 
Accounts payable
 
 
2.5
 
 
 
1.9
 
 
 
12.1
 
 
 
Customer deposits
 
 
3.4
 
 
 
(9.6
)
 
 
9.5
 
 
 
Accrued liabilities
 
 
7.7
 
 
 
4.8
 
 
 
 
 
 
 
Income taxes
 
 
(19.5
)
 
 
(.1
)
 
 
3.4
 
 
Other
 
 
4.5
 
 
 
5.6
 
 
 
2.3
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
 
52.5
 
 
 
70.3
 
 
 
102.1
 
Investing activities
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of properties and equipment
 
 
(20.5
)
 
 
(16.8
)
 
 
(18.8
)
 
Payments for purchases of companies, net of cash acquired, excludes $43.5 million of common stock issued in 2002
 
 
 
 
 
 
 
 
 
 
(48.1
)
 
Proceeds from sales of discontinued operations
 
 
49.1
 
 
 
7.5
 
 
 
 
 
 
Other, net
 
 
5.5
 
 
 
(.8
)
 
 
(4.1
)
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used for) investing activities
 
 
34.1
 
 
 
(10.1
)
 
 
(71.0
)
 
 
 
 
 
 
 
 
 
 
Financing activities
 
 
 
 
 
 
 
 
 
 
 
 
 
Reduction in short-term borrowings, net
 
 
(36.3
)
 
 
(68.2
)
 
 
(98.3
)
 
Proceeds from issuance of long-term borrowings
 
 
 
 
 
 
46.0
 
 
 
97.2
 
 
Repayment of long-term borrowings
 
 
(26.1
)
 
 
 
 
 
 
 
 
 
Purchases of treasury stock
 
 
 
 
 
 
(.1
)
 
 
(4.4
)
 
Cash dividends paid to shareholders
 
 
(19.3
)
 
 
(38.3
)
 
 
(36.0
)
 
Other, net
 
 
 
 
 
 
.7
 
 
 
3.3
 
 
 
 
 
 
 
 
 
 
 
Net cash used for financing activities
 
 
(81.7
)
 
 
(59.9
)
 
 
(38.2
)
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in cash and cash equivalents
 
 
4.9
 
 
 
.3
 
 
 
(7.1
)
Cash and cash equivalents at beginning of year
 
 
10.0
 
 
 
9.7
 
 
 
16.8
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents at end of year
 
$
14.9
 
 
$
10.0
 
 
$
9.7
 
 
 
 
 
 
 
 
 
 
 
See notes to consolidated financial statements.
27
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data)
NOTE A — SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements include the accounts of Federal Signal Corporation and all of its subsidiaries. All significant intercompany balances and transactions have been eliminated.
Change in presentation of cash flows from lease financing and other receivables: In 2004, the company began classifying all cash flows from lease financing and other receivables as part of its operating activities. Cash flows from operating activities for the years ended December 31, 2003 and 2002 in the consolidated statement of cash flows have been revised to include changes in lease financing and other receivables which have been reclassified to conform to the 2004 presentation. Management decided to adopt the above-described method as a result of concerns raised by staff of the Securities and Exchange Commission regarding the company’s previous presentation. The company’s presentation of cash flows in previously issued financial statements reflected the following:
• 
Financial services revenues were recorded as a component of net income which is included in cash flows from operating activities.
• 
Principal extensions and principal collections under lease financing agreements were each included in cash flows from investing activities; no cash was received by the company on a consolidated basis when a sale, recognized as a sales-type lease, was made to a customer.
      The consolidated statement of cash flows has been adjusted to reflect the fact that there is no cash received by the consolidated entity upon the initial sale of inventory recognized as a sales-type lease and to properly classify cash receipts from the sale of inventory as operating activities.
      A reconciliation of amounts previously reported in the consolidated statement of cash flows to the amounts in the current presentation follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
2003
 
2002
 
 
 
 
 
Net cash provided by operating activities
 
 
 
 
 
 
 
 
 
Previously reported
 
$
75.4
 
 
$
88.4
 
 
Change in operating asset — Lease financing and other receivables
 
 
(5.1
)
 
 
13.7
 
 
 
 
 
 
 
 
 
Currently reported
 
$
70.3
 
 
$
102.1
 
 
 
 
 
 
 
 
Net cash used for investing activities
 
 
 
 
 
 
 
 
 
Previously reported
 
$
(15.2
)
 
$
(57.3
)
 
Amounts previously included and now reclassified to operating activities
 
 
 
 
 
 
 
 
 
 
Principal extensions under lease financing agreements
 
 
167.1
 
 
 
155.3
 
 
 
Principal collections under lease financing agreements
 
 
(162.0
)
 
 
(169.0
)
 
 
 
 
 
 
 
 
Change in operating asset — Lease financing and other receivables
 
 
5.1
 
 
 
(13.7
)
 
 
 
 
 
 
 
 
Currently reported
 
$
(10.1
)
 
$
(71.0
)
 
 
 
 
 
 
 
Cash equivalents: The company considers all highly liquid investments with a maturity of three-months or less, when purchased, to be cash equivalents.
Accounts receivable and allowances for doubtful accounts: A receivable is considered past due if payments have not been received within agreed upon invoice terms. The company’s policy is generally to not charge interest on trade receivables after the invoice becomes past due. The company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments
28
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
on the outstanding accounts receivable and outstanding lease financing and other receivables. The allowances are each maintained at a level considered appropriate based on historical and other factors that affect collectibility. These factors include historical trends of write-offs, recoveries and credit losses; portfolio credit quality; and current and projected economic and market conditions. If the financial condition of the company’s customers were to deteriorate, resulting in an impairment of the ability to make payments, additional allowances may be required.
Inventories: Inventories are stated at the lower of cost or market. At December 31, 2004 and 2003, approximately 49% and 54% of the company’s inventories are costed using the FIFO (first-in, first-out) method, respectively. The remaining portion of the company’s inventories is costed using the LIFO (last-in, first-out) method.
Properties and depreciation: Properties and equipment are stated at cost. Depreciation, for financial reporting purposes, is computed principally on the straight-line method over the estimated useful lives of the assets. Property, plant and equipment and other long-term assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. Such analyses necessarily involve significant judgment.
Intangible assets: Intangible assets principally consist of costs in excess of fair values of net assets acquired in purchase transactions. These assets are assessed yearly for impairment at the beginning of the fourth quarter and also between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
Stock-based compensation plans: The company has two stock-based compensation plans, which are described more fully in Note I. The company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. Stock compensation expense reflected in net income relates to restricted stock awards which vest over four years. With regard to stock options granted, no stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock at the date of grant.
      The weighted average fair value per share of options granted was $5.96 in 2004, $2.97 in 2003 and $4.52 in 2002. The fair value of options was estimated at the grant date using a Black-Scholes option pricing model with the following weighted average assumptions: risk free interest rates of 3.5% in 2004, 3.6% in 2003 and 2.7% in 2002; dividend yield of 2.1% in 2004, 4.5% in 2003 and 4.1% in 2002; market volatility of the company’s common stock of .32 in 2004 and .28 in 2003 and 2002; and a weighted average expected life of the options of approximately 8 years for 2004, 2003 and 2002.
29
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The following table illustrates the effect on net income and earnings per share for the three-year period ended December 31, 2004 if the company had applied fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”,to all stock-based employee compensation. For purposes of pro forma disclosure, the estimated fair value of the options using a Black-Scholes option pricing model is amortized to expense over the option’s vesting period.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
Reported net income (loss)
 
$
(2.3
)
 
$
37.3
 
 
$
38.2
 
Add: Stock-based employee compensation expense included in reported net income (loss) net of related tax effects
 
 
.6
 
 
 
.7
 
 
 
1.0
 
Deduct: Total stock-based employee compensation expense determined under the fair-value method for all awards, net of related tax effects
 
 
(2.3
)
 
 
(1.5
)
 
 
(2.1
)
 
 
 
 
 
 
 
 
 
 
Pro forma net income (loss)
 
$
(4.0
)
 
$
36.5
 
 
$
37.1
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per common share
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported net income (loss)
 
$
(.05
)
 
$
.78
 
 
$
.83
 
 
Pro forma net income (loss)
 
$
(.08
)
 
$
.76
 
 
$
.81
 
      The intent of the Black-Scholes option valuation model is to provide estimates of fair values of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the use of highly subjective assumptions including expected stock price volatility. The company has utilized the Black-Scholes method to produce the pro forma disclosures required under SFAS Nos. 123 and 148. In management’s opinion, existing valuation models do not necessarily provide a reliable single measure of the fair value of its employee stock options because the company’s employee stock options have significantly different characteristics from those of traded options and the assumptions used in applying option valuation methodologies, including the Black-Scholes model, are highly subjective.
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Warranty: Sales of many of the company’s products carry express warranties based on the terms that are generally accepted in the company’s marketplaces. The company records provisions for estimated warranty at the time of sale based on historical experience and periodically adjusts these provisions to reflect actual experience. Infrequently, a material warranty issue can arise which is beyond the scope of the company’s historical experience. The company provides for these issues as they become probable and estimable.
Product liability and workers’ compensation liability: Due to the nature of the company’s products, the company is subject to claims for product liability and workers’ compensation in the normal course of business. The company is self-insured for a manufacturerportion of these claims. The company establishes a liability using a third-party actuary for any known outstanding matters, including a reserve for claims incurred but not yet reported.
Financial instruments: The company enters into agreements (derivative financial instruments) to manage the risks associated with interest rates and worldwide
supplierforeign exchange rates. The company does not actively trade such instruments nor enter into such agreements for speculative purposes. The company principally utilizes two types of safety,  signalingderivative financial instruments: 1) interest rate swaps to manage its interest rate risk, and communications  equipment,  hazardous  area
lighting, fire rescue vehicles,  vehicle-mounted aerial access platforms, street
sweeping2) foreign currency forward exchange and vacuum  loader  vehicles,  refuse  collection  truck  bodies,  high
pressure water blasting systems,  parking revenueoption contracts to manage risks associated with sales and access control  equipment,
carbideexpenses (forecast or committed) denominated in foreign currencies.
30
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      On the date a derivative contract is entered into, the company designates the derivative as one of the following types of hedging instruments and superhard tipped cutting tools, precision metal stamping punchesaccounts for the derivative as follows:
Fair value hedge: A hedge of a recognized asset or liability or an unrecognized firm commitment is declared as a fair value hedge. For fair value hedges, both the effective and ineffective portions of the changes in the fair value of the derivative, along with the gain or loss on the hedged item that is attributable to the hedged risk, are recorded in earnings and reported in the consolidated statements of income on the same line as the hedged item.
Cash flow hedge: A hedge of a forecast transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability is declared as a cash flow hedge. The effective portion of the change in the fair value of a derivative that is declared as a cash flow hedge is recorded in accumulated other comprehensive income. When the hedged item impacts the income statement, the gain or loss included in accumulated other comprehensive income is reported on the same line in the consolidated statements of income as the hedged item. In addition, both the fair value of changes excluded from the company’s effectiveness assessments and the ineffective portion of the changes in the fair value of derivatives used as cash flow hedges are reported in selling, general and administrative expenses in the consolidated statements of income.
      The company formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. Derivatives are recorded in the consolidated balance sheets at fair value in other assets and other liabilities. This process includes linking derivatives that are designated as hedges of specific forecast transactions. The company also formally assesses, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be a highly effective hedge, or if the anticipated transaction is no longer likely to occur, the company discontinues hedge accounting, and any deferred gains or losses are recorded in selling, general and administrative expenses. Amounts related to terminated interest rate swaps are deferred and amortized as an adjustment to interest expense over the original period of interest exposure, provided the designated liability continues to exist or is probable of occurring.
Revenue recognition: The company recognizes sales when all of the following are satisfied: persuasive evidence of an arrangement exists, the price is fixed or determinable, collectibility is reasonably assured and delivery has occurred or services have been rendered. In most instances, this occurs at the time that title passes to the customer based on the respective sales agreement. Infrequently, a sales contract qualifies for percentage of completion or for multiple-element accounting. For percentage of completion revenues, the company utilizes the cost-to-cost method. At the inception of a sales-type lease, the company records the product sales price and related die components,  plastic injection mold componentscosts and custom on-premise
signage.

    Products   producedexpenses of the sale. Financing revenues are included in income over the life of the lease. Management believes that all relevant criteria and services   renderedconditions are considered when recognizing revenues.
Product shipping costs: Product shipping costs are expensed as incurred and are included in cost of sales.
Income per share: Basic net income per share is calculated using income available to common shareholders (net income) divided by the Registrantweighted average number of common shares outstanding during the year. Diluted net income per share is calculated in the same manner except that the denominator is increased to include the weighted number of additional shares that would have been outstanding had dilutive stock option shares been actually issued. The company uses the treasury stock method to calculate dilutive shares. See Note P for the calculation of basic and diluted net income per share.
31
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE B — INVENTORIES
      Inventories at December 31 are summarized as follows:
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
 
 
 
 
Finished goods
 
$
49.0
 
 
$
48.9
 
Work in process
 
 
50.8
 
 
 
60.4
 
Raw materials
 
 
78.4
 
 
 
63.2
 
 
 
 
 
 
 
 
Total inventories
 
$
178.2
 
 
$
172.5
 
 
 
 
 
 
 
 
      If the company had used the first-in, first-out cost method exclusively, which approximates replacement cost, inventories would have aggregated $189.9 million and $180.2 million at December 31, 2004 and 2003, respectively.
NOTE C — PROPERTIES AND EQUIPMENT
      Properties and equipment at December 31 are summarized as follows:
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
 
 
 
 
Land
 
$
9.2
 
 
$
9.5
 
Buildings and improvements
 
 
62.0
 
 
 
58.7
 
Machinery and equipment
 
 
233.9
 
 
 
226.6
 
Accumulated depreciation
 
 
(194.2
)
 
 
(176.1
)
 
 
 
 
 
 
 
Total properties and equipment
 
$
110.9
 
 
$
118.7
 
 
 
 
 
 
 
 
NOTE D — LEASE FINANCING AND OTHER RECEIVABLES
      As an added service to its subsidiaries  (referred  to  collectively  ascustomers, the "Registrant"  herein,  unless
context  otherwise  indicates)  are divided  into four major  operating  groups:
Safety Products,  Tool,company is engaged in financial services activities. These activities primarily consist of providing long-term financing for certain US customers purchasing vehicle-based products from the company’s Environmental Products and Fire Rescue.Rescue groups. A smaller group,
Sign,  reportedsubstantial portion of these receivables is due from municipalities and volunteer fire departments. Financing is provided through sales-type lease contracts with terms that generally range from one to ten years. The amounts recorded as discontinued   operationslease financing receivables represent amounts equivalent to normal selling prices less subsequent customer payments.
      Leases past due more than 120 days are evaluated and a determination made whether or not to place the lease in a non-accrual status based upon customer payment history and other relevant information at the Registrant'stime of the evaluation.
      Lease financing and other receivables will become due as follows: $76.6 million in 2005, $29.5 million in 2006, $23.4 million in 2007, $18.9 million in 2008, $15.6 million in 2009 and $36.4 million thereafter. At December 31, 2004 and 2003, unearned finance revenue on these leases aggregated $24.5 million and $32.1 million, respectively.
NOTE E — DEBT
      Short-term borrowings at December 31 consisted of the following:
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
 
 
 
 
Revolving credit facility
 
$
45.0
 
 
$
75.0
 
Notes payable
 
 
7.4
 
 
 
4.7
 
Current maturities of long-term debt
 
 
18.6
 
 
 
25.2
 
 
 
 
 
 
 
 
Total short-term borrowings
 
$
71.0
 
 
$
104.9
 
 
 
 
 
 
 
 
32
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Of the above amounts, $52.1 million and $36.3 million are classified as financial statements,  is currently  being offered for sale.  Business units are organizedservices activities borrowings at December 31, 2004 and 2003, respectively.
      In April 2003, Standard and Poor’s downgraded the company’s debt rating from A-2 to A-3; as a result, the company stopped issuing commercial paper and drew necessary funds on its $300.0 million unsecured revolving bank facility. In June 2003, the company entered into a new $250.0 million unsecured revolving credit facility maturing in November 2006 with a syndicate of banks. The facility replaced the existing $300.0 million credit facility. At December 31, 2003, $75.0 million was outstanding under each  segment  because  they  share  certain  characteristics,   such  as
technology,  marketing,this agreement bearing interest at a variable rate of LIBOR plus ..83%. The facility includes covenants relating to a maximum debt-to-capitalization ratio, minimum net worth and product application that create long-term synergies.minimum interest coverage ratio.
      In June 2004, the company renegotiated its revolving credit facility covenants to exclude restructuring and other one-time charges, to reduce the minimum interest coverage ratio from 3.0 to 2.5 and to voluntarily reduce the size of the credit facility from $250.0 million to $200.0 million. The Financial Review and Note M - Segment  Information  included in the Notes to
Consolidated Financial Statements contained in the Annual Report to Shareholderscompany’s results for the year ended December 31, 2002 are incorporated herein by reference.

