UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission File Number 1-6003

FEDERAL SIGNAL CORPORATION

(Exact name of the Company as specified in its charter)

The Company’s telephone number, including area code

(630) 954-2000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

      Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Company’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.     o

      Indicate by check mark whether the Company is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes þ          No o

      State the aggregate market value of voting stock held by nonaffiliates of the Company as of June 30, 2004: Common stock, $1.00 par value — $876,612,549

      Indicate the number of shares outstanding of each of the Company’s classes of common stock, as of January 31, 2005: Common stock, $1.00 par value — 48,139,256 shares

Documents Incorporated By Reference

      Portions of the proxy statement for the Annual Meeting of Shareholders to be held on April 27, 2005 are incorporated by reference in Parts II and III.

FEDERAL SIGNAL CORPORATION

Index to Form 10-K

PART I

      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, parking systems and tooling products. Federal Signal Corporation and its subsidiaries (referred to collectively as the “Company” or “company” herein, unless context otherwise indicates) operates manufacturing facilities in 42 plants around the world in 12 countries serving customers in North America, South America, Europe and Asia. The Company also provides customer and dealer financing to support the sale of its vehicles.

Narrative Description of Business

      Products manufactured and services rendered by the Company 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, which create long-term synergies.

      Financial information (net sales, foreign sales, export sales, operating income and identifiable assets) concerning the Company’s four operating segments as of and for the three years ended December 31, 2004 included in Note O of the financial statements contained under Item 8 of the Form 10-K is incorporated herein by reference.

      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 and Leach brand names. The group’s vehicles and equipment are manufactured in North America and Europe.

      Through the Elgin brand name, the Company is the leading US 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.

      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 Company’s environmental vehicle offering with a line of refuse hauling products 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. In June 2004, the refuse product lines were consolidated under the single brand name, Leach, and will be manufactured solely at the Company’s Medicine Hat, Alberta facility beginning in April 2005. Refuse truck body sales aggregated 20% of total group sales in 2004.

      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 US wildlands markets. Under the Bronto Skylift brand name, the Company manufactures vehicle-mounted aerial access platforms in Finland. The Company also produces stainless-steel bodied fire trucks and rescue vehicles under the Saulsbury brand name.

      The Safety Products Group manufactures emergency vehicle warning lights and sirens; industrial and outdoor signaling, warning, lighting and communication devices and parking revenue and access control systems. Products are sold under the Federal Signal, Target Tech, VAMA, Pauluhn, Victor and Federal APD brand names. The group operates manufacturing facilities in North America, South America, Europe and South Africa. Many of the group’s products are designed in accordance with various regulatory codes and standards, and meet agency approvals such as Underwriters Laboratory (UL), International Electrotechnical Commission (IEC) and American Bureau of Shipping (ABS).

      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, Manchester, ClappDico and PCS brand names and manufactured in North America, Europe and Asia.

      In June 2004, the company announced the implementation of the first steps of a broad restructuring initiative aimed at enhancing the company’s competitive profile and creating a solid foundation for annual revenue growth targeted in the high single digits. The measures announced addressed three key issues: improving the profitability of the Fire Rescue Group and refuse truck body business, divesting non-strategic business activities, and improving the company’s overhead cost structure.

      The initiatives included the following restructuring plans and divestitures:

      In addition to the above actions, the company, in the fourth quarter of 2004, also divested Technical Tool, Inc., a small manufacturer of precision beverage can tooling, and Justrite Manufacturing Company, L.L.C., a leading manufacturer of products for the safe storage of flammable and hazardous materials.

      The Company offers a variety of short- and long-term financing primarily to its Environmental Products and Fire Rescue independent dealers and customers. The company provides financing, principally through sales-type leases, to (i) municipal and industrial customers to purchase vehicles and (ii) independent dealers to finance the purchase of vehicle inventory. Financings are typically secured by vehicles and, in the case of the independent dealers, the dealer’s personal guarantee. In late 2001, the Company decided to significantly curtail new leasing to industrial customers, who generally have a higher credit risk; this portfolio continues to diminish over time as no new leases were extended to industrial customers in 2004. At December 31, 2004, the Company’s investment in leases to industrial customers declined to 8% of its lease financing and other receivables.

