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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 March 31, 2003
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) 954-2000
(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 47,979,000 shares outstanding at April 30, 2003
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,
2002.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended March 31,
2003 2002
----------- -----------
Net sales $291,951,000 $245,644,000
Costs and expenses:
Cost of sales (217,602,000) (175,754,000)
Selling, general and
administrative (63,134,000) (51,277,000)
----------- ------------
Operating income 11,215,000 18,613,000
Interest expense (4,895,000) (4,783,000)
Other income, net 130,000 154,000
Minority interest 173,000 28,000
----------- -----------
Income from continuing
operations before income
taxes 6,623,000 14,012,000
Income taxes (156,000) (4,218,000)
----------- -----------
Income from continuing
operations 6,467,000 9,794,000
Cumulative effect of
change in accounting (7,984,000)
----------- -----------
Net income $ 6,467,000 $ 1,810,000
=========== ===========
COMMON STOCK DATA:
Basic and diluted net income
per share:
Income from continuing
operations $.14 $.22
Cumulative effect of
change in accounting (.18)
--- ---
Net income $.14 $.04
=== ===
Weighted average common
shares outstanding
Basic 47,859,000 45,133,000
Diluted 47,864,000 45,327,000
Cash dividends per share
of common stock $.20 $.20
See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three months ended March 31,
2003 2002
---------- ----------
Net income $ 6,467,000 $ 1,810,000
Other comprehensive income
(loss), net of tax -
Foreign currency
translation adjustments 3,039,000 (1,044,000)
Net derivative gain, cash
flow hedges 1,443,000
---------- ----------
Comprehensive income $10,949,000 $ 766,000
========== ==========
See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2003 2002 (a)
------------- -------------
(Unaudited)
ASSETS
Manufacturing activities
Current assets:
Cash and cash equivalents $ 9,437,000 $ 9,782,000
Trade accounts receivable,
net of allowances for
doubtful accounts 201,195,000 181,843,000
Inventories:
Raw materials 72,589,000 68,879,000
Work in process 64,884,000 63,971,000
Finished goods 42,579,000 50,952,000
Prepaid expenses 18,773,000 19,390,000
------------- -------------
Total current assets 409,457,000 394,817,000
Properties and equipment:
Land 5,932,000 6,251,000
Buildings and improvements 70,729,000 69,359,000
Machinery and equipment 236,404,000 233,677,000
Accumulated depreciation (170,472,000) (165,355,000)
------------- -------------
Net properties and equipment 142,593,000 143,932,000
------------- -------------
Goodwill, net of accumulated
amortization 350,144,000 348,435,000
Other deferred charges and assets 44,032,000 44,046,000
------------- -------------
Total manufacturing assets 946,226,000 931,230,000
Net assets of discontinued operations,
including financial assets 10,766,000 10,392,000
Financial services activities - Lease
financing receivables, net of
allowances for doubtful accounts 227,539,000 226,788,000
------------- -------------
Total assets $ 1,184,531,000 $ 1,168,410,000
============= =============
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- Continued
March 31, December 31,
2003 2002 (a)
-------------- -------------
(Unaudited)
LIABILITIES
Manufacturing activities
Current liabilities:
Short-term borrowings $ 12,603,000 $ 16,432,000
Trade accounts payable 91,147,000 76,082,000
Accrued liabilities and income taxes 126,969,000 129,370,000
------------- -------------
Total current liabilities 230,719,000 221,884,000
Long-term borrowings 274,840,000 279,544,000
Long-term pension liabilities 36,326,000 32,656,000
Deferred income taxes 36,127,000 33,495,000
------------- -------------
Total manufacturing liabilities 578,012,000 567,579,000
------------- -------------
Financial services activities - Borrowings 202,933,000 202,022,000
Minority interest in subsidiary 571,000 744,000
SHAREHOLDERS' EQUITY
Common stock - par value 48,407,000 48,394,000
Capital in excess of par value 91,138,000 91,114,000
Retained earnings 310,603,000 313,684,000
Treasury stock (14,835,000) (18,026,000)
Deferred stock awards (2,815,000) (3,136,000)