    Developments,   including   acquisitions  and  divestitures2004 were below the minimum interest coverage covenant as of businesses,
considered  significantDecember 31, 2004. The company obtained a temporary waiver of this interest coverage covenant from 2.5 to 1.9 until April 1, 2005. The company was in compliance with all of its covenants, as adjusted, as of December 31, 2004. As of December 31, 2004, $45.0 million was outstanding under this facility bearing interest at a variable rate of LIBOR plus ..83%. After year-end, due to reduced borrowing requirements, the company voluntarily reduced its revolving credit line to $150 million, effective January 31, 2005. On March 15, 2005, the company obtained a permanent amendment to the Registrant or individual  segments are described
underinterest coverage covenant. This amendment redefined the following discussionscoverage ratio and reset the required minimum level to 2.0 for December 31, 2004 to June 30, 2005 and 2.5 for September 30, 2005 and thereafter. The company was in compliance with the amended covenant at December 31, 2004 and expects to remain in compliance with its covenants.
      Weighted average interest rates on short-term borrowings were 3.28% and 2.17% at December 31, 2004 and 2003, respectively.
      Long-term borrowings at December 31 consisted of the applicable groups.

Environmental Products Groupfollowing:
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
 
 
 
 
Unsecured borrowings:
 
 
 
 
 
 
 
 
 
6.79% note due in annual installments of $10.0 million due 2007-2011
 
$
50.0
 
 
$
50.0
 
 
6.37% note due in annual installments of $10.0 million due 2005-2008
 
 
40.0
 
 
 
50.0
 
 
6.60% note due in annual installments of $7.1 million due 2005-2011
 
 
50.0
 
 
 
50.0
 
 
4.93% note due in annual installments of $8.0 million due 2008-2012
 
 
40.0
 
 
 
40.0
 
 
5.24% note due 2012
 
 
60.0
 
 
 
60.0
 
 
5.49% note due 2006
 
 
65.0
 
 
 
65.0
 
 
7.99% note due 2004
 
 
 
 
 
 
15.0
 
 
Floating rate (3.59% and 2.21% at December 31, 2004 and 2003, respectively) note due 2008-2013
 
 
50.0
 
 
 
50.0
 
 
Other
 
 
3.6
 
 
 
.6
 
 
 
 
 
 
 
 
 
 
 
358.6
 
 
 
380.6
 
Fair value of interest rate swaps
 
 
(6.7
)
 
 
(7.9
)
Unamortized balance of terminated fair value interest rate swaps
 
 
8.7
 
 
 
11.6
 
 
 
 
 
 
 
 
 
 
 
360.6
 
 
 
384.3
 
Less current maturities
 
 
(18.6
)
 
 
(25.2
)
 
 
 
 
 
 
 
Total long-term borrowings
 
$
342.0
 
 
$
359.1
 
 
 
 
 
 
 
 
33
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Of the above amounts, $126.3 million and $165.0 million are classified as financial services activities borrowings at December 31, 2004 and 2003, respectively.
      In June 2003, the company entered into a $50.0 million private placement agreement to reduce reliance on short-term debt. The Environmental  Products Group  manufacturesagreement bears interest at a variable rate of LIBOR plus an average of 1.04% with $20.0 million maturing in 2008, $20.0 million in 2010 and markets worldwide a full
range$10.0 million in 2013.
      Aggregate maturities of streetlong-term debt amount to approximately $18.6 million in 2005, $83.6 million in 2006, $27.8 million in 2007, $55.2 million in 2008, $25.1 million in 2009 and parking lot sweeping, industrial vacuuming,  municipal catch
basin/sewer cleaning vehicles,  high-performance  waterblasting  equipment,$148.3 million thereafter. The fair values of these borrowings aggregated $360.3 million and refuse collection truck bodies.  Products are also manufactured for$389.6 million at December 31, 2004 and 2003, respectively.
      For each of the emerging
markets of  hydro-excavation,  glycol recovery and surface  cleaning.  The group
competes  in these  markets  under  major  brand  names of Elgin,  Ravo,  Athey,
Guzzler,  Jetstream,  Wittke  and  Leach.  Most  sales are made to  governmental
customers including municipalities, private contractors and industrial plants.

    Elgin  is  the  leading  U.S.  brand  of  street   sweepers   available  for
municipalities   and   contractors.   Utilizing  three  basic  cleaning  methods
(mechanical sweeping, vacuuming and recirculating air), Elgin brand products are
primarily designed for large-scale cleaning of curbed streets,  parking lots and
other paved  surfaces.  The group  acquired Five Star  Manufacturing  in January
1998, a manufacturerabove long-term notes, significant covenants consist of a single-engine  mechanical  sweeper designed formaximum debt-to-capitalization ratio and by
contractors.  This  acquisition  enhanced  the  group's  share  in  the  private
contractor  market. In March 2001, the group acquiredminimum net worth. At December 31, 2004, all of the company’s retained earnings were free of any restrictions and the company was in compliance with the financial covenants of its long-term debt agreements.
      At December 31, 2004 and 2003, deferred financing fees totaled $1.8 million and $2.3 million, respectively.
      The company paid interest of $24.1 million in 2004, $21.3 million in 2003 and $20.7 million in 2002. See Note H regarding the company’s utilization of derivative financial instruments relating to outstanding debt.
NOTE F — INCOME TAXES
      The provisions for income taxes for the three-year period ended December 31, 2004 consisted of the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
Current:
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 
$
(32.7
)
 
$
(6.0
)
 
$
4.0
 
 
Foreign
 
 
6.4
 
 
 
7.0
 
 
 
6.0
 
 
State and local
 
 
(.1
)
 
 
.9
 
 
 
1.0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(26.4
)
 
 
1.9
 
 
 
11.0
 
 
Deferred:
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 
 
15.5
 
 
 
6.2
 
 
 
2.4
 
 
Foreign
 
 
(1.0
)
 
 
(.8
)
 
 
(.7
)
 
State and local
 
 
(.7
)
 
 
(.4
)
 
 
.7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13.8
 
 
 
5.0
 
 
 
2.4
 
 
 
 
 
 
 
 
 
 
 
Total income taxes
 
$
(12.6
)
 
$
6.9
 
 
$
13.4
 
 
 
 
 
 
 
 
 
 
 
34
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Differences between the statutory federal income tax rate and the effective income tax rate for the three-year period ended December 31, 2004 are summarized below:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
Statutory federal income tax rate
 
 
(35.0
)%
 
 
35.0
%
 
 
35.0
%
State income taxes, net of federal tax benefit
 
 
(3.0
)
 
 
1.4
 
 
 
1.5
 
Tax-exempt interest
 
 
(11.1
)
 
 
(7.0
)
 
 
(5.7
)
Benefits from shutdown of U.K. facility
 
 
 
 
 
 
(6.7
)
 
 
 
 
Exports benefit
 
 
(4.3
)
 
 
(2.4
)
 
 
(1.6
)
R&D tax credits
 
 
(4.6
)
 
 
(2.1
)
 
 
(1.3
)
Reduction for prior years taxes
 
 
(.6
)
 
 
.1
 
 
 
(2.3
)
Valuation allowances — foreign net operating losses
 
 
11.3
 
 
 
1.3
 
 
 
.6
 
Other, net
 
 
(2.5
)
 
 
(3.1
)
 
 
(2.6
)
 
 
 
 
 
 
 
 
 
 
Effective income tax rate
 
 
(49.8
)%
 
 
16.5
%
 
 
23.6
%
 
 
 
 
 
 
 
 
 
 
      Deferred income tax assets and liabilities at December 31 are summarized as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
 
 
 
 
Deferred tax assets:
 
 
 
 
 
 
 
 
 
Accrued expenses
 
$
16.9
 
 
$
14.6
 
 
Net operating loss, alternative minimum tax, research and development, and foreign tax credit carry forwards
 
 
14.5
 
 
 
13.2
 
 
Pension liabilities
 
 
 
 
 
 
5.7
 
 
Other
 
 
2.6
 
 
 
.9
 
 
 
 
 
 
 
 
 
 
Gross deferred tax assets
 
 
34.0
 
 
 
34.4
 
 
Valuation allowance
 
 
(7.5
)
 
 
(8.1
)
 
 
 
 
 
 
 
 
 
Total deferred tax assets
 
 
26.5
 
 
 
26.3
 
 
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
(49.6
)
 
 
(44.1
)
 
Revenue recognition
 
 
(2.6
)
 
 
(3.7
)
 
Pension liabilities
 
 
(3.5
)
 
 
 
 
 
Undistributed earnings of non-US subsidiary
 
 
(5.6
)
 
 
(5.0
)
 
 
 
 
 
 
 
 
 
Gross deferred tax liabilities
 
 
(61.3
)
 
 
(52.8
)
 
 
 
 
 
 
 
Net deferred tax liability
 
$
(34.8
)
 
$
(26.5
)
 
 
 
 
 
 
 
      On October 22, 2004, the American Jobs Creation Act was signed into law. One provision of Athey
Products Corporation from bankruptcy proceedings. Athey wasthe legislation allows for repatriated foreign earnings, after meeting certain thresholds, to be taxed at 5.25%. The company may elect to avail itself of this legislation, and is in the process of evaluating the effects of this repatriation provision. The company expects to complete its evaluation within a primary competitor
to Elgin's mechanical sweepers.  Subsequentreasonable period of time once clarifying language has been issued by Congress and the Internal Revenue Service. The range of possible dividend amounts that may qualify under this legislation is between zero and $104.0 million. The related range of potential income tax provision required is between zero and $6.0 million.
35
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Federal and state income taxes have not been provided on accumulated undistributed earnings of certain foreign subsidiaries aggregating approximately $88 million at December 31, 2004, as such earnings have been reinvested in the business. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable.
      The company incurred a domestic tax loss in 2004 estimated at $6.0 million which may be carried forward for 20 years expiring in 2024.
      The company has the following estimated credit carry forwards and expiration dates:
 
 
 
 
 
 
 
 
 
Credit Carryforward
 
Amount
 
Expiration
 
 
 
 
 
Research & development
 
$
3.9
 
 
 
2022 – 2024
 
Alternative minimum tax
 
 
1.6
 
 
 
None
 
Foreign tax credit
 
 
1.3
 
 
 
2013
 
 
 
 
 
 
 
 
Total
 
$
6.8
 
 
 
 
 
 
 
 
 
 
 
 
      The tax effect of foreign net operating losses in deferred tax assets expire as follows:
 
 
 
 
 
 
 
 
 
Country
 
Amount
 
Expiration
 
 
 
 
 
Canada
 
$
3.7
 
 
 
Over 90% in 2014
 
All other
 
 
3.0
 
 
 
None
 
 
 
 
 
 
 
 
Total
 
$
6.7
 
 
 
 
 
 
 
 
 
 
 
 
      The company has a net valuation allowance of $6.5 million for the above net operating losses and foreign tax credits.
      The company also has state net operating loss carryforwards of $25.0 million, a majority of which expires in 2016. The approximate value of these carryforwards is $1.1 million for which a valuation allowance of $1.0 million is recorded.
      The net deferred tax liability at December 31 is classified in the balance sheet as follows:
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
 
 
 
 
Current net deferred tax assets
 
$
20.3
 
 
$
12.9
 
Long-term net deferred tax liability
 
 
(55.1
)
 
 
(39.4
)
 
 
 
 
 
 
 
 
 
$
(34.8
)
 
$
(26.5
)
 
 
 
 
 
 
 
      The company paid income taxes of $6.3 million in 2004, $9.7 million in 2003 and $8.7 million in 2002.
      Income from continuing operations before taxes for the three-year period ended December 31, 2004 consisted of the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
United States
 
$
(31.8
)
 
$
23.4
 
 
$
40.7
 
Non-US
 
 
6.5
 
 
 
18.6
 
 
 
16.2
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(25.3
)
 
$
42.0
 
 
$
56.9
 
 
 
 
 
 
 
 
 
 
 
36
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE G — POSTRETIREMENT BENEFITS
      The company and its subsidiaries sponsor a number of defined benefit retirement plans in the US covering certain of its 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 several retirement plans that provide defined benefits to employees under certain collective bargaining agreements.
      Through 2002, a wholly-owned subsidiary sponsored a defined benefit plan for substantially all of its employees in the United Kingdom (non-US benefit plan). Benefits under this plan were based on final compensation and years of service as defined within the provisions of the plan. Effective December 31, 2002, the company curtailed the plan to reduce its cost structure. The curtailment froze each employee’s benefits, to be adjusted for inflation.
      The company uses December 31 and September 30 measurement dates for its US and non-US benefit plans, respectively.
      The components of net periodic pension expense for the three-year period ended December 31, 2004 are summarized as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US Benefit Plans
 
Non-US Benefit Plan
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
 
 
 
 
 
 
Company-sponsored plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
4.6
 
 
$
4.1
 
 
$
3.3
 
 
$
.2
 
 
$
.2
 
 
$
.5
 
 
Interest cost
 
 
7.7
 
 
 
7.1
 
 
 
5.4
 
 
 
2.6
 
 
 
2.2
 
 
 
2.1
 
 
Expected return on plan assets
 
 
(8.2
)
 
 
(7.8
)
 
 
(7.1
)
 
 
(3.2
)
 
 
(2.7
)
 
 
(2.7
)
 
Amortization of transition amount
 
 
(.2
)
 
 
(.2
)
 
 
(.2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
1.6
 
 
 
.9
 
 
 
.1
 
 
 
.9
 
 
 
.8
 
 
 
.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.5
 
 
 
4.1
 
 
 
1.5
 
 
 
.5
 
 
 
.5
 
 
 
.2
 
Multiemployer plans
 
 
.2
 
 
 
.2
 
 
 
.4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net periodic pension expense
 
$
5.7
 
 
$
4.3
 
 
$
1.9
 
 
$
.5
 
 
$
.5
 
 
$
.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      The following table summarizes the weighted-average assumptions used in determining pension costs for the three-year period ended December 31, 2004:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US Benefit Plans
 
Non-US Benefit Plan
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate
 
 
6.25
%
 
 
6.75
%
 
 
7.30
%
 
 
5.50
%
 
 
5.50
%
 
 
6.25
%
Rate of increase in compensation levels
 
 
3.50
%
 
 
3.50
%
 
 
3.50
%
 
 
NA*
 
 
 