Marketing and Distribution

      The Company 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 vehicles’ functionality and capability to customers as well as service the vehicles on a timely basis. The acquisitions of the refuse businesses provided a unique opportunity for the Company’s already existing dealers to offer another product line in their showrooms.

      The Safety Products Group companies sell to industrial customers through manufacturers’ representatives who sell to approximately 2,000 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 38%, 31% and 31% of the Company’s total 2004 orders were to US municipal and government customers, US commercial and industrial customers and non-US customers, respectively. No single customer accounted for a material part of the Company’s business.

      The company’s US 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 US 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. During 2004, the company saw municipal and governmental orders flat to 2003 levels. Orders for fire apparatus declined but were offset by increases in most of the company’s other products.

      The Company’s backlog totaled $432 million and $347 million as of December 31, 2004 and 2003, respectively. The 25% increase is primarily due to a $47 million airport parking project received from the New York and New Jersey Port Authority, strong domestic and international demand for sweepers and increased orders for vacuum trucks. A substantial majority of the orders in backlog at December 31, 2004 are expected to be filled within the current fiscal year.

Suppliers

      The Company 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 Company 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 Company has identified alternative sources to minimize the interruption to its business in the event of supply problems.

      Components critical in the production of the Company’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 Company also purchases raw and fabricated aluminum and steel as well as commercial chassis with certain specifications from a few sources.

      The Company 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.

      During 2004, rapidly increasing prices and tighter availability of steel significantly affected the company’s financial performance, particularly in its refuse truck body and fire rescue operations. Steel and steel-product suppliers increased pricing and imposed surcharges on a significant portion of the company’s purchased materials. The Company was unable to fully recover these increases from its customers due to the nature of the municipal bidding process and sales cycle.

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. Leach is third in market share for refuse bodies; its vehicles compete on product performance through technology and service delivery via the group’s dealer network.

      E-ONE is a leading manufacturer of US aluminum-bodied fire apparatus and custom chassis in a market served by approximately ten key manufacturers and approximately 90 small regional manufacturers. With its unique welded, extruded aluminum design, E-ONE is the US 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 several additional ancillary market participants. The group’s 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 Company holds a share position from number one to number three depending on the product offering.

Research and Development

      The information concerning the Company’s research and development activities is included in Note O of the financial statements contained under Item 8 of this Form 10-K is incorporated herein by reference.

Patents and Trademarks

      The Company 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 Company 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 Company’s business is dependent on such trademarks.

Employees

      The Company employed over 6,100 people in ongoing businesses at the close of 2004 as compared to nearly 6,500 employees at the end of 2003. Approximately 10% of the Company’s domestic hourly workers were unionized at December 31, 2004. The Company believes relations with its employees continued to be good.

Governmental Regulation of the Environment

      The Company 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 2004 attributable to compliance with such laws were not material. The Company believes that the overall impact of compliance with environmental regulations will not have a material effect on its future operations.

Seasonality

      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.

Additional Information

      The Company 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 Company’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 Reference 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.

      As of December 31, 2004, the Company utilized 25 principal manufacturing plants located throughout North America, as well as 14 in Europe, 1 in South Africa, 1 in South America, and 1 in the Far East.

      In total, the Company devoted approximately 1.8 million square feet to manufacturing and 1.0 million square feet to service, warehousing and office space as of December 31, 2004. Of the total square footage, approximately 30% is devoted to the Safety Products Group, 14% to the Tool Group, 20% to the Fire Rescue Group and 36% to the Environmental Products Group. Approximately 79% of the total square footage is owned by the Company, with the remaining 21% being leased.

      All of the Company’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 Company’s current business needs.

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

      No matters were submitted to a vote of security holders through the solicitation of proxies or otherwise during the three months ended December 31, 2004.

PART II

      The Company’s common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol FSS. At December 31, 2004, all of the Company’s retained earnings were free of any restrictions. The information concerning the Company’s market price range data included in Note T of the financial statements contained under Item 8 of this Form 10-K is incorporated herein by reference.

      As of January 31, 2005, there were 3,294 holders of record of the Company’s common stock.

      The information concerning the Company’s dividend per share data included in Note T of the financial statements contained under Item 8 of this Form 10-K is incorporated herein by reference.

      The information contained under the caption “Proposal 2 — Approval of the Federal Signal Corporation 2005 Executive Incentive Compensation Plan” of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 27, 2005 is incorporated herein by reference.