Accumulated other comprehensive loss (29,483,000) (33,965,000)
------------- -------------
Total shareholders' equity 403,015,000 398,065,000
------------- --------------
Total liabilities and shareholders'
equity $ 1,184,531,000 $ 1,168,410,000
============= =============
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
2003 2002
---------- ----------
Operating activities:
Net income $ 6,467,000 $ 1,810,000
Cumulative effect of change in accounting 7,984,000
Depreciation 6,010,000 5,230,000
Amortization 575,000 478,000
Working capital changes and other 4,848,000 18,411,000
---------- ----------
Net cash provided by operating activities 17,900,000 33,913,000
Investing activities:
Purchases of properties and equipment (4,489,000) (2,763,000)
Principal extensions under lease
financing agreements (39,276,000) (37,513,000)
Principal collections under lease
financing agreements 38,419,000 37,037,000
Other, net 1,193,000 (2,929,000)
---------- ----------
Net cash used for investing activities (4,153,000) (6,168,000)
Financing activities:
Increase (decrease) in short-term
borrowings, net 158,000 (11,544,000)
Decrease in long-term borrowings (4,326,000) (1,942,000)
Purchases of treasury stock (116,000) (4,356,000)
Cash dividends paid to shareholders (9,548,000) (8,814,000)
Other, net (260,000) 2,095,000
---------- ----------
Net cash used for financing activities (14,092,000) (24,561,000)
---------- ----------
Increase (decrease) in cash
and cash equivalents (345,000) 3,184,000
Cash and cash equivalents at
beginning of period 9,782,000 16,882,000
---------- ----------
Cash and cash equivalents at
end of period $ 9,437,000 $ 20,066,000
========== ==========
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, 2002.
2. 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 ended March 31, 2003 are not
necessarily indicative of the results to be expected for the full year
of 2003.
3. The following table illustrates the effect on net income and earnings
per share for the three-month periods ended March 31, 2003 and 2002 if
the Registrant had applied the fair value recognition provisions of SFAS
No. 123 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.
Three Months Ended
March 31,
2003 2002
---- ----
Reported net income $ 6,467,000 $ 1,810,000
Deduct: Total stock-based employee
compensation expense determined under
the fair-value method for all awards,
net of related tax effects (195,000) (249,000)
--------- ---------
Pro forma net income $ 6,272,000 $ 1,561,000
========= =========
Basic net income per common share:
Reported net income $.14 $.04
Pro forma net income $.13 $.03
Diluted net income per share:
Reported net income $.14 $.04
Pro forma net income $.13 $.03
The Registrant recorded stock-based employee compensation expense, net
of related tax effects, of $448,000 and $366,000 for the three months
ended March 31, 2003 and 2002, respectively.
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. Options valuation models
require the use of highly subjective assumptions including expected
stock price volatility. The Registrant has utilized the Black-Scholes
method to calculate the pro forma disclosures required under SFAS No.
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 Registrant'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.
4. Interest paid for the three-month periods ended March 31, 2003 and 2002
was $373,000 and $3,159,000, respectively. Income taxes paid for these
same periods were $911,000 and $891,000, respectively.
5. The Registrant's effective tax rate totaled 2.4% and 30.1% for the
three-month periods ended March 31, 2003 and 2002, respectively. A
$1,863,000 tax benefit was recorded for the three months ended March 31,
2003 associated with the closure of a production facility in the United
Kingdom.
6. The Registrant adopted SFAS No. 142, and accordingly discontinued the
amortization of goodwill effective January 1, 2002. As part of the
adoption, the Registrant completed a transitional goodwill impairment
test and determined that $7,984,000 of goodwill related to a niche Tool
group business was impaired. This amount was recognized as a charge to
net income as a cumulative effect of a change in accounting. The
Registrant determined the fair value of the reporting unit by
calculating the present value of expected future cash flows.