2.50
%
 
 
2.50
%
Expected long term rate of return on plan assets
 
 
9.00
%
 
 
9.00
%
 
 
9.50
%
 
 
8.30
%
 
 
8.00
%
 
 
8.00
%
* 
Non-US plan benefits are no longer adjusted for compensation level changes
37
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-US Benefit
 
 
US Benefit Plans
 
Plan
 
 
 
 
 
 
 
2004
 
2003
 
2004
 
2003
 
 
 
 
 
 
 
 
 
Projected benefit obligation at beginning of year
 
$
120.9
 
 
$
106.0
 
 
$
46.3
 
 
$
40.9
 
Service cost
 
 
4.6
 
 
 
4.1
 
 
 
.2
 
 
 
.2
 
Interest cost
 
 
7.7
 
 
 
7.1
 
 
 
2.6
 
 
 
2.2
 
Actuarial loss (gain)
 
 
4.4
 
 
 
6.9
 
 
 
(1.5
)
 
 
2.4
 
Benefits paid
 
 
(3.4
)
 
 
(3.2
)
 
 
(2.1
)
 
 
(1.9
)
Increase due to translation
 
 
 
 
 
 
 
 
 
 
3.8
 
 
 
2.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation at end of year
 
$
134.2
 
 
$
120.9
 
 
$
49.3
 
 
$
46.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated benefit obligation at end of year
 
$
117.6
 
 
$
105.6
 
 
$
49.3
 
 
$
46.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
 
$
88.6
 
 
$
74.1
 
 
$
38.2
 
 
$
34.1
 
Actual return on plan assets
 
 
8.6
 
 
 
13.9
 
 
 
3.6
 
 
 
3.6
 
Company contribution
 
 
8.8
 
 
 
3.8
 
 
 
.8
 
 
 
.4
 
Benefits and expenses paid
 
 
(3.4
)
 
 
(3.2
)
 
 
(2.3
)
 
 
(2.1
)
Increase due to translation
 
 
 
 
 
 
 
 
 
 
3.2
 
 
 
2.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at end of year
 
$
102.6
 
 
$
88.6
 
 
$
43.5
 
 
$
38.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded status of plan at end of year
 
$
(31.6
)
 
$
(32.3
)
 
$
(5.8
)
 
$
(8.2
)
Unrecognized actuarial loss
 
 
39.2
 
 
 
36.2
 
 
 
13.5
 
 
 
14.8
 
Unrecognized prior service cost
 
 
1.7
 
 
 
1.9
 
 
 
 
 
 
 
 
 
Unrecognized net transition obligation
 
 
(.1
)
 
 
.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net amount recognized as prepaid benefit cost in the balance sheet
 
$
9.2
 
 
$
5.9
 
 
$
7.7
 
 
$
6.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts recognized in the balance sheet consist of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prepaid benefit cost
 
$
9.2
 
 
$
14.3
 
 
$
7.7
 
 
$
6.6
 
 
Accrued benefit liability
 
 
(24.2
)
 
 
(32.8
)
 
 
 
 
 
 
 
 
 
Intangible asset
 
 
1.7
 
 
 
1.9
 
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income, pre-tax
 
 
22.5
 
 
 
22.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net amount recognized
 
$
9.2
 
 
$
5.9
 
 
$
7.7
 
 
$
6.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      The following table summarizes the weighted-average assumptions used in determining benefit obligations as of December 31, 2004 and 2003:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US
 
Non-US
 
 
Benefit Plans
 
Benefit Plan
 
 
 
 
 
 
 
2004
 
2003
 
2004
 
2003
 
 
 
 
 
 
 
 
 
Discount rate
 
 
6.00
%
 
 
6.25
%
 
 
5.75
%
 
 
5.50
%
Rate of increase in compensation levels
 
 
3.50
%
 
 
3.50
%
 
 
 
 
 
 
 
 
Expected long-term rate of return on plan assets
 
 
9.00
%
 
 
9.00
%
 
 
8.30
%
 
 
8.00
%
38
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The following table summarizes the company’s asset allocations for its benefits plans as of December 31, 2004 and 2003 and the target allocation for 2005 by asset category:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US Benefit Plans
 
Non-US Benefit Plan
 
 
 
 
 
 
 
Percentage of
 
 
 
Percentage of
 
 
 
 
Plan Assets
 
 
 
Plan Assets
 
 
 
 
as of
 
Target
 
as of
 
Target
 
 
December 31,
 
Allocation
 
September 30,
 
Allocation
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2005
 
2004
 
2003
 
2005
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
77
%
 
 
80
%
 
 
75
%
 
 
57
%
 
 
36
%
 
 
60
%
Fixed income securities
 
 
23
%
 
 
20
%
 
 
25
%
 
 
42
%
 
 
54
%
 
 
40
%
Cash
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1
%
 
 
10
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
100
%
 
 
100
%
 
 
100
%
 
 
100
%
 
 
100
%
 
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      The investment strategy for the US benefit plans is to 1) maintain a liquid, diversified portfolio that can provide a weighted-average target return of 9% or more, 2) maintain liquidity to meet obligations and 3) prudently manage administrative and management costs. The plan invests in equity and fixed income instruments. The equity allocation has an upper limit of 80% of plan assets with US equities comprising 50% to 80% while company stock may comprise up to 10%. The fixed income allocation has an upper limit 40% of plan assets with US high grade fixed income securities comprising 15% to 40%; US high yield fixed income investments may comprise up to 15% of plan assets. The use of derivatives is allowed in limited circumstances. The plan held no derivatives during the years ended December 31, 2004 and 2003.
      As of December 31, 2004 and 2003, equity securities included .3 million and .5 million shares of the company’s common stock valued at $6.0 million and $8.8 million, respectively. Dividends paid on the company’s common stock to the pension trusts aggregated $.2 million and $.4 million for each of the years ended December 31, 2004 and 2003, respectively.
      Plan assets for the non-US benefit plans consist principally of a diversified portfolio of equity securities, U.K. government obligations and fixed interest securities.
      The company expects to contribute $5.0 million or more to the US benefit plans in 2005. Contributions to the plans will be based on such factors as annual service cost as well as impacts to 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:
 
 
 
 
 
 
 
 
 
 
 
US
 
Non-US
 
 
Benefit Plans
 
Benefit Plan
 
 
 
 
 
2005
 
$
3.6
 
 
$
2.3
 
2006
 
 
3.9
 
 
 
2.4
 
2007
 
 
4.2
 
 
 
2.5
 
2008
 
 
4.7
 
 
 
2.7
 
2009
 
 
5.2
 
 
 
2.8
 
2010-2014
 
 
37.3
 
 
 
17.1
 
 
 
 
 
 
 
 
 
 
$
58.9
 
 
$
29.8
 
 
 
 
 
 
 
 
      The company also sponsors a number of defined contribution pension plans covering a majority of its employees. Participation in the plans is at each employee’s election. Company contributions to these plans are based on a percentage of employee contributions. The cost of these plans, including the plans of companies
39
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
acquired during the three-year period ended December 31, 2004, was $6.0 million in 2004, $5.2 million in 2003 and $5.4 million in 2002.
      Prior to September 30, 2003, the company also provided medical benefits to certain eligible retired employees. These benefits were funded when the claims were incurred. Participants generally became eligible for these benefits at age 60 after completing at least fifteen 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 that 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 $4.3 million and $4.8 million at December 31, 2004 and 2003, respectively, were fully accrued. The net periodic postretirement benefit costs have not been significant during the three-year period ended December 31, 2004.
      In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) became law. The Act introduced a prescription drug benefit under Medicare and a federal subsidy to sponsors of certain retiree health care benefit plans. The Act did not have a material impact on the company’s accumulated postretirement obligations, results of operations or cash flows.
NOTE H — DERIVATIVE FINANCIAL INSTRUMENTS
      All derivative financial instruments are reported on the balance sheet at their respective fair values. Changes in fair value are recognized either in earnings or equity, depending on the nature of the underlying exposure being hedged and how effective a derivative is at offsetting price movements in the underlying exposure. All of the company’s derivative positions existing at December 31, 2004 qualified for hedge accounting under SFAS No. 133. Derivatives documentation policies comply with the standard’s requirements.
      To manage interest costs, the company utilizes interest rate swaps in combination with its funded debt. On balance, interest rate swaps executed in conjunction with long-term private placements effectively converted fixed rate debt to variable rate debt. At December 31, 2004, the company’s receive fixed, pay variable swap agreements with financial institutions terminate in varying amounts between 2005 to 2012. These agreements are designated as fair value hedges.
      At December 31, 2004, the company was also party to interest rate swap agreements with financial institutions in which the company pays interest at a fixed rate and receives interest at variable LIBOR rates. These derivative instruments terminate in varying amounts between 2005 to 2010. These interest rate swap agreements are designated as cash flow hedges.
      The fair values of interest rate swaps are based on quotes from financial institutions. The following table summarizes the company’s interest rate swaps at December 31, 2004 and 2003:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value Swaps
 
Cash Flow Swaps
 
 
 
 
 
 
 
2004
 
2003
 
2004
 
2003
 
 
 
 
 
 
 
 
 
Notional amount
 
$
220.0
 
 
$
285.0
 
 
$
85.0
 
 
$
115.0
 
Fair value
 
 
(6.7
)
 
 
(7.9
)
 
 
.8
 
 
 
(1.5
)
Average pay rate
 
 
5.5
%
 
 
3.9
%
 
 
4.4
%
 
 
4.3
%
Average receive rate
 
 
6.0
%
 
 
6.0
%
 
 
2.5
%
 
 
1.2
%
      The company cancelled various interest rate swaps associated with its debt portfolio in response to movements in the interest rate market. These transactions resulted in a cash payment of $.5 million in 2004 and cash receipts of $7.2 million in 2003 and $4.6 million in 2002. The associated gains were deferred and are
40
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
being amortized as a reduction to interest expense over the life of the underlying debt. The unamortized balance of these gains at December 31, 2004 and 2003 was $9.8 million and $13.0 million, respectively.
      The company designates foreign currency forward exchange contracts as fair value hedges to protect against the variability in exchange rates on short-term intercompany borrowings and firm commitments denominated in foreign currencies. These derivative instruments mature in 2005.
      The company also manages the volatility of cash flows caused by fluctuations in currency rates by entering into foreign exchange forward contracts and options. These derivative instruments hedge portions of the company’s anticipated third-party purchases and forecasted intercompany sales denominated in foreign currencies and mature from 2005 to 2006.
      The following table summarizes the company’s foreign exchange contracts at December 31, 2004 and 2003:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
 
 
 
 
 
 
Notional
 
Fair
 
Notional
 
Fair
 
 
Amount
 
Value
 
Amount
 
Value
 
 
 
 
 
 
 
 
 
Fair value forwards
 
$
9.9
 
 
$
(.1
)
 
$
22.0
 
 
$
.3
 
Cash flow forwards
 
 
24.9
 
 
 
2.6
 
 
 
37.4
 
 
 
2.2
 
Options
 
 
25.1
 
 
 
.4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
59.9
 
 
$
2.9
 
 
$
59.4
 
 
$
2.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      The company expects $1.6 million of net gains that are reported in accumulated other comprehensive income as of December 31, 2004 to be reclassified into earnings in 2005 as the respective hedged transactions will affect 2005 earnings.
NOTE I — STOCK-BASED COMPENSATION
      The company’s stock benefit plans, approved by the company’s shareholders, authorize the grant of benefit shares or units to key employees and directors. The plan approved in 1988 authorized, until May 1998, the grant of up to 2.7 million benefit shares or units (as adjusted for subsequent stock splits and dividends).
      The plan approved in 1996 and amended in 1999 and 2003 authorized the grant of up to 4.0 million benefit shares or units until April 2006. These share or unit amounts exclude amounts that were issued under predecessor plans. Benefit shares or units include incentive and non-incentive stock options, stock awards and other stock units. The plan approved in December 2001 authorized the grant of up to 1.0 million benefit shares until December 2011. No grants were made under this plan and the plan was canceled in July 2002.
      Stock options are primarily granted at the fair market value of the shares on the date of grant and normally become exercisable one year after grant at a rate of one-half annually and are exercisable in full on the second anniversary date. All options and rights must be exercised within ten years from date of grant. At the company’s discretion, vested stock option holders are permitted to elect an alternative settlement method in lieu of purchasing common stock at the option price. The alternative settlement method permits the employee to receive, without payment to the company, cash, shares of common stock or a combination thereof equal to the excess of market value of common stock over the option purchase price. The company intends to settle all such options in common stock.
41
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Stock option activity for the group sold,three-year period ended December 31, 2004 was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average
 
 
Option Shares
 
Price per Share ($)
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
Outstanding at beginning of year
 
 
2.4
 
 
 
2.2
 
 
 
2.3
 
 
 
20.06
 
 
 
21.33
 
 
 
20.86
 
Granted
 
 
.5
 
 
 
.5
 
 
 
.2
 
 
 
18.74
 
 
 
15.37
 
 
 
22.84
 
Cancelled or expired
 
 
(.2
)
 
 
(.3
)
 
 
(.1
)
 
 
20.14
 
 
 
20.92
 
 
 
21.87
 
Exercised
 
 
(.1
)
 
 
 
 
 
 
(.2
)
 
 
15.65
 
 
 
18.84
 
 
 
18.09
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at end of year
 
 
2.6
 
 
 
2.4
 
 
 
2.2
 
 
 
19.84
 
 
 
20.06
 
 
 
21.33
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable at end of year
 
 
1.8
 
 
 
1.5
 
 
 
1.5
 
 
 
20.70
 
 
 
21.25
 
 
 
21.28
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      The following table summarizes information concerning stock options outstanding as of December 31, 2004 under all plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Options Remaining
 
Options Exercisable
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
Weighted
 
 
 
 
Weighted
 
Average
 
 
 
Average
 
 
 
 
Average
 
Exercise
 
 
 
Exercise
Range of Exercise Prices
 
Shares
 
Remaining Life
 
Price
 
Shares
 
Price
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
(in years)
 
 
 
(in millions)
 
 
$14.01 - $16.00
 
 
.3
 
 
 
8.4
 
 
$
14.98
 
 
 
.1
 
 
$
14.45
 
 16.01 -  18.00
 
 
.4
 
 
 
6.9
 
 
 
16.30
 
 
 
.2
 
 
 
16.16
 
 18.01 -  20.00
 
 
.5
 
 
 
9.0
 
 
 
18.83
 
 
 
.2
 
 
 
18.92
 
 20.01 -  22.00
 
 
.7
 
 
 
4.7
 
 
 
21.08
 
 
 
.7
 
 
 
21.04
 
 22.01 -  24.00
 
 
.5
 
 
 
4.4
 
 
 
23.44
 
 
 
.4
 
 
 
23.53
 
 24.01 -  26.00
 
 
.2
 
 
 
2.2
 
 
 
24.93
 
 
 
.2
 
 
 
24.80
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.6
 
 
 
6.1
 
 
$
19.84
 
 
 
1.8
 
 
$
20.70
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Stock award shares are granted to employees at no cost. Awards primarily vest at the rate of 25% annually commencing one year from the date of award, provided the recipient is still employed by the company on the vesting date. The cost of stock awards, based on the fair market value at the date of grant, is being charged to expense over the four-year vesting period. The following table summarizes stock award grants for the three-year period ended December 31, 2004:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
Number of shares granted (in millions)
 
 
.2
 
 
 
.0
 
 
 