      The following table presents the selected financial information of the Company as of and for the eleven years ended December 31, 2004:

      The selected financial data set forth above should be read in conjunction with the Company’s consolidated financial statements, including the notes thereto, and Item 7 of this Form 10-K.

      The information concerning the Company’s selected quarterly data included in Note T of the financial statements contained under Item 8 of this Form 10-K is incorporated herein by reference.

      Federal Signal Corporation manufactures a broad range of products, including: municipal and industrial cleaning vehicles and equipment; fire rescue vehicles; 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: Environmental Products, Fire Rescue, 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 O of the financial statements contained under Item 8 of this Form 10-K are incorporated herein by reference.

      This Form 10-K, reports filed by the company with the Securities and Exchange Commission (“SEC”) and comments made by management contain the words such as “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “project,” “estimate” and “objective” or the negative thereof or similar terminology concerning the company’s future financial performance, business strategy, plans, goals and objectives. These expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning the company’s possible or assumed future performance or results of operations and are not guarantees. 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, they are subject to risks, uncertainties and other factors that may cause the company’s actual results, performance or achievements to be materially different.

      These risks and uncertainties, some of which are beyond the company’s control, include the cyclical nature of the company’s industrial and municipal markets, technological advances by competitors, the company’s ability to improve its operating performance in its fire rescue and refuse body plants, risks associated with the execution of planned plant closures, increased warranty and product liability expenses, risks associated with supplier and other partner alliances, changes in cost competitiveness including those resulting from foreign currency movements, disruptions in the supply of parts or components from the sole source suppliers and subcontractors, retention of key employees and general changes in the competitive environment.

Results of Operations

      The following table summarizes the company’s results of operations and operating metrics for the three-year period ended December 31, 2004 ($ in millions except per share amounts):

      Orders increased 10% in 2004 to $1.20 billion from $1.09 billion in 2003. US orders rose 8% with strength in most municipal and industrial product lines. Orders in 2004 include a $47 million airport parking system order and significantly lower municipal fire apparatus orders. Non-US orders increased 17% for the year with 8% due to stronger non-US currencies. The increase was driven by export orders for fire rescue apparatus and environmental products, and growth in international orders for aerial devices. Sales declined 1% to $1.14 billion as a result of weakness in the fire rescue and refuse truck body businesses. Excluding these businesses, sales increased 7% in 2004. The company reported a loss from continuing operations of $12.7 million, reflecting losses incurred by the fire rescue and refuse truck body businesses, restructuring charges, and higher corporate and interest expenses. The loss from continuing operations was $.26 per share in 2004 compared to income of $.73 in 2003. Earnings from discontinued operations totaled $.22 per share in 2004 with the company recording a net loss of $.05 per share.

      In 2003, diluted income per share from continuing operations totaled $.73 on sales of $1.15 billion. Sales in 2003 rose over 2002’s results principally due to the full year effect of the refuse business acquisitions made in late 2002 and increased Fire Rescue Group shipments. Despite the increase in sales, operating income declined in 2003. Weak US municipal and industrial markets depressed sales of higher margin products in the Safety Products and Tool groups and reduced earnings in the refuse truck body businesses.

      The company recorded a net loss for 2004 of $2.3 million, which included $10.4 million of income from discontinued operations. Discontinued operations include Justrite Manufacturing Company, L.L.C. and Technical Tooling, Inc., which were divested by the company in the fourth quarter of 2004 and Plastisol B.V. Holdings divested mid-year. Net income in 2003 was $37.3 million including a $.4 million after-tax loss on the sale of the discontinued Sign Group operations. 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”. In accordance with SFAS No. 142, goodwill is no longer amortized beginning in 2002.

      The company recorded an operating loss of $.5 million in 2004 compared to operating income of $61.7 million in 2003. Included in the results were restructuring charges of $15.4 million in 2004 and $4.8 million in 2003. In addition to the increased restructuring charges, the 2004 decline in operating results was driven by losses incurred by the refuse truck body and fire rescue businesses and higher corporate expenses. The refuse truck body operations experienced lower production volumes, higher raw material costs related to steel and steel components, and higher operational expenses due in part to the impact of the stronger

Canadian dollar. The Fire Rescue Group recorded a loss on a large, multi-year contract for fire apparatus and experienced lower margins due largely to higher material costs related to steel and aluminum components and low production. Operating income increased in Safety Products, Tool and Environmental Products businesses excluding refuse truck bodies largely as a result of increased sales and generally stronger markets.