Changes in the carrying amount of goodwill for the quarter ended March
31, 2003, by operating segment, are as follows:
Environmental Fire Safety
Products Rescue Products Tool Total
Goodwill balance
January 1, 2003 $128,857,000 $36,930,000 $99,985,000 $82,663,000 $348,435,000
Translation and
other 681,000 635,000 294,000 99,000 1,709,000
----------- ---------- ----------- ---------- -----------
Goodwill balance
March 31, 2003 $129,538,000 $37,565,000 $100,279,000 $82,762,000 $350,144,000
=========== ========== =========== ========== ===========
Other intangible assets (amortized and not amortized) were insignificant
for the quarter ended March 31, 2003.
7. In September 2002, the Registrant acquired Leach Company of Oshkosh,
Wisconsin, a leading manufacturer of rear load refuse collection bodies.
In October 2002, the Registrant also acquired Wittke, Inc., a
manufacturer of dynamic truck-mounted refuse collection equipment
located in Medicine Hat, Alberta and Kelowna, British Columbia. The
assigned values of these acquisitions are based upon preliminary
estimates. The Registrant is currently in the process of obtaining
valuations of the acquired companies' assets and liabilities, which will
determine the final allocation of the purchase prices.
8. The Registrant is subject to various claims, other pending and possible
legal actions for product liability and other damages arising out of the
conduct of the Registrant's business. The Registrant 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's consolidated financial position or the results of
operations.
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
1,004 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 the
Registrant.
9. The following table summarizes the information used in computing basic
and diluted income per share:
Three Months Ended
March 31,
2003 2002
---- ----
Numerators for both basic and diluted
income per share computations:
Income from continuing operations $ 6,467,000 $ 9,794,000
Cumulative effect of change in
accounting (7,984,000)
--------- ---------
Net income $ 6,467,000 $ 1,810,000
========= =========
Denominator for basic income per share -
weighted average shares outstanding 47,859,000 45,133,000
Effect of employee stock options
(dilutive potential common shares) 5,000 194,000
---------- ----------
Denominator for diluted income per share
- adjusted shares 47,864,000 45,327,000
========== ==========
10. The following table summarizes the Registrant's operations by segment
for the three-month periods ended March 31, 2003 and 2002:
Three Months Ended March 31,
2003 2002
Net sales
Environmental Products $ 84,712,000 $ 74,752,000
Fire Rescue 98,662,000 67,249,000
Safety Products 67,188,000 64,645,000
Tool 41,389,000 38,998,000
----------- ----------
Total net sales $291,951,000 $245,644,000
=========== ===========
Operating income
Environmental Products $ 1,605,000 $ 6,587,000
Fire Rescue 2,123,000 1,669,000
Safety Products 6,530,000 9,267,000
Tool 4,472,000 4,124,000
Corporate expense (3,515,000) (3,034,000)
----------- -----------
Total operating income 11,215,000 18,613,000
Interest expense (4,895,000) (4,783,000)
Minority interest 173,000 28,000
Other income 130,000 154,000
----------- -----------
Income before income taxes $ 6,623,000 $ 14,012,000
=========== ===========
There have been no material changes in total assets from the amount
disclosed in the Registrant's last annual report.
11. The Registrant 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
Registrant conducts business with warranty periods generally ranging
from 6 months to 5 years. The Registrant estimates the costs that may be
incurred under its basic limited warranty and records a liability in the
amount of such costs at the time the sale of the related product is
recognized. Factors that affect the Registrant's warranty liability
include the number of units under warranty from time to time, historical
and anticipated rates of warranty claims and costs per claim. The
Registrant periodically assesses the adequacy of its recorded warranty
liabilities and adjusts the amounts as necessary. The Registrant assumed
$8,438,000 of product performance warranties as a result of 2002
acquisitions. Changes in the Registrant's warranty liabilities for the
three-month periods ended March 31, 2003 and 2002 were as follows:
Three Months Ended
March 31,
2003 2002
---- ----
Balance at January 1 $13,714,000 $ 6,786,000
Provisions to expense 2,884,000 2,509,000
Actual costs incurred (4,067,000) (2,538,000)
---------- ----------
Balance at March 31 $12,531,000 $ 6,757,000
========== ==========
12. In September 2002, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 146, "Accounting for Exit or Disposal Activities." SFAS
No. 146 addresses significant issues regarding the recognition,
measurement and reporting of costs that are associated with exit and
disposal activities, including restructuring activities that were
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 No. 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. The adoption of the provisions of SFAS
No. 146 on January 1, 2003 did not have a material impact on the
Registrant's consolidated financial position, results of operations or
cash flows.