.1
 
Fair value of shares granted
 
$
3.2
 
 
$
.8
 
 
$
2.5
 
Weighted average fair value per share
 
$
19.19
 
 
$
15.81
 
 
$
22.73
 
Compensation expense recorded
 
$
1.0
 
 
$
1.2
 
 
$
1.5
 
      Under the 1988 plan, no benefit shares or otherwise  recoveredunits were available for cash,future grant during the three-year period ending December 31, 2004. Under the 1996 plan, as amended, the following benefit shares or units were available for future grant: .8 million at December 31, 2004, 1.2 million at December 31, 2003 and .1 million at December 31, 2002.
42
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE J — SHAREHOLDERS’ EQUITY
      The company’s board of directors has the authority to issue 90.0 million shares of common stock at a substantial portionpar value of $1 per share. The holders of common stock (i) may receive dividends subject to all of the rights of the holders of preference stock, (ii) shall be entitled to share ratably upon any liquidation of the company in the assets of Athey. All
sweepersthe company, if any, remaining after payment in full to the holders of preference stock and (iii) receive one vote for each common share held and shall vote together share for share with the holders of voting shares of preference stock as one class for the election of directors and for all other purposes. The company has 48.6 million and 48.4 million common shares issued as of December 31, 2004 and 2003, respectively. Of those amounts 48.2 million and 47.9 million common shares were outstanding as of December 31, 2004 and 2003, respectively.
      The company’s board of directors is also authorized to provide for the issuance of .8 million shares of preference stock at a par value of $1 per share. The authority of the board of directors includes, but is not limited to, the determination of the dividend rate, voting rights, conversion and redemption features and liquidation preferences. The company has not issued any preference stock as of December 31, 2004.
      In July 1998, the company declared a dividend distribution of one preferred share purchase right on each share of common stock outstanding on and after August 18, 1998. The rights are currently  marketed undernot exercisable until the Elgin brand name.  Manufacturerights distribution date, defined as the earlier of: 1) the tenth day following a public announcement that a person or group of all
Elgin  brand  sweepersaffiliated or associated persons acquired or obtained the right to acquire beneficial ownership of 20% or more of the outstanding common stock or 2) the tenth day following the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 30% or more of such outstanding common shares. Each right, when exercisable, entitles the holder to purchase from the company one one-hundredth of a share of Series A Preferred stock of the company at a price of $100 per one one-hundredth of a preferred share, subject to adjustment. The company is entitled to redeem the rights at $.10 per right, payable in cash or common shares, at any time prior to the expiration of twenty days following the public announcement that a 20% position has been acquired. In the event that the company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power is sold, proper provision will be made so that each holder of a right will thereafter have the right to receive, upon the exercise thereof at the Elgin,  Illinois  facility.  Elgin's  parts
distribution center is also located in Elgin, Illinois.

    RAVO,  headquartered  inthen current exercise price of a right, that number of shares of common stock of the Netherlands,  isacquiring company which at the time of such transaction would have a market leader in Europe for
high-quality  compact  self-propelled  sweepers.  RAVO  sweepers,  which utilize
vacuum  technology  for  pick-up,  range in size fromvalue of two times the compact 3 Series (2.3
cubic meters) to the popular 5 series (4.3 cubic meters). RAVO products are sold
worldwide and have significant  share throughout  Europe,  Asia, the Middle East
and Latin America. The products are primarily sold through a dealer network.

    Vactor,  located in  Streator,  Illinois,  is the  leading  manufacturer  of
municipal  combination catch basin/sewer cleaning vacuum trucks. The acquisition
of Vactor provided a significant  expansion of municipal  equipment and enhanced
the domestic and international dealer networks of both Elgin and Vactor. Guzzler
is a leader in  industrial  vacuum  loaders  that clean up  industrial  waste or
recover and recycle  valuable raw  materials.  Products are designed to vacuum a
full  spectrum  of  materials  - from  solids and dry bulk  powders to  liquids,
slurries  and thick  sludge.  In late 2000,  the  Environmental  Products  Group
consolidated   production  of  its  Guzzler   industrial  vacuum  products  from
Birmingham, Alabama into its Streator, Illinois manufacturing facilities to take
advantage of manufacturing efficiencies and technology synergies.

    Jetstream  of  Houston,  ("Jetstream"),   acquired  in  August  1998,  is  a
Houston-based manufacturer of high pressure waterblast equipment and accessories
for commercial and industrial cleaning and maintenance operations with pressures
from 6,000 psi to 40,000  psi.  This  acquisition  provided  significant  growth
opportunities  in existing  Jetstream  markets as well as strong  customer  base
synergies for cross-selling to the industrial vacuum loader (Guzzler) contractor
customers.

    In March 2000, the group acquired the Vaxjet  patented  closed-loop  surface
cleaner.  This product  utilizes  waterblast  technology to remove oil, dirt and
other  accumulations  from  various  surfaces  while  vacuuming,  filtering  and
recycling the wash water. This patented technology  incorporates  severalexercise price of the Environmental  Products Group's existing  technologiesright. The rights expire on August 18, 2008 unless earlier redeemed by the company. Until exercised, the holder of a right, as such, will have no rights as a shareholder, including, high-pressure
water and vacuum  technology.  The market is still  emerging  and  appearswithout limitation, the right to be
regulation driven, but could be significant as regulations are enforced.  Vaxjet
products are manufactured in the group's Streator, Illinois facilities.vote or to receive dividends.
NOTE K — ACQUISITIONS
      In September of 2002, the groupcompany acquired Leach Company of Oshkosh,  WI,(“Leach”), a leading manufacturer of rear loadingload refuse collection bodies.  Since first
revolutionizing  the industrybodies located in 1959,Oshkosh, Wisconsin. Leach, engineering has earned a reputation
for developing new products, features and enhancements. Theirwhose market strength is primarily in the government and municipal markets.  In addition,  Leach markets, viautilizes a  similar dealer channel as Elgin  and  Vactor  and  therefore  presents
significant  opportunitiessimilar to expand and strengthen the worldwideother Environmental Products Group dealer network.operations. In October 2002, the company also acquired Wittke, Inc. (“Wittke”), a market focused manufacturer of dynamic truck mountedtruck-mounted refuse collection equipment and
parts located in Medicine Hat, Alberta, Canada was acquired in October of 2002,
complimenting the Leach  acquisition.and Kelowna, British Columbia, Canada. Wittke brand products includeincluded front load, side load and automated side load refuse truck bodies. Wittke sold direct to customers at the time of the acquisition, isand particularly strong in theto private contractors and large waste hauling company market segments. A  parts
manufacturing  facilityThe company acquired Leach and Wittke using a combination of cash and stock totaling $101.3 million. As a result of these 2002 acquisitions, the company recorded $11.5 million of working capital, $19.6 million of fixed and other long-term assets, $5.6 million of intangible assets, $2.3 million of restructuring costs incurred in Kelowna,  B.C.,  Canada,  was acquired alongconnection with the main manufacturing plantshut down of an acquired, non-strategic components facility, $8.1 million of long-term liabilities and $75.0 million of goodwill. The
43
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
company also assumed $9.8 million in Medicine Hat.

    All of the  Environmental  Products Group  companies  also have  significant
manufacturing,  marketing and sales efforts in accessories and replacement parts
for their products.

    Some products and components  thereof are not  manufactured by the group but
are purchased for incorporation with products of the group's manufacture.

    The group competes with several U.S. and non-U.S. manufacturers.  Due to the
diversity of products  offered,  no meaningful  estimate of either the number of
competitors  or the group's  relative  position  within the global market can be
made,  although  the group does  believe  it is a major  supplier  within  these
product lines.

    At December 31, 2002, Environmental Products Group backlog was $84.1 million
compared to $68.6  million at December 31, 2001. A  substantial  majority of the
orders in the backlog at December 31, 2002 are reasonably  expected to be filled
within the current fiscal year.

Fire Rescue Group

    The Fire Rescue Group manufactures fire/emergency apparatus, rescue vehicles
and aerial  access  platforms  under the  following  brand names:  Emergency One
(E-One), Bronto Skylift, Saulsbury, Superior and Plastisol. The group's products
are manufactured in its facilities located in Ocala, Florida;  Preble, New York;
Red Deer,  Alberta;  Tampere and Pori,  Finland;  and  Stellendam  and  Wanroij,
Netherlands.

    E-One is a leading brand of fire rescue vehicles including pumpers, tankers,
aerial  ladder  trucks,  custom  chassis,  and airport  rescue and fire fighting
vehicles  (each of aluminum  construction  for  rust-free  operation  and energy
efficiency).  E-One  products are marketed and sold  throughout the U.S. and the
world.  A full  range of  Superior  brand  truck  bodies  are  manufactured  and
distributed  primarily  for the  Canadian  market  and U.S.  wildlands  markets.
Superior is the leading brand of fire/emergency apparatus in Canada.

    Headquartered  in  Tampere,  Finland,  Bronto  manufactures  vehicle-mounted
aerial access  platforms.  Bronto is the leading  manufacturer of such platforms
for fire rescue  markets in the world and a leading  manufacturer  of heavy-duty
industrial platforms.

    In January 1998, the Registrant acquired Saulsbury Fire Equipment Corp., the
leading  manufacturer of stainless  steel-bodied fire trucks and rescue vehicles
in the United States. The Saulsbury brand of steel-bodied  products  complements
the E-One brand of aluminum-bodied  fire apparatus and custom fire chassis.  The
acquisition of Saulsbury Fire provided the group with additional distribution, a
service  center in the  northeast  United  States and  additional  manufacturing
capacity for aluminum-bodied trucks in the U.S.

    In October 2001,  the Registrant  acquired a majority  interest in Plastisol
Holdings B.V., located in the Netherlands.  Plastisol is a small manufacturer of
cabs and bodies for fire apparatus using glass-fiber reinforced polyester.

    All  of  the  Fire  Rescue  Group   businesses  also  sell  accessories  and
replacement parts for their products.

    Some products and components  thereof are not  manufactured by the group but
are purchased for incorporation with products of the group's manufacture.

     The  majority of Fire Rescue  Group sales are made  primarily  to municipal
customers,  volunteer fire departments and government customers both in U.S. and
non-U.S. markets.

     The group competes with several U.S. and non-U.S.  manufacturers and due to
the diversity of products offered,  no meaningful  estimate of either the number
of competitors or the group's relative  position within the global market can be
made,  although  the group does  believe  it is a major  supplier  within  these
product  lines.  The  group  competes  with  numerous  non-U.S.   manufacturers,
principally in non-U.S. markets.

    At December 31, 2002, Fire Rescue Group backlog was $282.2 million  compared
to $241.2 million at December 31, 2001. A substantial  majority of the orders in
the backlog at December 31, 2002 are reasonably expected to be filled within the
current fiscal year.

Safety Products Group

    Significant  subsidiaries or operations of the Safety Products Group include
the Signal Products Division, Aplicaciones Tecnologicas VAMA S.A. (VAMA), Victor
Industries Ltd.  (Victor),  Pauluhn  Electric Mfg. Co.,  Justrite  Manufacturing
Company (Justrite),  and Federal APD. Virtually all of these businesses have the
leading position in their respective domestic markets. The group also includes a
number of other business units, most of which have been acquired within the past
five years and which are described later below.

    The group's products  principally consist of: emergency vehicular signaling,
industrial  signaling and lighting,  outdoor warning  systems,  hazardous liquid
containment products and parking revenue and control systems.

    Emergency  vehicular  signaling  includes a variety  of visual  and  audible
warning,  signaling and communications devices sold to police, fire, medical and
other  emergency  agencies and  departments,  utilities and  municipal  services
departments,  vehicle towing and oversized  trucking  services  firms.  Products
primarily include vehicle warning lights, sirens and auxiliary lights.

    Industrial  signaling and lighting  includes a variety of visual and audible
warning,  signaling  and  communications  devices  used  by  a  broad  range  of
industrial  customers as well as  hazardous  area  lighting  and  communications
products used by mines,  petrochemical plants,  offshore oil platforms and other
hazardous industrial sites.  Products include industrial signal lights,  sirens,
horns, bells and solid-state  audible signals,  audio/visual  emergency warning,
intercom and evacuation  systems,  specialized  area lights,  control  ballasts,
connectors,  and  microprocessor-based  public  address and  multi-party  paging
systems.

    Outdoor  warning  systems  are  primarily  sold to city,  state and  federal
emergency  preparedness  agencies,  military  agencies and departments,  nuclear
power plants and large industrial facilities. Products include outdoor emergency
warning and evacuation  systems to provide  notification of natural disaster and
other emergency situations.

    Hazardous liquid containment products include safety cabinets for flammables
and corrosives;  safety and dispenser cans; waste receptacles and disposal cans;
spill control pallets and overpacks;  and hazardous  material storage buildings,
lockers, pallets and platforms.

    Parking,  revenue control,  and access control equipment and systems include
parking and security gates,  card access readers,  ticket issuing devices,  coin
and  token  units,  fee  computers,  automatic  paystations,  various  forms  of
electronic control units and personal  computer-based revenue and access control
systems.

    During  the  five-year  period  ending  December  31,  2002,  the  following
businesses were acquired and became part of the Safety Products Group:

                   Principal
Entity             Headquarters  Acquired         Principal
                                                  Products/Services

Millbank           England       January 1999     Commercial and
                                                  industrial
                                                  communications systems

Atkinson Dynamics  Illinois      August 1998      Industrial intercoms,
                                                  communications systems

Stinger Spike      California    September 1998   Tire deflation products
                                                  for the law enforcement
                                                  industry

Citicomp           Brazil        October 1998     Parking equipment -
                                                  Brazil

NRL Corp.          Canada        November 1998    Explosion-proof
                                                  lighting for land based
                                                  oil and gas rigs

Extec Ltd.         England       December 1998    Explosion-proof
                                                  telephone housing

    Warning and signaling  products,  which account for the principaldebt. An insignificant portion of the group's  business,  are marketed to both industrial and governmental  users.
Many of the group's products are designed in accordance with various  regulatory
codes and standards,  and meet agency  approvals such as Factory Mutual (FM) and
Underwriters  Laboratory (UL). Products are sold to industrial customers through
manufacturers'  representatives  who sell to  approximately  1,500  wholesalers.
Products are also sold to  governmental  customers  through more than 900 active
independent distributors as well as through original equipment manufacturers and
direct  sales.  International  sales are made  through the  group's  independent
foreign distributors or on a direct basis.

    Because of the large number of the group's products, the group competes with
a variety of  manufacturers  and suppliers and  encounters  varying  competitive
conditions  among its  different  products and  different  classes of customers.
Because of the variety of such products and customers, no meaningful estimate of
either  the total  number of  competitors  or the  group's  overall  competitive
position within the global market can be made. Generally, competition is intense
as to all of the group's  products  and, as to most such  products,  is based on
price,  including competitive bidding,  product reputation and performance,  and
product servicing.

    The backlogs of orders of the Safety Products Group products at December 31,
2002 and 2001 were $44.3 million and $31.6 million, respectively.  Almost all of
the backlog of orders at December 31, 2002 are reasonably  expected to be filled
within the current fiscal year.

Tool Group

    The Tool Group  manufactures a broad range of carbide and superhard  cutting
tools,  mold-tooling products and punches and other die components used in metal
stamping and metal cutting operations.

    The cutting tool  operations  manufacture  consumable  carbide and superhard
insert  tooling for cutoff and deep grooving metal cutting  applications.  These
operations include  Manchester Tool Company and Clapp Dico Corporation.  In July
1999,  the  group  acquired  Clapp  &  Haney  Tool  Company,  the  leading  U.S.
manufacturer  and marketer of  polycrystalline  diamond and cubic boron  nitride
consumable  tooling.  The  group's  smaller  Dico-brand  superhard  cutting-tool
operations were consolidated into the larger,  more efficient  Whitehouse,  Ohio
facilities  in October  2000.  Together  these two combined  operations  are now
referred to as Clapp Dico.

    In January 2001,  the group  acquired On Time  Machining  Company  (OTM),  a
manufacturer  of indexable  insert  drills and milling  cutters for use in metal
cutting  applications.  The group also made one small  product line  acquisition
within the year.

