FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 1-6003
Federal Signal Corporation
(Exact name of Registrant 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, IL 60523
(Address of principal executive offices) (Zip code)
(630) 954-2001
(Registrant's telephone number including area code)
Not applicable
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (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
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Title
Common Stock, $1.00 par value 47,694,000 shares outstanding at October 31,
2002
Part I. Financial Information
Item 1. Financial Statements
INTRODUCTION
The consolidated condensed financial statements of Federal Signal Corporation
and subsidiaries included herein have been prepared by the Registrant, without
an audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Registrant believes that the disclosures are adequate
to make the information presented not misleading. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 261,615,000 $ 253,403,000 $ 765,123,000 $ 798,227,000
Costs and expenses:
Cost of sales (187,553,000) (181,274,000) (546,424,000) (560,477,000)
Selling, general and
administrative (52,474,000) (52,976,000) (158,096,000) (163,895,000)
----------- ----------- ----------- -----------
Operating income 21,588,000 19,153,000 60,603,000 73,855,000
Interest expense (4,739,000) (6,264,000) (14,586,000) (20,779,000)
Other income (expense),
net (1,251,000) (769,000) (1,537,000) (642,000)
Minority interest 40,000 25,000
----------- ------------ ----------- -----------
Income from continuing
operations before income
taxes 15,638,000 12,120,000 44,505,000 52,434,000
Income taxes (3,145,000) (3,267,000) (11,506,000) (15,243,000)
------------ ----------- ----------- -----------
Income from continuing
operations 12,493,000 8,853,000 32,999,000 37,191,000
Income from discontinued
operations, net of tax 298,000 605,000
Cumulative effect of
change in accounting (7,984,000)
----------- ----------- ------------ ------------
Net income $ 12,493,000 $ 9,151,000 $ 25,015,000 $ 37,796,000
=========== =========== ============ ============
COMMON STOCK DATA:
Basic and diluted net
income per share:
Income from continuing
operations $.28 $.20 $.73 $.82
Income from
discontinued
operations .01 .01
Cumulative effect of
change in accounting (.18)
--- --- --- ---
Net income* $.28 $.20 $.55 $.83
=== === === ===
Weighted average common
shares outstanding
Basic 45,305,000 45,217,000 45,223,000 45,388,000
Diluted 45,358,000 45,307,000 45,371,000 45,528,000
Cash dividends per share
of common stock $.2000 $.1950 $.6000 $.5850
* amounts above may not add due to rounding
See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net income $12,493,000 $ 9,151,000 $25,015,000 $37,796,000
Other comprehensive income
(loss), net of tax -
Foreign currency
translation adjustments (394,000) 2,728,000 5,033,000 (2,175,000)
Net derivative (loss),
cash flow hedges (575,000) (1,188,000)
---------- ---------- ---------- ----------
Comprehensive income $11,524,000 $11,879,000 $28,860,000 $35,621,000
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001 (a)
(Unaudited)
----------- ----------
ASSETS
Manufacturing activities
Current assets:
Cash and cash equivalents $ 8,281,000 $ 16,882,000
Trade accounts receivable, net of allowances
for doubtful accounts 164,959,000 158,994,000
Inventories:
Raw materials 64,903,000 63,435,000
Work in process 57,548,000 39,258,000
Finished goods 43,364,000 50,148,000
Prepaid expenses 19,798,000 13,608,000
------------- -------------
Total current assets 358,853,000 342,325,000
Properties and equipment:
Land 5,918,000 5,606,000
Buildings and improvements 65,584,000 53,854,000
Machinery and equipment 222,011,000 198,047,000
Accumulated depreciation (160,031,000) (143,765,000)
------------- -------------
Net properties and equipment 133,482,000 113,742,000
------------- -------------
Intangible assets, net of accumulated
amortization 287,521,000 280,888,000
Other deferred charges and assets 27,413,000 25,143,000
------------- -------------
