Good day, ladies and gentlemen, and welcome to the Federal Signal Fourth Quarter 2008 Earnings Conference Call. My name is Alicia and I will be your operator for today. At this time all participants are in a listen-only mode. We will have a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder this conference call is being recorded for replay purposes. At this time, I would now like to turn the call over to Mr. Bill Barker, Senior Vice President and Chief Financial Officer. Please proceed.

Thank you. Good morning and welcome to Federal Signal's fourth quarter 2008 conference call. Joining me on the call today is Bill Osborne, our President and Chief Executive Officer. Before we get to the business review, I will remind you that some of our comments may contain forward-looking statements that are subject to the Safe Harbor language found in today's news releases and in Federal Signal's filings with the Securities and Exchange Commission. These documents are available on our website www.federalsignal.com. We will file our Form 10-Q shortly. We will be using some slides in the presentation a little later in the call. The slides can be found on our website. And now, I will turn the call over to Bill Osborne.

Thank you, Bill. As we discussed in our press release, we reported earnings per share from continuing operations of $0.10 for the quarter compared to $0.23 per share last year. This year's figure includes an $0.08 per share related to one-time costs... related to obligations associated with our China joint venture, and $0.04 per share primarily for severance for cost related to restructuring actions. I will discuss both for these charges in a moment. I feel the company performed well in the fourth quarter considering the economic environment we find ourselves in. Our revenues for the quarter were virtually flat to last year, down less than 1% despite a negative 2% net currency impact. And we continue to see good growth in some of our key public safety businesses. Although our orders were weak down 20% versus last year due to the global economic challenges, we entered 2009 with an order backlog of over $300 million, Will Barker will review the sales and income results by business units in a few minutes. But I'd like to address a few overall points first; the actions that resulted in our Q4 charges, an update on our hearing loss expenses, the current marketplace, and our expectations for the first half of the year. First, the Q4, charges, there was a $10.4 million pre-tax charge related to our China joint venture primarily due to our obligation to guarantee the joint venture's debt. The JV was established to produce and sell refuse vehicles and sweepers in the Chinese market. However, the joint venture has not generated the expected profitability since its inception a few years ago and the current economic challenges make it unlikely that the joint venture will be profitable at any time in the near future. We are currently working with our local…

Thanks Bill. I will give a fairly brief revenue of the numbers, most of which are included in today's press release and some of which are on the slides that we will be using. The slides can found at www.federalsignal.com. I'd be happy to answer any questions at the end of the call or later today. Looking at our P&L for the quarter, revenue was $254 million which was down less than 1% as Bill mentioned. The net currency impact on revenue for the quarter was little more than negative 2%. Strong revenue growth at Bronto offset modest declines at ESG and SSG. Gross margin for the quarter improved from 26.3% last year to 27.3% this year driven by improved throughput and cost efficiencies at Bronto following the completion of the capacity expansion, and by growth in some of high margin SSG businesses including our PIPS automated license plate recognition camera business, and international warning systems business. Operating expenses increased $6.3 million. The key drivers of the increase were higher net cost for the hearing loss trial, cost associated with executive changes, and higher selling expenses related to the Bronto sales increase. As Bill discussed, restructuring cost for the quarter were $2.7 million primarily related to severance expenses. Operating income for the quarter was $14.3 million or 5.6% of sales compared to $21.3 million or 8.3% of sales last year. Interest expense of $2.6 million was below last year's $6.1 million due to lower borrowings in the quarter. We had a total of $11.1 million related to our loss in the China joint venture in the quarter which included the $10.4 million pre-tax charge Bill mentioned. Our reported EPS from continuing operations for the quarter was $0.10 per share which included $0.08 for the cost associated with the China joint…