     In March 2000, the Tool Group acquired P.C.S.  Company  (P.C.S.) located in
Fraser,  Michigan.  P.C.S. provides precision tooling,  ejector pins, core pins,
sleeves and  accessories to the growing  plastic  injection  mold  industry.  By
combining  selective  marketing  and  sales  functions  with the die  components
business,  the P.C.S.  acquisition  enhances  future  growth  prospects for both
product segments.

    The die components and precision tooling operations manufacture and purchase
for  resale  an  extensive  variety  of  consumable  standard  and  special  die
components for the metal stamping industry. These components consist of piercing
punches, matched die matrixes, punch holders or retainers, can and body punches,
precision  ground  high alloy parts and many other  products  related to a metal
stamper's  needs.  The die  components  and precision  tooling  operations  also
produce a large variety of consumable  precision  metal  products for customers'
nonstamping  needs,  including special heat exchanger tools,  beverage container
tools, powder compacting tools and molding  components.  Subsidiaries of the die
components  and  precision   tooling   operations   include:   Dayton   Progress
Corporation,  Dayton Progress GmbH, Jamestown Precision Tooling, Inc., Technical
Tooling, Inc. (TTI) and Dayton Progress SAS.

    Because of the nature of and market for the group's products, competition is
keen at both domestic and international levels. Many customers have some ability
to produce certain products themselves, but at a cost disadvantage. Major market
emphasis is placed on quality of product, delivery and level of service.

    Tool Group products are capital intensive with the only significant  outside
cost being the  purchase of the tool  steel,  carbide,  cubic boron  nitride and
polycrystalline  diamond material, as well as items necessary for manufacturing.
Inventories  are  maintained to assure  prompt  service to the customer with the
average  order for  standard  tools  filled  in less than one week for  domestic
shipments and within two weeks for international shipments.

    Tool Group customers include metal and plastic  fabricators and tool and die
shops  throughout  the  world.  Because of the  nature of the  products,  volume
depends mainly on repeat orders from customers numbering in the thousands. These
products are used in the manufacturing process of a broad range of items such as
automobiles,  appliances, construction products, electrical motors, switches and
components and a wide variety of other household and industrial goods.
Almost all business is done with private industry.

    The  group's   products  are  marketed  in  the  United  States,   and  many
international    markets,    principally   through   industrial    distributors.
Foreign-owned  manufacturing,  sales and distribution  facilities are located in
Woodbridge,  Ontario; Tokyo, Japan; Warwickshire,  England; Alcobaca,  Portugal;
Oberursel, Germany; and Meaux, France.

     The group competes with several U.S. and non-U.S.  manufacturers and due to
the diversity of products offered,  no meaningful  estimate of either the number
of competitors or the group's relative  position within the global market can be
made,  although  the group does  believe  it is a major  supplier  within  these
product  lines.  The  group  competes  with  numerous  non-U.S.   manufacturers,
principally in non-U.S. markets.

    The order  backlogs of the Tool Group as of December  31, 2002 and  December
31, 2001 were $11.4 million and $10.7 million,  respectively. The entire backlog
of orders at  December  31,  2002goodwill is expected to be filled  withindeductible for tax purposes. In 2003, the current
fiscal year.

Sign Group

    The Sign Group  manufacturescompany finalized the property, equipment and markets outdoor signs,  neonintangible appraisals and displays.
The group additionally  provides repair services and also enters into multi-year
maintenance  service contracts for signs and other electrical  equipment such as
parking lot lights and message  boards.  Its  operations  are orientedwarranty campaigns resulting in an increase to custom
designing and engineeringgoodwill of commercial and industrial  signs or groups of signs
for$10.0 million. During 2004, the company utilized the restructuring reserve in its customers.

    The sale  and  lease of signs  and the  sale of  maintenance  contracts  are
conducted  primarily through the group's direct sales organization that operates
from sales and manufacturing  facilities  located  strategically  throughout the
continental U.S.  Customers for sign products and services consist  primarily of
multi-location  commercial  businesses and large  commercial  and  institutional
developments.

    Somedisposition of the group's  displays are leased to customersnon-strategic components facility.
      The Leach and Wittke acquisitions have been accounted for termsas purchases. Accordingly, the results of typically
three to five years,  with both the lease and the  maintenance  portions of many
such contracts then renewed for successive periods.

    The  group is  nationally  a  principal  producer  of  high-end  custom  and
custom-quantity signs. The group's marketing strategies focus on market segments
to which it can  provide  a unique  set of  services.  The  group  has  multiple
regional and national competitors. Competition for sign products and services is
intense and competitive factors are largely quality,  price, project and program
management    capabilities,    aesthetic   and   design    considerations    and
lease/maintenance services.

    Total backlog at December 31, 2002, applicable to sign products and services
was  approximately  $38.1  million  compared to  approximately  $45.8 million at
December 31, 2001. A significant  partoperations of the group's sign productsacquired companies have been included in the consolidated statements of income from the effective dates of the acquisitions. Assuming the Leach and services
backlog relates to sign  maintenance  contracts that are usually  performed over
three to five  years.  At  December  31,Wittke acquisitions occurred January  1, 2002, the Sign Group had a backlog of
in-service sign maintenance contracts of approximately $34.0 million compared to
approximately $37.5 million at December 31, 2001. Withcompany estimates the exception of the sign
maintenance  contracts,  most of the  backlog  orders at  December  31, 2002 are
reasonably expected to be filled within the current fiscal year.

    During 2000,  the  Registrant  announced  it is seeking  buyers for the Sign
Group due to the Registrant  focusing on growth strategies for its other groups.
The results of the Sign Group are  reported as  discontinued  operations  in the
Registrant's consolidated financial statements.

Additional Information

    The  Registrant's  sources and  availability of materials and components are
not materially dependent upon either a single vendor or very few vendors.

    The Registrant owns a number of patents and possesses rights under others to
which it attaches importance,  but does not believe that its business as a whole
is materially  dependent upon any such patents or rights.  The  Registrant  also
owns a number of trademarks  that it believes are  important in connection  with
the identification of its products and associated  goodwill with customers,  but
no material part of the Registrant's business is dependent on such trademarks.

    The  Registrant's   business  is  not  materially  dependent  upon  research
activities  relating  to the  development  of new  products  or  services or the
improvement  of existing  products  and  services,  but such  activities  are of
importance as to some of the  Registrant's  products.  Expenditures for research
and  development by the  Registrant  were  approximately  $26.5 million in 2002,
$20.0 million in 2001 and $18.8 million in 2000.

    Note M - Segment  and Related  Information,  presented  in the  Registrant's
Annual Report to  Shareholdersfollowing pro forma amounts for the year ended December 31, 2002,  contains
information   concerning2002:
 
 
 
 
 
 
 
 
2002
 
 
 
Net sales
 
$
1,119.8
 
Income from continuing operations
 
 
29.4
 
Net income
 
 
24.2
 
Basic income per share
 
 
 
 
 
Income from continuing operations
 
$
.64
 
 
Net income
 
 
.53
 
Diluted income per share
 
 
 
 
 
Income from continuing operations
 
$
.64
 
 
Net income
 
 
.52
 
NOTE L — DISCOUNTINUED OPERATIONS
      The following table presents the Registrant's  foreign  sales,  export  sales  and
operations by geographic area, and is incorporated herein by reference.

    Certainoperating results of the Registrant's  businesses are susceptiblecompany’s discontinued operations for the three-year period ended December 31, 2004:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
Net sales
 
$
53.9
 
 
$
69.0
 
 
$
98.8
 
Costs
 
 
48.0
 
 
 
65.0
 
 
 
94.7
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 
5.9
 
 
 
4.0
 
 
 
4.1
 
Income tax expense
 
 
2.2
 
 
 
1.4
 
 
 
1.4
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations
 
$
3.7
 
 
$
2.6
 
 
$
2.7
 
 
 
 
 
 
 
 
 
 
 
      In conjunction with the strategic restructuring initiatives announced in June 2004 (see Note M), the company determined that its investments in Justrite Manufacturing, L.L.C. (“Justrite”), Technical Tooling, Inc. (“TTI”) and Plastisol B.V. Holdings (“Plastisol”) were no longer strategic investments and divested its interests.
      In December 2004, the company sold Justrite for $40.1 million in cash resulting in an $11.1 million gain on disposal of discontinued operations for the year ended December 31, 2004. Justrite manufactured hazardous liquid containment products including safety cans and cabinets for flammables and corrosives, specialty containers and drum safety equipment. Revenues amounted to $39.7 million, $35.9 million and $32.9 million for the years ended December 31, 2004, 2003 and 2002, respectively. Income before income taxes totaled $5.0 million, $3.5 million and $3.9 million for the years ended December 31, 2004, 2003 and 2002, respectively. Sale proceeds were used to repay debt.
      In October 2004, the company divested TTI for $6.5 million in cash resulting in a $1.4 million gain on disposal of discontinued operations for the year ended December 31, 2004. TTI manufactured a full line of can body-making precision tooling for beverage can producers worldwide. Revenues were $6.5 million, $6.6 mil-
44
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
lion and $5.6 million for the years ended December 31, 2004, 2003 and 2002, respectively. Operating income before income taxes totaled $1.1 million, $1.0 million and $.7 million for the years ended December 31, 2004, 2003 and 2002, respectively. Sale proceeds were used to repay debt.
      In July 2004, the company sold its 54% majority ownership interest in Plastisol to the influencesminority partner for $2.5 million in cash and a $.4 million note receivable resulting in a $5.2 million loss on disposal of seasonal buying or delivery patterns.discontinued operations for the year ended December 31, 2004. The Registrant's  businesses which tendcompany acquired its ownership interest in 2001. Plastisol manufactured glass fiber reinforced polyester fire truck cabs and bodies mainly for European and Asian markets. Revenues totaled $7.7 million, $13.6 million and $17.1 million for the years ended December 31, 2004, 2003 and 2002, respectively. Operating losses before income taxes totaled $.1 million, $.7 million and $.5 million for the years ended December 31, 2004, 2003 and 2002, respectively. Sale proceeds were used to have lower sales inrepay debt.
      In April 2003, the first calendar  quarter  compared to other quarters as a
result of these influences are street sweeping, outdoor warning, other municipal
emergency signal products, parking systems, aerial access platform manufacturing
operations and signage.

    No material partcompany completed the sale of the businessSign Group to a third party for cash of $7.5 million and a $4.0 million note receivable resulting in a $.4 million loss on disposal of discontinued operations for the Registrant is dependent  either uponyear ended December 31, 2003. The company incurred an additional $.6 million loss on disposal of discontinued operations for the year ended December 31, 2004, reflecting the resolution of a single  customer  or very few  customers.contingent liability. The Registrant  is in  substantial
compliance  with federal,  stateSign Group manufactured illuminated, nonilluminated and local  provisions that have been enacted or
adopted regulatingelectronic advertising sign displays primarily for commercial and industrial markets and contracted to provide maintenance services for the discharge of materials intosigns it manufactured as well as signs manufactured by others. Revenues for the environment, or otherwise
relating toyears ended December 31, 2003 and 2002 were $12.8 million and $43.2 million, respectively. The Sign Group’s operations before income taxes were break even for the protection of the  environment.  These  provisions  have had no
material  adverse  impact upon  capital  expenditures,  earnings or  competitive
position of the Registrantyears ended December 31, 2003 and its  subsidiaries.  The Registrant  employed over
7,400 people in ongoing businesses at the close of 2002. The Registrant believes
relationscompany retained certain assets and liabilities in conjunction with its employees have been good.

Available Information

    The Registrant makes its annual reports on Form 10-K,  quarterly  reports on
Form  10-Q,  current  reports  on  Form  8-K and  amendmentsthe sale. Sale proceeds were used to those  reports
available,     free    of    charge,     through    its     Internet     website
(http://www.federalsignal.com)   as  soon  as  reasonably   practical  after  it
electronically  files or furnishes such materials to the Securities and Exchange
Commission.  All of the Registrant's  filings may be read or copied at the SEC's
Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Information
on the operation of the Public Filing Room can be obtained by calling the SEC at
1-800-SEC-0330.  The SEC maintains an Internet website (http://www.sec.gov) that
contains  reports,  proxy  and  information  statements  and  other  information
regarding issuers that file electronically.

Item 2.    Properties.repay debt.
      As of December 31, 2002,2003, net assets of the Registrant  utilized  thirty-eight  principal
manufacturing  plants located  throughout  North America,company’s discontinued operations consisted of $17.8 million of current assets, $6.9 million of properties and equipment, $17.4 million of goodwill, $13.1 million of current liabilities and $6.0 million of long-term liabilities.
NOTE M — RESTRUCTURING CHARGES AND ASSET DISPOSITIONS
Restructuring charges
      In 2004, the company announced the implementation of a number of initiatives including restructuring of certain of its operations and the dispositions of certain assets. The 2004 restructuring initiatives focused on plant consolidations and product rationalization in order to streamline the company’s operations; the actions taken are aimed at improving the profitability of the fire rescue, refuse truck body and European tooling businesses as well as sixteenimproving the company’s overhead cost structure. The asset dispositions consisted of asset sales of certain operations the company considered no longer integral to the long-term strategy of its business. In 2003, the company also effected two plant consolidations to reduce costs of the company’s industrial warning and communications business and US tooling business.
45
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The following table summarizes the 2004 restructuring actions taken, the pre-tax charges to expense in Europe, one2004 and the total charges estimated to be incurred:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pre-Tax Restructuring
 
Estimate of
Group
 
Initiative
 
Charges in 2004
 
Total Charges
 
 
 
 
 
 
 
Environmental Products
 
Closure of the refuse truck production facility in Oshkosh, Wisconsin, and consolidation of production into its facility in Medicine Hat, Alberta; completion expected in first quarter of 2005
 
$
8.4
 
 
$
10.5
 
Fire Rescue
 
Closure of the production facilities located in Preble, New York and consolidation of US production of fire rescue vehicles into the Ocala, Florida operations; completion expected in first quarter of 2005
 
 
5.4
 
 
 
6.1
 
Tool
 
Reducing manufacturing activities relating to tooling products in France and outsourcing production to its Portugal facility; completion expected in the second quarter of 2005
 
 
1.2
 
 
 
1.3
 
Corporate
 
Planning and organizing restructuring activities
 
 
.4
 
 
 
.4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
15.4
 
 
$
18.3
 
 
 
 
 
 
 
 
 
 
      The company expects to incur the remaining $2.9 million of restructuring charges in South Africa, one2005.
      The following table summarizes the 2003 restructuring actions taken and the pre-tax charges to expense:
 
 
 
 
 
 
 
 
 
 
 
Pre-Tax
Group
 
Initiative
 
Restructuring Charges
 
 
 
 
 
Environmental Products
 
Ceasing production and sale of certain sweeper products and components and reduction in workforce
 
$
.6
 
Safety Products
 
Closure of a facility in the United Kingdom and reduction of its workforce at two other plants
 
 
3.3
 
Tool
 
Ceasing the manufacture of tooling products in New York facility and consolidation of production into an Ohio facility
 
 
.9
 
 
 
 
 
 
 
 
 
 
 
$
4.8
 
 
 
 
 
 
 
      These initiatives were announced and completed in South America,2003.
46
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The following presents an analysis of the restructuring reserves for the years ended December 31, 2003 and one2004:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset
 
 
 
 
 
 
Severance
 
Impairment
 
Other
 
Total
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2003
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
Charges to expense
 
 
2.2
 
 
 
1.9
 
 
 
.7
 
 
 
4.8
 
Cash payments
 
 
(2.2
)
 
 
 
 
 
 
(.7
)
 
 
(2.9
)
Non-cash activity
 
 
 
 
 
 
(1.9
)
 
 
 
 
 
 
(1.9
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2003
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Charges to expense
 
 
6.4
 
 
 
7.1
 
 
 
1.9
 
 
 
15.4
 
Cash payments
 
 
(1.6
)
 
 
 
 
 
 
(1.7
)
 
 
(3.3
)
Non-cash activity
 
 
 
 
 
 
(7.1
)
 
 
 
 
 
 
(7.1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2004
 
$
4.8
 
 
$
—
 
 
$
.2
 
 
$
5.0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Severance charges in 2003 consist of costs to terminate employees and the ratable recognition of retention bonuses for employees providing service until their termination date. Asset impairment charges consist of net realizable value adjustments to manufacturing equipment located in the Far East.

