FEDERAL SIGNAL CORP /DE/ - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 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 the 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, ILLINOIS 60523
(Address of principal executive offices) (Zip Code)

THE REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (630) 954-2000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $1.00 per share, with New York Stock Exchange
preferred share purchase rights

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the Registrant'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]

State the aggregate market value of voting stock held by nonaffiliates of
the Registrant as of June 30, 2003.

Common stock, $1.00 par value -- $784,350,110

Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of January 30, 2004.

Common stock, $1.00 par value -- 47,964,470 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the Annual Meeting of Shareholders to
be held on April 30, 2004 are incorporated by reference in Part III.
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FEDERAL SIGNAL CORPORATION

INDEX TO FORM 10-K

1

PART I

ITEM 1. BUSINESS.

Federal Signal Corporation, founded in 1901, was reincorporated as a
Delaware Corporation in 1969. The company is a worldwide manufacturer and
supplier of street cleaning, vacuum loader and refuse collection vehicles; fire
rescue vehicles; safety, signaling and communication equipment and tooling
products. Federal Signal Corporation and its subsidiaries (referred to
collectively as the "Registrant" or "company" herein, unless context otherwise
indicates) operates manufacturing facilities in 52 plants around the world in 12
countries serving customers in North America, South America, Europe and Asia.
The Registrant also provides customer and dealer financing to support the sale
of its vehicles.

NARRATIVE DESCRIPTION OF BUSINESS

Products manufactured and services rendered by the Registrant are divided
into four major operating groups: Environmental Products, Fire Rescue, Safety
Products and Tool. The individual operating companies are organized as such
because they share certain characteristics, including technology, marketing,
distribution and product application, that create long-term synergies.

Financial information (net sales, foreign sales, export sales, operating
income and identifiable assets) concerning the Registrant's four operating
segments as of and for the three years ended December 31, 2003 included in Note
M of the financial statements contained under Item 8 of the Form 10-K is
incorporated herein by reference.

ENVIRONMENTAL PRODUCTS GROUP

The Environmental Products Group manufactures and markets worldwide a full
range of street cleaning, vacuum loader and refuse collection vehicles as well
as high-performance water blasting equipment. Products are also manufactured for
the emerging markets of hydro-excavation, glycol recovery and surface cleaning.
The group competes under the Elgin, RAVO, Vactor, Guzzler, Jetstream, Leach and
Wittke brand names. The group's vehicles and equipment are manufactured in North
America and Europe.

Through the Elgin brand name, the Registrant is the leading U.S. brand of
street sweepers primarily designed for large-scale cleaning of curbed streets,
parking lots and other paved surfaces utilizing mechanical sweeping, vacuum and
recirculating air technology for cleaning. RAVO is a market leader in Europe for
high-quality, compact and self-propelled sweepers that utilize vacuum technology
for pick-up.

In March 2001, the group acquired all of the assets of Athey Products
Corporation ("Athey") from bankruptcy proceedings. Athey was a primary
competitor to Elgin's mechanical sweepers. Subsequent to the purchase, the group
sold, or otherwise recovered for cash, a substantial portion of the assets of
Athey. All sweepers are currently marketed under the Elgin brand name.

Vactor is a leading manufacturer of municipal combination catch basin/sewer
cleaning vacuum trucks. Guzzler is a leader in industrial vacuum loaders that
clean up industrial waste or recover and recycle valuable raw materials.
Jetstream manufactures high pressure waterblast equipment and accessories for
commercial and industrial cleaning and maintenance operations.

In September and October 2002, the group acquired Leach Company ("Leach")
and Wittke, Inc. ("Wittke"). The acquisitions of Leach and Wittke diversified
the Registrant's environmental vehicle offering with a complete refuse hauling
product line of front, side and rear loaders that was able to leverage the
group's pre-existing dealer channel, integrate Leach's already existing dealer
network and incorporate Wittke's direct distribution channel. Refuse truck body
sales aggregated 26% of total group sales in 2003.

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FIRE RESCUE GROUP

The Fire Rescue Group manufactures a broad range of fire rescue vehicles in
its facilities located in North America and Europe. The group sells vehicles
under the following brand names: E-ONE, Superior, Saulsbury and Bronto Skylift.

E-ONE is a leading brand of aluminum, custom-made fire rescue, airport
rescue and firefighting vehicles. Superior brand trucks are manufactured and
distributed primarily for the Canadian market and U.S. wildlands markets.
Saulsbury is a leading manufacturer of stainless steel-bodied fire trucks and
rescue vehicles in the United States. Under the Bronto Skylift brand name, the
Registrant manufactures vehicle-mounted aerial access platforms in Finland.

In October 2001, the Registrant acquired a majority interest in Plastisol
Holdings B.V. ("Plastisol"), located in the Netherlands. Plastisol manufactures
cabs and bodies for fire apparatus using glass-fiber reinforced polyester.

SAFETY PRODUCTS GROUP

The Safety Products Group manufactures emergency vehicle warning lights and
sirens; industrial and outdoor signaling, warning, lighting and communication
devices; hazardous liquid containment products and computer-based parking
revenue and access control systems application software. Products are sold under
the Federal Signal, VAMA, Pauluhn, Victor, Justrite and Federal APD brand names.
The group maintains manufacturing facilities in North America, South America and
Europe. 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).

TOOL GROUP

The Tool Group manufactures a broad range of consumable carbide and
superhard insert tooling for cutoff, drilling, milling and deep grooving metal
cutting applications; precision tooling, ejector pins, core pins, sleeves and
accessories for the plastic injection mold industry and precision tooling and
die components for the metal stamping industry. Tooling products are marketed
under the Dayton, JPT, TTI, Manchester, Clapp Dico and PCS brand names and
manufactured in North America, Europe and Asia.

The Registrant's investment in the Tool Group grew significantly due to a
series of acquisitions from 1999 through 2001. 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. In March
2000, the group acquired P.C.S. Company, a supplier of precision tooling, pins
and accessories to the plastic injection mold industry. In January 2001, the
group acquired On Time Machining Company, a manufacturer of indexable insert
drills and milling cutters for use in metal cutting applications.

FINANCIAL SERVICES

The Registrant offers a variety of short- and long-term financing primarily
to its Environmental Products and Fire Rescue independent dealers and customers.
The company's loans are to (i) municipal and industrial customers to purchase
vehicles and (ii) independent dealers to finance the purchase of vehicle
inventory. The loans are typically secured by vehicles and, in the case of the
independent dealers, the dealer's personal guarantee. In late 2001, the
Registrant decided to significantly curtail new lending to industrial customers,
which generally have a higher credit risk; this portfolio is diminishing over
time.

MARKETING AND DISTRIBUTION

The Registrant believes its national and global dealer network for
Environmental Products and Fire Rescue vehicles distinguishes itself from its
competitors. Dealer representatives are on-hand to demonstrate the vehicle's
functionality and capability to customers as well as service the vehicles on a
timely basis. The acquisitions of the refuse businesses provide a unique
opportunity for the Registrant's already existing dealers to offer another
product line in their showrooms. Wittke sold direct to customers at the time of
the acquisition
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and while it still maintains that direct distribution channel, the dealer
network is being utilized to capture market share in its respective markets. The
Registrant believes that Wittke's direct distribution channel is also a
competitive advantage in that dealer commissions are avoided and the sales force
is more focused.

The Safety Products Group companies sell 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 nature of the Tool Group's products, volume depends mainly
on repeat orders from thousands of customers. Many of the Tool Group's 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. 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.

CUSTOMERS AND BACKLOG

Approximately 40%, 31% and 29% of the Registrant's total 2003 orders were
to U.S. municipal and government customers, U.S. commercial and industrial
customers and non-U.S. customers, respectively. Waste Management, Inc. accounted
for approximately 25% of the Registrant's 2003 refuse sales. No other single
customer accounted for a material part of the Registrant's business.

The company's U.S. municipal and government customers depend on tax
revenues. A sluggish industrial economy, therefore, will eventually impact a
municipality's revenue base as jobs are lost and profits decline. Generally, the
municipal trough lags far enough behind the industrial slowdown such that the
industrial economy is growing again by the time municipalities reduce their
spending. The U.S. economic downturn from 2001 to 2003 lasted longer than
expected, allowing spending cuts by municipalities to affect the company during
the same time period as weak industrial demand was experienced.

The Registrant's backlog totaled $362 million and $422 million as of
December 31, 2003 and 2002, respectively. The 14% decrease is primarily due to
weak refuse truck demand, deteriorating municipal government budgets and orders
for vehicular emergency lights and sirens, a $19 million initial installment of
the Dallas/Fort Worth parking project received in the third quarter of 2002 and
an unusually high Fire Rescue backlog at the end of 2002 due to poor production
performance in its U.S. plants. A substantial majority of the orders in backlog
at December 31, 2003 are expected to be filled within the current fiscal year.

SUPPLIERS

The Registrant purchases a wide variety of raw materials for use in the
manufacture of its products from around the world, although the majority of
current purchases are from North American sources. To minimize availability,
price and quality risk, the Registrant is party to numerous supplier strategic
alliances. Although certain materials are obtained from either a single-source
supplier or a limited number of suppliers, the Registrant has identified
alternative sources to minimize the interruption to its business in the event of
supply problems.

