Good day, ladies and gentlemen, and welcome to the first quarter 2010 Federal Signal earnings conference call. My name is Marisol and I will be your operator for today. At this time, participants are in a listen-only mode. (Operator Instructions) As a reminder, today's conference is being recorded. I would now like to hand the presentation over to Mr. Bill Barker, Senior Vice-President and Chief Financial Officer. Sir, you may begin.

Thank you. Good morning and welcome to Federal Signal's first quarter 2010 conference call. I'm Bill Barker, Federal Signal's Chief Financial Officer. Joining me on the call today is Bill Osborne, our President and Chief Executive Officer. We will be using some slides in the presentation. The slides can be found by going to our website, clicking on the Q1 Investor Call icon, clicking on the view detail link and selecting the webcast. We will also post the slide presentation to our website after the call. Before we get to the business review, I would like to remind you that some of our comments made today may contain forward-looking statements that are subject to the Safe Harbor language found in today's news release 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. Now, I will turn the call over to Bill Osborne.

Thank you, Bill. Although, we reported a slight loss from the quarter, there were several exciting developments for Federal Signal. We saw 23% year-on-year increase in orders from our continuing operations. Orders increased sequentially for the third consecutive quarter. And we completed the key acquisitions of VESystems and Sirit. The 23% increase in orders for our existing businesses was the result of strong increases across all of our key markets. Domestic, municipal and government orders were up 9% versus last year. Domestic industrial orders were up 38% and international orders increased 29%. Much of this order growth was in our longer cycle businesses which have leading market share such as Elgin Street Sweeper business, Vactor Sewer Cleaner business and our Bronto Skylift business. These strong orders have increased our backlog for our existing businesses by $25 million and will lead to improved revenue performance later in the year. I'll talk more about our expectations for 2010 in a little bit. But I can say that we expect to continue to see strong order growth versus last year throughout 2010. Turning now to the acquisitions we completed during the quarter, as many of you know, Sirit is a leading designer, developer and manufacturer of radio frequency identification technology for applications such as tolling, electronic vehicle registration, parking and access control, cashless payments and supply chain systems. VESystems designs, develops and deploys advanced, cost-effective, easy to use software applications and customer management systems to support billing and collection processes for the electronic toll collection industry. We are excited about these two acquisitions, which advance our stated strategy of growing Federal Signal's presence in the public safety and intelligent transportation markets. Adding Sirit and VESystems to our portfolio builds on the momentum we generated with diamond consulting services, a market leader in automatic…

Thanks, Bill. I'll give a fairly brief review of our financial results, which are included in today's press release. I would be happy to answer any questions at the end of the call or later today. Looking at our P&L for the first quarter, revenue was $167 million, which was down 10% versus last year, primarily as a result of our lower year end order backlog. Our gross margin was 25% which was about flat the last year, as cost reductions and an improved product mix, albeit the margin impacted lower sales. Operating expenses were reduced by $2.4 million versus last year, but this reduction was offset by the acquisition related costs of $2.6 million in the quart. These acquisition related costs, together with the lower sales in the quarter, resulted in an operating loss of $800,000. EPS from continuing operations was a loss of $0.06 compare to breakeven EPS from continuing operations last year. Turning to the segments for the quarter, our Safety And Security Group or SSG, generated $4.1 million of operating income in the quarter, resulting in a 6% operating margin, compared to a 7% operating margin last year. Q1 orders for SSG increased 8% versus last year, and around 6% sequentially versus Q4 2009. The overall order increase was driven by a 13% increase in orders for our fixed ALPR cameras, a 17% increase for our core industrial safety business, and 38% increase for BAMA, our European lightbar and siren business. These gains offset a 10% decline in our domestic lightbar and siren business. As this ended the quarter with an order backlog of $42 million versus $33 million at year end. Bronto, fire rescue business had an $8 million decline in sales, due to a lower year end backlog and the impact of the two-week…

