Good day ladies and gentlemen and welcome to your Fourth Quarter 2007 Federal Signal Earnings Conference Call. My name is Carol and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions). As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Mr. David Janek, Vice President and Treasurer.

Thank you, Carol, and good morning everyone and welcome to Federal Signal’s fourth quarter and year-end 2007 conference call. Joining me today are Jim Goodwin, our President and Interim Chief Executive Officer, and Stephanie Kushner, our Senior Vice President and Chief Financial Officer. On the call today, Jim will discuss some recent initiatives underway at the company and he will provide an update on the status of our four business groups. Stephanie will then comment on our financial results for the fourth quarter and full year of 2007, and she will provide an outlook for the first quarter and full year of 2008. Following these prepared remarks, we will open the call for your questions. Before we begin, I must 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 release and in Federal Signal’s filings with the Securities and Exchange Commission. These documents are available on our website, federalsignal.com. With that, I will turn the call over to Jim Goodwin.

Thanks, Dave, and good morning to everyone. As you know, I stepped into the leadership role of Federal Signal a little over two months ago and I’m very excited to be here. While our 2007 proved to be a challenging year in some respects, we continued to make progress in realizing our goal of positioning Federal Signal as an industry leader in providing solutions that advance safety, security, and well-being for workplaces and municipalities around the world. You should expect during my assignment that we will continue with many of the same strategies for growth, but we will have a greater focus on operational and financial performance. Over the last few months, I’ve spent a great deal of time with our customers and our employees, and I am confident that our strategy and vision are sound. We are delivering what our customers are looking for: quality products and solutions for an ever-changing marketplace. And I believe we are uniquely capable of addressing these market needs by leveraging our core competencies and continuing our transition to a market-focused organization. As we wrap up 2007 and look ahead to 2008, we have a number of important initiatives underway that will significantly enhance our ability to generate shareholder value over the long term. First, as you saw from our press release, we continue to review our portfolios of business. After careful consideration, our Board has decided to consider strategic alternatives with respect to our E-ONE businesses. Although the business is showing positive trends from the recovery plan, we have yet to generate positive shareholder return. Accordingly, we have engaged an investment bank to review strategic alternatives, and I am pleased to report that we have indications of interest from several potential suitors. We also announced last quarter that we would be meeting with…

Good morning. Thanks, Jim. As Jim indicated, our order intake was strong in the fourth quarter, up 17% from the prior year. About one quarter of the increase reflects the impact of the weak U.S. dollar on our non-U.S. sales. However, the balance of the uptick was broad based and therefore very encouraging. Our U.S. municipal and governmental orders were 14% above the prior year due to higher orders for sweepers, sewer cleaners, and fire apparatus. And U.S. industrial orders rose 10% year-over-year, mainly due to continued strong demand from rental companies for industrial vacuum and sewer cleaning trucks, and to a lesser extent, additional parking systems orders. Orders outside of the U.S. totaled $140 million, up 25% from the prior year, or 13% excluding the impact of currency. We’ve made a lot of progress on our international growth initiative. For the full year, orders for Federal Signal products outside the U.S. totaled $526 million, representing nearly $100 million rise from $430 million a year ago, of which only one-third of the increase is due to currency. Two years ago, when we embarked on a strategy to increase our international sales growth, we set a goal of having 40% of our sales outside of the U.S. by the year 2010. Given the strength of the foreign businesses and strong export demand, we were nearly there at 39% in 2007. Half of those orders were in Western Europe, but we also have a strong and growing customer base in Asia, the Middle East, and the rest of the Americas. This growth outside the U.S. reduces our reliance on the domestic economy as we navigate through a difficult economic period. So all in all, a solid quarter for orders. At year-end, our backlog had risen to $479 million, up from $403 million…

Thank you, Stephanie. We need to go to Carol.

My first question is about the corporate expenses. They were lower than I thought. You mentioned an insurance refund of $2.5 million. Did that show up in corporate expense line as an offset?

Yes, it’s a credit in corporate expense, so year-to-year our corporate expenses are lower on hearing loss by $700,000, a piece of which is that $2.5 million.

Okay. So your corporate expenses would have been the $4.8 million plus the $2.5 million. Is that right?

Yes.

What’s the run rate that we should use on a quarterly basis?

The problem is our corporate expenses include our hearing loss. And as we go into 2008, we are going to have between $8 and $10 million of hearing-loss expense. So we will talk about that publicly because it’s becoming such a significant piece of corporate.