      Interest expense increased 7% to $20.8 million in 2004 from $19.4 million in 2003. This increase was primarily due to higher short-term interest rates in the second half of 2004. Interest expense declined 2% in 2003 from $19.8 million in 2002 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. In 2003, 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.

      The company’s 2004 effective tax rate of (49.8)% reflects the tax benefit of the loss incurred as well as the impact of tax credits and the effect of tax-exempt municipal income. The company’s effective tax rate of 16.5% in 2003 was significantly below the 23.6% rate in 2002. The lower tax rate in 2003 reflects the effect of a one-time benefit associated with the closure of a production facility in the United Kingdom (U.K.) and the higher relative impact of tax credits and tax-exempt municipal income.

      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 for its US plans to 6.00% as of December 31, 2004 from 6.25% and 6.75% as of December 31, 2003 and 2002, respectively. The changes in the assumptions resulted in additional pension expense of $2.7 million in 2003 and a further increase of $1.5 million in 2004. In January 2004, the company also established its other significant cost assumptions for its US pension plans as follows: expected long-term rate of return on plan assets — 9.0%; rate of increase in compensation levels — 3.5%. These assumptions remain unchanged for 2005. The company expects that the change in the discount rate assumption will further increase 2005 pension costs by approximately $.5 million to $1.0 million, or about $.01 per share, compared to 2004. 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. During 2003 and 2004, the company took some initial steps to move toward a common retirement benefit platform. One of these steps has been to close off participation in defined benefit plans by new hires for a significant majority of its operations. Among other things, the strategy provides for a more predictable retirement plan cost.

      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.

Restructuring Charges

      The following table summarizes the company’s restructuring charges by segment for the two-year period ended December 31, 2004 ($ in millions):

      In June 2004, the company announced the implementation of the first steps of a broad restructuring initiative. The plan is aimed at enhancing the company’s competitive profile and creating a solid foundation for

annual revenue growth in the high single digits. The measures included improving the profitability of the refuse truck body, fire rescue and European tooling operations, divesting non-strategic business activities and improving the company’s overhead cost structure.

      The company decided to close its Leach production facility in Oshkosh, Wisconsin, and consolidate production of rear-loading refuse truck bodies into its facility in Medicine Hat, Alberta. The company expects to complete the plant closure and transfer production in early 2005. The Environmental Products Group incurred $8.4 million in restructuring charges for the year ended December 31, 2004. The total consisted of a $2.9 million impairment charge to adjust the value of certain manufacturing equipment to its net realizable value, a $1.5 million write-off of a tradename valued as an intangible asset, $2.9 million relating to employee severance and related costs and $1.1 million of other costs. The company expects to incur a total of approximately $10.5 million in restructuring charges to complete its restructuring plan for the group with the remainder occurring in 2005. The remaining $2.9 million expected to be incurred in 2005 principally relates to employee severance and related costs.

      The company closed its 120,000 square foot production facilities in Preble, New York and consolidated US production of fire rescue vehicles into its Ocala, Florida operations as of December 31, 2004. The consolidation was possible because successful lean manufacturing initiatives reduced manufacturing space requirements in the Fire Rescue Group, and because of progress made to rationalize and structure the broad array of vehicle offerings. The Fire Rescue Group incurred $5.4 million in restructuring charges for the year ended December 31, 2004. The total consisted of $2.5 million in real property and manufacturing equipment impairment, $2.6 million in employee severance and related costs and $.3 million of other costs. The company expects to incur total restructuring costs of $6.1 million with the remainder occurring in 2005.

      The company is also reducing the level of tooling production in France and transferring some production to its Portugal facility, which began operations in 2003. The transfer is part of a broader plan to reduce fixed overhead and shift the manufacturing footprint to lower-cost locations. The Tool Group incurred $1.2 million in restructuring costs for the year ended December 31, 2004. The total consisted of manufacturing equipment impairment of $.2 million and severance for terminated employees of $1.0 million. The company expects to complete the consolidation by the second quarter of 2005 at a total estimated cost of $1.3 million.

      The company’s corporate office incurred $.4 million in restructuring charges for the year ended December 31, 2004; these costs related to outside services directly attributable to the restructuring plan.