Components critical in the production of the Registrant's vehicles (such as
engines, transmissions, drivetrains, axles and tires) are purchased from a
select number of suppliers and may be specified by the customer. The Registrant
also purchases raw and fabricated aluminum and steel as well as commercial
chassis with certain specifications from a few sources.

The Registrant believes it has adequate supplies or sources of availability
of the raw material and components necessary to meet its needs. However, there
are risks and uncertainties with respect to the supply of certain of these raw
materials that could impact their price and availability in sufficient
quantities.

4

COMPETITION

Within the Environmental Products Group, Elgin is recognized as the market
leader among several competitors and differentiates itself primarily on product
performance. RAVO also competes on product performance through its vacuum
technology and successfully leads in market share for compact sweepers among
several regional European manufacturers. Vactor and Guzzler both maintain the
leading position in their respective marketplaces by enhancing product
performance with leading technology and application flexibility. Jetstream is
the market leader in the in-plant cleaning segment competing on price and
delivery performance. Combined, Leach and Wittke are third in market share for
refuse bodies; their vehicles compete on product performance through technology
and service delivery via their dealer network.

E-ONE is a leading manufacturer of U.S. aluminum-bodied fire apparatus and
custom chassis in a market served by approximately ten key manufacturers and
hundreds of small regional manufacturers. With its unique welded, extruded
aluminum design, E-ONE is the U.S. market leader in aerials. In addition, E-ONE
is the global market share leader of industrial pumpers serving the
petrochemical industry with two primary international competitors and a few
smaller manufacturers. E-ONE also competes with six manufacturers worldwide in
the production of airport rescue and firefighting vehicles, consistently holding
at least a number two position. The Saulsbury product line complements these
offerings with stainless steel-bodied fire trucks and rescue vehicles. Bronto
Skylift is the foremost manufacturer of high reach telescoping platforms for the
global fire rescue and electric utility markets.

Within specific product categories and domestic markets, the Safety
Products Group companies are typically the leaders among three to four strong
competitors and six additional ancillary market participants. The international
market position varies from leader to ancillary participant depending on the
geographic region and product line. Generally, competition is intense as to all
of the group's products and is based on price, including competitive bidding,
reputation, performance and servicing.

The Tool Group companies compete with several hundred competitors
worldwide. In North America, the Registrant holds a share position from number
one to number four depending on the product offering. In addition, the
Registrant believes it is a major supplier within these product lines.

RESEARCH AND DEVELOPMENT

The Registrant invests in research to support development of new products
and the enhancement of existing products and services. The Registrant believes
this investment is important to maintain and/or enhance it leadership position
in key markets. Expenditures for research and development by the Registrant were
approximately $33.2 million in 2003, $26.5 million in 2002 and $20.0 million in
2001.

PATENTS AND TRADEMARKS

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.

EMPLOYEES

The Registrant employed over 6,800 people in ongoing businesses at the
close of 2003 as compared to 7,400 employees at the end of 2002. Approximately
10% of the Registrant's domestic hourly workers were unionized at December 31,
2003. The Registrant believes relations with its employees have been good.

GOVERNMENTAL REGULATION

The Registrant believes it is in substantial compliance with federal, state
and local provisions that have been enacted or adopted regulating the discharge
of materials into the environment, or otherwise relating to the protection of
the environment. Capital expenditures in 2003 attributable to compliance with
such laws
5

were not material. The Registrant believes that the overall impact of compliance
with environmental regulations will not have a material effect on it future
operations.

SEASONALITY

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, fire rescue products, outdoor
warning, municipal emergency signal products and parking systems.

ADDITIONAL INFORMATION

The Registrant makes its annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments 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 ("SEC"). 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.

As of December 31, 2003, the Registrant utilized 33 principal manufacturing
plants located throughout North America, as well as 16 in Europe, 1 in South
Africa, 1 in South America, and 1 in the Far East.

In total, the Registrant devoted approximately 2,402,000 square feet to
manufacturing and 1,132,000 square feet to service, warehousing and office space
as of December 31, 2003. Of the total square footage, approximately 32% is
devoted to the Safety Products Group, 12% to the Tool Group, 25% to the Fire
Rescue Group and 31% to the Environmental Products Group. Approximately 71% of
the total square footage is owned by the Registrant, with the remaining 29%
being leased.

All of the Registrant's properties, as well as the related machinery and
equipment, are considered to be well-maintained, suitable and adequate for their
intended purposes. In the aggregate, these facilities are of sufficient capacity
for the Registrant's current business needs.

ITEM 3. LEGAL PROCEEDINGS.

The information concerning the Registrant's legal proceedings included in
Note L of the financial statements contained under Item 8 of this Form 10-K is
incorporated herein by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise during the three months ended December 31,
2003.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Federal Signal Corporation's common stock is listed and traded on the New
York Stock Exchange ("NYSE") under the symbol FSS. The information concerning
the Registrant's market price range and dividend per share data included in Note
R of the financial statements contained under Item 8 of this Form 10-K is
incorporated herein by reference. As of January 30, 2004, there were 3,587
holders of record of the Registrant's common stock.

6

ITEM 6. SELECTED FINANCIAL DATA.

The following table presents the selected financial information of the
Registrant as of and for the 11 years ended December 31, 2003:

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(a) continuing operations only

(b) in 1996, includes gain on sale of subsidiary of $4.7 million pre-tax, $2.8
million after-tax or $.06 per share

(c) in 1995, includes the effect of a nonrecurring charge for a litigation
settlement related to a discontinued business of $4.2 million after-tax

(d) excludes cumulative effects of changes in accounting

(e) reflects 4-for-3 stock split in 1994

(f) manufacturing operations only

(g) in 2001, increase largely attributable to refinancing of short-term debt
with funded long-term debt

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The information concerning the Registrant's selected quarterly data
included in Note R of the financial statements contained under Item 8 of this
Form 10-K is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Federal Signal Corporation manufactures a broad range of fire rescue
vehicles; municipal and industrial cleaning vehicles and equipment; safety,
signaling and communication equipment and tooling products. Due to technology,
marketing, distribution and product application synergies, the company's
business units are organized and managed in four operating segments: Fire
Rescue, Environmental Products, Safety Products and Tool. The company also
provides customer and dealer financing to support the sale of vehicles. The
information concerning the company's manufacturing businesses included in Item 1
of this Form 10-K and Notes K and M of the financial statements contained under
Item 8 of this Form 10-K are incorporated herein by reference.

RESULTS OF OPERATIONS

Orders increased 2% in 2003 to $1.14 billion as the benefit of the refuse
truck body businesses acquired in late 2002 and foreign currency translation
effects on non-U.S. sales more than offset order declines in other businesses.
Excluding the newly-acquired refuse businesses, orders declined 3% in 2003,
reflecting weak municipal and industrial markets present throughout the year.
Sales increased 14% to $1.21 billion in 2003 largely as a result of the refuse
truck body business acquisitions and increased Fire Rescue deliveries. The 14%
sales increase included 6% from acquisitions, 3% from foreign currency
translation effects, 1% from price increases and 4% from volume. Despite the
significant increase in sales, income from continuing operations declined 18% in
2003. Cyclically weak U.S. municipal and industrial markets adversely affected
sales of high margin products in the Safety Products and Tool groups and
depressed earnings in the refuse truck body businesses. In addition, production
facility shutdown charges and higher pension and health care costs adversely
affected 2003 results. Partially offsetting were lower interest expense and
income taxes. As a result, diluted earnings per share from continuing operations
declined 22% to $.79 in 2003 compared to $1.01 in 2002.

In 2002, diluted income per share from continuing operations totaled $1.01
on sales of $1.06 billion. This compares to earnings per share of $1.03 in 2001
on sales of $1.07 billion. Sales declined in the Fire Rescue and Tool groups;
the Environmental Products and Safety Products groups both saw increases. The
overall 1% sales decline reflected essentially flat selling prices in 2002 on
continued weak industrial market conditions; the refuse body acquisitions in the
fourth quarter of 2002 increased sales approximately 2%. Sales to customers in
the United States declined 5% in 2002 and sales to non-U.S. customers increased
10% (3% net of currency effects). Orders increased 4% in 2002 to $1.12 billion
due to the addition of the refuse truck body orders in the fourth quarter and
strength in safety products markets, particularly the $19 million initial
installment on the Dallas/Fort Worth International Airport parking revenue
control system award received in the third quarter.

Net income in 2003 included a $.4 million after-tax charge, or $.01 per
diluted share, relating to the loss on sale of the discontinued Sign Group
operations completed in the second quarter. Net income in 2002 included an $8.0
million after-tax charge relating to the cumulative effect of a change in
accounting for goodwill required by Statement of Financial Accounting Standards
(SFAS) No. 142, "Goodwill and Other Intangible Assets". Net income in 2001
included $5.5 million of after-tax expense relating to goodwill amortization;
beginning in 2002, goodwill is no longer amortized in accordance with SFAS No.
142.