13. In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN
45 requires the recognition of a liability for certain guarantee
obligations issued or modified after December 31, 2002. FIN 45 also
clarifies disclosure requirements to be made by a guarantor for certain
guarantees. The disclosure provisions of FIN 45 were effective for
fiscal years ending after December 15, 2002. The Registrant adopted the
disclosure provisions of FIN 45 as of December 31, 2002 and the
accounting requirements on January 1, 2003, which did not have a
material impact on the Registrant's consolidated financial position,
results of operations or cash flows.
14. On April 30, 2003, the Registrant completed the sale of the Sign Group
to a third party for cash proceeds of $7,453,000 and a note receivable
totaling $4,250,000. The Registrant retained certain assets and
liabilities in conjunction with the sale. The Sign Group manufactures
illuminated, nonilluminated and electronic advertising sign displays
primarily for commercial and industrial markets and contracts to provide
maintenance services for the signs it manufactures as well as signs
manufactured by others. The Sign Group was carried as a discontinued
business since the strategic decision was made to exit the business. The
Registrant does not expect a material financial statement effect
resulting from the transaction.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
FIRST QUARTER 2003
Comparison with First Quarter 2002
Federal Signal Corporation reported diluted earnings per share from continuing
operations of $.14 for the first quarter of 2003 on sales of $292 million. This
compares to earnings per share of $.22 on sales of $246 million for the same
period in 2002. The 19% increase in sales was largely associated with higher
North American sales of fire rescue equipment and the addition of sales
associated with the two refuse truck body acquisitions made during the latter
part of 2002. The reduction in earnings was attributable to lower operating
margins for Environmental Products and Safety Products, driven mainly by weaker
municipal customer sales and a lower margin sales mix.
Also affecting first quarter 2003 operating income were charges primarily
associated with plant consolidations and manufacturing transitions in three of
four groups. Offsetting these charges was a low effective tax rate resulting
from a tax benefit associated with the closure and consolidation of a foreign
production facility. The net impact on income of these charges, offset by the
tax benefit, increased first quarter earnings by $.01 per share.
Environmental Products Group sales increased 13% from 2002 and operating margin
declined significantly to 1.9% versus 8.8% in the prior year. The increase in
sales reflects the acquisition of two refuse truck body companies in late 2002.
Although refuse truck body sales contribute to a year-over-year sales increase,
weakening demand has resulted in low throughput and cost absorption for this
business. Margins were lower for all operating units. Average margins for sewer
cleaners declined because of low sales volumes associated with weak municipal
markets that led to low utilization of fixed costs. Sweeper margins were
impacted adversely by sales mix, costs associated with combining production
facilities and higher costs associated with the conversion of our European
sweeper line to meet new EU standards.
Fire Rescue Group sales increased 47% to $99 million. Operating margin was
essentially flat at 2.2%. Sales rose significantly versus a weak first quarter
of 2002. The operating margin remained low, due to a lower margin mix of
European sales and higher costs at the company's Netherlands-based joint
venture. U.S. operating units improved margins and earnings slightly as
production throughput has risen and manufacturing efficiencies are improving.
The business continues to invest heavily in projects to improve the selling and
manufacturing processes; these additional expenses largely offset the benefit of
higher sales volumes in the quarter.
Safety Products Group sales rose 4% to $67 million. Operating margin declined to
9.7% from 14.3% in 2002. The increase in revenue reflects progress on the
Dallas/Ft. Worth International Airport project and higher international sales,
which more than offset the adverse impact of weaker domestic municipal sales.
Operating margins were lower due to higher pension costs, a lower margin sales
mix and costs associated with the shutdown of a production facility in the U.K.