      In the first quarter of 2003, the company approved a restructuring plan that principally consisted of the closure of two manufacturing facilities to improve operating efficiencies and reduce costs. The company closed a facility in the United Kingdom and reduced headcount at other Safety Products Group businesses resulting in restructuring costs of $3.3 million for the year ended December 31, 2003, principally consisting of equipment impairments and employee termination and benefit costs. The Tool Group incurred $.9 million of restructuring charges for the year ended December 31, 2003, principally consisting of severance costs relating to the closure of a manufacturing facility in New York. The Environmental Products Group incurred $.6 million of restructuring charges for the year ended December 31, 2003 relating to ceasing production of certain sweeper products and reduction in personnel.

Environmental Products Operations

      The following table presents the Environmental Products Group’s results of operations for the three-year period ended December 31, 2004 ($ in millions):

      Orders were 14% higher in 2004, largely driven by sweeper and sewer cleaner trucks. The increase is from both higher unit volume and higher pricing. US orders were up 12% principally reflecting stronger US municipal demand. Non-US orders were up 30% on stronger orders for sweepers, sewer cleaning trucks, and industrial vacuum trucks in the Middle East and Asia, and for sweepers in Europe. In 2003, orders increased 16% due to the refuse truck body business acquisitions. Excluding these acquisitions, orders were down 4% primarily due to weaker US municipal demand in 2003.

      Net sales increased 4% to $368 million in 2004 from $353 million in 2003. Combined, sweeper and sewer cleaner sales increased 13% to more than offset the 20% lower refuse truck body sales. The group’s sales increase resulted from slightly higher prices, a stronger Euro, accounting for approximately 1% of the increase, and slightly higher unit volume. Refuse truck body sales were down due to the loss of business from one large industrial customer. In 2003, net sales increased 19% due to refuse truck body acquisitions; excluding refuse business, net sales declined 5% in 2003 as a result of weak US municipal demand and the company’s decision to reduce industrial lending activity.

      The group reported an operating loss of $3.8 million in 2004 compared to income of $17.7 million in 2003. The group incurred $8.4 million in charges from restructuring activities in 2004. The poorer results were mainly due to losses in the refuse truck body business, which was impacted by lower production volumes, higher raw material costs and increased operating expenses driven by the stronger Canadian dollar. Refuse steel and steel component costs increased $6.3 million in 2004 and were partially offset by higher sales pricing levels. Higher steel and steel component costs were largely offset by sales price increases during the year in all other businesses in the group. In 2003, operating income declined 23% from $23 million in 2002 principally due to weakness in US municipal markets, lower financing revenues and one-time costs associated with sweeper production facility consolidation and sweeper conversion to new EU standards.

Fire Rescue Operations

      The following table presents the Fire Rescue Group’s results of operations for the three-year period ended December 31, 2004 ($ in millions):

      Orders declined 4% to $356 million in 2004 from $369 million in 2003 primarily due to weakness in US municipal and government demand more than offsetting increased non-US orders. The 2004 decline in orders was caused by price increases, temporary restrictions placed by the company on stainless steel truck orders while production was moved from Preble, New York to Ocala, Florida, and the company’s decision to reduce discounting of fire apparatus. In 2003, orders declined 2% primarily stemming from weakness in US municipal and government markets and lower export orders.

      Sales declined 10% to $361 million in 2004 from $402 million in 2003 with the decline resulting principally from lower volume partially offset by an increase in currency of 1%. The company estimates that approximately 2-3% of the volume decline resulted from a change in sales and discounting terms with its dealers. Increased shipments of wildland and brush products and non-US aerial products were more than offset by declines in fire fighting and rescue vehicles for US markets. Net sales in 2003 increased as a result of productivity improvements and stronger European and Canadian currencies.

      The group recorded an operating loss of $23.2 million in 2004 compared to income of $14.8 million in 2003. Results in 2004 included $5.4 million in restructuring charges and a $10.6 million loss incurred on a large multi-year contract for complex fire apparatus for the Royal Netherlands Air Force. Operational issues throughout the year in the Ocala, Florida plant also adversely impacted profitability.