8

The following table summarizes the company's results of operations for the
three-year period ended December 31, 2003 (in millions):

Operating income decreased 19% to $66.0 million in 2003 from $81.9 million
in 2002. This 2.3 percentage point decline in operating margin from 7.8% in 2002
to 5.5% in 2003 reflects continued weakness in U.S. municipal and industrial
markets, costs incurred to shut down production facilities in the U.K. and New
York and increased employee pension and health care costs partly offset by
material costs savings from new supplier alliances. The effects of weak markets
were particularly evident in the results of the Environmental Products, Safety
Products and Tool groups; Fire Rescue enjoyed sales and earnings increases,
resulting in part from high backlogs at the beginning of 2003. In 2002,
operating income declined 11% from $92.0 million in 2001 resulting in a .8
percentage point decrease in operating margin from 8.6% in 2001. The 2002 margin
decline was essentially due to a very slow industrial economy that reduced sales
of the company's higher-margin industrial products, reduced throughput and
higher production costs that adversely affected Fire Rescue Group profitability
and flat pricing.

Interest expense declined 2% to $19.8 million in 2003 from $20.1 million in
2002. This was as a result of slightly lower debt levels, favorable interest
rate swap agreements and amortization of deferred gains on previously-terminated
interest rate swaps; these factors were partially offset by higher borrowing
costs as Standard and Poor's reduced their short-term debt rating of the company
to A-3. The company replaced commercial paper borrowings with higher cost
committed bank lines. The impact on 2003's operations as a result of the debt
rating reduction totaled approximately $1.0 million. In 2002, interest expense
declined $6.3 million, or 24%, from 2001 largely as a result of a much lower
short-term interest rate environment in 2002. The lower interest rates were
partially offset by increased borrowings in the fourth quarter of 2002 related
to the acquisitions of the refuse truck body businesses. Weighted-average
interest rates on short-term borrowings were 2.0% in 2003, 2.0% in 2002 and 4.6%
in 2001.

The company's effective tax rate of 18.1% in 2003 was significantly below
the 24.4% rate in 2002 and the 27.7% rate in 2001. The lower tax rate in 2003
reflects the effect of a one-time benefit associated with the closure of a
production facility in the U.K. and the higher relative impact of tax credits
and tax-exempt municipal income. The reduction in the effective tax rate in 2002
from 2001 reflects the increased mix of tax-exempt revenues earned by the
company's Environmental Products and Fire Rescue groups, lower tax rates of the
company's foreign operations, eliminating the amortization of non-deductible
goodwill for financial reporting purposes due to the adoption of SFAS No. 142
and reduction in reserve needs for now-closed tax issues.

The company changed its assumptions for discount rates used in determining
the actuarial present values of accumulated and projected benefit obligations
for its postretirement plans. The company reduced the discount rate to 6.25% as
of December 31, 2003 from 6.75% and 7.30% as of December 31, 2002 and 2001,

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respectively, for its U.S. plans because of lower prevailing interest rates. The
changes in the assumptions resulted in additional pension expense of $2.2
million in 2002 and an additional increase of $2.7 million in 2003. In January
2004, the company also established its other significant cost assumptions for
its U.S. pension plans as follows: expected long-term rate of return on plan
assets -- 9.0%; rate of increase in compensation levels -- 3.5%. The company
expects that the change in these assumptions will further increase 2004 pension
costs by approximately $2.4 million, or $.03 per share, compared to 2003. In
2001, the company incurred approximately $.7 million in nonrecurring pension
costs as a result of the company's fourth quarter 2001 restructuring. The
company also recorded an after-tax charge of $.4 million in 2003 and $13.8
million in 2002 to other comprehensive income representing the effect of an
additional minimum pension liability. Like many companies, the company's pension
plan performance was adversely affected by low asset returns and lower interest
rates.

Certain of the company's businesses are susceptible to the influences of
seasonal buying or delivery patterns. The company'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, fire rescue products, outdoor
warning, municipal emergency signal products and parking systems.

ENVIRONMENTAL PRODUCTS OPERATIONS

The following chart presents the Environmental Products Group's results of
operations for the three-year period ending December 31, 2003 (in millions):

LINE GRAPH

Orders increased 16% in 2003 due to the full-year effect of the refuse
truck body acquisitions. Excluding the effects of the acquisitions, orders
declined 4% reflecting weak U.S. municipal demand. Orders increased 7% in 2002
due mainly to the refuse acquisitions. Global sweeper orders declined 2% in
2002, as increased international business was more than offset by a 15%
reduction in U.S. orders in light of deteriorating municipal government budgets.

Net sales increased 19% to $353 million in 2003 from $296 million in 2002
due to the full-year effect of the refuse body truck acquisitions; net sales of
non-refuse operations declined 5% reflecting weak U.S. municipal demand and a
reduction in finance revenues reflecting the runoff of the industrial leasing
portfolio following the company's decision in 2001 to curtail this lending
activity. Net sales increased 6% in 2002 from $281 million in 2001 largely as a
result of the refuse truck body acquisitions in late 2002.

Operating income declined 23% to $17.7 million in 2003 from $23.0 million
in 2002 resulting in a corresponding decrease in operating margin to 5.0% from
7.7%. This decline is in large part due to the low profitability of the refuse
businesses, the continued weakening of the U.S. municipal markets, lower finance
revenues and earnings from industrial customer financings and one-time costs
incurred to consolidate U.S. sweeper production facilities and convert European
sweepers to new EU standards. In 2002, operating income increased 14% from $20.2
million in 2001 principally due to improved operating results for sweepers, more
than offsetting the effects of lower volumes and adverse product mix in other
product lines in the group.

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FIRE RESCUE OPERATIONS

The following graph presents the Fire Rescue Group's results of operations
for the three-year period ended December 31, 2003 (in millions):

LINE GRAPH

The group's orders decreased 2% in 2003 reflecting the weaker U.S.
municipal and government markets primarily in the second and third quarters, and
lower export orders which tend to be somewhat volatile. Orders increased 1% in
2002 as strong orders at European businesses more than offset a modest decline
elsewhere.

Net sales increased 24% to $416 million in 2003 from $334 million in 2002.
High backlogs at the beginning of 2003 and improvements in productivity and
delivery drove the sales increase. The group's sales increased largely as a
result of increased productivity in its U.S. production facilities and the
beneficial translation effects of stronger Euro and Canadian currencies. In
2002, net sales declined 10% from $373 million in 2001 as reduced throughput and
deliveries in the U.S. production facilities resulted from more complex units
and prototypes.

Operating income increased 29% to $14.5 million in 2003 from $11.2 million
in 2002 resulting in a slight operating margin improvement to 3.5%. Improved
productivity of the U.S. operations more than offset higher costs incurred to
improve the group's selling and manufacturing processes. In 2002, operating
income declined 60% from $27 million and an operating margin of 7.3% in 2001;
income and margin declined due to the lower sales levels coupled with higher
production costs.

SAFETY PRODUCTS OPERATIONS

The following chart presents the Safety Product Group's results of
operations for the three-year period ended December 31, 2003 (in millions):

LINE GRAPH

Orders declined 7% in 2003 essentially due to the group booking a $19
million order for the Dallas/ Fort Worth parking project in 2002; excluding this
project, the group's orders were flat. Orders increased 6% in

11

2002 largely due to the large airport parking project and success in increasing
market share for European police products.

Net sales increased 3% in 2003 to $278 million from $270 million in 2002
reflecting progress on the Dallas/Fort Worth International Airport parking
project and the strength of the Euro against the U.S. dollar offset by a weak
municipal police products market and the shutdown of a production facility in
the U.K. Sales increased 5% in 2002 from $256 million in 2001 due to increased
deliveries of outdoor warning systems and European police products.

Despite the growth in sales, operating income declined 23% from $41.4
million in 2002 to $31.8 million in 2003. The operating margin decrease from
15.3% to 11.4% reflects a pre-tax charge of $2.5 million for costs associated
with the shutdown of a production facility in the U.K., weaker sales of
high-margin municipal products coupled with higher sales of lower margin parking
products, and higher pension and health care costs. In 2002, operating income
increased 9% and margins strengthened due to higher net sales, partly offset by
increased pension expense.

TOOL OPERATIONS

The following graph presents the Tool Group's results of operations for the
three-year period ended December 31, 2003 (in millions):

LINE GRAPH

Net sales increased 2% to $160 million in 2003 from $156 million in 2002;
the increase was principally a result of growth in the international precision
tooling markets, largely attributable to the strong European currency. Partially
offsetting was a weak U.S. cutting tool market, as automotive customers
continued their low capital investment despite strong production. In 2002, net
sales declined 3% from $162 million in 2001, a reflection of lower cutting tool
sales, which represented about one-quarter of the group's sales.

Operating income declined 15% to $15.9 million in 2003 from $18.7 million
in 2002. The decline in operating income and a reduction in operating margin
from 12.0% in 2002 to 10.0% in 2003 was largely due to cutting tool pricing
pressures, costs and operating inefficiencies associated with the closure of a
New York production facility, increased sales of third party resale products and
significantly higher pension and medical costs. In 2002, operating income
declined 3% from $19.3 million in 2001 due to lower sales volumes, cutting tool
pricing pressures and the effect of lower fixed cost absorption caused by
inventory reductions made possible by successful lean enterprise initiatives.

CORPORATE EXPENSE

Corporate expenses totaled $14.0 million in 2003, $12.4 million in 2002 and
$12.6 million in 2001. The 13% increase in 2003 reflects an increased bad debt
provision and higher pension expense.