Thank you, Bill. With the completion of the part of this call dedicated to our recent results. I will now discuss Federal Signal strategy for enhancing near-term earnings and cash flow as well as growing shareholder value. Since I joined Federal Signal, I have performed an extensive review of each business within our portfolio to determine the optimum role each should play in pursuing our mandate to create shareholder value. I have visited every facility, seeing first hand how we work and talking with some of our employees in the field about how we can operate better as a company. I have also met with many of our customers and asked for their feedback. Putting together this strategy aimed at returning Federal Signal to consistent profitable growth has been a team effort. And I appreciate the perspectives of the Board and our management team. I have also been able to bring my own fresh perspectives to Federal Signal keeping all options on the table from the outset. In 2008, Federal Signal began its transformation. We've sharpened our strategic focus by divesting E-ONE, the tools business, and the vast majority of our leasing portfolio. Today, most of our businesses have the number one or two market position in their respective categories. Additionally, we improved our financial flexibility by using proceeds from those divestitures to pay down debt and improved our risk profile by decreasing the capital allocated to non-core or higher risk businesses. In short today Federal Signal has enhanced liquidity, a leaner capital structure, and the more focused business portfolio. The next few slides will outline Federal Signal's two-pronged strategy to achieve consistent profitable growth and deliver value to shareholders. Execution of this strategy will enable us to meet our long-term profitability and growth objectives. Specifically, we believe we will…

(Operator Instructions). Your first question comes from line of Charlie Brady with BMO Capital Markets. Please proceed.

Hey, thanks. Good morning. Could you give us some color as to on this new strategic plan as to what you'd expect the cost might be? Over what timeframe? And kind of when you're looking out the double-digit margins so what's your goal as far as getting that margin up there in terms of timeframe?

In terms of costs it's a little bit difficult to quantify because it depends certainly on the source of funding. Now for example, in the case that I noted in Cincinnati, a lot of our costs were offset by federal grant funding. And we've been able to offset the cost of the Ring of Steel project by with Cincinnati. We believe we have the lowest cost camera solution in the market. So we believe the overall cost to deploy the model we'll be able to be fund it through existing cash flow. And then second part of your question again Charlie?

Yeah, you talked about getting the company back up to double-digit margins may be if you can give some color as to sort of in your mind a timeframe that might happen?

Well, none of these initiatives are short-term, we have some initiatives that we expect to begin to bear fruit in the next couple of months. But others will bear fruit over the next couple of years. But we believe that over relatively short business planning period we can get all of our businesses consistently to double-digit margins. A lot of the efforts that we outlined at ESG will take significant time for example, the design cost reduction effort takes time as you redesign, and retune new parts.

Okay. And just switching gears, your guidance in Q, for the first half of '08 revenue is down 15% does that embed a foreign exchange head-win expectation?

No, we hedge about 70% of our currency exposure.

Okay. And so the backlog numbers are those adjusted for any currency or is it neutral?

It's Bill Barker, it's neutral to absolute number.

Okay, thanks. I'll get back in queue.

Your next question comes from the line of Walt Liptak with Barrington Research. Please proceed.

Hi, thanks, good morning, Bill and Bill.

Hi, Walt.

Hi.

With regard to the first half guidance for the 15% revenue declined and recognized in the some of the initiatives are going to be further up beyond the second half. Where do you expect your negative leverage to be on operating profits?

Well, I mean, we are very sensitive to volumes. Particularly in our most capital intensive businesses, so what's important for us is to keep a constant eye on the incoming order rate we... as I mentioned our plan is to take ESG into emerging markets to try to offset some of decline that we have seen in our traditional North American markets. But we are very sensitive to volume that's the highest negative lever on our profits.

Okay. But let me ask you this. Can you stay profitable in most of your segments for the 15% revenue decline?

We... our plan is to be profitable in 2009 that obviously depends on seeing a strong order rate coming in for the second half of the year. A couple of benefits that we have going for us is we still have strong backlog at Bronto. Bronto is now selling October production. So we believe we've got an opportunity to continue to drive ales through Bronto. We are managing our backlog very carefully at both the Vactor and Elgin unit, business units. And surprisingly our order rate has held up pretty well in the public safety sector. In January orders were flat versus last year. So we still have a plan to remain profitable for the full calendar year.