    In total,  the Registrant  devoted  approximately  2,558,000  square feetUnited Kingdom.
      Severance charges in 2004 consist of termination and benefit costs for direct manufacturing employees involuntarily terminated prior to manufacturing and 1,222,000 square feet to service, warehousing and office spaceDecember 31, 2004. The costs of retention bonuses for employees not severed as of December 31, 2002.  Of2004 are recognized ratably over the total square  footage,  approximatelyfuture service period. Asset impairment charges include $5.6 million of net realizable value adjustments on real property and manufacturing equipment and the write-off of an intangible asset valued at $1.5 million relating to a tradename that will no longer be used after the consolidation of the refuse businesses.
Asset dispositions
      The company completed three asset dispositions during 2004. First, the company sold its 30% is
devotedminority share in Safety Storage, Inc. (“SSI”) to the Safety  Products  Group,  11% tomajority shareholder in June 2004 for a nominal amount and, in connection therewith, recorded a $2.9 million loss in the Tool Group,  23% tosecond quarter of 2004. Under the Fire
Rescue Group, 30% to the Environmental  Products Group and 6% to the Sign Group.
Approximately  66%terms of the total square footagetransaction, the company was released from any future liability arising from a judgment awarded to a third party creditor of SSI. The non-operating loss is ownedincluded in other expense for the year ended December 31, 2004.
      The company also divested a modest amount of operating assets located at a manufacturing facility in Kelowna, British Columbia in July 2004. The net assets, primarily consisting of inventories and manufacturing equipment and property, were sold by the Registrant,  withcompany for approximately net book value.
      Finally, the remaining 34% being leased.

    Allcompany sold approximately $9.6 million of lease financing assets to an independent party. The financing assets represented amounts due from industrial customers of the Registrant's  properties,  as well ascompany; the related  machinery and
equipment, are consideredcompany had earlier indicated that it would no longer extend financing to be well-maintained, suitable and adequate for their
intended purposes. In the aggregate, these facilities are of sufficient capacityindustrial customers. The company received cash for the Registrant's current business needs.

Item 3.    Legal Proceedings.sale for an amount approximating its net book value at the time of sale. Proceeds from these sales were used to pay down debt.
NOTE N — LEGAL PROCEEDINGS
      The Registrantcompany is subject to various claims, other pending and possible legal actions for product liability and other damages and other matters arising out of the conduct of the Registrant'scompany’s business. The Registrantcompany believes, based on current knowledge and after consultation with counsel, that the outcome of such claims and actions will not have a material adverse effect on the Registrant'scompany’s consolidated financial position or the results of
47
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
operations. 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.
The Registrantcompany has been sued in Chicago by firefighters in Chicago  seeking damages and claiming that exposure to the Registrant'scompany’s sirens has impaired their hearing and that the sirens are therefore defective. There were sixteenare presently 33 cases filed during the period 1999-2002,1999-2004, involving a total of 1,0042,467 plaintiffs pending in the Circuit Court of Cook County, Illinois.Illinois, sixteen of which have been dismissed. The plaintiff'splaintiffs’ attorneys have threatened to bring more suits if the Registrantcompany does not settle these cases. The Registrantcompany believes that these product liability suits have no merit and that sirens are necessary in emergency situations and save lives. The Registrantdiscovery phase of the litigation began in 2004; the company is aggressively defending the matters. The company successfully defended approximately 41 similar cases in Philadelphia in 1999 after a series of unanimous jury verdicts in favor of the Registrant.

Item 4.    Submissioncompany.
NOTE O — SEGMENT AND RELATED INFORMATION
      The company has four continuing operating segments as defined under SFAS No. 131, “Disclosures about Segments of Mattersan Enterprise and Related Information”. Business units are organized under each segment because they share certain characteristics, such as technology, marketing and product application, which create long-term synergies. The principal activities of the company’s operating segments are as follows:
Environmental Products — Environmental Products manufactures a variety of self-propelled street cleaning vehicles, vacuum loader vehicles, municipal catch basin/sewer cleaning vacuum trucks, refuse truck bodies and water blasting equipment. Environmental Products sells primarily to municipal customers, contractors and government customers.
Fire Rescue — Fire Rescue manufactures chassis; fire trucks, including Class A pumpers, mini-pumpers and tankers; airport and other rescue vehicles, aerial access platforms and aerial ladder trucks. This group sells primarily to municipal customers, volunteer fire departments and government customers.
Safety Products — Safety Products produces a Votevariety of Security Holders.

    No  matters  were  submittedvisual and audible warning and signal devices; paging, local signaling, and building security, parking and access control systems and hazardous area lighting. The group’s products are sold primarily to industrial, municipal and government customers.
Tool — Tool manufactures a votevariety of security  holders  throughconsumable tools which include die components for the solicitationmetal stamping industry, a large selection of proxies or otherwiseprecision metal products for nonstamping needs and a line of precision cutting and grooving tools including polycrystalline diamond and cubic boron nitride products for superhard applications. The group’s products are sold predominately to industrial customers.
      Net sales by operating segment reflect sales of products and services and financial revenues to external customers, as reported in the company’s consolidated statements of income. Intersegment sales are insignificant. The company evaluates performance based on operating income of the respective segment. Operating income includes all revenues, costs and expenses directly related to the segment involved. In determining operating segment income, neither corporate nor interest expenses are included. Operating segment depreciation expense, identifiable assets and capital expenditures relate to those assets that are utilized by the respective operating segment. Corporate assets consist principally of cash and cash equivalents, notes and other receivables and fixed assets. The accounting policies of each operating segment are the same as those described in the summary of significant accounting policies.
      See Note K for a discussion of the company’s acquisition activity during the three monthsthree-year period ended December 31, 2004.
      Revenues attributed to customers located outside of the US aggregated $354.1 million in 2004, $355.2 million in 2003 and $271.4 million in 2002. PART II

Item 5.    MarketSales exported from the US aggregated $108.8 million in 2004, $113.5 million in 2003 and $72.8 million in 2002.
48
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The company invests in research to support development of new products and the enhancement of existing products and services. The company believes this investment is important to maintain and/or enhance its leadership position in key markets. Expenditures for research and development by the company were approximately $27.6 million in 2004, $32.5 million in 2003 and $25.6 million in 2002.
      A summary of the company’s continuing operations by segment for the Registrant's  Common  Stockthree-year period ended December 31, 2004 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
 
Environmental Products
 
$
367.9
 
 
$
352.9
 
 
$
296.4
 
 
Fire Rescue
 
 
360.9
 
 
 
402.2
 
 
 
317.1
 
 
Safety Products
 
 
249.2
 
 
 
242.4
 
 
 
237.4
 
 
Tool
 
 
161.0
 
 
 
153.2
 
 
 
150.7
 
 
 
 
 
 
 
 
 
 
 
 
Total net sales
 
$
1,139.0
 
 
$
1,150.7
 
 
$
1,001.6
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Environmental Products
 
$
(3.8
)
 
$
17.7
 
 
$
23.0
 
 
Fire Rescue
 
 
(23.2
)
 
 
14.8
 
 
 
11.4
 
 
Safety Products
 
 
32.9
 
 
 
28.3
 
 
 
37.3
 
 
Tool
 
 
15.3
 
 
 
14.9
 
 
 
18.0
 
 
Corporate expense
 
 
(21.7
)
 
 
(14.0
)
 
 
(12.4
)
 
 
 
 
 
 
 
 
 
 
 
Total operating income (loss)
 
 
(.5
)
 
 
61.7
 
 
 
77.3
 
Interest expense
 
 
(20.8
)
 
 
(19.4
)
 
 
(19.8
)
Other expense
 
 
(4.0
)
 
 
(.3
)
 
 
(.6
)
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
$
(25.3
)
 
$
42.0
 
 
$
56.9
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
Environmental Products
 
$
6.4
 
 
$
6.8
 
 
$
4.5
 
 
Fire Rescue
 
 
5.1
 
 
 
4.5
 
 
 
3.9
 
 
Safety Products
 
 
5.0
 
 
 
5.0
 
 
 
5.5
 
 
Tool
 
 
7.9
 
 
 
7.3
 
 
 
7.2
 
 
Corporate
 
 
(2.0
)
 
 
(1.2
)
 
 
1.1
 
 
 
 
 
 
 
 
 
 
 
 
Total depreciation and amortization
 
$
22.4
 
 
$
22.4
 
 
$
22.2
 
 
 
 
 
 
 
 
 
 
 
 
Identifiable assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing activities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Environmental Products
 
$
282.2
 
 
$
285.4
 
 
$
286.9
 
 
 
Fire Rescue
 
 
232.7
 
 
 
227.3
 
 
 
214.3
 
 
 
Safety Products
 
 
213.3
 
 
 
205.2
 
 
 
191.1
 
 
 
Tool
 
 
167.2
 
 
 
163.2
 
 
 
165.7
 
 
 
Corporate
 
 
34.0
 
 
 
36.8
 
 
 
34.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total manufacturing activities
 
 
929.4
 
 
 
917.9
 
 
 
892.2
 
 
Net assets of discontinued operations
 
 
 
 
 
 
23.0
 
 
 
33.3
 
 
Financial services activities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Environmental Products
 
 
41.4
 
 
 
55.4
 
 
 
65.5
 
 
 
Fire Rescue
 
 
155.1
 
 
 
174.7
 
 
 
161.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total financial services activities
 
 
196.5
 
 
 
230.1
 
 
 
226.8
 
 
 
 
 
 
 
 
 
 
 
 
Total identifiable assets
 
$
1,125.9
 
 
$
1,171.0
 
 
$
1,152.3
 
 
 
 
 
 
 
 
 
 
 
49
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
Additions to long-lived assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Environmental Products
 
$
5.4
 
 
$
23.4
 
 
$
100.9
 
 
Fire Rescue
 
 
5.5
 
 
 
5.7
 
 
 
4.8
 
 
Safety Products
 
 
5.1
 
 
 
7.9
 
 
 
4.9
 
 
Tool
 
 
5.9
 
 
 
5.5
 
 
 
11.4
 
 
Corporate
 
 
1.7
 
 
 
8.6
 
 
 
2.4
 
 
 
 
 
 
 
 
 
 
 
 
Total additions to long-lived assets
 
$
23.6
 
 
$
51.1
 
 
$
124.4
 
 
 
 
 
 
 
 
 
 
 
      The following table presents financial revenues (included in net sales) by segment for the three-year period ended December 31, 2004 as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
Financial revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Environmental Products
 
$
3.6
 
 
$
4.5
 
 
$
6.5
 
 
Fire Rescue
 
 
8.6
 
 
 
8.9
 
 
 
9.6
 
 
 
 
 
 
 
 
 
 
 
 
Total financial revenues
 
$
12.2
 
 
$
13.4
 
 
$
16.1
 
 
 
 
 
 
 
 
 
 
 
      Due to the nature of the company’s customers, a significant portion of the Environmental Products and Related
           Security Holder Matters.

    Federal  Signal  Corporation's  Common StockFire Rescue financial revenues is listedexempt from federal income tax.
      The segment information provided below is classified based on geographic location of the company’s subsidiaries:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
886.5
 
 
$
851.1
 
 
$
803.0
 
 
Europe
 
 
195.7
 
 
 
193.7
 
 
 
156.4
 
 
Canada
 
 
44.3
 
 
 
96.4
 
 
 
34.1
 
 
Other
 
 
12.5
 
 
 
9.5
 
 
 
8.1
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,139.0
 
 
$
1,150.7
 
 
$
1,001.6
 
 
 
 
 
 
 
 
 
 
 
 
Long-lived assets
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
383.2
 
 
$
392.0
 
 
$
388.6
 
 
Europe
 
 
52.4
 
 
 
49.8
 
 
 
43.0
 
 
Canada
 
 
72.5
 
 
 
87.2
 
 
 
78.7
 
 
Other
 
 
.7
 
 
 
1.3
 
 
 
1.2
 
 
 
 
 
 
 
 
 
 
 
 
 
$
508.8
 
 
$
530.3
 
 
$
511.5
 
 
 
 
 
 
 
 
 
 
 
50
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE P — NET INCOME PER SHARE
      The following table summarizes the information used in computing basic and traded on the New
York Stock  Exchange  under the symbol FSS.  Market price range and dividenddiluted income per share data listedfor the three-year period ending December 31, 2004:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
Numerator for both basic and diluted income per share
computations — net income (loss)
 
$
(2.3
)
 
$
37.3
 
 
$
38.2
 
 
 
 
 
 
 
 
 
 
 
Denominator for basic income per share — weighted average shares outstanding
 
 
48.1
 
 
 
48.0
 
 
 
45.8
 
Effect of employee stock options (potential dilutive common shares)
 
 
 
 
 
 
 
 
 
 
.1
 
 
 
 
 
 
 
 
 
 
 
Denominator for diluted income per share — adjusted shares
 
 
48.1
 
 
 
48.0
 
 
 
45.9
 
 
 
 
 
 
 
 
 
 
 
      Diluted income per share is calculated by dividing net income by the weighted average common shares outstanding plus additional common shares that would have been outstanding assuming the exercise of in-the-money stock options. As of December 31, 2004, .1 million employee stock options were considered potential dilutive common shares. These stock options, however, are antidilutive due to the net loss for the year ended December 31, 2004. As a result, they are excluded from the denominator for the diluted income per share calculation.
NOTE Q —
COMMITMENTS, GUARANTEES AND FAIR VALUES OF FINANCIAL INSTRUMENTS
      The company leases certain facilities and equipment under operating leases, some of which contain options to renew. Total rental expense on all operating leases was $7.6 million in Note S - Selected  Quarterly Data (Unaudited)  contained2004, $8.7 million in 2003 and $8.5 million in 2002. Sublease income and contingent rentals relating to operating leases were insignificant. At December 31, 2004, minimum future rental commitments under operating leases having noncancelable lease terms in excess of one year aggregated $26.4 million payable as follows: $6.2 million in 2005, $4.8 million in 2006, $3.8 million in 2007, $2.8 million in 2008, $2.3 million in 2009 and $6.5 million thereafter.
      At December 31, 2004 and 2003, the company had outstanding standby letters of credit aggregating $36.3 million and $35.5 million, respectively, principally to act as security for retention levels related to casualty insurance policies and to guarantee the performance of subsidiaries that engage in export transactions to foreign governments and municipalities.
      The company issues product performance warranties to customers with the sale of its products. The specific terms and conditions of these warranties vary depending upon the product sold and country in which the company does business with warranty periods generally ranging from six months to five years. The company estimates the costs that may be incurred under its basic limited warranty and records a liability in the Annual Reportamount of such costs at the time the sale of the related product is recognized. Factors that affect the company’s warranty liability include the number of units under warranty from time to Shareholderstime, historical and anticipated rates of warranty claims and costs per claim. The company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
51
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Changes in the company’s warranty liabilities for the years ended December 31, 2004 and 2003 were as follows:
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
 
 
 