The company has been sued by over 1,500 firefighters in 27 separate cases
alleging that exposure to the company's sirens impaired their hearing. The
company has successfully defended itself in over 40 similar cases and contests
the allegations. The discovery phase of the litigation begins in 2004; the
company intends to

12

aggressively defend the matter and expects to incur approximately $3.6 million
in legal fees in 2004. For further details, refer to Note L in the financial
statements included in Item 8 of this Form 10-K.

FINANCIAL SERVICES ACTIVITIES

The company maintains a large investment ($230 million and $227 million at
December 31, 2003 and 2002, respectively) in lease financing and other
receivables that are generated by its Environmental Products and Fire Rescue
operations. The increase in assets resulted from Fire Rescue's strong 2003
deliveries and subsequent lease financing offset by the company's decision to
cease lending to customers in certain commercial and industrial markets.
Financial services assets have repayment terms ranging from one to ten years.
These assets are 87% leveraged due to their overall quality; financial services
debt was $201 million and $202 million at December 31, 2003 and 2002,
respectively.

Financial revenues totaled $13 million, $16 million and $16 million in
2003, 2002 and 2001, respectively. The 17% decline in 2003 is primarily due to
the company's decision to cease financing new industrial product sales and lower
lending rates due to the declining interest rate environment.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

During the three-year period ended December 31, 2003, the company utilized
its strong cash flows from operations to fund sustaining and cost reduction
capital needs of its operations; to fund in whole or in part strategic
acquisitions of companies operating in markets related to those already served
by the company; and to pay increasing amounts in cash dividends to shareholders.
Beyond these uses, remaining cash was used to pay down debt and to repurchase
shares of common stock.

The company's cash and cash equivalents totaled $10.1 million, $9.8 million
and $16.9 million as of December 31, 2003, 2002 and 2001, respectively. The
following table summarizes the company's cash flows for the three-year period
ended December 31, 2003 (in millions):

Operating cash flow declined to $75.4 million in 2003 from $88.4 million in
2002, in large part reflecting lower earnings, timing of customer advances, the
disproportionate increase in foreign sales with longer payment terms and
multi-year contracts. Cash flows benefited from favorable settlements of
interest rate swaps and foreign currency hedges as well as continued
improvements in inventory productivity as evidenced by inventory turns rising to
4.8 at December 31, 2003. Operating cash flow decreased in 2002 from $95.1
million in 2001 due to lower earnings and a discretionary $5.0 million pension
contribution made in view of the company's strong cash position and weak pension
asset performance. The company also experienced reductions in working capital
driven by improved collections, lower inventory levels due to lean enterprise
initiatives and the receipt of more advance payments from customers. The
company's operating cash flows fluctuate on a quarterly basis due to sales
seasonality and associated working capital requirements.

The company completed the sale of the Sign Group in April 2003 for cash of
$7.5 million and a $4.2 million note receivable. The company acquired the refuse
businesses in 2002 for $101.3 million, funded with cash of $48.1 million and
stock valued at $43.4 million plus the assumption of $9.8 million of debt. The

13

company paid $19.7 million in 2001 to acquire Athey Products Corporation,
Plastisol Holdings B.V. and two small Tool Group companies including the
assumption of debt.

In order to show the distinct characteristics of the company's investment
in its manufacturing and financial service activities, the company has presented
separately these investments and their related liabilities. Different ratios of
debt and equity support each of these two types of activities.

In April 2003, Standard and Poor's lowered the company's debt rating from
A-2 to A-3 making short-term borrowing in the commercial paper market no longer
viable. After drawing on the $300 million back-up credit facility to pay off the
commercial paper holders, the company replaced it with a new $250 million
unsecured revolving credit facility maturing in 2006 bearing interest at a
variable rate of LIBOR plus .83%. At December 31, 2003, $75 million was
outstanding under this agreement. The company also secured $50 million in
private placement financing with increments maturing in 2008, 2010 and 2013
bearing interest at a variable rate of LIBOR plus 1.04%. The rating downgrade
resulted in the company incurring an additional $1.0 million in borrowing costs
in 2003. The incremental cost was partially offset by favorable interest rate
swap agreements. The company paid down $22.2 million of borrowings in 2003.

During the fourth quarter of 2002, the company issued long-term debt of
$100 million at an average interest rate of 5.1% with terms ranging from six to
ten years. The company issued the debt to replace $48 million of short-term debt
incurred to fund the refuse business acquisitions and to replace other existing
short-term debt.

The company's debt facilities contain covenants relating to a maximum
debt-to-capitalization ratio, minimum interest coverage and minimum net worth.
As of December 31, 2003, the company was in compliance with the financial
covenants of its debt agreements. At December 31, 2003, total manufacturing debt
was $265 million, representing 40% of capitalization, down from 44% ($296
million) as of December 31, 2002. The manufacturing debt-to-capitalization ratio
is subject to variations based on seasonal working capital requirements. The
company believes that its financial services assets, due to their overall
quality, are capable of sustaining a leverage ratio of 91%. At both December 31,
2003 and 2002, the company's debt-to-capitalization ratio for its financial
services activities was 87% for its continuing operations.

Cash dividends increased by $2.3 million from $36.0 million in 2002 to
$38.3 million in 2003 due to the additional shares issued in late 2002 for the
refuse acquisitions; the company paid dividends of $.80 per share in 2003. In
October 2003, the company announced a 50% reduction in the quarterly dividend to
improve its long-term position in view of the further weakening of the U.S.
state and municipal markets and the lack of a conclusive rebound in the
industrial economy. The reduction is expected to improve the company's future
financial flexibility.

Management focuses substantial effort on improving the utilization of the
company's working capital. The company's primary working capital as a percent of
net sales was 23.3% and 22.4% as of December 31, 2003 and 2002, respectively.
The company anticipates that its financial resources and major sources of
liquidity, including cash flow from operations and borrowing capacity, will
continue to be adequate to meet its operating and capital needs in addition to
its financial commitments.

14

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table presents a summary of the company's contractual
obligations and payments due by period as of December 31, 2003 (in millions):

The company is party to various interest rate swap agreements in
conjunction with the management of borrowing costs. As of December 31, 2003, the
fair value of the company's net position would result in cash proceeds of $9.4
million. Future changes in the U.S. interest rate environment would
correspondingly affect the fair value and ultimate settlement of the contracts.

The company also enters into foreign currency forward contracts to protect
against the variability in exchange rates on cash flows of its foreign
subsidiaries. As of December 31, 2003, the unrealized gain on the company's
foreign currency forward contracts totaled $2.5 million. Volatility in the
future exchange rates between the U.S. dollar and Euro and Canadian dollar will
impact final settlement.

The following table presents a summary of the company's commercial
commitments and the notional amount expiration by period (in millions):

The security bonds for casualty insurance policies relate to the company's
worker's compensation, automobile, general liability and product liability
policies. The outstanding financial standby letters of credit represent
guarantees of performance by foreign subsidiaries that engage in cross-border
transactions with foreign governments.

In limited circumstances, the company guarantees the residual value on
vehicles in order to facilitate a sale. The company also guaranteed the debt of
an independent dealer that sells the company's vehicles. The company believes
its risk of loss is low; no losses have been incurred to date. The inability of
the company to enter into these types of arrangements in the future due to
unforeseen circumstances is not expected to have a material impact on its
financial position, results of operations or cash flows.

CRITICAL ACCOUNTING POLICIES AND 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. The
company considers the following policies to be the most critical in
understanding the

15

judgments that are involved in the preparation of the company's consolidated
financial statements and the uncertainties that could impact the company's
financial condition, results of operations and cash flows.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The company performs ongoing credit evaluations of its customers. The
company's policy is to establish, on a quarterly basis, an allowance for
doubtful accounts based on factors such as historical loss trends, credit
quality of the present portfolio, collateral value and general economic
conditions. If the historical loss trend increased or decreased 10% in 2003, the
company's operating income would have decreased or increased by $.3 million,
respectively. Though management considers the valuation of the allowance proper
and adequate, changes in the economy and/or deterioration of the financial
condition of the company's customers could affect the reserve balances required.

WARRANTY RESERVE

The company's products generally carry express warranties that provide
repairs at no cost to the customer or the issuance of credit. The length of the
warranty term depends on the product sold, but generally extends from six months
to five years based on the terms that are generally accepted in the company's
marketplaces. Certain components necessary to manufacture the company's vehicles
(including chassis, engines and transmissions) are covered under an original
manufacturers' warranty. Such manufacturers' warranties are extended directly to
end customers.

The company accrues its estimated exposure to warranty claims at the time
of sale based upon historical warranty claim costs as a percentage of sales.
Management reviews these estimates on a quarterly basis and adjusts the warranty
provisions as actual experience differs from historical estimates. Infrequently,
a material warranty issue can arise which is outside the norm of the company's
historical experience; costs related to such issues, if any, are provided for
when they become probable and estimable.

The company's warranty cost as a percentage of net sales totaled 1.5% in
2003, 1.0% in 2002 and 1.2% in 2001. The increase in the rate in 2003 is
primarily due to the acquisitions of the refuse truck body businesses in late
2002 which experience higher warranty claims due to their usage pattern and the
introduction of new custom fire rescue vehicles that incurred higher warranty
costs when used for the first time. Although management believes the current
liability is appropriate, a 10% increase or decrease in the estimated warranty
costs in 2003 would have decreased or increased operating income by $1.8
million, respectively.