Safety Products Operations

      The following table presents the Safety Product Group’s results of operations for the three-year period ended December 31, 2004 ($ in millions):

      Orders increased 30% in 2004 including 20% from a $47 million airport parking system order for the Port Authority of New York and New Jersey, 3% from emergency vehicular warning products, and 2% from currency. US municipal and government orders increased 10% from strong demand for military and nuclear warning systems and for municipal police products. In 2003, orders declined 7% following a large parking system order received in 2002 for the Dallas/ Fort Worth International Airport.

      Net sales rose 3% to $249 million in 2004 from $242 million in 2003. Higher unit volumes in industrial lighting and signaling and emergency vehicular warning systems contributed 3% and foreign currency impacts contributed 2% to the sales increase. Partially offsetting these increases were lower parking revenue and control systems, which declined in 2004 following strong sales in 2003 driven by a large project for the Dallas/ Fort Worth International Airport.

      Operating income increased 17% to $32.9 million following depressed earnings in 2003 resulting from costs related to the closure of a production facility in the U.K. and an unfavorable mix of product sales lowering operating margins. Higher sales volumes made up 5% of the growth in 2004 and currency contributed 3%.

Tool Operations

      The following table presents the Tool Group’s results of operations for the three-year period ended December 31, 2004 ($ in millions):

      In the US, tooling orders increased 9% in 2004 as the US industrial economy strengthened from the prior year. International orders were flat compared to 2003 as strength in Asian tooling markets, and to a lesser extent Canadian tooling markets, was offset by weakness in the European cutting tool market throughout the year. Net sales increased 5% to $161 million in 2004 from $153 million in 2003; approximately 2% of the increase resulted from currency with most of the balance a result of increased volume. The increase reflects stronger demand for industrial cutting tools and die components in the US, Canada and Asia. In 2003, sales increased 2% mainly due to a stronger European currency and a weak US cutting tool market.

      Operating income increased 2% to $15.3 million in 2004 from $14.9 million in 2003. The growth resulted from increased sales volumes, higher pricing, and productivity improvements. While tool steel cost increased during 2004, the group fully recovered the impact through increased sales prices. In 2003, operating income declined 15% resulting from pricing pressures, costs and operating inefficiencies related to the closure of a New York production facility, increased sales of third party resale products and significantly higher pension and medical costs. The group incurred $1.2 million of restructuring charges in 2004 and $.9 million in 2003.

Corporate Expense

      Corporate expenses totaled $21.7 million in 2004, $14.0 million in 2003 and $12.4 million in 2002. The increase in 2004 reflects higher expenses associated with firefighter hearing loss litigation, increased product liability reserves, higher independent audit and audit staff expense to meet the requirements of Sarbanes-Oxley Section 404, and the addition of centralized human resources and information technology departments. The increase in 2003 reflects an increased bad debt provision and higher pension expense.

Legal Matters

      The company has been sued by over 2,400 firefighters in 33 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 began in 2004; the company continues to aggressively defend the matter. For further details regarding this and other legal matters, refer to Note N in the financial statements included in Item 8 of this Form 10-K.

Financial Services Activities

      The company maintains an investment ($197 million and $230 million at December 31, 2004 and 2003, respectively) in lease financing and other receivables that are generated by its Environmental Products and Fire Rescue operations. The decrease in leasing assets primarily resulted from early loan payoffs, the sale of a $9.6 million portion of the taxable leasing portfolio, and the continued runoff of the remaining taxable lease portfolio resulting from the company’s decision to no longer extend new leases to industrial customers. Financial services assets generally have repayment terms ranging from one to ten years. These assets are 91% and 87% leveraged as of December 31, 2004 and 2003, respectively, consistent with their overall quality; financial services debt was $178 million and $201 million at December 31, 2004 and 2003, respectively.

      Financial revenues totaled $12.2 million, $13.4 million and $16.1 million in 2004, 2003 and 2002, respectively. The decline in 2004 reflects the sale of a portion of the company’s taxable portfolio and lower financings of municipal product sales. The decline in 2003 reflected the company’s decision to cease financing new industrial product sales and lower lending rates due to a declining interest rate environment.

Financial Condition, Liquidity and Capital Resources

      During the three-year period ended December 31, 2004, the company utilized its cash flows from operations to pay cash dividends to shareholders, to fund sustaining and cost reduction capital needs of its operations, and to fund in whole or in part strategic acquisitions of companies operating in markets related to those already served by the company. Beyond these uses, remaining cash was used to pay down debt and to repurchase shares of common stock.