Total manufacturing assets 807,269,000 762,098,000
Net assets of discontinued operations, including
financial assets 10,134,000 14,396,000
Financial services activities - Lease financing
receivables, net of allowances for doubtful
accounts 232,932,000 239,120,000
------------- -------------
Total assets $ 1,050,335,000 $ 1,015,614,000
============= =============
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- Continued
September 30, December 31,
2002 2001 (a)
(Unaudited)
----------- ------------
LIABILITIES
Manufacturing activities
Current liabilities:
Short-term borrowings $ 12,382,000 $ 28,849,000
Trade accounts payable 69,515,000 53,292,000
Accrued liabilities and income taxes 118,345,000 97,289,000
------------- -------------
Total current liabilities 200,242,000 179,430,000
Long-term borrowings 229,904,000 232,678,000
Deferred income taxes 35,110,000 29,280,000
------------- -------------
Total manufacturing liabilities 465,256,000 441,388,000
Financial services activities - Borrowings 207,384,000 213,917,000
Minority interest in subsidiary 848,000 873,000
SHAREHOLDERS' EQUITY
Common stock - par value 47,603,000 47,378,000
Capital in excess of par value 77,605,000 73,177,000
Retained earnings 310,053,000 312,206,000
Treasury stock (33,170,000) (45,486,000)
Deferred stock awards (3,429,000) (2,179,000)
Accumulated other comprehensive income (21,815,000) (25,660,000)
------------- -------------
Total shareholders' equity 376,847,000 359,436,000
Total liabilities and shareholders' equity $ 1,050,335,000 $ 1,015,614,000
============= =============
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
September 30,
2002 2001
---- ----
Operating activities:
Net income $ 25,015,000 $ 37,796,000
Cumulative effect of change in accounting 7,984,000
Depreciation 15,639,000 15,005,000
Amortization 1,622,000 7,504,000
Other,net 2,675,000 3,289,000
Changes in operating assets and liabilities,
net of effects from acquisitions of
companies
Accounts receivable 3,255,000 16,189,000
Inventories (1,913,000) (8,827,000)
Prepaid expenses (2,906,000) (2,689,000)
Accounts payable 13,386,000 (2,230,000)
Accrued liabilities 6,888,000 (458,000)
Income taxes 5,720,000 10,984,000
----------- -----------
Net cash provided by operating activities 77,365,000 76,563,000
Investing activities:
Purchases of properties and equipment (12,931,000) (14,146,000)
Principal extensions under lease financing
agreements (117,992,000) (134,977,000)
Principal collections under lease financing
agreements 125,661,000 108,889,000
Payments for purchases of companies and product
lines, net of cash acquired (10,479,000) (19,657,000)
Other, net (2,490,000) 3,684,000
------------ -----------
Net cash used for investing activities (18,231,000) (56,207,000)
Financing activities:
Increase (decrease) in short-term borrowings, net (35,849,000) (74,606,000)
Increase (decrease) in long-term borrowings (2,418,000) 93,905,000
Purchases of treasury stock (4,328,000) (13,155,000)
Cash dividends paid to shareholders (26,921,000) (26,372,000)
Other, net 1,781,000 1,159,000
----------- -----------
Net cash used for financing activities (67,735,000) (19,069,000)
Increase (decrease) in cash and cash equivalents (8,601,000) 1,287,000
Cash and cash equivalents at beginning of period 16,882,000 13,556,000
----------- -----------
Cash and cash equivalents at end of period $ 8,281,000 $ 14,843,000
=========== ===========
See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. It is suggested that the condensed consolidated financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001.
2. Management of the Registrant has announced its intent to divest the
operations of the Sign Group. The condensed consolidated financial
statements have been prepared on a basis that reflects the operations of
the Sign Group as discontinued operations. The net book value of the Sign
Group's assets aggregated $10,134,000 at September 30, 2002; management
believes that the value ultimately to be received for these assets will
exceed the recorded net book value.