WORKER'S COMPENSATION AND PRODUCT LIABILITY RESERVES

The company is partially self-insured for worker's compensation claims with
various stop-loss thresholds. When a worker's compensation claim is filed, a
liability is estimated, if any is expected, to settle the claim. The
establishment of a liability for unpaid claims, including claims incurred but
not reported, is based on the assessment by the company's claim administrator of
each claim, management's estimate of the nature and severity of total claims and
an independent actuarial valuation. The company utilizes a third-party
administrator to track and evaluate actual claims experience for consistency in
the data used in the actuarial valuation. While management believes the current
reserve is adequate, a 10% increase or decrease in the average cost per claim in
2003 would have decreased or increased operating income by $.3 million,
respectively.

Due to the nature of the products manufactured, the company is subject to
product liability claims in the ordinary course of business. The company is
partially self-insured for its product liability exposures; it records a
liability when a potential loss associated with an asserted claim is probable
and reasonably estimable. The liability is based on an assessment of each claim
by the company's third party administrator, management's current knowledge of
the matter and consultation with counsel. Management believes that the liability
established appropriately reflects the company's risk exposure.

16

GOODWILL IMPAIRMENT

In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets",
the company ceased amortization of goodwill and indefinite-lived intangible
assets effective January 1, 2002. SFAS No. 142 also requires the company to test
these assets annually for impairment; the company performs this test at the
beginning of the fourth quarter unless impairment indicators arise earlier. The
company continues to amortize definite-lived intangible assets over their useful
life.

A review for impairment requires judgment in estimated cash flows based
upon estimates of future sales, operating income, working capital improvements
and capital expenditures. Management utilizes a discounted cash flow approach to
determine the fair value of the company's reporting units. If the sum of the
expected discounted cash flows of the reporting unit is less than its carrying
value, an impairment loss is required against the unit's goodwill.

In accordance with SFAS No. 142's transition rules, the company performed
an assessment as of January 1, 2002, the date of the statement's adoption. This
evaluation resulted in an $8.0 million impairment charge in 2002 related to a
niche Tool Group business. The annual testing conducted in 2002 and 2003 did not
result in any impairment.

Although management believes that the assumptions and estimates used were
reasonable, a sensitivity analysis for each reporting unit is performed along
with the impairment test. The analysis indicated that a 10% change in the sales
growth, operating margin or working capital percentage assumptions would not
result in any goodwill impairment.

MARKET RISK MANAGEMENT

The company is subject to market risk associated with changes in interest
rates and foreign exchange rates. To mitigate this risk, the company utilizes
interest rate swaps and foreign currency forward contracts. The company does not
hold or issue derivative financial instruments for trading or speculative
purposes and is not party to leverage derivatives.

INTEREST RATE RISK

The company manages its exposure to interest rate movements by maintaining
a proportionate relationship between fixed-rate debt to total debt within
established percentages. The company uses funded fixed-rate borrowings as well
as interest rate swap agreements to balance its overall fixed/floating interest
rate mix.

Of the company's debt at December 31, 2003, 43% was used to support
financial services assets; the average remaining life of those assets is
typically under three years and the debt is match-funded to the financing
assets. The company is currently comfortable with a sizeable portion of floating
rate debt to support these financial services assets, since a rise in borrowing
rates would normally correspond with a rise in lending rates within a reasonable
period.

17

The following table summarizes the company's financial instruments held at
December 31, 2003 that are sensitive to changes in interest rates, including
debt obligations and interest rate swaps (dollars in millions):

For interest rate swaps, the table presents notional amounts and weighted
average interest rates by expected (contractual) maturity dates. Notional
amounts are used to calculate the contractual payments to be exchanged under the
contract. Weighted average variable rates are based on implied forward rates in
the yield curve at the reporting date.

At December 31, 2003 and 2002, the company was party to interest rate swap
agreements with aggregate notional amounts of $400 million and $270 million,
respectively. See Note H to the consolidated financial statements for a
description of these agreements. All of the interest rate swap agreements
qualify for hedge accounting treatment.

FOREIGN EXCHANGE RATE RISK

The company has foreign currency exposures related to buying and selling in
currencies other than the local currency in which it operates. The company
utilizes foreign currency forward contracts to manage risks associated with
sales and purchase commitments as well as forecast transactions denominated in
foreign currencies.

18

The following table summarizes the company's foreign currency forward
contract hedging instruments as of December 31, 2003 by expected settlement date
(dollars in millions):

At December 31, 2003 and 2002, the company was party to foreign currency
forward contracts with aggregate notional amounts of $59 million and $47
million, respectively. See Note H to the consolidated financial statements for a
description of these agreements. All of these derivative instruments qualify for
hedge accounting treatment.

FORWARD-LOOKING STATEMENTS

This Form 10-K, reports filed by the company with the SEC on Forms 10-Q and
8-K and comments made by management contain the words such as "believe,"
"expect," "anticipate," "intend," "plan," "estimate" and "objective". These
expressions are intended to identify forward-looking statements. Forward-
looking statements include information concerning the company's possible or
assumed future results of operations. While these statements are based on
assumptions and judgments that management has made in light of industry
experience as well as perceptions of historical trends, current conditions,
expected future developments and other factors believed to be appropriate under
the circumstances, actual results could differ materially. These statements are
not guarantees of performance or results.

OTHER MATTERS

The company has a business conduct policy applicable to all employees and
regularly monitors compliance with that policy. The company has determined that
it had no significant related party transactions for the three-year period
ending December 31, 2003.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information contained under the caption Market Risk Management included
in Item 7 of this Form 10-K is incorporated herein by reference.

19

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

FEDERAL SIGNAL CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

20

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors
of Federal Signal Corporation

We have audited the accompanying consolidated balance sheets of Federal
Signal Corporation and subsidiaries as of December 31, 2003 and 2002 and the
related consolidated statements of income, comprehensive income and cash flows
for each of the three years in the period ended December 31, 2003. Our audits
also included the financial statement schedule listed in Item 15(a)2. 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 auditing standards generally
accepted in the 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 as of December 31, 2003 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth herein.

As discussed in Notes A and P to the financial statements, the company
changed its method of accounting for goodwill and other intangibles in 2002.

SIG ERNST & YOUNG LLP

Chicago, Illinois
January 29, 2004

21

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.
22

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

- ---------------

* amounts may not add to total due to rounding

See notes to consolidated financial statements.
23

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See notes to consolidated financial statements.
24

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.
25

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Cash equivalents: The company considers all highly liquid investments with
a maturity of three-months or less, when purchased, to be cash equivalents.

Allowance for doubtful accounts: The company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments on the outstanding accounts receivable. The
allowance is 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; the monitoring of 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, 2003 and 2002, approximately 55% of the company's inventories are
costed using the FIFO (first-in, first-out) method. 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. 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 $2.97 in
2003, $4.52 in 2002 and $5.33 in 2001. 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 3.6% in 2003, 2.7% in
2002 and 4.4% in 2001; dividend yield of 4.5% in 2003, 4.1% in 2002 and 3.5% in
2001; market volatility of the company's common stock of .28 in 2003, 2002 and
2001; and a weighted average expected life of the options of approximately 8
years for 2003, 2002, and 2001.

The following table illustrates the effect on net income and earnings per
share for the three-year period ended December 31, 2003 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

26

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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 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 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 some 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 worker's compensation liability: Due to the nature
of the company's products, the company is subject to claims for product
liability and worker's compensation in the normal course of business. The
company is self-insured for a portion 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
foreign 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 derivative financial instruments: 1) interest rate swaps
to manage its interest rate risk, and 2) foreign currency forward exchange
contracts to manage risks associated with sales and expenses (forecast or
committed) denominated in foreign currencies.

27

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 accounts
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 forecasted 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 forecasted 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 revenues 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 sale qualifies for percentage of completion accounting. Sales
accounted for under this method were immaterial for the three-year period ended
December 31, 2003. Management believes that all relevant criteria and conditions
are considered when recognizing sales.

Income per share: Basic net income per share is calculated using income
available to common shareholders (net income) divided by the weighted 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 N for the
calculation of basic and diluted net income per share.

28

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE B -- INVENTORIES

Inventories at December 31 are summarized as follows:

If the company had used the first-in, first-out cost method exclusively,
which approximates replacement cost, inventories would have aggregated
$188,377,000 and $192,342,000 at December 31, 2003 and 2002, respectively.

NOTE C -- PROPERTIES AND EQUIPMENT

A comparative summary of properties and equipment at December 31 is as
follows:

NOTE D -- LEASE FINANCING AND OTHER RECEIVABLES

As an added service to its customers, the company is engaged in financial
services activities. These activities primarily consist of providing long-term
financing for certain U.S. customers purchasing vehicle-based products from the
company's Environmental Products and Fire Rescue groups. A substantial portion
of these receivables is due from municipalities and volunteer fire departments.
Financing is provided through sales-type lease contracts with terms that range
from one to ten years.