Thanks, Bill. Our strategy at Federal Signal consists of two key components, continuously improving our margins and cost structure and driving growth through our public safety platform. We spoke at length last year about the results of our cost reduction efforts. Overhead costs were reduced $30 million in 2009. In addition, we reduced our working capital and divest some non-core assets to generate cash flow and better focus the company. As a result, we now have a leaner, more focused business structure. We will remain focused on cost reduction and cash flow in 2010. Some of our bigger cost saving initiatives such as facility consolidation, will have implementation costs that will largely offset the current year saving but will provide profit upside in 2011. One example of one of these cost initiatives is the project we completed in the first quarter to consolidate our four-wheel sweeper line for our Elgin business. The second part of our strategy focuses on driving growth through our public safety platform. We expect to deliver strong revenue growth and strong operating margins in our safety and security businesses, such as our warning systems business, our industrial safety business and our lightbar and siren businesses in both the U.S. and Europe. Our expectations are based on the combination of an increasing global demand for improved public safety, our market leading positions, and our ability to integrate new technologies solutions into these markets. In addition, as I mentioned in my upfront remarks, we've created a new business group, FS Tech. FS Tech brings together our three recent acquisitions, VESystems, Sirit and Diamond Consulting, as well as our PIPS and FAPD business. We now have significantly expanded presence in the robust and growing global ITS market, which will enable us to better help customers capitalize on public safety…

(Operator Instructions) And our first question comes from the line of Ned Borland from Hudson Securities. Please proceed.

Just getting a sense of your guidance here, and it kind of implies some pretty significant margin improvement in the back half. I mean, we know basically environmental, that's the consolidation. But fire and safety, I mean, is that just because of the better volumes that are going to flow through? Or are there other cost initiatives there that can lift the margins?

We have cost initiatives, Ned, in all of our businesses. And we are right in the middle of a facility consolidation project in our safety and security group. Where we'll be reducing overhead costs through facility consolidation. There'll be a lot of production moving into that facility and that will decrease our overhead costs.

Okay. And then, the impressive orders that you've seen really across the Board, what is the mix look like from a margin standpoint?

In terms of, maybe be more specific? Are you talking about segment revenues?

Yeah. Well, that and operating margins. I mean, some of these businesses set a long cycle. How do those compare? Are they high margin products or sort of middle of the pack or what?

As we mentioned, it's really across the portfolio. We mentioned the JetStream business had very strong orders in the first quarter. And we referenced that ESG profit margin was up because improved mix to the JetStream business. So, we think that will probably help, our margins on the ESG businesses are pretty strong. We've got order growth there as well. So, since it was across the business but is in both our higher margin and our lower margin businesses, we expect the volume improvement to drive margin improvement. And we should see a little more favorable mix as we get a little more growth out of the higher margin business.

Okay. And then finally, I was wondering with these FS Tech businesses, can you give us a sense of what the revenue was for all of those for the quarter? Or do you not have that together yet?

We haven't broken it out yet. We're reporting the segments as they are in the 10-Q or they will be in the 10-Q and as they were in the earnings release. We'll be breaking out the segment separately in the second quarter.

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

Along the lines where Ned started on the margins and the order activity, what about price cost? Were you able to raise prices yet this year? And material costs? Are you hedged? Or do you have material in inventory already?

Yeah. Ned, we have a regular pricing policy and we did have a very slight price increase that we enacted January 1 across most businesses. So, far we've seen those prices stick. But our policy is fairly moderate price increases, while we have this existing backlog, we don't think it's a great pricing environment but we have seen what we have stick so far. Commodity prices, we did see an increase in commodities for the first quarter of this year. But we have tried to take some action to lock in steel and resins for the remainder of the year. So, we think our commodity costs will remain stable from this point on through the rest of the year.

And I wonder if you could characterize some of the order activity like in some of your municipal businesses. I don't know if Elgin's sweeper picked up but some of your other vehicles. It seems early to get a recovery in those businesses?

Well, we picked up orders in every segment of ESG. So, it was pretty strong across the Board. Clearly the biggest increases, though, were in the industrial sector of those businesses. So, JetStream and Guzzler focus exclusively on the industrial segment. And those were up significantly higher than our municipal customers. But we did see an increase in municipal as well.

And the acquisitions that you've done and the new growth strategy, congratulations, because it's interesting, and the thesis is interesting. But I wondered like about the growth rate and the profit margin for the segment. What do you think the growth rate is going to be like over the next three years and what kind of profitability are you going to be getting out of it?