Tool Group sales rose 6% to $41 million. Operating margin rose to 10.8% from
10.6%. Sales and margins for die component tools for metal stamping were
significantly higher in international markets, benefiting in part from the
strength of the Euro. Partly offsetting were weaker U.S. cutting tool sales,
which were impacted in part by lower demand from certain automotive customers.
Operating margins improved despite higher pension costs, initial operating
inefficiencies associated with the start-up of the new plant in Portugal and the
expenses for shutdown of a facility in New York.
Gross margin decreased from 28.5% in the first quarter of 2002 to 25.5% in the
first quarter of 2003, primarily due to the weakening demand in the refuse truck
body business, a higher concentration of gross margin contribution from the Fire
Rescue Group and higher pension costs. Selling, general and administrative
expenses as a percent of net sales increased to 21.6% from 20.9% primarily as a
result of shutdown expenses, costs incurred to improve selling processes and
higher pension costs. Interest expense was flat with 2002, as the impact of
slightly higher debt balances was offset by lower short-term interest rates. The
effective tax rate was sharply lower, at 2.4%, due to the one-time benefit of a
tax deduction associated with the closure of a production facility in the U.K.
Including this benefit, the full-year effective tax rate is projected to be
approximately 26%.
This compares to 24% in 2002.
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 and fire rescue products.
Financial Position and Liquidity at March 31, 2003
Operating cash flow totaled $18 million for the quarter, reflecting a modest
improvement in working capital through the reduction in inventories and
increased payables, offset in part by higher receivables. For the quarter,
inventory turns averaged 4.7, up from an average of 4.3 in 2002, due to
improvements associated with lean enterprise initiatives. Versus the first
quarter of 2002, operating cash flow was down $16 million because of the timing
of collections of receivables.
Manufacturing debt was reduced in the first quarter to $287 million, or 43% of
capitalization, a slight improvement versus the 44% level at year-end 2002.
Current financial resources and anticipated funds from the Registrant's
operations are expected to be adequate to meet future cash requirements.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
As required by 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 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.
Changes in internal controls
None.
Part II. Other Information
Responses to items two and three are omitted since these items are either
inapplicable or the response thereto would be negative.
Item 1. Legal Proceedings
The Registrant is subject to various claims, other pending and possible legal
actions for product liability and other damages arising out of the conduct of
the Registrant's business. The Registrant 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's consolidated
financial position or the results of operations.
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 1,004 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 the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
At its Annual Meeting of Stockholders on April 17, 2003, the stockholders of the
Registrant voted to elect three directors. Out of the 47,967,626 shares entitled
to vote, holders of 40,843,128 shares voted.
Shareholders elected Joan E. Ryan, James C. Janning and Joseph J. Ross as
directors for three-year terms. Holders of 39,827,487; 39,548,889 and 39,681,455
shares voted for the respective directors, while holders of 1,015,641; 1,294,239
and 1,161,673 shares withheld votes regarding the respective directors.
The shareholders also approved an amendment of the Federal Signal Corporation
Stock Benefit Plan adding 1,500,000 shares to the plan and allowing directors to
elect to receive stock awards in lieu of their cash director fees. The vote was
37,582,771 shares for the amendment; 2,792,693 against and 467,664 abstaining.
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, Senior Vice President and Chief
Financial Officer of SIRVA, Inc., and Mr. Charles R. Campbell, Chairman of the
Audit Committee, a principal in The Everest Group and formerly Senior Vice
President and Chief Financial and Administrative Officer of the Registrant until
1995.
The Audit Committee has approved the following fees for Ernst & Young LLP, the
Registrant's independent public accountants, for 2003: audit services of
$680,000; audit-related fees of $94,000; non-audit income tax advising and
compliance fees of $282,000; and other non-audit fees of $54,000.
Item 6. Exhibits and Reports on Form 8-K
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
The Registrant did not file any Form 8-Ks during the three months ended March
31, 2003.
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
5/12/03 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 on 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 officer 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 officer 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 officer 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: May 12, 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 quarterly report on 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 officer 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 officer 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 officer 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: May 12, 2003
/s/ Stephanie K. Kushner
Stephanie K. Kushner
Vice President and Chief Financial Officer