At the inception of the lease, the company records the product sales price
and related costs and expenses of the sale. Financing revenues are included in
income over the life of the lease. The amounts recorded as lease financing
receivables represent amounts equivalent to normal selling prices less
subsequent customer payments.

Lease financing and other receivables will become due as follows:
$80,881,000 in 2004, $38,158,000 in 2005, $27,962,000 in 2006, $21,354,000 in
2007, $17,091,000 in 2008 and $47,161,000 thereafter. At December 31, 2003 and
2002, unearned finance revenue on these leases aggregated $32,055,000 and
$35,561,000, respectively.

29

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE E -- DEBT

Short-term borrowings at December 31 consisted of the following:

Of the above amounts, $36,347,000 and $137,022,000 are classified as
financial services activities borrowings at December 31, 2003 and 2002,
respectively.

In June 2003, the company entered into a $250,000,000 unsecured revolving
credit facility maturing in 2006 with a syndicate of banks. The facility
replaced an existing $300,000,000 commercial paper backup credit facility. At
December 31, 2003, $75,000,000 was outstanding under this agreement. Borrowings
under the facility bear interest at a variable rate of LIBOR plus .83% as of
December 31, 2003. The facility includes covenants relating to a maximum
debt-to-capitalization ratio, minimum net worth and minimum interest coverage
ratio. The company has been in compliance with all quarterly covenants during
2003. Commitment fees paid on unused revolving credit facilities during the
three years ended December 31, 2003 were insignificant.

Weighted average interest rates on short-term borrowings were 2.17% and
1.75% at December 31, 2003 and 2002, respectively.

30

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-term borrowings at December 31 consisted of the following:

Of the above amounts, $165,000,000 and $65,000,000 are classified as
financial services activities borrowings at December 31, 2003 and 2002,
respectively.

In June 2003, the company entered into a $50,000,000 private placement
agreement to reduce reliance on short-term debt. The agreement bears interest at
a variable rate of LIBOR plus 1.04% with $20,000,000 maturing in 2008,
$20,000,000 in 2010 and $10,000,000 in 2013.

Aggregate maturities of long-term debt amount to approximately $25,151,000
in 2004, $17,582,000 in 2005, $82,143,000 in 2006, $27,143,000 in 2007,
$55,143,000 in 2008 and $173,428,000 thereafter. The fair values of these
borrowings aggregated $389,631,000 and $356,367,000 at December 31, 2003 and
2002, respectively.

For each of the above long-term notes, significant covenants consist of a
maximum debt-to-capitalization ratio and minimum net worth. At December 31,
2003, all of the company's retained earnings were free of any restrictions and
the company was in compliance with the financial covenants of its debt
agreements.

At December 31, 2003 and 2002, deferred financing fees totaled $2,305,000
and $1,327,000, respectively.

The company paid interest of $21,458,000 in 2003, $20,796,000 in 2002 and
$26,097,000 in 2001. See Note H regarding the company's utilization of
derivative financial instruments relating to outstanding debt.

31

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE F -- INCOME TAXES

The provisions for income taxes consisted of the following:

Differences between the statutory federal income tax rate and the effective
income tax rate are summarized below:

32

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income tax assets and liabilities at December 31 are summarized as
follows:

The majority of the net operating loss carryforwards of subsidiaries have
no expiration dates.

The net deferred tax liability at December 31 is classified in the balance
sheet as follows:

The company paid income taxes of $9,662,000 in 2003, $8,662,000 in 2002 and
$15,193,000 in 2001.

Income before taxes consisted of the following:

NOTE G -- POSTRETIREMENT BENEFITS

The company and its subsidiaries sponsor a number of defined benefit
retirement plans covering certain of its salaried employees and hourly employees
not covered by plans under collective bargaining agreements. 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 multiemployer retirement plans that provide defined
benefits to employees under certain collective bargaining agreements.

The company uses December 31 and September 30 measurement dates for its
U.S. and non-U.S. benefit plans, respectively.

33

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

U.S. BENEFIT PLANS

The components of net periodic pension expense (credit) are summarized as
follows:

The following table summarizes the weighted-average assumptions used in
determining pension costs for the three-year period ended December 31, 2003 and
the company's assumptions for 2004:

34

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.

The following table summarizes the weighted-average assumptions used in
determining benefit obligations as of December 31, 2003 and 2002:

35

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the company's asset allocations for its U.S.
benefits plans as of December 31, 2003 and 2002 and target allocation for 2004
by asset category:

The investment strategy for the U.S. benefit plans is to 1) maintain a
liquid, diversified portfolio that can provide a weighted-average annual return
of at least 9%, 2) maintain liquidity to meet obligations and 3) prudently
manage administrative and management costs. The plan invests in equity and fixed
income markets. The equity allocation has an upper limit of 80% of plan assets
with U.S. 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 U.S.
high grade fixed income securities comprising 15% to 40%; U.S. 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, 2003 and 2002.

As of December 31, 2003 and 2002, equity securities included 503,400 shares
of the company's common stock valued at $8,820,000 and $9,776,000, respectively.
Dividends paid on the company's common stock to the pension trusts aggregated
$403,000 for each of the years ended December 31, 2003 and 2002, respectively.

The company expects to contribute $3,000,000 or more to the U.S. benefit
plans in 2004. 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 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 acquired during the three-year period ended December 31,
2003, was $5,168,000 in 2003, $5,396,000 in 2002 and $5,252,000 in 2001.

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 $4,752,000
and $5,562,000 at December 31, 2003 and 2002, respectively, were fully accrued.
The net periodic postretirement benefit costs have not been significant during
the three-year period ended December 31, 2003.

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 and will not have a
material impact on the company's accumulated postretirement obligations, results
of operations or cash flows.

36

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NON-U.S. BENEFIT PLAN

Through 2002, a wholly-owned subsidiary sponsored a defined benefit plan
for substantially all of its employees in the United Kingdom. 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 resulting in a gain of $192,000.
The curtailment froze each employee's benefits, to be adjusted for inflation.

Net periodic pension expenses or credits during the three-year period ended
December 31, 2003 were not significant. The company recognized a curtailment
gain of $192,000 in 2002. The following table summarizes the changes in the
projected benefit obligation and plan assets, the funded status of the
company-sponsored plan and the major assumptions used to determine these
amounts.

Plan assets consist principally of a broadly diversified portfolio of
equity securities, U.K. government obligations and fixed interest securities.

The following significant assumptions were used in determining pension
costs for the three-year period ended December 31, 2003:

37

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted-average discount rate used in determining the actuarial
present value of all pension obligations at both September 30, 2003 and 2002 was
5.50%.

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, 2003 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. Interest rate swaps executed during 2003 and
2002 in conjunction with long-term private placements effectively converted
fixed rate debt to variable rate debt. At December 31, 2003, the company's
receive fixed, pay variable swap agreements with financial institutions
terminate in varying amounts during 2004 to 2012. These agreements are
designated as fair value hedges and are 100% effective; no amounts were excluded
from the assessment of hedge effectiveness.

At December 31, 2003, the company was also party to agreements with
financial institutions to swap interest rates in which the company pays interest
at a fixed rate and receives interest at variable LIBOR rates. These derivative
instruments terminate in varying amounts during 2004 to 2010. These interest
rate swap agreements are designated as cash flow hedges and are 100% effective;
no amounts were excluded from the assessment of hedge effectiveness.

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, 2003 and 2002:

The company sold various interest rate swaps associated with its debt
portfolio in response to movements in the interest rate market. These
transactions resulted in cash receipts of $7,174,000 in 2003, $4,560,000 in 2002
and $2,435,000 in 2001. The associated gains were deferred and are being
amortized as a reduction to interest expense over the life of the underlying
debt. The unamortized balance of these gains at December 31, 2003 and 2002 was
$13,037,000 and $6,732,000, 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 2004.

38

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The company also manages the volatility of cash flows caused by
fluctuations in currency rates by entering into foreign exchange forward
contracts. These derivative instruments hedge portions of the company's
anticipated third party purchases and forecast intercompany sales denominated in
foreign currencies and mature from 2004 to 2006.

The following table summarizes the company's foreign exchange forward
contracts at December 31, 2003 and 2002:

The company expects $1,327,000 of net gains that are reported in
accumulated other comprehensive income as of December 31, 2003 to be
reclassified into earnings in 2004 as the respective hedged transactions will
affect 2004 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
2,737,500 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 4,000,000 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 1,000,000 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 expects to settle all such options in common stock.

39

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock option activity for the three-year period ended December 31, 2003
follows (number of shares in thousands, prices in dollars per share):

For options outstanding at December 31, 2003, the number (in thousands),
weighted average exercise prices in dollars per share, and weighted average
remaining terms were as follows:

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, 2003:

Under the 1988 plan, no benefit shares or units were available for future
grant during the three-year period ending December 31, 2003. Under the 1996
plan, as amended, the following benefit shares or units were available for
future grant: 1,243,000 at December 31, 2003, 144,000 at December 31, 2002 and
410,000 at December 31, 2001.

NOTE J -- SHAREHOLDERS' EQUITY

The company has 90,000,000 authorized shares of common stock, $1 par value
and 800,000 authorized and unissued shares of preference stock, $1 par value.