3. In the opinion of the Registrant, the information contained herein
reflects all adjustments necessary to present fairly the Registrant's
financial position, results of operations and cash flows for the interim
periods. Such adjustments are of a normal recurring nature. The operating
results for the three months and nine months ended September 30, 2002 are
not necessarily indicative of the results to be expected for the full year
of 2002.
4. Interest paid for the nine-month periods ended September 30, 2002 and 2001
was $13,598,000 and $19,042,000, respectively. Income taxes paid for these
same periods were $8,424,000 and $5,785,000, respectively.
5. In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards (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
intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance
with these statements. Other intangible assets will continue to be
amortized over their useful lives.
The Registrant has adopted Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets", and accordingly discontinued the
amortization of goodwill effective January 1, 2002. A reconciliation of
previously reported net income and earnings per share to the amounts
adjusted for the exclusion of goodwill amortization, net of the related
income tax effect, follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Reported net income $12,493,000 $9,151,000 $25,015,000 $37,796,000
Add back: goodwill
amortization, net of tax 1,377,000 4,113,000
---------- ---------- ---------- ----------
Adjusted net income $12,493,000 $10,528,000 $25,015,000 $41,909,000
========== ========== ========== ==========
Basic and diluted net
income per common share
Reported net income $.28 $.20 $.55 $.83
Goodwill amortization,
net of tax .03 .09
--- --- --- ---
Adjusted net income $.28 $.23 $.55 $.92
=== === === ===
Changes in the carrying amount of goodwill for the quarter ended September
30, 2002, by operating segment, are as follows:
Environmental Fire Rescue Safety Tool Total
Products Products
------------ ---------- ---------- ---------- -----------
Goodwill balance
June 30, 2002 $63,623,000 $35,947,000 $99,473,000 $82,642,000 $281,685,000
Goodwill acquired 5,778,000 5,778,000
Translation and
other (32,000) (30,000) 102,000 18,000 58,000
---------- ---------- ---------- ---------- -----------
Goodwill balance
September 30, 2002 $69,369,000 $35,917,000 $99,575,000 $82,660,000 $287,521,000
========== ========== ========== ========== ===========
Other intangible assets (amortized and not amortized) were insignificant
for the quarter ended September 30, 2002.
6. The following table summarizes the information used in computing basic and
diluted income per share:
Three Months Ended Nine Months
September 30, Ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Numerators for both basic and
diluted income per share
computations:
Income from continuing
operations $ 12,493,000 $ 8,853,000 $ 32,999,000 $ 37,191,000
Income from discontinued
operations 298,000 605,000
Cumulative effect of
change in accounting (7,984,000)
---------- ---------- ---------- ----------
Net income $ 12,493,000 $ 9,151,000 $ 25,015,000 $ 37,796,000
========== ========= ========== ==========
Denominator for basic income
per share - weighted average
shares outstanding 45,305,000 45,217,000 45,223,000 45,388,000
Effect of employee stock
options (dilutive potential
common shares) 53,000 90,000 148,000 140,000
Denominator for diluted
income per share - adjusted ---------- ---------- ---------- ----------
shares 45,358,000 45,307,000 45,371,000 45,528,000
========== ========== ========== ==========
7. The following table summarizes the Registrant's continuing operations by
segment for the three-month and nine-month periods ended September 30,
2002 and 2001. Segment operating income for 2001 was restated to exclude
the amortization of goodwill.