Okay. Are you implying that in the first half we might see breakeven or an operating loss in one of the quarters?

A very small operating loss. We expect the second quarter to be better than the first. But we expect a smaller operating loss in the first half of 2009.

Okay. All right. And as you were talking strategically Bill about the direction for public safety, you mentioned divestures and I wondered what if that meant that some of these legacy businesses with the vehicles were something that were... is that what you were thinking for divesture and then focusing more on the higher technology PIPS and blaster (ph) type products or is my thinking going too far with where you normally said divestures?

Well, we think ESG has a very important role to play in this strategy. It provides significant cash flow that allows us to continue to invest in our near-term growth opportunities. Given the valuation in today's market we don't think it's an opportune time to divest businesses. So given that back we think it's a little premature to discuss specific businesses. But when valuations normalize we'll be better prepared to discuss specifics. Let me just emphasize that we are going to be disciplined sellers in any divestitures we are not holding a fire sale here.

Okay I understand. And Bill, I wonder about the corporate expenses in 2009 if you can give us guidance, are we looking at a number lower than the 31 million because of lower legal expenses?

It's Bill Barker, we expect the number to be about the same. We expect our current forecast is at the hearing loss number which was $10.5 million last year. We currently have that in and about the same this year. So we don't see significant other changes in the budget so we're relatively flat year-on-year.

Okay, okay. And then I want to get back in queue but I want to ask when were just about the... one of the things that we're hearing about and you mentioned the stimulus that the government is looking at things that they can control like the AFG or other kind of Homeland security funding in shovel ready project, even military projects getting accelerated? And I wondered if there have been the phenomenon where you're saying lower municipal spending right now as municipalities hold back on their cash with the expectation that there is going to be more funding ahead I am wondering if you can just comment on that.

Well, most of our municipal customers do expect to get improved funding in the second half of the year, I mean that's the anecdotal evidence we've heard. Most of these customers can't be specific know because the funding is being funneled through the states. And so obviously, there is a bit of negotiation going on between state and municipal governments as to how that money will be spread around. We are expecting some improvement in the second half of the year. But as those projects get identified as I mentioned earlier our team is focused on identifying the appropriate sources of funding and helping our customers get access. I might mention the other opportunity we see is the reauthorization of a Highway Bill in the fourth quarter of this year. That particular bill and our products line up very well with the new administration's initiatives on green funding. We think our technology will allow us to create traffic management systems that reduce carbon emissions and increase the efficiency of the traffic flow of an area.

Okay. I understand. Okay, I will get back in queue.

Your next question comes from the line of Steve Barger with KeyBanc. Please proceed.

Hi, good morning.

Hi, Steve.

Hi, Steve.

Sorry if I missed this are there any other debt or investment obligations or guaranties for JV partners that we should be worried about?

No. No, the charge that we took in the fourth quarter was the full debt to guarantee the JV's full debt as well as to guarantee one of our partner's investments, but there is no other debt related to the entity.

Okay. And is if... will you be doing anything like that in the future on potential partnerships?

Anything like what, Steve?

Guaranteeing obligations or debt for JV partners?

Well, I'd just say what we will do in the future it would depend on the opportunity, probably with debt.

Okay. The run-rate for the litigation, how do you have the $10 million visibility already? Are you just assuming that the current run-rate is what you're going to incur over the next year? And where do you think the chances are as this issue extends into 2010?

Steve, it's difficult to say how far the issue would extend. We have a very good track record in defending these cases. It was not what I would call unexpected that we might experience a couple of losses. That's the nature of mass toward reform (ph) litigation. But I can tell we are committed to continuing to defend these cases as we think we are on meritorious grounds. We don't believe the company's products are actually causing these potential hearing losses.

No, right. I get that. But is the $10 million expectation based on a current run-rate of expenses per quarter?

Yeah, Steve, it's basically based on the fact that we currently have four more trial dates scheduled in 2009.