 
Balance at January 1
 
$
12.7
 
 
$
12.9
 
Provisions to expense
 
 
16.4
 
 
 
16.3
 
Actual costs incurred
 
 
(18.0
)
 
 
(21.2
)
Business acquisitions
 
 
 
 
 
 
4.7
 
 
 
 
 
 
 
 
Balance at December 31
 
$
11.1
 
 
$
12.7
 
 
 
 
 
 
 
 
      The 2003 business acquisitions reflect the revised estimate of warranty liabilities relating to the 2002 acquisitions of the refuse truck body businesses. Costs incurred in 2003 include one-time refuse truck body warranty campaign charges.
      The company guarantees the debt of a third-party dealer that sells the company’s vehicles. The notional amounts of the guaranteed debt as of December 31, 2004 and 2003 totaled $.7 million and $.8 million, respectively. No losses have been incurred as of December 31, 2004. The guarantees expire between 2005 and 2006.
      The company also provides residual value guarantees on vehicles sold to certain customers. Proceeds received in excess of the fair value of the guarantee are deferred and amortized into income ratably over the life of the guarantee. These transactions have been recorded as operating leases and liabilities equal to the fair value of the guarantees issued in 2004 were recognized. The notional amounts of the residual value guarantees were $3.4 million and $3.5 million as of December 31, 2004 and 2003, respectively. No losses have been incurred as of December 31, 2004. The guarantees expire between 2005 and 2010.
      The following table summarizes the carrying amounts and fair values of the company’s financial instruments at December 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004
 
2003
 
 
 
 
 
 
 
Notional
 
Fair
 
Notional
 
Fair
 
 
Amount
 
Value
 
Amount
 
Value
 
 
 
 
 
 
 
 
 
Long-term debt (Note E)
 
$
358.6
 
 
$
360.3
 
 
$
380.6
 
 
$
389.6
 
Fair value swaps (Note H)
 
 
220.0
 
 
 
(6.7
)
 
 
285.0
 
 
 
(7.9
)
Cash flow swaps (Note H)
 
 
85.0
 
 
 
.8
 
 
 
115.0
 
 
 
(1.5
)
Foreign exchange contracts (Note H)
 
 
34.8
 
 
 
2.5
 
 
 
59.4
 
 
 
2.5
 
NOTE R — GOODWILL AND OTHER INTANGIBLE ASSETS
      In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and other intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with these statements. Other intangible assets continue to be amortized over their useful lives. The company adopted SFAS No. 142 effective January 1, 2002 and 2001
is  incorporated  herein by  reference.accordingly discontinued the amortization of goodwill.
      As of March 1,  2003,  there were 3,716
holders of recordpart of the Registrant's common stock.

    Certain  long-term debt agreements  impose  restrictions onadoption of SFAS No. 142, the Registrant's
abilitycompany also completed a transitional goodwill impairment test and determined that $8.0 million of goodwill related to pay cash dividends on its common stock. Alla niche Tool Group business was impaired. This amount was recognized in 2002 as a charge to net income resulting from a cumulative effect of a change in accounting. The company determined the fair value of the retained  earnings
at December 31, 2002 were freereporting unit by calculating the present
52
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
value of any restrictions.

Item 6.    Selected Financial Data.

    Selected  Financial  Data  containedexpected future cash flows. Changes in the Registrant's  Annual  Report to
Shareholderscarrying amount of goodwill for the year ended December 31, 2004, by operating segment, were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Environmental
 
Fire
 
Safety
 
 
 
 
 
 
Products
 
Rescue
 
Products
 
Tool
 
Total
 
 
 
 
 
 
 
 
 
 
 
December 31, 2002
 
$
130.4
 
 
$
33.5
 
 
$
86.9
 
 
$
81.8
 
 
$
332.6
 
Adjustments
 
 
10.0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.0
 
Translation
 
 
1.1
 
 
 
4.3
 
 
 
2.4
 
 
 
.2
 
 
 
8.0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2003
 
 
141.5
 
 
 
37.8
 
 
 
89.3
 
 
 
82.0
 
 
 
350.6
 
Adjustments
 
 
(.9
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(.9
)
Translation
 
 
.4
 
 
 
1.1
 
 
 
1.4
 
 
 
(.1
)
 
 
2.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2004
 
$
141.0
 
 
$
38.9
 
 
$
90.7
 
 
$
81.9
 
 
$
352.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      The 2003 adjustments reflect the finalization of property, equipment and intangible appraisals and warranty campaigns relating to the 2002 acquisitions of the refuse truck body businesses. The 2004 adjustments consist of the receipt of $.9 million from an escrow account established as part of the acquisitions of the refuse truck body businesses.
      Under SFAS No. 142, the company is incorporated  herein by
reference.

Item 7.    Management's  Discussionrequired to test its goodwill annually for impairment; the company performs this test at the beginning of the fourth quarter. The company performed this test in 2004 and Analysisdetermined that there was no impairment.
      The components of Financial Condition
           and Resultsthe company’s other intangible assets are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2004
 
December 31, 2003
 
 
Weighted-
 
 
 
 
 
 
Average
 
Gross
 
 
 
Net
 
Gross
 
 
 
Net
 
 
Useful Life
 
Carrying
 
Accumulated
 
Carrying
 
Carrying
 
Accumulated
 
Carrying
 
 
(Years)
 
Value
 
Amortization
 
Value
 
Value
 
Amortization
 
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortizable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Developed software
 
 
6
 
 
$
13.4
 
 
$
(4.7
)
 
$
8.7
 
 
$
11.1
 
 
$
(3.8
)
 
$
7.3
 
 
Patents
 
 
5-10
 
 
 
3.9
 
 
 
(2.4
)
 
 
1.5
 
 
 
3.9
 
 
 
(2.1
)
 
 
1.8
 
 
Customer relationships
 
 
20
 
 
 
1.9
 
 
 
(.2
)
 
 
1.7
 
 
 
1.9
 
 
 
(.1
)
 
 
1.8
 
 
Distribution network
 
 
40
 
 
 
1.3
 
 
 
(.1
)
 
 
1.2
 
 
 
1.3
 
 
 
 
 
 
 
1.3
 
 
Other
 
 
3
 
 
 
.4
 
 
 
 
 
 
 
.4
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-amortizable tradenames
 
 
 
 
 
 
1.0
 
 
 
 
 
 
 
1.0
 
 
 
2.5
 
 
 
 
 
 
 
2.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
$
21.9
 
 
$
(7.4
)
 
$
14.5
 
 
$
20.7
 
 
$
(6.0
)
 
$
14.7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      The company recorded a $1.5 million impairment charge in 2004 to write off a tradename that will no longer be used after the consolidation of Operations.

    The  Financial  Review  containedthe refuse business in conjunction with the restructuring plan announced in June 2004. Other intangible assets are included in the Registrant's  Annual  Report  to
Shareholdersconsolidated balance sheets within “other deferred charges and assets”.
      Amortization expense for the year ended December 31, 2002 is  incorporated  herein by
reference.

Item 7a.   Qualitative2004 totaled $1.4 million. The company estimates that the aggregate amortization expense will be $2.2 million in 2005, $2.0��million in 2006, $1.6 million in 2007, $1.6 million in 2008, $1.2 million in 2009 and Quantitative$4.9 million thereafter.
NOTE S — NEW ACCOUNTING PRONOUNCEMENTS
      In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers Disclosures About Market Risk.about Pensions and Other Postretirement Benefits” to improve financial statement disclosures for defined benefit
53
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
plans. SFAS No. 132 requires more detailed disclosures about plan assets, benefit obligations, cash flows, benefit costs and other relevant information. The Financial  Review  caption  "Market Risk  Management"  containeddisclosures are generally effective for fiscal years ending after December 31, 2003; a six-month delay in the Registrant's  Annual Report to Shareholderseffective date was provided for non-US plans. The company adopted the additional disclosure provisions of SFAS No. 132 for its US plans as of December 31, 2003; SFAS No. 132 was adopted as of December 31, 2004 for the year endedcompany’s non-US plan.
      In November 2004, the FASB issued SFAS No. 151, “Inventory Costs”, which amends ARB 43, Chapter 4, “Inventory Pricing”. SFAS No. 151 clarifies the treatment of abnormal amounts of idle facility expense, freight, handling costs, and wasted materials to be treated as current-period charges. The provisions of SFAS No. 151 are effective for fiscal years beginning after June 15, 2005. The company currently applies overhead based upon actual rates excluding the influences of abnormal shutdown periods. Management will further review the implications of SFAS No. 151 to determine what effect, if any, its adoption will have on the company’s consolidated results of operations and statement of financial position.
      In December 31, 2002
is incorporated herein by reference.

Item 8.    Financial Statements2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”, which revises SFAS No. 123 and Supplementary Data.

    The  consolidatedsupersedes APB 25. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value. Using a “modified grant-date approach”, the fair value of an equity award is estimated on the grant date and accompanying  footnotesrecognized over the requisite service period for all awards that vest. If the award does not vest, no compensation cost is recognized. The FASB continues to believe that the fair value of a stock option awarded to an employee generally must be estimated using an option pricing model. The provisions of SFAS No. 123(R) are effective at the beginning of the Registrantfirst interim or annual period beginning after June 15, 2005. Management believes the adoption of SFAS No. 123(R) will have an impact on the company’s consolidated results of operations and financial position but has not yet determined whether adoption will result in incremental compensation expense materially different than the report  of  the  independent  auditors  set  forthamounts disclosed in the
Registrant's  Annual Report to ShareholdersNote A totaling $1.7 million, $.8 million and $1.1 million for the year ended December 31, 2002
are incorporated herein by reference.

Item 9.    Changes in and Disagreements  with Accountants on Accounting
           and Financial Disclosure.

    None.



                                    PART III

Item 10.   Directors and Executive Officers of the Registrant.

    The information under the caption  "Election of Directors"  contained in the
Registrant's  Proxy  Statement for the Annual Meeting of Shareholders to be held
on April 17, 2003 is incorporated herein by reference.

    The following is a list of the Registrant's executive officers,  their ages,
business experience and positions and offices as of March 1, 2002:

    Joseph J. Ross, age 57, was elected Chairman, President and Chief Executive
Officer in February  1990.  Mr. Ross  continues  to serve in the  capacities  of
Chairman and Chief Executive Officer.

    John A.  DeLeonardis,  age 55, was elected Vice  President-Taxes  in January
1992.

    Duane A. Doerle, age 47, was elected Vice President-Corporate Development in
July 1996.

    Stephanie  K.  Kushner,  age 47,  was  elected as Vice  President  and Chief
Financial Officer in February 2002. Previously, Ms. Kushner was Vice President -
Treasury and Corporate  Development for FMC Technologies in 2001, Vice President
and  Treasurer for FMC  Corporation  from  1999-2001,  and Director of Financial
Planning of FMC Corporation from 1997-1999.

    Karen N.  Latham,  age 43, was  elected  Vice  President  and  Treasurer  in
December 2002. Previously, Ms. Latham spent ten years in corporate banking (1981
- - 1986 and 1987 - 1990 with Harris Bank and 1986 - 1987 with Citicorp) and seven
years  in  corporate  senior  financial  roles.   Specifically,   she  was  Vice
President/Treasurer with Vigoro Corporation, and its successor organization, IMC
Global, Inc., from 1990 to 1997 and Vice President/Chief  Financial Officer with
Florsheim Corporation in 1997. More recently,  she was a Consultant from 1998 to
2001 with Egon Zehnder International, Inc. and a Senior Vice President from 2001
to 2002 with Coffou Partners, Inc.

    Richard L. Ritz,  age 49, was  elected  Vice  President  and  Controller  in
January 1991.

    Kim A. Wehrenberg,  age 51, was elected Vice President,  General Counsel and
Secretary effective October 1986.

    These  officers  hold office  until the next annual  meeting of the Board of
Directors  following their election and until their  successors  shall have been
elected and qualified.

    There  are no family  relationships  among  any of the  foregoing  executive
officers.

Item 11.   Executive Compensation.

    The information contained under the caption "Executive  Compensation" of the
Registrant's  Proxy  Statement for the Annual Meeting of Shareholders to be held
April 17, 2003 is incorporated herein by reference.

Item 12.   Security   Ownership  of  Certain   Beneficial  Owners  and
           Management.

    The information  contained under the captions "Security Ownership of Certain
Beneficial   Owners"  and  "Equity   Compensation   Plan   Information"  of  the
Registrant's  Proxy  Statement for the Annual Meeting of Shareholders to be held
April 17, 2003 is incorporated herein by reference.

Item 13.   Certain Relationships and Related Transactions.

    The information contained under the caption "Executive  Compensation" of the
Registrant's  Proxy  Statement for the Annual Meeting of Shareholders to be held
April 17, 2003 is incorporated herein by reference.

Other Matters

    The  Registrant  has  two  directors  that  qualify  as  "independent  audit
committee  financial  experts",   as  defined  by  the  Sarbanes-Oxley  Act  and
Securities and Exchange Commission, on its Audit Committee.  These directors are
Mr.  Charles R. Campbell,  Chairman of the Audit  Committee and Principal of The
Everest Group,  and Ms. Joan E. Ryan,  Senior Vice President and Chief Financial
Officer of SIRVA, Inc.

                                     PART IV

Item 14.   Controls and Procedures.

(a)   Evaluation of Disclosure Controls and Procedures

      As required by new Rule 13a-15 under the Securities  Exchange Act of 1934,
      within  the 90 days  prior  to the  date of this  report,  the  Registrant
      carried out an evaluation under the supervision and with the participation
      of the  Registrant's  management,  including the Chief  Executive  Officer
      (CEO) and Chief  Financial  Officer  (CFO),  of the  effectiveness  of the
      design and operation of the disclosure controls and procedures. Based upon
      that evaluation, the management, including the CEO and CFO, concluded that
      the  disclosure  controls  and  procedures  were  effective to ensure that
      information  required to be disclosed by the  Registrant in the reports it
      files or submits under the Exchange Act is recorded, processed, summarized
      and  reported,  within the time periods  specified in the  Securities  and
      Exchange  Commission's  rules and forms.  In connection with the new rules
      and as a matter of  practice,  the  Registrant  continues  to  review  and
      document disclosure  controls and procedures,  including internal controls
      and procedures for financial reporting.  From time to time, the Registrant
      may make changes aimed at enhancing the  effectiveness of the controls and
      to ensure that the systems  evolve with the  business.  There have been no
      significant  changes in the  internal  controls or in other  factors  that
      could  significantly  affect internal controls  subsequent to the date the
      Registrant carried out its evaluation.

(b)   Changes in Internal Controls

      None.

Item 15.   Exhibits,  Financial Statement Schedules and Reports on Form
8-K.