Well, when we look at the U.S. tolling market, the last couple of years it's been growing at a rate of, electronic tolling. It's been growing at a rate of about 17% in the last couple of years. And we expect that to continue, with even higher growth rates in other markets around the world. So, when we look at areas like South America, India, places that have really just scratched the surface on tolling, we expect to see growth rates at least that much or hire. As for margins, it's too early to break that out. I think as Bill mentioned we're going to do segment reporting on FS Tech in the second quarter. But obviously these are less asset intensive businesses. So, we expect to have margins above our overall enterprise average.

Can you breakout what the mix of FS Tech is, North America, the rest of the world?

FS Tech's businesses today are primarily focused on the North American market. VESystems, for example, is exclusively in North America. Sirit has a bit of a revenue mix around the world, but most of it is in North America. And PIPS revenues are about half and half North America and rest of the world. FAPD has a very small revenue mix outside of North America.

Okay. And I want to get back in the queue, so I don't take up too much time. But the highway bill keeps getting pushed out. And there's an issue about gas taxes going up or open, I mean, is it a serious consideration in Congress to look at some alternative to a gas tax?

I think it is. I mean, we're in constant contact. I can tell you that the house markup does contemplate a vehicle miles traveled tax. And there is research funding in the current markup for that. We do believe the Senate, although, it hasn't taken up the bill, we do believe that there are some key advocates in the Senate that support a vehicle miles traveled tax. But to a large degree, this goes beyond even the highway bill. States themselves are taking up the electronic tolling mandate for state controlled road and to provide additional funding for maintenance and support. So, to a large degree, it's not completely dependent on the surface transportation reauthorization. We're seeing a lot of activity in the states themselves, including conversion of HOV lanes to HOT lanes. So, it's kind of a secular trend in the U.S. And then, when we look around the world we're seeing just a growth in infrastructure in the developing world, and tolling becoming a viable alternative to generate funds for new construction and maintenance of roads around the world.

Our next question comes from the line of Steve Berger from KeyBanc Capital Markets. Please proceed.

Hi. Good morning. You have consistently suggested the new products are going to come in above current consolidated margins which I think make sense. But we know of another public company's tolling business that has around 20% operating margins, do you think that's achievable overtime?

Steve, I mean, I'm not sure if I can, we're not a pure tolling company in that respect. FS Tech's got to have a mixture of businesses. So, although, tolling will be a significant part of its revenue. For example, Sirit has a significant business in the supply chain industry where the margin structure is somewhat different. You also have to remember that FAPD is a significant part of the FS Tech portfolio. So, its margins will be a blended mix of the tolling activity and the other lines of business that FS Tech supports.

I understand. And I know, Bill Barker, I heard you say that you're going to break it out in the quarter, next quarter. But can you just kind of frame up on an annualized basis how we should think about FS Tech? Is it closer to 200 million in revenue right now or 100 million? Just any kind of annualized range you could give us?

I think we're going to hold-off on that until we get to the second quarter. Right now for modeling purposes, it's probably better to stick with the existing segments and then add on the new acquisitions.

Well, just a big picture question. Given the higher growth rates that you referenced in some of the electronic tolling and other markets there and what should be higher operating margins, is it your expectation that earning power of FS Tech overtime is going to exceed that of the legacy products? And how should we think about the timing of being a real contributor?

Well, we expect FS Tech to be accretive in 2011.

No. I understand that. I hope so. But I'm saying, how big do you think that this FS Tech segment becomes? Does it have the ability to earn as much as ESG overtime or one of the other segments or all of the segments?

Absolutely, I mean, we expect it to be a segment at least equivalent in size to our current lines of business. And that's our objective is to grow it to that level. You know, in terms of the timeframe, I don't want to be very specific. But, certainly in a three to five-year timeframe we believe that it could be a significant contributor to our overall business.

Okay. And one last question. I appreciate the forward look at 11 helping us frame up the earnings power there. I think that's helpful. On the last call you did suggest the double-digit margins for the entire company should be achievable on $1 billion in sales. Just doing the math that suggests over a $1 in earnings plus or minus. Is there any reason to think this isn't going to happen assuming that this is an actual recovery whether it's on a run rate at the end '11 or as we get into '12?

We're very confident about 2011. And so I think if you look at the run rates in our historical performance at that level of revenue, I think with the margin improvements and cost reductions that we put in place, I think that is achievable.