40

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The changes in shareholders' equity for each of the three years in the
period ended December 31, 2003 were as follows:

41

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 not exercisable until the rights distribution
date, defined as the earlier of: 1) the tenth day following a public
announcement that a person or group of affiliated 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 then current exercise price of a
right, that number of shares of common stock of the acquiring company which at
the time of such transaction would have a market value of two times the exercise
price of the right. 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, without limitation, the right to vote or to
receive dividends.

NOTE K -- ACQUISITIONS

During the three-year period ended December 31, 2003, the company made the
following acquisitions, principally all for cash, except as otherwise noted.

In September 2002, the company acquired Leach Company ("Leach"), a leading
manufacturer of rear load refuse collection bodies located in Oshkosh,
Wisconsin. Leach, whose market strength is primarily in

42

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

government and municipal markets, utilizes a dealer channel similar to other
Environmental Products Group operations. In October 2002, the company also
acquired Wittke, Inc. ("Wittke"), a manufacturer of dynamic truck-mounted refuse
collection equipment located in Medicine Hat, Alberta, Canada and Kelowna,
British Columbia, Canada. Wittke brand products include front load, side load
and automated side load refuse truck bodies. Wittke sold direct to customers at
the time of the acquisition, and is particularly strong in the private
contractors and large waste hauling company market segments. The company
acquired Leach and Wittke using a combination of cash and stock totaling
$101,260,000. As a result of these 2002 acquisitions, the company has recorded
$11,400,000 of working capital, $19,602,000 of fixed and other long-term assets,
$5,660,000 of intangible assets, $2,332,000 of restructuring costs incurred in
connection with the shut down of an acquired, non-strategic components facility,
$8,082,000 of long-term liabilities and $75,012,000 of goodwill. The company
also assumed $9,800,000 in debt. An insignificant portion of the related
goodwill is expected to be deductible for tax purposes. In 2003, the company
finalized the property, equipment and intangible appraisals, restructuring plans
and warranty campaigns resulting in an increase to goodwill of $9,961,000.

In March 2001, the company acquired all of the assets of Athey Products
Corporation ("Athey") from bankruptcy proceedings. Athey was a primary
competitor to Environmental Products Group's line of mechanical sweepers.
Subsequent to the purchase, the company sold off substantially all assets of
Athey. The company finalized Athey's asset appraisals in 2002 which increased
goodwill by $1,510,000. In September 2001, the company 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 glassfiber
reinforced polyester. The company also made two small Tool Group acquisitions
during 2001. As a result of the 2001 acquisitions, the company recorded
approximately $5,800,000 of working capital, $9,400,000 of fixed and other
assets and $12,100,000 of costs in excess of fair value.

All of the acquisitions in the three-year period ended December 31, 2003
have been accounted for as purchases. Accordingly, the results of operations of
the acquired companies have been included in the consolidated statements of
income from the effective dates of the acquisitions. Assuming the 2002
acquisitions occurred January 1, 2001, the company estimates the following pro
forma amounts for the years ended December 31, 2002 and 2001:

NOTE L -- LEGAL PROCEEDINGS

The company 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 company's business. The company 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 company's
consolidated financial position or the results of 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.

43

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The company has been sued by firefighters in Chicago seeking damages and
claiming that exposure to the company's sirens has impaired their hearing and
that the sirens are therefore defective. There are presently 26 cases filed
during the period 1999-2003, involving a total of 1,663 plaintiffs pending in
the Circuit Court of Cook County, Illinois. An additional lawsuit has been filed
in Williamson County, Illinois against the company and 15 other unrelated
co-defendants seeking class certification for plaintiffs claiming damages to
their hearing allegedly as a result of exposure to the company's sirens and
design defects in the unrelated co-defendant's fire trucks. The plaintiffs'
attorneys have threatened to bring more suits if the company does not settle
these cases. The company believes that these product liability suits have no
merit and that sirens are necessary in emergency situations and save lives. The
discovery phase of the litigation begins in 2004; the company intends to
aggressively defend the matter. The company successfully defended approximately
41 similar cases in Philadelphia in 1999 after a series of unanimous jury
verdicts in favor of the company.

In early 2004, a judge in Orange County, California entered a $10,185,000
judgment against Safety Storage, Inc. ("SSI") on grounds that SSI defrauded a
third party creditor. The company holds a 30% minority interest investment in
SSI valued at $3,400,000 as of December 31, 2003. SSI is considering filing for
bankruptcy reorganization under Chapter 11 and then appealing the verdict. The
company believes that the ultimate loss, if any, will be limited to its
investment.

NOTE M -- SEGMENT AND RELATED INFORMATION

The company has four continuing operating segments as defined under SFAS
No. 131, "Disclosures about Segments of an 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 variety of visual and audible
warning and signal devices; paging, local signaling, and building security,
parking and access control systems; hazardous area lighting; and equipment for
storage, transfer, use and disposal of flammable and hazardous materials. The
group's products are sold primarily to industrial, municipal and government
customers.

Tool -- Tool manufactures a variety of consumable tools which include die
components for the metal stamping industry, a large selection of precision 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 markets.

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.
44

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

See Note K for a discussion of the company's acquisition activity during
the three-year period ended December 31, 2003.

Revenues attributed to customers located outside of the U.S. aggregated
$374,826,000 in 2003, $293,248,000 in 2002 and $267,531,000 in 2001. Sales
exported from the U.S. aggregated $118,257,000 in 2003, $77,517,000 in 2002 and
$87,064,000 in 2001.

45

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the company's continuing operations by segment for the
three-year period ended December 31, 2003 is as follows:

46

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents financial revenues (included in net sales) by
segment for the three-year period ended December 31, 2003 is as follows:

Due to the nature of the company's customers, a significant portion of the
Environmental Products and Fire Rescue financial revenues is exempt from federal
income tax.

The segment information provided below is classified based on geographic
location of the company's subsidiaries:

During 2000, the company decided to divest the operations of the Sign Group
and began to search for a qualified buyer of that business. The Sign Group
manufactured illuminated, non-illuminated and electronic advertising sign
displays primarily for commercial and industrial markets and contracted to
provide maintenance services for the signs it manufactured 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. On April 30, 2003,
the company completed the sale of the Sign Group to a third party for cash and a
note receivable, which together approximated the net book value of the business.
Sign revenues for the years ended December 31, 2003, 2002 and 2001 were
$12,844,000, $43,245,000 and $58,817,000, respectively. The Registrant retained
certain assets and liabilities in conjunction with the sale.

In 2003, the company incurred $4,829,000 in restructuring charges relating
to the consolidation of facilities and operations and reductions in work force.
Of this amount, the Environmental Products Group incurred costs of $640,000, the
Safety Products Group incurred $3,289,000 and the Tool Group incurred $900,000.
There was no remaining liability at December 31, 2003.

The company also incurred $3,627,000 in restructuring charges during 2001
principally resulting from reductions in work force through early retirement and
job eliminations. Of this amount, the Environmental Products Group incurred
costs of $798,000, the Fire Rescue Group incurred costs of $854,000, the Safety
Products Group incurred costs of $461,000 and the Tool Group incurred costs of
$1,514,000.

47

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE N -- NET INCOME PER SHARE

The following table summarizes the information used in computing basic and
diluted income per share for the three-year period ending December 31, 2003:

NOTE O -- COMMITMENTS AND GUARANTEES

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 $8,742,000 in 2003, $8,483,000 in 2002 and $7,985,000 in 2001.
Sublease income and contingent rentals relating to operating leases were
insignificant. At December 31, 2003, minimum future rental commitments under
operating leases having noncancelable lease terms in excess of one year
aggregated $27,658,000 payable as follows: $7,616,000 in 2004, $5,106,000 in
2005, $4,007,000 in 2006, $3,101,000 in 2007, $2,181,000 in 2008 and $5,647,000
thereafter.

At December 31, 2003 and 2002, the company had outstanding standby letters
of credit aggregating $35,458,000 and $32,298,000, 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 6 months to 5 years. The company
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 company'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
company periodically assesses the adequacy of its recorded warranty liabilities
and adjusts the amounts as necessary.

Changes in the company's warranty liabilities for the years ended December
31, 2003 and 2002 were as follows:

48

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 2003 and 2002 totaled $750,000 and $810,000, respectively. No losses have
been incurred as of December 31, 2003. The guarantees expire between 2004 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 2003 were
recognized. The notional amounts of the residual value guarantees were
$3,480,000 and $1,336,000 as of December 31, 2003 and 2002, respectively. No
losses have been incurred as of December 31, 2003. The guarantees expire between
2004 and 2010.

NOTE P -- 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 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 accordingly
discontinued the amortization of goodwill. 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, for
the year ended December 31, 2001 follows:

As part of the adoption of SFAS No. 142, the company also 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
in the first quarter of 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 reporting unit by

49

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

calculating the present value of expected future cash flows. Changes in the
carrying amount of goodwill for the year ended December 31, 2003, by operating
segment, were as follows:

The 2002 adjustments represent the final assessment of the asset values
recorded in connection with the 2001 acquisition of Athey Products Corporation
and a contingency payment made to the former owners of a tool business acquired
in 2001 under the terms of the sale and purchase agreement. The 2003 adjustments
reflect the finalization of property, equipment and intangible appraisals,
restructuring plans and warranty campaigns relating to the 2002 acquisitions of
the refuse truck body businesses.