I see.

So we already have those on the calendar, is what's driving the budgeting.

Okay. The pre-tax loss that you discussed does that include charges or is that excluding restructuring activities?

Which pre-tax loss?

I think you talked about a potential pre-tax loss in the first quarter or may be the first half?

That would just be from continuing operations.

Okay. And with that expectation of a first half loss should we be worried about any debt covenants or can you remind us of what is due on the debt side in 2009?

Yeah, we've got $25 million coming due on the private placements. And as I mentioned we've got liquidity both in cash and in the revolver to cover that, as well as operating cash flow. We do have debt covenants out there. There are somewhat restrictive and some of that is going to depend on how things play out in the first and second quarter of the year. Given the visibility of the order pattern and our revenues are going to drive that. We're keeping a very close eye on it. But right now, we are okay.

Okay. And so you're expecting positive operating cash flow in first half '09 regardless whether you have a pre-tax loss or not?

I believe that's right.

Okay. Moving to public safety systems. Are you going to report that as a separate segment going forward? Now that it looks like it's around 200 million with the inclusion of lightbars?

That isn't our intention.

Okay.

We haven't changed the business structures, such that there's a separate business, had the reports to the CEOs of the... the division remains the SSG division.

Okay. I think you said the order rate there for, it was either PIPS or PSS, was 46% in two half '08. Where are you year-to-date on the comparable products versus that metric?

At PIPS?

Is that what the 46% metric was?

Yes. That was PIPS.

Do you know where it is year-to-date so far or--

There was a... PIPS was a number it's running about the same in January. The PSS number that Bill referred to which is the group of businesses that total over $200 million in revenue, those businesses were about flat in January but PIPS was up about the same amount as we saw in the second half last year. Just we'll get it right.

Okay.

And was your question full year or January?

Well, I said year-to-date but, January is fine, if you're seeing the same kind of growth rate. I just want to make sure that you're not seeing drop off relative to the strong performance in two half '08 or in 2008. And I know this is going to be a hard question to quantify but for the service model for PIPS that you're talking about, how did you calculate the mix of revenue growth versus margin or cash flow implications in providing lower upfront capital cost to customers? Just kind of, can you talk us through the thought process there in terms of how... why you're approaching it this way?

Well, we are approaching it this way because we've seen a significant increase in federal funding and that's allowed us to offset the upfront costs. So in our current project that we're running at Cincinnati, we know that the grant cycles run up to three years for an individual grant and that you're able to increase the penetration rates of these projects by driving grant funding. That allows us to offset the initial costs. We expect to achieve the contract renewal rates of at least one per year. So that gives you at least once per cycle, so that gives you at least a six year funding cycle. That allows us to reduce the upfront cost for customers.

And Steve, Bill referred to the Cincinnati project, the Rings of Steel project that is not currently being run on the services model, but it gives us a framework to build the financials in the cash flow model using that, and the returns in the cash flow returns and the paybacks are all very good.

And have you been now talking to other cities or brought other mayors or police to use through to kind of look at this. And can you tell us, how they are responding to the potential of having that network there?

Well, we are talking to a number of municipalities at both, the city, state and county level. And so, we are using Cincinnati as approving ground, but we are also talking to individual customers about their particular geography. We think everyone of these systems is unique, and it's important to drive a network that works specifically for that customer's geography.

All right.

I can tell you that we... there is a lot of excitement out there amongst our customers for this concept?

Well, that's the question, and this is the last one, I'll jump back in line. But, is it too early in the Cincinnati deployment to really be able to bring people in and explain to them, what's happening or is it still on the conceptual stage or can they look at tangible proof I mean, and I know you put out the statistics of what the systems provided. But can they let start going back in planning so that you could see further installations like this, potentially in 2009?