      In 2004, the company began classifying all cash flows from lease financing and other receivables as part of its operating activities. Cash flows from operating activities for the years ended December 31, 2003 and 2002 in the consolidated statement of cash flows have been revised to include changes in lease financing and other receivables which have been reclassified to conform to the 2004 presentation. Management decided to adopt the above-described method as a result of concerns raised by staff of the Securities and Exchange Commission regarding the company’s previous presentation. The company’s presentation of cash flows in previously issued financial statements reflected the following:

      The consolidated statement of cash flows has been adjusted to reflect the fact that there is no cash received by the consolidated entity upon the initial sale of inventory recognized as a sales-type lease and to properly classify cash receipts from the sale of inventory as operating activities. A reconciliation of amounts previously reported in the consolidated statement of cash flows to the amounts in the current presentation can be found in Note A — Significant Accounting Policies.

      The company’s cash and cash equivalents totaled $14.9 million, $10.0 million and $9.7 million as of December 31, 2004, 2003 and 2002, respectively. The following table summarizes the company’s cash flows for the three–year period ended December 31, 2004 ($ in millions):

      Operating cash flow declined to $52.5 million in 2004 from $70.3 million in 2003 due to operating losses incurred by the Fire Rescue Group and refuse truck body operations, higher corporate expenses, lower proceeds ($7.7 million) from the termination of interest rate swaps and incremental payments of $5.4 million relating to restructuring plans, partially offset by increased collections attributable to the company’s financial services activities and the sale of a portion of the taxable leasing portfolio. In addition, the company made contributions of $9.6 million to its pension plans in 2004 compared with $4.2 million in 2003. Operating cash flow in 2003 declined from $102.1 million in 2002, in large part reflecting lower earnings, an increase in lease financing receivables in 2003 compared to a significant decline in 2002, timing of customer advances, the disproportionate increase in foreign sales with longer payment terms and multi-year contracts. Cash flows in 2003 also 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.

      In 2004, the company disposed of Justrite Manufacturing Company, L.L.C. and Technical Tooling, Inc. for cash proceeds of $40.1 million and $6.5 million, respectively. In addition, the company divested its 54% majority interest in Plastisol B.V. Holdings to the minority partner for $2.5 million in cash and a note receivable of $.4 million. These 2004 divestitures were in conjunction with the company’s restructuring initiatives announced in June 2004. In 2003, the company completed the sale of the Sign Group for cash of $7.5 million and a $4.2 million note receivable. The company acquired the refuse truck body 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.

      In 2004, the company repaid $62.4 million of debt by utilizing the proceeds from the sale of the three aforementioned businesses as well as the positive cash flow from operations. In June 2004, the company voluntarily reduced the size of its credit facility from $250 million to $200 million. At December 31, 2004, $45 million was outstanding under this agreement.

      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 feasible. After drawing on a portion of the $300 million back-up credit facility to pay off the commercial paper outstandings, the company replaced the $300 million facility in 2003 with a $250 million unsecured revolving credit facility maturing in November 2006 bearing interest at a variable rate of LIBOR plus .83%. At December 31, 2003, $75 million was outstanding under this agreement. In June 2003, 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 an average of 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.

      The company’s revolving credit facility contains covenants relating to a maximum debt-to-capitalization ratio, minimum interest coverage and minimum net worth. Due to weak operating results, the company’s results were below the minimum interest coverage covenant as of December 31, 2004. The company was granted a temporary waiver of this covenant until April 1, 2005. As of December 31, 2004, the company was in compliance with all financial covenants, as adjusted. At December 31, 2004, the company had borrowings of $45 million against its revolving credit facility. In January 2005, the company voluntarily reduced its revolving line of credit to $150 million due to reduced borrowing requirements. In March 2005, the company obtained a permanent amendment to its interest coverage covenant. At December 31, 2004, total manufacturing debt was $235 million, representing 37% of capitalization, down from 40% ($263 million) as of December 31, 2003. The company believes that its financial services assets, due to their improved overall quality, are capable of sustaining a leverage ratio of 91% at December 31, 2004. The company’s debt-to-capitalization ratio for its financial services activities was 91% and 87% as of December 31, 2004 and 2003, respectively.