Three Months Nine Months Ended
Ended September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net sales
Environmental Products $ 68,551,000 $ 70,615,000 $ 213,843,000 $ 210,100,000
Fire Rescue 87,717,000 82,646,000 237,701,000 271,040,000
Safety Products 66,263,000 62,650,000 195,230,000 192,361,000
Tool 39,084,000 37,492,000 118,349,000 124,726,000
----------- ----------- ----------- -----------
Total net sales $ 261,615,000 $ 253,403,000 $ 765,123,000 $ 798,227,000
=========== =========== =========== ===========
Operating income
Environmental Products $ 6,189,000 $ 4,157,000 $ 18,707,000 $ 17,888,000
Fire Rescue 3,127,000 6,154,000 8,347,000 21,478,000
Safety Products 10,047,000 9,602,000 28,145,000 30,523,000
Tool 5,294,000 4,246,000 14,464,000 18,933,000
Goodwill amortization (1,975,000) (5,901,000)
Corporate expense (3,069,000) (3,031,000) (9,060,000) (9,066,000)
----------- ----------- ----------- -----------
Total operating income 21,588,000 19,153,000 60,603,000 73,855,000
Interest expense (4,739,000) (6,264,000) (14,586,000) (20,779,000)
Minority interest 40,000 25,000
Other income (expense) (1,251,000) (769,000) (1,537,000) (642,000)
Income before income taxes $ 15,638,000 $ 12,120,000 $ 44,505,000 $ 52,434,000
=========== =========== =========== ===========
As a result of the significant increase in Environmental Products Group
assets resulting largely from a business acquisition on September 30,
2002, the Registrant is providing a comparison of identifiable assets at
September 30, 2002 to those at December 31, 2001 in the following table.
September 30, December 31,
2002 2001
------------ -----------
Identifiable assets
Manufacturing activities
Environmental Products $ 197,425,000 $ 153,406,000
Fire Rescue 213,736,000 203,749,000
Safety Products 203,135,000 209,036,000
Tool 172,316,000 176,580,000
Corporate 20,657,000 19,327,000
------------- -------------
Total manufacturing activities 807,269,000 762,098,000
------------- -------------
Financial services activities
Environmental Products 71,873,000 72,581,000
Fire Rescue 161,059,000 166,539,000
------------- -------------
Total financial services activities 232,932,000 239,120,000
------------- -------------
Total identifiable assets $ 1,040,201,000 $ 1,001,218,000
============= =============
The basis of segmentation and the basis of measurement of segment profit
or loss are consistent with those used in the Registrant's last annual
report.
8. In September 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities" ("SFAS 146"). SFAS 146 addresses significant issues
regarding the recognition, measurement and reporting of costs that are
associated with exit and disposal activities, including restructuring
activities that are currently accounted for under EITF No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring)."
The scope of SFAS 146 also includes costs related to terminating a contract
that is not a capital lease and termination benefits that employees who are
involuntarily terminated receive under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS 146 will be effective for exit or
disposal activities that are initiated after December 31, 2002. The
Registrant has no current exit or disposal activities planned that would be
affected by this Statement.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS THIRD QUARTER 2002
Comparison with Third Quarter 2001
Federal Signal Corporation reported diluted earnings per share of $.28 from
continuing operations for the third quarter of 2002 on sales of $262 million.
This compares to earnings per share of $.20 on sales of $253 million for the
same period in 2001. New orders were $291 million, up 15% from last year
resulting from the finalization of a large airport parking system award and
continued strength in the fire rescue markets. As required by the new accounting
rules, goodwill is no longer amortized as of January 1, 2002; this favorably
affected income by $.03 for the third quarter.
Environmental Products Group new orders declined 5%. Sales declined 3% while
operating earnings rose 49%. The group's decline in new orders was mainly in the
municipal segment. Slower municipal spending began to impact street sweeper
demand; sewer cleaner vehicles, which have been weak all year, remained weak.
Offsetting some of this weakness was receipt of a large 54-unit sweeper order
from the California Department of Transportation. Sales declined from 2001 as a
result of lower municipal sewer cleaner vehicle sales. Operating earnings
improved versus last year's very weak third quarter, which included high
one-time product development expenses. Also contributing to this quarter's
improved earnings were lower warranty expenses.