Well, Cincinnati is still on the deployment phase, of the 400 or so cameras that we talked about that were planned, that are planned for Cincinnati. We're probably about 50% through that installation. So to get the full benefit of the public safety network, we probably will finish deployment sometime mid-year, and then we'll begin monitoring crime statistics. But we are very encouraged by what we have seen so far with only a partial deployment of the network.

Okay. I guess I will ask one more. What's the revenue opportunity? Whether upfront and with the service opportunity from a city like Cincinnati on a full year basis? Do you have kind of an expectation that you can throw out there in terms of what the opportunity size is?

I don't think we're prepared to discuss that just yet, particularly, because we're still in a pilot phase with Cincinnati. I'd like to get those contracts signed and agree to before we talk those kinds of specific.

Okay. Thanks. I'll get back in line.

Your next question comes from the line of Ned Borland with Next Generation Equity Research. Please proceed.

Good morning, Bill and Bill. Most of my questions have been answered. I just have a quick one here on ESG. What were the international orders and sales like in the fourth quarter?

Just a second, we'll get that number for you, Ned.

International for... across the business or just for ESG?

Well, across the business if you got it there.

Yeah, in total, in the fourth quarter international orders were down about 15% for the full year it was about flat.

Okay. And then as a percentage of ESG, since you're going to be trying to penetrate developing markets with some of your products there. What is the percentage of ESG sales that is internationally, currently or where do you see that going?

Down the roof (ph), that we break it out by business group in total international sales for the company about 50%, about half of our orders were international. But as Bill mentioned, we still consider some untapped area that we want to try to get into, developing markets as well as driving our existing markets.

Okay.

ESG's international profile is perhaps the lowest in the portfolio. So that's one of the reasons we are targeting some emerging markets. ESG is disproportionately dependent on the North American market.

Bill again, let me correct myself, if you break that out. It's about 25% of ESG's business is international orders.

Okay. All right, great. Thanks.

Your next question is a follow-up from the line of Walt Liptak with Barrington Research. Please proceed.

Hi. I just want to clarify one thing, as the business is transformed and changed and you look to federal funding, is there more Homeland security money and things like the Highway Bill, a second thought about the Highway Bill as a funding source and less AFG funding?

I'm sorry, what was... I didn't get your question.

I guess the question is where... your federal funding sources in the past, AFG, because of the fire truck businesses and lightbars, et cetera. That was a significant funding source. But now with the business geared more towards the PIPS and public safety, it may be more transportation bill related or more Homeland security related. Is that the case now?

Yeah, the funding sources obviously changed for the public safety portion of the business. But I think that this concept lines out well with the new administration's initiative because not only is there an increase in spending related to public safety, there's also a huge push on now for green projects. And fundamentally, you can use this network to manage traffic flows, to congestion charging and that's huge really for our carbon emissions abatement and efficient traffic flow. So we think there'll be multiple funding sources beyond just Homeland security.

Okay. And in the Highway Bill, the way I am understanding is that there's... that there are line items for PIPS type expenditures?

The Highway Bill hasn't been written yet. We're working to get those earmarks in the Highway Bill.

Okay, okay, good. Thank you.

It's Bill Barker again here we're near the top of the hour. So I think we're going to warp it up here. Thanks to everybody being on the call. As I mentioned our 10-K will be filed the next day or two. And Bill and I are available for calls afterwards. So I'll throw it back over to Bill to wrap things up.

Okay. I'd like to thank you for participating in today's call. Let me conclude the call by noting that although the economic outlook is uncertain, is as uncertain as at anytime in recent memory, we have strong market positions as well as respected brands. We'll continue to make prudent investments to capitalize on our growth opportunities while remaining focused on executing our cost reduction programs and identifying additional cost savings. The changes of 2008 have given us a more focused business portfolio which puts Federal Signal in a better strategic position as we start 2009. I'm particularly excited about the opportunity we have to generate shareholder value by growing our public safety systems business. And I look forward to sharing our progress with you on future earnings call. Thank you very much.

Ladies and gentlemen, this concludes the presentation. You may now disconnect. Thank you and have a good day.