(a)1. Financial Statements

      The  following   consolidated   financial  statements  of  Federal  Signal
      Corporation and Subsidiaries included in the Registrant's Annual Report to
      Shareholders  for the year ended  December 31, 2002 are filed as a part of
      this report and are incorporated by reference in Item 8:

           Consolidated Balance Sheets -- December 31, 2002 and 2001

           Consolidated  Statements  of Income -- Years  ended  December
           31, 2002, 2001 and 2000

           Consolidated  Statements  of  Comprehensive  Income  -- Years
           ended
           December 31, 2002, 2001 and 2000

           Consolidated  Statements  of Cash Flows -- Years ended  December  31,
           2002, 2001 and 2000

           Notes to Consolidated Financial Statements

  2.  Financial Statement Schedules

      The following  consolidated financial statement schedule of Federal Signal
      Corporation and Subsidiaries,  for the three years ended December 31, 2004, 2003 and 2002, respectively.
      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets” which is filedeffective for fiscal periods beginning after June 15, 2005 with earlier application permitted. The statement eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in APB 29 and replaces it with an exception for exchanges that do not have commercial substance. The company has not completed its evaluation of SFAS No. 153 and has not yet determined whether the statement will have an effect on the company’s consolidated results of operations or consolidated financial position.
NOTE T — SELECTED QUARTERLY DATA (UNAUDITED)
      Effective January 1, 2004, the company began reporting its interim quarterly periods on a 13-week basis ending on a Saturday with the fiscal year ending on December 31. In 2003, the company’s interim quarterly periods ended on March 31, June 30, September 30 and December 31 year end. For convenience purposes, the company uses “March 31, 2004”, “June 30, 2004”, “September 30, 2004” and “December 31, 2004” to refer
54
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to its results of operations for the quarterly periods ended April 3, 2004, July 3, 2004, October 2, 2004 and December 31, 2004, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Quarterly Period Ended
 
 
 
 
 
2004
 
2003
 
 
 
 
 
 
 
March 31
 
June 30
 
September 30
 
December 31
 
March 31
 
June 30
 
September 30
 
December 31
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
260.4
 
 
$
290.6
 
 
$
268.9
 
 
$
319.1
 
 
$
278.9
 
 
$
297.0
 
 
$
273.9
 
 
$
300.9
 
Gross margin
 
 
62.4
 
 
 
67.0
 
 
 
57.3
 
 
 
56.6
 
 
 
71.7
 
 
 
78.9
 
 
 
74.4
 
 
 
75.9
 
Income from continuing operations
 
 
1.0
 
 
 
(3.3
)
 
 
(3.7
)
 
 
(6.7
)
 
 
6.4
 
 
 
9.1
 
 
 
9.2
 
 
 
10.4
 
Income from discontinued operations
 
 
1.2
 
 
 
1.0
 
 
 
1.1
 
 
 
.4
 
 
 
.1
 
 
 
.8
 
 
 
.7
 
 
 
1.0
 
Gain (loss) on disposition
 
 
 
 
 
 
(4.4
)
 
 
(1.3
)
 
 
12.4
 
 
 
 
 
 
 
(.4
)
 
 
 
 
 
 
 
 
Net income
 
 
2.2
 
 
 
(6.7
)
 
 
(3.9
)
 
 
6.1
 
 
 
6.5
 
 
 
9.5
 
 
 
9.9
 
 
 
11.4
 
Per share data — diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
 
.02
 
 
 
(.07
)
 
 
(.08
)
 
 
(.14
)
 
 
.13
 
 
 
.19
 
 
 
.19
 
 
 
.21
 
 
Income from discontinued operations
 
 
.03
 
 
 
(.07
)
 
 
(.01
)
 
 
.27
 
 
 
.01
 
 
 
.01
 
 
 
.02
 
 
 
.02
 
 
Net income*
 
 
.05
 
 
 
(.14
)
 
 
(.08
)
 
 
.13
 
 
 
.14
 
 
 
.20
 
 
 
.21
 
 
 
.24
 
Dividends paid per share
 
 
.10
 
 
 
.10
 
 
 
.10
 
 
 
.10
 
 
 
.20
 
 
 
.20
 
 
 
.20
 
 
 
.20
 
Market price range per share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High
 
 
20.03
 
 
 
20.56
 
 
 
19.14
 
 
 
19.18
 
 
 
20.38
 
 
 
19.57
 
 
 
20.79
 
 
 
17.95
 
 
Low
 
 
17.62
 
 
 
16.88
 
 
 
15.75
 
 
 
16.01
 
 
 
13.60
 
 
 
14.27
 
 
 
14.90
 
 
 
13.80
 
* 
amounts may not add due to rounding
      The company incurred pre-tax restructuring charges (see Note M) as follows:
 
 
 
 
 
 
 
 
 
Period Ending:
 
2004
 
2003
 
 
 
 
 
March 31
 
 
 
 
 
$
1.6
 
June 30
 
$
8.0
 
 
 
2.6
 
September 30
 
 
3.0
 
 
 
.4
 
December 31
 
 
4.4
 
 
 
.2
 
      The company recorded a part of this report in response to Item 14(d):

           Schedule II -- Valuation and qualifying accounts

      All  other  schedules  for  which  provision  is  made$10.6 million charge in the applicable
      accounting  regulationsfourth quarter of the Securities2004 on a large multi-unit, multi-year Netherlands fire rescue equipment contract, resulting from a reassessment of project costs and Exchange  Commission are not
      requireda reassessment of expected recoveries under the  related   instructions  or  are  inapplicable,   and
      therefore, have been omitted.

  3.  Exhibits

      3. a. Restated Certificate of Incorporation of the Registrant, filed as
            Exhibit  (3)(a) to the  Registrant's  Form  10-K for the year  ended
            December 31, 1996 is incorporated herein by reference.

         b. By-laws  of  the   Registrant,   filed  as  Exhibit  (3)(b)  to  the
            Registrant's  Form  10-K for the year  ended  December  31,  2000 is
            incorporated herein by reference.

      4. a.  Rights  Agreement  dated  7/9/98,  filed as  Exhibit  (4) to the
            Registrant's Form 8-A dated July 28, 1998 is incorporated  herein by
            reference.

         b. The  Registrant  has no  long-term  debt  agreements  for  which the
            related outstanding debt exceeds 10% of consolidated total assets as
            of  December  31,  2002.  Copies of debt  instruments  for which the
            related debt is less than 10% of  consolidated  total assets will be
            furnished to the Commission upon request.

      10.a. The amended 1996 Stock Benefit Plan, filed as Exhibit (10)(a) to the
            Registrant's  Form  10-K for the year  ended  December  31,  1998 is
            incorporated herein by reference.

         b. Corporate  Management  Incentive  Bonus Plan as incorporated
            herein.

         c. Supplemental   Pension  Plan,   filed  as  Exhibit  (10)(c)  to  the
            Registrant's  Form  10-K for the year  ended  December  31,  1995 is
            incorporated herein by reference.

         d. Executive Disability, Survivor and Retirement Plan, filed as Exhibit
            (10)(d) to the  Registrant's  Form 10-K for the year ended  December
            31, 1995 is incorporated herein by reference.

         e. Supplemental  Savings and Investment  Plan, filed as Exhibit (10)(f)
            to the  Registrant's  Form 10-K for the year ended December 31, 1993
            is incorporated herein by reference.

         f. Employment  Agreement with Joseph J. Ross,  filed as Exhibit (10)(g)
            to the  Registrant's  Form 10-K for the year ended December 31, 1994
            is incorporated herein by reference.

         g. Pension Agreement with Stephanie K. Kushner as incorporated herein.

         h. Employment  Termination  Agreement  with  Stephanie  K.  Kushner  as
            incorporated herein.

         i. Change of Control Agreement with Kim A. Wehrenberg, filed as Exhibit
            (10)(h) to the  Registrant's  Form 10-K for the year ended  December
            31, 1994 is incorporated herein by reference.

         j. Change of Control  Agreement  with  Stephanie K.  Kushner,  filed as
            Exhibit  (10) (i) to the  Registrant's  Form 10-K for the year ended
            December 31, 2001 is incorporated herein by reference.

         k. Director Deferred Compensation Plan, filed as Exhibit (10)(h) to the
            Registrant's  Form  10-K for the year  ended  December  31,  1997 is
            incorporated herein by reference.

         l. Retirement Plan for Outside  Directors  (applies only to individuals
            who became a director  prior to October 9,  1997),  filed as Exhibit
            (10)(I) to the  Registrant's  Form 10-K for the year ended  December
            31, 1997 is incorporated herein by reference.

         m. Broad  Based  Stock  Option  Plan,  filed  as  Exhibit  (99)  to the
            Registrant's Form S-8 dated January 31, 2002 is incorporated  herein
            by  reference.  This plan was  terminated  on July 18, 2002,  and no
            shares were issued pursuant to this plan.

      13.Annual  Report to  Shareholders  for the year ended  December 31, 2002.
         Such  report,  except for those  portions  thereof  that are  expressly
         incorporated  by  reference  in this Form 10-K,  is  furnished  for the
         information of the  Commission  only and is not to be deemed "filed" as
         part of this filing.

      21.Subsidiaries of the Registrant

      23.Consent of Independent Auditors

      99.a. CEO  Certification  of Periodic  Report under Section 906 of
            Sarbanes-Oxley Act.

         b. CFO  Certification  of Periodic  Report under Section 906 of
            Sarbanes-Oxley Act.

         c. Code of Ethics for CEO and Senior Financial Officers.

(b) Reports on Form 8-K for the three months ended December 31, 2002

    None.

(c) and (d)

    The  response to this  portion of Item 14 is being  submitted  as a separate
    section of this report.

Other Matters

      For the purposes of complying with the  amendments to the rules  governing
Form S-3 and Form S-8  (effective  July 13,  1990) under the  Securities  Act of
1933, the  undersigned,  the  Registrant,  hereby  undertakes as follows,  which
undertaking   shall  be   incorporated   by  reference  into  the   Registrant's
Registration  Statements  on Form S-3 Nos.  333-71886,  333-76372  and 333-98993
dated October 19, 2001,  January 7, 2002 and August 30, 2002,  respectively  and
Form  S-8 Nos.  33-12876,  33-22311,  33-38494,  33-41721,  33-49476,  33-14251,
33-89509 and 333-81798 dated April 14, 1987,  June 26, 1988,  December 28, 1990,
July 15, 1991, June 9, 1992, October 16, 1996, October 22, 1999, and January 31,
2002, respectively:

      Insofar as  indemnification  for liabilities  arising under the Securities
Act of 1933 may be permitted to directors,  officers and controlling  persons of
the  Registrant  pursuant  to  the  foregoing  provisions,   or  otherwise,  the
Registrant  has been advised that in the opinion of the  Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore,  unenforceable. In the event that a claim for indemnification
against such  liabilities  (other than the payment by the Registrant of expenses
incurred or paid by a director,  officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director,  officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification  by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

supplier contracts.
55
Signatures
      Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the RegistrantCompany has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


                                      FEDERAL SIGNAL CORPORATION



                                      By:       /s/ Joseph J. Ross
                                                  Joseph J. Ross
                                             Chairman, Chief Executive
FEDERAL SIGNAL CORPORATION
By: 
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Vice President and Chief
Financial Officer
(Principal Financial Officer)
March 18, 2005
59
EXHIBIT INDEX
      The following exhibits, other than those incorporated by reference, have been included in the Company’s Form 10-K filed with the Securities and Director




PursuantExchange Commission. The Company shall furnish copies of these exhibits upon written request to the requirements ofCorporate Secretary at the Securities Exchange Act of 1934, this report
has been signed below, as of March 27, 2003, byaddress given on the following persons on behalf
of the Registrant andcover page. (* denotes exhibit filed in the capacities indicated.



    /s/ Stephanie K. Kushner                  /s/ Charles R. Campbell
      Stephanie K. Kushner                      Charles R. Campbell
    Vice President and Chief                         Director
        Financial Officer

       /s/ Richard L. Ritz                     /s/ James C. Janning
         Richard L. Ritz                         James C. Janning
  Vice President and Controller                      Director

                                                 /s/ Paul W. Jones
                                                   Paul W. Jones
                                                     Director

                                             /s/ James A. Lovell, Jr.
                                               James A. Lovell, Jr.
                                                     Director

                                               /s/ Walden W. O'Dell
                                                 Walden W. O'Dell
                                                     Director


                                                 /s/ Joan E. Ryan
                                                   Joan E. Ryan
                                                     Director


                                               /s/ Richard R. Thomas
                                                 Richard R. Thomas
                                                     Director


CEO Certification Under Section 302 of the Sarbanes-Oxley Act

I, Joseph J. Ross, certify that:

1.  I have reviewed this annual report Form 10-K of Federal Signal Corporation;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on  my  knowledge,  the  financial  statements  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Registrant as of, and for, the periods presented in this annual report.

4.  The  Registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
    a)  designed such disclosure controls and procedures to ensure that material
        information  relating  to the  Registrant,  including  its  consolidated
        subsidiaries,  is made  known to us by  others  within  those  entities,
        particularly  during  the period in which  this  annual  report is being
        prepared.
    b)  evaluated the effectiveness of the Registrant's  disclosure controls and
        procedures  as of a date within 90 days prior to the filing date of this
        annual report (the "Evaluation  Date");  and
    c)  presented in this annual report our conclusions  about the effectiveness
        of the disclosure  controls and procedures based on our evaluation as of
        the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the Registrant's auditors and the audit committee of
Registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):
    a)  all  significant  deficiencies  in the design or  operation  of internal
        controls  which  could  adversely  affect  the  Registrant's  ability to
        record, process, summarize and report financial data and have identified
        for the  Registrant's  auditors  any  material  weaknesses  in  internal
        controls; and
    b)  any fraud,  whether or not material,  that involves  management or other
        employees  who  have a  significant  role in the  Registrant's  internal
        controls; and

6. The  Registrant's  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.


Date:filed March 27, 2003

                                               /s/ Joseph J. Ross
                                                  Joseph J. Ross
                                        Chairman and Chief Executive Officer







CFO Certification under Section 302 of the Sarbanes-Oxley Act

I, Stephanie K. Kushner, certify that:

1. I have reviewed this annual report Form 10-K of Federal Signal Corporation;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on  my  knowledge,  the  financial  statements  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Registrant as of, and for, the periods presented in this annual report.

4.  The  Registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
    a)  designed such disclosure controls and procedures to ensure that material
        information  relating  to the  Registrant,  including  its  consolidated
        subsidiaries,  is made  known to us by  others  within  those  entities,
        particularly  during  the period in which  this  annual  report is being
        prepared.
    b)  evaluated the effectiveness of the Registrant's  disclosure controls and
        procedures  as of a date within 90 days prior to the filing date of this
        annual report (the "Evaluation  Date");  and
    c)  presented in this annual report our conclusions  about the effectiveness
        of the disclosure  controls and procedures based on our evaluation as of
        the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the Registrant's auditors and the audit committee of
Registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):
    a)  all  significant  deficiencies  in the design or  operation  of internal
        controls  which  could  adversely  affect  the  Registrant's  ability to
        record, process, summarize and report financial data and have identified
        for the  Registrant's  auditors  any  material  weaknesses  in  internal
        controls; and
    b)  any fraud,  whether or not material,  that involves  management or other
        employees  who  have a  significant  role in the  Registrant's  internal
        controls; and

6. The  Registrant's  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.


Date: March 27, 2003

                                             /s/ Stephanie K. Kushner
                                                 Stephanie K. Kushner
                                     Vice President and Chief Financial Officer




                                                                     SCHEDULE II



                    FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
                        Valuation and Qualifying Accounts

          For the Years Ended December 31, 2002, 2001 and 2000



                                                          Deductions
                                             Additions     Accounts
                                Balance at   Charged to   written off   Balance
                                  beginning   costs and     net of      at end
        Description                of year    expenses    recoveries    of year
        -----------               --------   --------      ---------    -------

Deducted from asset accounts -
 Allowance for doubtful accounts

  Year ended December 31, 2002:
    Manufacturing activities      $2,355,000                         $2,640,000
    Financial service activities   1,005,000                          1,002,000
                                   ---------                          ---------
    Total                         $3,360,000 $2,290,000  $2,008,000  $3,642,000

  Year ended December 31, 2001:
    Manufacturing activities      $2,629,000                         $2,355,000
    Financial service activities     683,000                          1,005,000
                                   ---------                          ---------
    Total                         $3,312,000 $2,382,000  $2,334,000  $3,360,000

  Year ended December 31, 2000:
    Manufacturing activities      $2,901,000                         $2,629,000
    Financial service activities     976,000                            683,000
                                   ---------                          ---------
    Total                         $3,877,000   $881,000  $1,446,000  $3,312,000