Fire Rescue Group new orders were 28% higher. Sales were 6% higher while
operating earnings fell 49% from the prior year. Third quarter orders remained
very strong, a reflection of continuing robust demand and earlier order
placement versus the prior year. In 2001, the new FIRE Act grant program caused
some disruption in the third quarter order flow as customers waited for grants
to be made before placing orders. Grant awards are now made systematically and
have a lesser impact on order pattern. Backlog for this segment rose to $298
million. The increase in sales continues to trail the rise in demand, as
production was constrained by slower than planned labor additions and by the
complexity of the product mix. Earnings were sharply lower as a result of
unplanned additional costs incurred on highly customized trucks and new product
offerings.
Safety Products Group new orders rose 26%. Sales were 6% above prior year and
operating earnings were 5% higher. The sharp increase in orders included
finalization of the $19 million base portion of the contract award for the
Dallas-Fort Worth International Airport parking system. In addition, every
business showed a year-over-year increase in orders, though U.S. municipal
orders for police lights and sirens were below prior year. The increase in sales
reflected continued global strength in outdoor warning systems and strong
European sales of police lights and sirens. Operating income rose commensurate
with sales despite higher pension expense.
Tool Group sales improved 4% and earnings rose 25%. Sales rose from a weak
quarter in 2001, mainly due to higher sales of metal stamping and plastic mold
tooling. The increase in earnings reflects higher sales volume and reductions in
costs across these businesses that began in 2001, including a cumulative
reduction in headcount of 15 percent.
Gross profit as a percent of net sales remained relatively flat at 28.3% in the
third quarter of 2002 compared to 28.5% in the third quarter of 2001. Selling,
general and administrative expenses as a percent of net sales decreased to 20.1%
in the second quarter of 2002 compared to 20.9% last year due to the benefit of
the elimination of goodwill amortization. Interest expense declined to $4.7
million from $6.3 million as a result of lower short-term interest rates and
lower average outstanding debt. Other expense was $1.3 million, up from the
third quarter 2001, the result of a non-cash charge to revalue an interest rate
swap. The revaluation was driven by the reduction in interest rates. The
effective tax rate for the third quarter of 2002 declined to 20.1% from 27.0% in
2001 reflecting relatively more tax-free municipal income and closure of issues
associated with previously filed returns.
Comparison of First Nine Months 2002 to Same Period 2001
Diluted income per share from continuing operations for the first nine months of
2002 was $.73 on sales of $765 million. This compares to earnings per share of
$.82 in 2001 on sales of $798 million. The reduction from the prior year
reflects broadly weaker industrial and commercial markets and the timing of Fire
Rescue Group shipments. As required by the new accounting rules, goodwill is no
longer amortized as of January 1, 2002; this favorably affected income by $.09
for the first nine months of 2002.
Gross profit as a percent of net sales decreased to 28.6% in the first nine
months of 2002 from 29.8% in 2001. The decline in the gross profit percentage is
largely attributable to lower volumes and sales mix. Selling, general and
administrative expenses as a percent of net sales was 20.7% in the first nine
months of 2002 compared to 20.5% last year as the effect of maintaining certain
fixed costs in a period of sales decline more than offset the benefit of the
elimination of goodwill amortization. Interest expense declined to $14.6 million
from $20.8 million, and other expense was $1.5 million, up from $.6 million in
2001. These changes were largely as a result of the same reasons cited above for
the third quarter. The effective tax rate of 25.9% for the first nine months of
2002 declined from the 29.1% in 2001 largely as a result of relatively more
tax-free municipal income and closure of issues associated with previously filed
returns.
Seasonality of Registrant's Business
Certain of the Registrant's businesses are susceptible to the influences of
seasonal buying or delivery patterns. The Registrant's businesses which tend to
have lower sales in the first calendar quarter compared to other quarters as a
result of these influences are street sweeping, outdoor warning, municipal
emergency signal products, parking systems, fire rescue products and signage.
Financial Position and Liquidity at September 30, 2002
For the nine months, operating cash flow totaled $77.4 million, up slightly from
2001, due to improved working capital efficiency, which more than offset the
effect of lower nine-month earnings. Working capital (manufacturing operations)
at September 30, 2002 was $158.6 million compared to $162.9 million at the most
recent year-end. Capital expenditures for the nine months totaled $13 million,
about $3 million below depreciation. On September 30, 2002, the company issued
800,000 shares of stock and an undisclosed cash amount to acquire Leach Company.