Under SFAS 142, the company is required 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 2003 and determined that there was
no impairment.

The components of the company's other intangible assets as of December 31,
2003 are as follows:

Amortization expense for the year ended December 31, 2003 totaled $157,000.
The company estimates that the aggregate amortization expense will be $125,000
for each of the years 2004 through 2008 and $2,368,000 thereafter.

NOTE Q -- NEW ACCOUNTING PRONOUNCEMENTS

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 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 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

50

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 company's consolidated financial position, results of
operations or cash flows.

In November 2002, the FASB issued Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 applies to financial
guarantees, performance guarantees, indemnification agreements and indirect
guarantees of the indebtedness of others. FIN 45 requires the recognition of a
liability, at inception, equal to its fair value for 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 the fiscal years ending after December
15, 2002. The company 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 company's consolidated financial position, results of
operations or cash flows. Refer to Note O for the required disclosures.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- An Amendment of FASB Statement No.
123". This statement provides for transitions if a company elects to adopt SFAS
No. 123 and also provides for some additional disclosures in the financial
statements for the year ended December 31, 2002. The company accounts for its
stock compensation under APB 25, and accordingly has adopted the additional
disclosures as of December 31, 2002.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities". FIN 46 requires the consolidation of a variable interest
entity by its primary beneficiary if the entity does not effectively disperse
risks among the parties involved. A variable interest entity is any legal
structure used for business purposes with equity investors who (i) provide an
insufficient level of financial support, (ii) are unable to make decisions about
the entity's activities through voting rights or (iii) do not share in the
profits and losses of the entity. A primary beneficiary is defined as an
enterprise that absorbs a majority of the entity's expected losses, receives a
majority of the entity's residual returns, or both. FIN 46 was effective
immediately for all interests in variable interest entities created after
January 31, 2003, including certain disclosure requirements. In October 2003,
the FASB issued Staff Position No. 46-6, "Effective Date of FASB Interpretation
No. 46, Consolidation of Variable Interest Entities," that deferred the
effective date of FIN 46 until the end of the first reporting period after
December 15, 2003. The adoption of the provisions of FIN 46 as of December 31,
2003 did not have a material impact on the company's consolidated financial
position, results of operations or cash flows.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers
Disclosures about Pensions and Other Postretirement Benefits" to improve
financial statement disclosures for defined benefit plans. SFAS 132 requires
more detailed disclosures about plan assets, benefit obligations, cash flows,
benefit costs and other relevant information. The disclosures are generally
effective for fiscal years ending after December 31, 2003; a six month delay in
the effective date was provided for non-U.S. plans. The company adopted the
additional disclosure provisions of SFAS 132 for its U.S. plans as of December
31, 2003.

51

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE R -- SELECTED QUARTERLY DATA (UNAUDITED)

- ---------------

* amounts may not add due to rounding

The company incurred pre-tax restructuring charges (see Note M) of
$1,636,000, $2,587,000, $379,000 and $227,000 for the three-month periods ended
March 31, 2003, June 30, 2003, September 30, 2003 and December 31, 2003,
respectively.

52

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures

The Registrant's management, with the participation of the Registrant's
Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Registrant's disclosure controls and procedures as of
December 31, 2003. Based on that evaluation, the Registrant's Chief Executive
Officer and Chief Financial Officer concluded that the Registrant's disclosure
controls and procedures were effective as of December 31, 2003. As a matter of
practice, the Registrant's management 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 were no material changes in the
Registrant's internal controls over financial reporting during the fourth
quarter of 2003.

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 30, 2004 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, 2004:

Robert D. Welding, age 55, was elected President and Chief Executive
Officer as well as to the Board of Directors in December 2003. Previously, Mr.
Welding was Executive Vice President of Borg Warner, Inc. from 1999 -- 2003,
President of Borg Warner, Inc.'s Driveline Group from 2002 -- 2003, President of
Borg Warner Transmission Systems, Inc. from 1996 -- 2003 and Vice President of
Borg Warner, Inc. from 1996 -- 1999. Mr. Welding also held senior level
positions with Volkswagen and General Motors.

John A. DeLeonardis, age 57, was elected Vice President -- Taxes in January
1992.

Duane A. Doerle, age 48, was elected Vice President -- Corporate
Development in July 1996.

Stephanie K. Kushner, age 48, 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 and
Vice President and Treasurer for FMC Corporation from 1999-2001.

Karen N. Latham, age 44, was elected Vice President and Treasurer in
December 2002. Ms. Latham 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 50, was elected Vice President and Controller in
January 1991.

Jennifer L. Sherman, age 39, was appointed Vice President, General Counsel
and Secretary effective March 1, 2004. Ms. Sherman was previously Deputy General
Counsel and Assistant Secretary since 1998.

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.

The information concerning the Registrant's "independent audit committee
financial experts", as defined by the Sarbanes-Oxley Act and Securities and
Exchange Commission, contained under the caption "Board of Directors and
Committees" of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held April 30, 2004 is incorporated herein by reference.
53

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 30, 2004 is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

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 30, 2004 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 30, 2003 is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information under the caption "Accounting Information" and "Board of
Directors and Committees" in the Registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held on April 30, 2004 is incorporated herein by
reference.

PART IV

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 contained under Item 8 of this Form 10-K are
incorporated herein by reference:

Consolidated Balance Sheets as of December 31, 2003 and 2002

Consolidated Statements of Income for the Years Ended December 31, 2003,
2002 and 2001

Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2003, 2002 and 2001

Consolidated Statements of Cash Flows for the Years Ended December 31,
2003, 2002 and 2001

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, 2003 is
filed as a part of this report in response to Item 15(d):

Schedule II -- Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore, have
been omitted.

54

3. Exhibits

The following exhibits, other than those incorporated by reference, have
been included in the Registrant's Form 10-K filed with the Securities and
Exchange Commission. The Registrant shall furnish copies of these exhibits upon
written request to the Corporate Secretary at the address given on the cover
page.

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, as amended February 13, 2004, as
incorporated herein.
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, 2003. 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 1996 Stock Benefit Plan, as amended April 17, 2003, as
incorporated herein.
b. Corporate Management Incentive Bonus Plan, filed as Exhibit
(10)(b) to the Registrant's Form 10-K for the year ended
December 31, 2002 is incorporate herein by reference.
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 Robert D. Welding as incorporated
herein.
g. Retirement and Settlement Agreement with Joseph J. Ross as
incorporated herein.
h. Pension Agreement with Stephanie K. Kushner, filed as
Exhibit (10)(g) to the Registrant's Form 10-K for the year
ended December 31, 2002 is incorporated herein by reference.
i. Employment Termination Agreement with Stephanie K. Kushner,
filed as Exhibit (10)(h) to the Registrant's Form 10-K for
the year ended December 31, 2002 is incorporated herein by
reference.
j. 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.
k. 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.
l. 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.
m. 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.
n. 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.
11. Computation of per share earnings is furnished in Note N of
the financial statements contained under Item 8 of this 10-K
and thereby incorporated herein by reference.
13. Annual Report to Shareholders for the year ended December
31, 2003. Such report is furnished for the information of
the Commission only and is not to be deemed "filed" as part
of this filing.
14. Code of Ethics for CEO and Senior Financial Officers, as
amended February 13, 2004, as incorporated herein.
21. Subsidiaries of the Registrant

55

23. Consent of Independent Auditors
31. 1 CEO Certification under Section 302 of the Sarbanes-Oxley
Act
31. 2 CFO Certification under Section 302 of the Sarbanes-Oxley
Act
32. 1 CEO Certification of Periodic Report under Section 906 of
the Sarbanes-Oxley Act
32. 2 CFO Certification of Periodic Report under Section 906 of
the Sarbanes-Oxley Act

(b) Reports on Form 8-K for the three months ended December 31, 2003

A Form 8-K was filed on October 22, 2003, under Items 7 and 12, reporting
the Registrant's press release dated October 22, 2003 that disclosed its
financial results for the third quarter ended September 30, 2003.

(c) The exhibits contained under Item 15(a)(3) of this Form 10-K are
incorporated herein by reference.

(d) The schedule contained under Item 15(a)(2) of this Form 10-K is
incorporated herein by reference.

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. 33-41721, 33-49476, 33-14251, 33-89509 and 333-81798 dated 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.

56

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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

BY: /s/ ROBERT D. WELDING
------------------------------------
ROBERT D. WELDING
President, Chief Executive
Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below, as of March 10, 2004, by the following persons on
behalf of the Registrant and in the capacities indicated.

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

/s/ RICHARD L. RITZ
- -------------------------------------------------------
Richard L. Ritz
Vice President and Controller

/s/ JAMES C. JANNING
- -------------------------------------------------------
James C. Janning
Chairman and Director

/s/ CHARLES R. CAMPBELL
- -------------------------------------------------------
Charles R. Campbell
Director

/s/ PAUL W. JONES
- -------------------------------------------------------
Paul W. Jones
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

/s/ ROBERT M. GERRITY
- -------------------------------------------------------
Robert M. Gerrity
Director

/s/ ROBERT S. HAMADA
- -------------------------------------------------------
Robert S. Hamada
Director

57

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001