Our next question comes from the line of Charlie Brady from BMO Capital Markets. Please proceed.

Hi, thanks. Good morning, guys. I just got on the call late. So, if my questions have been answered just let me know and I'll pick it up with you later. On the safety business, on the non-US orders that were up nicely, how much were non-U.S. orders were up if you back out that large police order you got?

You know, I'm going to have to do the math and get back to you on that one, Charlie.

Okay. And then, if you look at the fire business, was there any meaningful FX impact on the order of revenue dropping?

Not significantly, particularly [off Inc.] being a relatively small number in the quarter. FX did never big impact on it.

No impact on the orders?

A little bit but not significantly enough comparing to first quarter last year was a slight positive, comparing to fourth quarter of last year if you're looking sequentially it was a slight negative.

Okay. And in terms of the impact on that strike, I know you broke it out the off Inc. impact. But when we look at it from a sales standpoint, so I understand is this business that is now going to get made up in perhaps the second quarter or beyond that? Or what's really the sales hit that you had in the first quarter and does it just get picked up later on?

We will ship those units in the second quarter. I don't have the exact sales number associated with those units. But I can tell you that we will ship those units in the second quarter.

Okay. And one final one and I'll hop in the queue. You guys mentioned what the expected tax rate would be in 2010?

We didn't. But for modeling purpose, I would use 27%, 28%, somewhere in there.

Our next question is a follow-up from the line of Ned Borland from Hudson Securities. Please proceed.

Hi, guys. Maybe if we could just look a little granularly on FS Tech and how, a certain road project would help all the businesses. I mean, this one that you announced yesterday in Orange County, I mean, it was won by Sirit. How does that help pull in the other businesses that you've acquired? Are there opportunities for you on that project, just trying to figure this going forward?

Yeah. I think the way to think about this, Ned, is that when, let's say for example a tolling authority wishes to convert an existing HOV lane to a high occupancy tolling lane. Well, FS Tech is in a position to provide an end to end solution for that lane. So, we can provide vehicle classification, we can provide enforcement for people driving in that lane without a toll transponder, we can provide the transponder itself, and we can perform the transaction processing through our VESystems activity. So, I think, the best way to consider this is that a customer with a tolling solution can request all or any of those functions from us. And we are in a position to provide them a seamless solution. So, we're going to market with an integrated approach, but we also have the opportunity to plug-in any one of those business functions into an existing application. So, I think that's the best way to try to model it. And we believe that we're the only company in North America that owns all those technologies rather than subcontracts them all or portions of them. So, where we believe we have an advantage to be able to seamlessly integrate all these technologies and reduce our costs and create a seamless solution.

Okay. So, this project where it was won by Sirit, I mean, does that help out? It's got to help out your diamond tag business, does it not?

Well, no, Orange County is an existing Sirit application so that's more of an upgrade to their existing tag and reader business. That particular one is an upgrade project.

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

Thanks. Just to follow-up on Charlie's question about the Finland delay. The $0.5 million of operating profit, does that shift from the first to the second? Or are there some costs associated with the delay?

Well, there were some costs, some inefficiency in getting materials in and such. But the majority of it should shift into the second quarter.

Most of those costs would have been incurred in the first quarter.

And the corporate expense excluding the $2.6 million, you're at $5.6 million. Is that a good run rate for the rest of the year? Or what should we think about for corporate expenses?

Yeah. I think that's probably a pretty good run rate. Let me just check my information here. Yeah, I think as an average for the balance of the year that's probably a pretty good number.

By average you mean it might be lower in the third, and higher in the fourth or something?

Yeah. I mean, there's a little bit of movement around. We had our annual meeting this quarter. There's some expenses related to things like that. But I think on average for the next three-quarters that's a pretty good number.

We also have hearing loss trial scheduled in Philadelphia in the middle of the second quarter. So, there are potential expenses in the second quarter that are difficult to quantify at this point.

At this time, I would like to turn the call over to Mr. Bill Osborne for any closing remarks.

Well, as I mentioned in my remarks, this is an exciting time for Federal Signal. We believe that the economic environment is improving. We've continued to see signs of that improvement here in the early days in April. We're very excited about our recent acquisitions and the opportunity to build an end to end solution and the intelligent transportation systems market. We'll have a lot more to say as in the coming quarters. And I thank you for joining us.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.