Okay. But what I’m asking is the $4.8 plus the $2.5, that’s $7.3. Should we add the $2 million of litigation expenses to that?

Let me think about this.

Are you going to be at $9 to $9.5 million of corporate expenses?

We have taken some cost reductions in our corporate expense. So, I think our run rate on corporate expenses should be down. Our baseline should be down to about between $4 and $5 million a quarter. But then you would have to add the hearing loss to that. Maybe I am coming at it a different way, Walt. But basically, if you think of that as the baseline run rate of expenses and then layer the hearing loss heavily into the first two quarters.

Okay. That’s fine. I think I got it. And then the $20 million of cost-reduction actions, you are talking about $2 to $3 million in charges in the first quarter?

That’s correct.

That’s a pretty good return, or is there more charges that will come after that in the second and third quarter as you figure them out?

We are working on other things, but that will support approximately $20 million of lower costs.

The $2 to $3 million in charges?

Yes. So, the reduction in existing head-count is about 50 positions and then a lot of the other savings is coming from positions that are not filled today. So there is no restructuring costs.

Okay, let me just ask one more, it is maybe more of a strategic question then I will get back in queue, but what is the catalyst behind Bob Welding’s exit and what is the catalyst behind the divestiture of E-ONE? You have been struggling with E-ONE for ten years; the timing, I just question that, being in a recession and municipal spending turning down?

I think the Board has been concerned about the performance of E-ONE for some time, and we have been working aggressively on trying to find a recovery plan that would work, and I think, as I said in my comments at the beginning, we are really excited about what Peter has been able to do to re-energize the business, re-energize the dealer network, improve the quality of our product, reduce the labor input on the trucks. But at the end of the day, as I look at how we use the capital in this business and the opportunities we have to increase shareholder return, I believe, we have come to the conclusion that we can better deploy that capital and improve shareholder return in other ways. That’s basically the decision on E-ONE. We are encouraged by the progress, but I think as you look at the timeline, we see better opportunities to enhance shareholder return. With respect to Bob’s departure, Bob decided to retire. We had a long discussion with the Board about what he had tried to accomplish and felt that he had reached a point where he would like to probably take it easy for a little while. It’s been a tough business that he has been trying to turn around. So, it was a mutually agreed decision between Bob and the Board.

Your next question comes to you from the line of Ned Borland - Next Generation Equity.

I don’t know if I heard this, but an organic order growth rate for Safety ex-PIPS?

You didn’t hear it. I think it was 17%. We will verify that, Ned.

Okay. And just moving on here. Some of the implementation costs related to the parking systems, are those systems fully in now and completed or is there going to some cost overrun there?

They are going to still impact us this year. They should both be fully in and completed by the end of this year. We have parking lots operating at both sites. But the completion, the full tie-in of the system, is not yet complete. So I think I mentioned that’s still going to cost us probably at least for the first three quarters of this year.

Is it going to be the same magnitude that you saw in the fourth quarter?

Yes.

On a quarterly run-rate?

It will probably still shave a percentage point off of our operating margin.

Okay. And these head-count reductions, are these going to be immediately in the first quarter or are some of these reductions going to take place later on?

The head-count reductions will take effect immediately. People were notified yesterday and today. They won’t officially go off the payroll till the first of the month, but all of the affected employees have been notified.

And, Ned, I can confirm that 17% number. Ned Borland – Next Generation Equity: Okay, perfect. Thanks.

Your next question comes to you from the line of Charlie Brady - BMO Capital Markets.

Within the Fire segment, is it safe to assume that the Bronto business, if you sell the E-ONE, the Bronto would be included in that sale or would you hold on to that?

Bronto was not included in the sale. Bronto is a separate business unit today from an operating perspective, and we would intend to continue to hold on to that business unit and continue to grow it. We see it as a profitable, growing business.

What would you anticipate or longer term operating margin for that business as you look out three maybe five years? What goal do you have for that business?

Yes, they should be trending up to something closer to 10%.

Okay. And on the Chinese joint venture, it continues to lose money, is that part of your strategic look at your businesses, and what’s your thinking on keeping that business or not?

Our intention is to keep that business. We have been producing refuse trucks; that was our starter product line coming into China, and we are just now doing demos on street sweepers that we will bring in as well, which are going to help boost the top line. In addition to that, on the site of our joint venture, we also are starting up a wholly owned business, which is going to be producing some basic light bars and some products for the mining industry, which is very, very strong in China. So, we’re leveraging the investment there to help us bring some 100% owned business lines into the same production site.

Okay, and within the Environmental segment, as you look at the orders and the mix of chassis that you had in the fourth quarter, obviously, that impacted the fourth- quarter margin. As you look at the order in-take in that business, the mix of chassis, how does that compare with Q4 sales mix?

Going forward?

Yes. The orders obviously follow the way. In Q4 you had some mix issue in that the chassis number was higher and that hurt your margin. I’m wondering as you look at the current order book that’s come in, and the backlog, is that mix about same as Q4 or does the mix on the lower-margin chassis become less in 2008?

What has been happening in ESG is the fact that they had bought ahead some of the pre-2007 emissions chassis, so they ended up having some heavier sales of those from customers who might otherwise procure their own chassis. So it’s predominantly a 2007 effect. Having said that, and we move into 2008, they have a similar issue in that the new emission chassis prices are significantly higher than they were a year ago. So again, because we pass those through, it’s going to have something like I think a 30 basis point impact on our reported margins. So there are two quite different chassis-related issues, but in both cases they are having downward pressure on our reported margins.

What is your expectation for tax rate in 2008?

We are probably in the mid 20s. Assuming some strong recovery on our U.S. businesses, we won’t have such a difference between our foreign income versus our U.S. income, which should, all else being equal, raise our tax rate.

Your next question comes from the line of Steve Barger - KeyBanc Capital.

I know it’s difficult to predict timing for naming a CEO, but is there any additional detail that you can give? Are you thinking more 2Q or does that fall into the second half potentially of 2008?

It is hard to predict, Steve. We are having regular meetings with our recruiters, and we will get someone in place as soon as we can. But my estimate is it will probably be late Q2 early Q3, just knowing the marketplace.

Okay. You talked about the $20 million. I think that’s really encouraging in terms of savings in SG&A. Are there any other options for manufacturing cost reductions you have identified that we can think about for 2008?

I think there are several things underway. One, we mentioned the plant expansion at Bronto; that’s going to certainly be a plus for us on the material cost side. We continue to work on lean initiatives throughout the enterprise; we are seeing some very good traction at SSG on lean improvement, which is ultimately going to reduce the labor hours per product produced, as well as inventory; and we are beginning to see a take up in improvement in ESG as well. Stephanie mentioned that we’ve been working hard to get the material costs on the Pelican back down to where it was on the old Pelican model. We are seeing a lot of traction there. So I think you are going to see continued effort to focus energy around improved processes, reduced labor input into our production, and shorten the cycle times on what we have outsourced to reduce our work-in-process inventories.

That sounds good. Can you help us frame up the potential savings from those initiatives as you go through 2008?

I don’t think we can right now, but I think as we start to see the quarter unfold and we see the benefits of some of these efforts we’ve got in place, we will be able to talk more about that at our next call, which will probably be around the corner before we know it.

All right. What would consolidated operating margin have been excluding that tier I parking project, and were there any other timing issues that affected margins in the quarter?

Yes, the margin – oh sorry, the consolidated margin?

Yes, do you have that handy?

No, I don’t have it handy.

Okay.

But I know the SSG margin would have been 15.1%.

Right. We can figure it out. Was there anything else in the quarter that affected that, whether it’s in SSG or any other segment? From a timing standpoint, maybe.

So we had severance in FRG of about $900,000. But the hearing loss went the other way; that was $700,000. We have still the impact from the Pelican. So that’s a timing; that should go away. And then probably the biggest thing is the under-absorption in E-ONE. As their plant ramps up with the added volumes, the depressed margin in that business should reverse.

Okay, great. Sorry if I missed this, from a revenue and operating income standpoint, did you say how much Codespear, Riverchase, and PIPS contributed in the quarter? And can you talk a little bit about the pipeline there?

I’ll take the first part and I’ll let Jim talk about the second part. Because Codespear and Riverchase are platforms that we are taking across our businesses, we have not reported those independently. In the case of PIPS, we had I believe a little over $5 million in sales, and their margins were about the same as SSG overall. It’s a business that’s very lumpy and very levered to volume. So any incremental sales starts raising that margin pretty dramatically.

Okay. And then the pipeline?

Steve, I think the pipeline is certainly building for PIPS, and I think one of the things that’s been exciting to learn about this technology is that Europe is clearly way ahead of our country in deploying this type of technology, and we have a wonderful installed base in the U.K. in particular, and as I mentioned on the call at the beginning, we just received another order for in excess of $5 million for additional PIPS cameras for the U.K. Here in the U.S., we are seeing the uptake begin on the police and traffic management side, where the technology is helping municipalities recover stolen vehicles, to find people that have extensive traffic violations and potential criminal activity. We have not yet seen, but are beginning to hear, cities talk about using this technology similar to what’s being done in the U.K. New York is beginning to look very heavily at tolling systems for people driving in and out of the city. And I suspect that we will begin to hear other cities start looking at that as they start to manage their traffic congestion. But we have lot of active bids out there now, both in the municipal market for police activity, as well as parking applications, shopping center applications and cities starting to look at tolling. So I think as this business starts to become more acceptable here in the U.S. from a user perspective, there is good upside for PIPS here in the United States.

Okay, great. One more and I’ll jump back in the line. Your steel contracts, are you protected or do you have contracts in place for steel, and how long do those run typically?

We do have contracts in place for steel for the entire year, at the moment. And I say ‘at the moment’ because I’m sure you are aware there is a tremendous amount of volatility right now in the steel marketplace, and prices are up dramatically over where our contract levels are. We are watching the steel market closely and I think, as you’ll recall back in the early 2000s, 2003, 2004, we found ourselves in a similar situation with steel, and the suppliers basically said, ‘we know you have contracts but we don’t have steel at that price.’ We are watching this closely. There are a lot of developments going on. You might have noticed yesterday the article about the beginnings of trading steel futures, which we haven’t seen before. We are taking a hard look at that. And we are also taking a look at our near-term build requirements and will probably be buying a little more inventory in the short term to protect ourselves.

Your next question comes to you from the line of Ajay Kejriwal - Goldman Sachs.

Just wanted to follow up on PIPS and maybe you gave this number and I missed it. What was the revenue contribution in the quarter and what was the growth rate year-on-year?

The revenue contribution in the quarter was $5.4 million, and I don’t actually have the fourth quarter of last year. We didn’t own the business at that time. I think their run rate was about $20 million in 2006 as near as I recall. So it’s very similar to where it was in 2006. Again, it’s a lumpy business; Jim talked about a single contract that was $5 million that we’ll be shipping. So, I want to make sure you know that, and particularly in the UK, it tends to come in big lumps.

So, just thinking 2008, is it 20%, 25% growth rate that one should be thinking about? It sounds like it was flattish in 2007, at least on a run-rate basis?

Yes. I think that’s right. And I think the business has and the markets are growing 15% plus per annum.

Okay. And just coming back to the cost reduction, the $20 million number, is that a 2008 number or is that an annul run rate number?

It’s actually a 2008 number. But it’s a savings off of our plan, so that’s why it’s easier to think about it I think in terms of reducing your percentage of SEG&A.

Got it. And it sounds like 150 positions would drive the bulk of the savings. Is there anything else or is it mostly expenses related to manpower?

There is also outside spending on some initiatives that were underway that have been cut. So some amount of discretionary spending.

Okay. And lastly on steel prices, wondering how much flexibility you have in passing on cost increases. If those contracts that you have, they don’t hold and your raw material costs go up, would you be able to pass on those cost increases?

Having lived through the events of 2003, 2004, we have changed our contracts with our customers and our dealers to provide us a reasonable amount of protection in the event of an unexpected change in our commodity costs. It’s not a 100%, but we are just in a much better contractual position than we were going through this the last time. It’s been something like aluminum, which is not the one that we are focused on right now. For example, we buy forward; we make sure our backlog is protected in the case of steel, which is predominantly our ESG business. They look for protection through a combination of their contracted steel buy, their stock on hand, and their contracts with their customers.

So maybe just one more E-ONE, the 51% increase in orders in January, maybe if you could talk a little bit about that and how sustainable do you see the improvement in fourth-quarter performance?

I think the order uptake that we are seeing at E-ONE is a direct reflection of the efforts that Peter Guile and his team and our entire dealer network have put forth. As you now, we went through a long period of time where we had insufficient dealer cover, and the fact that we have been able to, in a very short period of time with the new leadership team, position some very strong dealers in some markets that are very important to us, I think is indicative of the value that E-ONE has in the marketplace. So it’s hard to predict what’s going to happen from a future perspective given the municipal spend situation right now. But we are encouraged by the performance of the dealer network and I think they are going to continue to be aggressively pursuing every opportunity in the market.

Your next question comes from the line of Walter Liptak - Barrington Research as a follow-up.

The orders that you won, I want to make sure I understand the 4% during the fourth quarter and then how much were they up in January?

E-ONE orders in January were up 51%.

Okay. Who’s buying them? Are these stock trucks that are going to the dealers or these end customers that are placing orders?

These are end customer orders.

Okay.

Our deal is to hold very little stock, Walt, at any point in time. We might have 20 units out there in the dealer stock pipeline.

Okay. And I’m sorry, you’re attributing this to the fact that your dealers are just getting out there in gaining market share in a tough market?

I think we’re attributing the fact that we have filled some significant gaps in the dealer network, which certainly weren’t there a year ago. And some of the markets that are very important for E-ONE. Texas has clearly been an important E-ONE market and further in Illinois and Indiana, as well. Yes, the dealers are certainly being aggressive, and that’s what we would hope. But I think it’s just a reflection of a lot of things coming to place it.

Okay.

And I don’t think we would suggest that orders are necessarily going to continue up 50%.

Yes, it was and it’s very contradictory that what the overall market is doing too, because it’s probably the worst fire truck market in 10 years, in my opinion. Let me ask you about the CEO search. Are you looking for a strategic guy that’s going to continue the work that Bob started or are you looking for someone who is an operational, fixer-upper kind of CEO.

We obviously are looking for someone who has a broad set of credentials. People in CEO roles today, in any company really, have to be able to crossover but I think we’re going to looking for people that have some financial strength; customer facing strength that can deal in the marketplace; people with some exposure to technology as our business evolves. So, I don’t know that we would be specifically looking for someone that’s just a strategist.

Okay, thanks.

I think we have time for one more question.

The last question comes from the line of Charlie Brady - BMO Capital Markets.

Just with regard the Walt question with fire truck orders in January. What did the orders look like January of 2007?

They were down. So I think we will be up nicely for the first quarter; I don’t think we will be up as much as 50% for the quarter, but remember that in the first two quarters of 2007 we were really struggling with our dealer network and there was some confusion about the extent to which we were going to be selling direct versus via the dealer channel. That is what I would say is maybe an order hole, which has brought us to the point of having some fairly significant losses later in the year. It’s about recovery of our position and our dealers not withstanding a weak fire truck market.

And the pricing on the order intake that you are seeing most recently is at levels that you find acceptable, not something else going on?

Yes, absolutely. Yes, we monitor very carefully at multiple levels, our discount level, and that has not changed.

Can you just speak to the cancel-ability of orders, not just within fire but across the segments? What kind of protections are in place, or historically in an economic downturn, what has been the pattern on orders being canceled or not across the segments?

No, fire truck orders just almost never get canceled.

Yes.

Same thing applies for Bronto. When you get into our Environmental businesses, I think the only thing we are watching carefully are contractor orders on sewer cleaners and industrial vacuums; got a pretty strong backlog there. I think the cancel-ability is perhaps a little bit more of a risk than in the case of a municipal bid where they have the money appropriated, they do a bid, they open it and award it. If you get to Safety and Security, the backlog is a lot shorter. There you only have a six-week backlog or so unless it’s a big project or a big installation. The big installation, again, once they are awarded, we have not had any history of cancellation. So, as I go through the business, the box product sales, which are about 70% of SSG, are short lead time and, therefore, are unlikely to have a cancellation but of course because of short lead time there we are exposed to the market. And then of course Tooling, that’s a day-in day-out business. They order them and they want them, but you are subject to economic cycles.

I don’t know if you have mentioned or not, do you have CapEx and D&A expectations in 2008?

Our CapEx is up, should be little over $30 million because we are paying for the expansion of Bronto; it is about a $7 million investment. Now we are still doing JD Edwards implementation. The D&A, yes, it should be in the low 20s, I think. Yes, a little over $20 million.

Thanks.

Okay, thank you.

I would just like to close by thanking you all for joining us today. Hopefully, you share some of our excitement on the issues we are trying to address and the things we are trying to do to improve the shareholder return. I’d just like to say, I am confident that I think these initiatives to our overall portfolio of businesses, to focus on improving profitability, and to prudently allocate our capital will drive shareholder value over the long term. And while we are excited about what we are doing, we recognize that we still have a lot of work ahead of us to generate an acceptable improvement in shareholder value this year. I believe the outcome of all this effort is certainly going to be a stronger, more profitable foundation for our future and we are committed to ensuring this success. So again thanks, we look forward to talking to you one on one, and of course, at our next quarterly update.

Thank you, sir. Ladies and gentlemen, this concludes your presentation for today. You may now disconnect. Have yourself a great day.