Subsequently, on October 3, the Registrant issued 1,589,000 shares of stock and
$30.4 million in cash for the acquisition of Wittke, Inc. The company's total
manufacturing debt was $242 million, or 41% of capitalization, at quarter-end.
This compares favorably to manufacturing debt of $262 million, or 44% of
capitalization, at the end of 2001. The debt-to-capitalization ratio applicable
to financial services activities was 87% at both September 30, 2002 and December
31, 2001. Current financial resources and anticipated funds from the
Registrant's operations are expected to be adequate to meet future cash
requirements.
Pension Plan
The Registrant expects to finalize its pension assumptions for 2003 at the end
of 2002. Based on the Registrant's current asset values and current estimates of
its year-end liabilities, the company would expect to record an after-tax charge
to equity of approximately $9 million to $13 million. This charge would be
reported as part of the company's "Other comprehensive income". The company is
evaluating pension plan funding alternatives during the fourth quarter of 2002
that could partially mitigate the equity charge.
Item 4. 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, we currently are in the process of further reviewing and
documenting our disclosure controls and procedures, including our internal
controls and procedures for financial reporting, and may from time to time make
changes aimed at enhancing their effectiveness and to ensure that our systems
evolve with our 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 company carried out its evaluation.
(b)Changes in internal controls
None.
Part II. Other Information
Responses to items two through four are omitted since these items are either
inapplicable or the response thereto would be negative.
Item 1. Legal Proceedings
The Registrant has been sued by firefighters in Chicago seeking damages and
claiming that exposure to the Registrant's sirens has impaired their hearing and
that the sirens are therefore defective. There are presently sixteen cases filed
during the period 1999-2002, involving a total of 1004 plaintiffs pending in
Circuit Court in Cook County, Illinois. The plaintiffs' attorneys have
threatened to bring more suits if the Registrant does not settle these cases.
The Registrant believes that these product liability suits have no merit and
that sirens are necessary in emergency situations and save lives. The Registrant
successfully defended approximately 41 similar cases in Philadelphia in 1999
after a series of unanimous jury verdicts in favor of Federal Signal.
Item 5. Other information
The Registrant has two directors that qualify as financial experts, as defined
in the Sarbanes-Oxley Act and Securities and Exchange Commission regulations, on
its Audit Committee. They are Ms. Joan E. Ryan, Executive Vice President and
Chief Financial Officer of Tellabs, Inc., and Mr. Charles R. Campbell, Chairman
of the Audit Committee and Senior Vice President, Chief Financial and
Administrative Officer of the Registrant until 1996.
The Audit Committee has approved the following fees for Ernst & Young, the
Registrant's independent public accountants, for 2002: audit service fees of
$483,000; audit related fees of $44,000; non-audit income tax advising and
compliance fees of $290,000; and other non-audit fees of $150,000.
Item 6. Exhibits
Exhibit 99.1 - Certification of Periodic Report from the CEO under Section
906 of the Sarbanes-Oxley Act
Exhibit 99.2 - Certification of Periodic Report from the CFO under Section
906 of the Sarbanes-Oxley Act
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Federal Signal Corporation
11/14/02 By: /s/ Stephanie K. Kushner
Date Stephanie K. Kushner, Vice President and
Chief Financial Officer
CEO Certification Under Section 302 of the Sarbanes-Oxley Act
I, Joseph J. Ross, certify that:
1. I have reviewed this quarterly report Form 10-Q of Federal Signal
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation Date");and
c) presented in this quarterly 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
quarterly 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: November 14, 2002
/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 quarterly report Form 10-Q of Federal Signal
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation Date");
and
c) presented in this quarterly 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
quarterly 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: November 14, 2002
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Vice President and Chief
Financial Officer