      Cash dividends decreased to $19.3 million in 2004 from $38.3 million 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 US state and municipal markets and the lack of a conclusive rebound in the industrial economy; the company paid dividends of $.40 per share in 2004. Cash dividends in 2003 increased by $2.3 million from $36.0 million in 2002 due to the additional shares issued in late 2002 for the refuse acquisitions; the company paid dividends of $.80 per share in 2003. In February 2005, the company reduced its first quarter dividend to $.06 per share compared to $.10 per share in 2004.

      The company anticipates that its financial resources and major sources of liquidity, including cash flow from operations and borrowing capacity, will be adequate to meet its operating and capital needs in addition to its financial commitments.

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, 2004 ($ in millions):

      The company is party to various interest rate swap agreements in conjunction with the management of borrowing costs. As of December 31, 2004, the fair value of the company’s net position would result in cash payments of $5.9 million. Future changes in the US 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, 2004, the unrealized gain on the company’s foreign exchange contracts totaled $2.9 million. Volatility in the future exchange rates between the US 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):

      Security bonds for casualty insurance policies relate to the company’s workers’ compensation, automobile, general liability and product liability policies. Outstanding financial standby letters of credit represent guarantees of performance by foreign subsidiaries that engage in cross-border transactions with foreign customers.

      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 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.

      The company performs ongoing credit evaluations of its customers. The company’s policy is to establish, on a quarterly basis, allowances 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 2004, the company’s operating income would have decreased or increased by $.3 million, respectively. Though management considers the valuation of the allowances 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.

      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 1.4% in 2004, 1.4% in 2003 and 1.0% in 2002. 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 to the introduction of new custom fire rescue vehicles that incurred higher warranty costs when used for the first time. Management believes the reserve recorded at December 31, 2004 is appropriate. A 10% increase or decrease in the estimated warranty costs in 2004 would have decreased or increased operating income by $1.6 million, respectively.

      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 2004 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 reserve 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 reserve established at December 31, 2004 appropriately reflects the company’s risk exposure. The company has not established any reserve for potential losses resulting from hearing loss litigation (see Note N); if the company is not successful in its defense, it will record a charge for such claims at the time a judgment or settlement is made.

      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 2003 and 2004 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 5% change in the operating margin assumption could result in a goodwill impairment in the Environmental Products Group of approximately $2 million. A significant portion of the goodwill in this group arose with the

acquisitions of the refuse truck body businesses in 2002, which have had poor operating results since acquisition.

Financial 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 options and forward contracts. The company does not hold or issue derivative financial instruments for trading or speculative purposes and is not party to leveraged derivatives.

      The company manages its exposure to interest rate movements by maintaining a proportionate relationship between fixed-rate debt to total debt generally within established percentages of between 40% and 60%. 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, 2004, 43% was used to support financial services assets; the weighted average remaining life of those assets is typically under three years and the debt is match-funded to the financing assets.

      The following table presents the principal cash flows and weighted average interest rates by year of maturity for the company’s total debt obligations held at December 31, 2004 ($ in millions):

      The following table presents notional amounts and weighted average interest rates by expected (contractual) maturity date for the company’s interest rate swap contracts held at December 31, 2004 ($ in millions). 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.

      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.

      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 options and forward contracts to manage these risks.

      The following table summarizes the company’s foreign currency derivative instruments as of December 31, 2004 by expected settlement date ($ in millions):

      See Note H to the consolidated financial statements for a description of these agreements. All of these derivative instruments qualify for hedge accounting treatment.

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, 2004.

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

FEDERAL SIGNAL CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2004 and 2003, and the related consolidated statements of income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Federal Signal Corporation and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with US generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Federal Signal Corporation’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2005 expressed an unqualified opinion thereon.

Chicago, Illinois

March 9, 2005

except for Note E, as to which the date is

March 15, 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

of Federal Signal Corporation

      We have audited management’s assessment, included in Item 9A(b) of the accompanying Form 10-K, that Federal Signal Corporation maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Federal Signal Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that Federal Signal Corporation maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Federal Signal Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2004 and 2003, and the related consolidated statements of income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2004 of Federal Signal Corporation and our report dated March 9, 2005, except for Note E, as to which the date is March 15, 2005, expressed an unqualified opinion thereon.

Chicago, Illinois

March 9, 2005

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

See notes to consolidated financial statements.

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY