Federal Signal Corp (FSS) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2005 Federal Signal Earnings Conference Call. [Operator Instructions] I would now like to turn the presentation over to Ms. Karen Latham, VP and Treasurer. Please proceed, ma’am.

Good morning, every. Thank you for joining us today. Sorry for the slight delay in the start of the call, folks were having some difficulty dialing in and so we wanted to delay slightly to give them the ability to join us.

And before turning it over to Bob, let me remind you some of our comments contain forward-looking statements about the future prospects of Federal Signal. Please refer to our latest Annual Report to shareholders, our recent SEC filings and the press release issued in conjunction with this conference call for a more detailed discussion of risks involved in our forward-looking statements. The press release is available on our website, www.federalsignal.com.

Our CEO, Bob Welding, will begin.

Thanks, Karen, and good morning everyone. We appreciate you joining us for our conference call.

I’m very happy with the progress Federal Signal has made during the third quarter and the steps we have completed in our turnaround efforts. We still have considerable work to do, but I continue to be confident in this Company and excited about future.

I’d like to begin with a few highlights for the quarter. First, Federal Signal remains on track to meet its $1.2 billion revenue target in FY05. Safety Products, Tool, and Fire Rescue all demonstrated improved margins from the prior quarter on revenues that reflected continuing strength in these product segments.

In Environmental Products, both new orders and revenues are strong. However, the group’s margins were off significantly, due largely to a loss in Refuse. However, I’m confident in the Company’s financial footing, given our strong cash flow, declining working capital as a percentage of revenue, and a strengthened balance sheet.

Second, our markets remain healthy. New business in the US, municipal, and government sector was up 13% from the prior year period. On the US industrial commercial side, after stripping out the $47 million parking system contract from last year, orders were up about 11% in the Q3. Non-US orders also registered an uptick, increasing 8.0% from the prior year period.

Overall, price increases account for approximately 25% of the growth, but on a unit basis almost all of our businesses showed improvements and the markets have continued solid in the early weeks of the fourth quarter.

Third, Fire Rescue continued improving during the quarter. A broad set of metrics, including increasingly strong production throughput at Ocala continued to indicate improvement. Although challenges remain, I’m confident that we can return this business to previous levels of profitability.

And lastly, I’m proud and grateful that our employees continue to focus and work hard on serving our customers and creating economic value. In our underperforming divisions, our employees have shown outstanding commitment and tenacity to improving operations. The progress I’m reporting to you today is the result of the fine work of our people all across the Company and I want to express my gratitude to them.

With that, I’ll dive into the details by first commenting on conditions in our broad markets and then cover the results from our various operations. As many of you know, we segment our markets into three major components - US municipal and government, US industrial and commercial and non-US.

US municipal and government orders were very strong in Q3, up 13% from the earlier year period. The primary contributors were sewer cleaners, refuse truck bodies, fire trucks and police car equipment. Outdoor warning systems continued to be lower compared to last year, due to delays in awards for large installations and these are normally difficult to predict.

On the US and commercial side, after stripping out the $47 million parking contract from last year, orders were up about 11%, with particular strength in vacuum trucks and refuse truck bodies. Lighting and other electrical product orders improved and Tooling was about even. Orders for lower large parking equipment installations were off compared to last year, but as I said mainly due to the Port Authority award that we received last year in the Q3.

Non-US orders were up 8.0%, with most of the improvements coming from strong fire truck export orders. As we had expected, Q3 was robust for export fire trucks, offsetting weaknesses earlier in the year. Export orders for environmental products, although at a very respectable level, were off from a very strong Q3 last year.

The positive momentum in the markets in Q3 has carried forward into the early weeks of Q4 and we believe the environment remains solid, despite increasing interest rates and higher energy costs. We continue to experience component cost increases in some areas of our business, but our unit leaders are now sensitized to this and have been reacting more quickly to pass along price increases when necessary.

Let’s shift to our operations, starting with Safety Products, which continues to have a very strong year. Orders for the quarter were roughly even with the year earlier period, after stripping out the large parking contract.

Another factor affecting year-over-year comparisons is the sale of two non-strategic Industrial Lighting Product lines. That was completed during Q2. These two product lines accounted for roughly 5.0% of the group’s business. The only products showing some weakness are the lumpy Outdoor Warning Systems and large parking projects.

Revenue for the group was up 7.0%, primarily due to progress made on the large parking contract. Steve Buck and his team did a fine job in translating strong sales into solid margins, as the group nearly matched the robust comparable period from last year. We feel that SPG is well positioned going forward, with the caveat being that the outdoor warning and large parking businesses remain difficult to forecast.

I expect incremental orders for emergency vehicle lights and sirens, outdoor warning sirens, parking lot equipment, and industrial signaling products in the coming months from the hurricane aftermath rebuilding that is underway.

Let’s move on to the Tool group, which performed slightly better than expected during the recent quarter. Although orders were roughly the same as last year, new business from the automotive segment was marginally stronger than expected and the group did a fine job converting the new business into improved profits. This contributed to Tool reaching its highest margin point in the last five quarters.

The group has endured nearly continuous tool steel cost increases through surcharges since early 2004, although it has leveled off somewhat in the past couple of months. In October we implemented an additional 3.0% price increase in some of our product lines.

In terms of markets for Tool, Europe is still coming back slowly and North America was about flat. We are still seeing weakness in Japan, but expect that to improve over the coming months as the timing for some of the automotive projects seems to be congealing. We expect Tool revenues to weaken slightly in Q4 compared to the prove quarter, largely because of the intensifying stress in the auto industry and particularly among the big three in their supply base.

As you know, we had a recent change in leadership in Tool. I’m delighted that Alan Shaffer has joined us as the president of the group. His 27 years experience in the tooling industry and his broad background in global operations will help energize our efforts to reduce our cost structure and grow this business in the coming years.

Next, let’s move on to Fire Rescue. The North America market remains relatively robust, with strong bid activity continuing. Our new business from US municipalities is up 7.0% over Q3 last year and is up about 15% YTD. And we believe the recent hurricane damage will give rise to incremental demand for the next quarter or two.

On the international front, orders for fire trucks to be exported from the US had been week in the first half of the year. These orders tend to be lumpy and less predictable and as we indicated during the last call, we expected prospects to improve in the second half.

Indeed, Q3 was strong and the Company received several multiple ARF and pumper orders, leading to our strongest quarter for export orders since Q2 2004 when we received two unusually large orders. Additionally, orders that our Bronto articulated aerial business in Finland were robust.

I’m delighted that Marc Gustafson and all of our dedicated employees in the group continue to make solid progress. Although we are not hitting the profit numbers we had hoped to at this point, the business is making continuous progress that is evidenced by a broad set of measurements. Most importantly, production throughput at our Ocala operations continues to get better.

Throughput, as measured by the average number of trucks completed per week, was nearly 20% better on a year-over-year basis. This was Ocala’s fourth consecutive quarter of improvement and with this, matched a throughput high point going back at least as far as the beginning of 2001. Not only did truck completions improve, but the product mix favored more complex trucks, indicating substantial progress in execution.

Completions to schedule reached the level of 75% on time, once again a recent high point. On top of more predictable production flow, the number of defects per unit, as identified at the customer’s final inspection, was reduced by 72% compared to Q3 last year.

I’m very encouraged by this progress and deeply appreciate the hard work our people have put in to make these improvements possible. This is resulting from group determinations and a lot of manual checking and scrubbing of everything from bid proposals to builds and material to prevent mistakes before they reached the factory floor.

The need for these checks will lesson over time, as the work we are doing on the EZ-ONE configurator will allow us to significantly reduce the amount of manual intervention. EZ-ONE is currently being used for our three simplest models and begins rolling out for our more complicated models in November.

Even though our progress is clear, as we indicated in our press release a few weeks ago, we no longer expect to reach our FY05 margin target of 3.0 to 4.0%. There are several factors behind this. One is some additional increase in raw material costs. Although steel price increases leveled off late last year, lingering effects from that run up and some uncertainty about what lies ahead, plus increased energy costs are reverberating in the supply chain.

In Q3, our material as a percentage of sales is still running above what we expected. As a result, we’ve implemented another 3.0% price increase effective December 1st. This is on top of two increases, totally 6.0% implemented earlier this year, and 4.0% last year. Another factor is higher labor cost. We’ve hired a very high number of production people in Ocala in the past few months and have endured the cost of training plus the inefficiencies due to that churn.

Another factor is increased competitiveness in the Aerial Products line, resulting in margin pressure and some reduced volume. We have increased our new product development activity in this area to be able to offer a steady stream of new, innovative features that will put more distance between us and competitors.

For example, this year we will nearly double our sales of the Bronto articulated aerial units in the US and think we have a chance to nearly double that again next year. We expect articulated aerial devices to increasingly grow as a share of the overall aerial market in the US in the coming years. We are the world leader in this technology and the only manufacturer in North America to offer and articulated platform that extends up to 134 feet.

Another example and another industry first is our new, innovative Aerial Information System that calculates available tip load based on ladder extension, with mission-specific screen layouts.

The final factor in our margin recovery having fallen short is less menacing and frankly, it’s a nice problem to have in view of what we’ve been through. Trucks are flowing through at the rate of nearly 20% better than a year ago. We found at our customer inspection and delivery processes have become somewhat of a bottleneck.

We ended the quarter with a larger number of completed but unshipped trucks than normal. We need to change some provisions in our dealer agreements and delivery processes that are not in synch with our more reliable production schedules and higher output rate.

Even though we will fall short of our original margin target for the group, this quarter marks the third sequential improvement and is our best since the fourth quarter of 2003. We expect Q4 results will continue this positive trend.

Moving on to Environmental Products, orders were up 18% compared to the third quarter of last year. Price increases accounted for some of the improvement, but the primary factor was strong unit orders, particularly for sewer cleaners, vacuum trucks and refuse truck bodies.

The only weakness we experienced was for sweepers and water blasters in the US industrial commercial segment. We expect incremental demand for sewer-cleaning trucks, industrial vacuum trucks, refuse trucks and sweeper as a result of the cleanup and rebuilding from the recent hurricanes.

Revenues in Environmental were up 20% compared to last year. Again, some of this was the result of price increases. Water blaster revenue was off from last year, due to weak orders, but refuse orders were strong. However, even though refuse orders were strong, revenue was off slightly because of our throughput issues, as we finalized the consolidation of our operations into our Alberta, Canada plant.

From an operational perspective, sweepers, vacuum trucks, and sewer cleaners all performed very well. However, margins in our non-refuse businesses were off a little from a very strong prior quarter, mostly due to product mix and labor inefficiencies as we geared up capacity ahead of strong orders.

We have good industry market share data in the refuse business. The numbers are based units shipped as opposed to orders placed. We fell off a little in Q3 due to our production shortfalls, but otherwise the market seems pretty solid and our new orders in Q3 were strong. We still see our trend line for market share in both the rear loader and front loader markets pointing upwards.

Nevertheless, as our press release of a few weeks ago indicated, we continue to struggle with some issues at our plant in Alberta. In Q3 we took inventory adjustments of $3.4 million. Much of this results from cleaning out the corners after our major plant consolidation and fallout from product line rationalization work.

We believe we have this cleaned up, but we’ll take another detailed look in November to confirm. And as we are still engaged in product line rationalization, it is quite possible some additional obsolescence will need to be addressed down the road.

Another issue facing Refuse is the labor shortage in the region, with the high turnover that results. Even though we’re making steady progress, we have fallen short of our ramp up plan for completions in the past two quarters, primarily as a result of insufficient train production operators. We believe it will take us the rest of this quarter to achieve a stable workforce condition.

Finally, material cost increases that we did not anticipate contributed to the shortfall in refuse. We have a number of initiatives underway to reduce our costs and have implemented an additional 7.0% price increase in early October. This is on top of 3.0% implemented in March and on top of a significant increase in three different steps during 2004.

As I indicated a few weeks ago, we are unlikely to reach break-even in this business before mid-year 2006.

Now I’ll turn the call over to Stephanie for a review of our financials.

Thank you, Bob.

We made some good progress this quarter, with improvements in earnings, better working capital utilization and a stronger balance sheet. In summary, we recorded earnings of $0.21 per share in the quarter, versus a loss of $0.07 last year.

On the face of the numbers and also on a strictly operational basis, we hit a crossover point, as I predicted last quarter. Last year’s Q3 loss included $0.04 of restructuring costs, so you can think of that as $0.03 per share loss from a strictly operational perspective.

In this year’s quarter, we benefited from a $0.12 per share gain on the divestiture of the two small product lines that Bob mentioned. So, on an operational basis, we earned $0.09. This represents progress, although not as quickly as we had hoped.

Let me add some comments regarding the inventory writedown that we experienced in our refuse business this quarter, which impacted our Q3 results by more than $0.04 per share.

This was, for the most part, linked to the plant consolidation and product line rationalization that took place in the first half of the year. As a result of the closure of the Oshkosh plant, we significantly rationalized our product offerings and also outsourced some components that were previously produced in-house. These changes drove an increase in our reserve for excess and obsolete materials, which we recognized in the quarter, $2.1 million.

In addition, having completed the move, we did a full physical inventory count, which resulted in an unusually large shrinkage charge, $1.2 million more than our reserve. In hindsight, these were perhaps items we could have predicted better when we evaluated and announced the plant consolidation in June of last year and as I said, these writedowns reduced our quarterly results by about $0.04 a share.

Now I’ll go through highlights of the income statement.

At $303 million, Q3 sales were 12% or $33 million ahead of last year, with increases in all segments. About one-quarter, or $8.0 million of the year-over-year increase was attributable to higher prices. Currency had almost no effect, so the balance reflects higher volumes. The majority of the price impact was in our Environmental Products group, where our price actions have been the most aggressive due to the high steel content of the products.

On a sequential basis, sales were down 3.0%, following the normal seasonal pattern for our overseas businesses. Sales were slightly lower than we had expected, due to the shortfall at Fire Rescue, which Bob discussed.

Our gross margin averaged 21.9% in the quarter, up 60 BP from last year’s Q3, but down 40 BP sequentially. Both comparisons were negatively impacted by about 110 BP, as a result of the inventory writedown at Refuse. The year-to-year improvement was largely in our Fire Rescue group, where margins improved dramatically versus last year and due to the pricing actions and operational improvements at Tool.

The sequential decline of 40 BP is entirely attributable to the inventory changes at Refuse. Excluding this impact, we would have seen an improvement. Fire Rescue, Safety Products, and Tool all improved from the second quarter.

Our SG&A expenses, as a percent of sales, remained stable at 19.2%, down from 20.6% this time last year. We expect SG&A expenses to remain below 20% for the rest of the year. Corporate expense, which is part of SG&A, totaled $6.0 million, up from $5.1 million last year. The year-to-year increase mainly reflects higher audit fees and staffing expense.

Interest expense was $5.9 million this quarter, up from $5.4 million last year, reflecting higher rates on our floating rate debt versus last year. In the fourth quarter, our interest expense should be about the same.

Our effective tax rate remained negative in the quarter for several reasons. First, the $6.5 million gain on the Victor product line sale attracted relatively little tax expense, because the tax basis in the assets was high.

Secondly, the permanent tax differences associated with our non-taxable leasing and export income and R&D credits remain disproportionately large at the current level of taxable income and we derive a disproportionate tax rate benefit.

And third, we trued up the US tax savings associated with the operating losses in our Refuse business, which also brought down our rate in the quarter. We expect our Q4 tax rate to close to zero or even negative because of a tax benefit we are likely to realize when we repatriate some offshore cash.

Our operations are delivering consistent cash flow. At quarter-end, our operating working capital was $251 million, down from $290 million a year ago. This progress is mainly at our Fire Rescue business, where a year ago operational problems were plaguing us and working capital was very high. We expect some additional reduction before year-end.

Our operating working capital as a percent of sales declined another percentage point in the quarter and is now below 21%. A year ago, that same statistic was 25%. Operating cash flow totaled $7.0 million in the quarter, after a discretionary contribution to our pension funds of $6.4 million.

Receivables rose about $5.0 million in the quarter, but this was partly offset by higher customer deposits, resulting in a net DSO figure of 43 days. This is up 3 days from last quarter, but remains well below the level of a year ago, which was 55 days. Inventories declined $3.0 million and our YTD inventory turns are averaging 4.5 against 4.2 a year ago and that’s unchanged from last quarter.

Our manufacturing debt, net of cash, declined slightly to 34% in the quarter, again well below the 43% level of a year ago. During the quarter we spend $3.5 million to repurchase Company stock to offset dilution from share-based compensation.

At quarter-end we held $39 million in cash on the balance sheet, which includes the proceeds received for the sale of the Victor product line. As I commented, we are initiating repatriation of offshore funds under the American Jobs Creation Act and expect to move $20 to $30 million back to the US before year-end.

Our bank lines remain undrawn and we are in compliance with all debt covenants.

I also wanted to provide some backlog numbers, because I’m typically asked for those. Our orders were slightly, about 4.0% below our sales, and our backlog declined slightly but remained strong at $419 million. Quarter-end backlog for Environmental Products group was up about 8.0% at $109 million. For Fire Rescue, it was down 10% at $238 million, reflecting our improved production throughput. At Safety Products, backlog was $64 million. That’s down 15% from last quarter, but that reflects the deliveries against a big airport parking project. And Tool was $7.6 million.

This concludes my comments and I’ll turn it back to Bob for a brief summary and to moderate questions.

Okay. Thanks, Stephanie. We’ve made a lot of progress during the quarter and I’m very happy. We’ve fallen short in a couple of areas, as we’ve discussed today and a few weeks ago in the press release.

But by and large I’m very happy with our progress and we remain extremely focused on getting our Refuse business stabilized and profitable and extremely focused on continuing to improve our operations and FRG and look forward to being able to report continuing progress in the quarters to come.

So, with that, Shamika, let’s turn it over for questions.

[Operator Instructions] David Gold from Sidoti & Co.

A couple of questions for you, Bob, on the configurator. If remember right, you started rolling that out last in the second quarter and was curious on maybe early feedback there? And then b) at sink you said we should have it in place for all the simple models by year-end, was that right?

First of all, good morning, David and thanks for calling in. We rolled it out in last second quarter for our three most simple models, because we wanted to use that to shake out all the bugs. So we’ve been receiving orders, processed through the configurator on those models over the last several months.

The feedback has been very positive. As you know, we’ve had to double back a couple of times to revise the approach that we were taking. But what we ended up with is something that exceeds our expectations as far as the utility not only to our dealers but to ourselves, for ourselves, and the dealers’ reaction has been very positive.

By in November, now, we’ll start rolling it out for the remainder of the models that we have been working on and I’ll reiterate that we intend to cover those models that constitute about 80% of our volume. And so we’ll begin rolling those out in November.

Eighty-percent by year-end?

That’s right.

Okay and then did you say the rest by mid-next year? Did I hear you right?

The other 20%, some of those are extremely complicated models, where the volume is relatively low. So, when we get finished with these models now that constitute 80% of our volume, then we’ll take a look at some of these other ones and make an assessment about whether the cost of implementing the configurator is worth the benefit. So, right now, we’re not sure what we’re going to do with the remainder of the 20%. But I’m sure that we won’t do all of them.

Okay and then what do you think the lag is at this point to, say, from the point, call it year-end, the 80% implemented to the point that we’ve gotten through many of the units that say have been priced over the last two months? Would it be -- would six months be about right, six to nine months?

Oh. You mean the lag from when we get the order to when it’s going through the plant?

Right, well essentially I’m thinking the lag between the time that the units that were priced into the old system are completed, to -- in other words, yeah, anything. I hate to use the term “mis-priced”, but anything that’s been priced ultimately as the work through.

Okay. Well, we’ll still -- all of -- essentially, well most of our orders, certainly for the rest of the year, will be under the old system and the lead time on the more complicated products is in the seven to eight to nine-month timeframe. So these models priced under the old system will be flowing through most of the year. We should have most of those gone by the fourth quarter.

Got you. And then just one small one for you, Stephanie, and it may be hard from here, but tax rate guidance for next year.

You know our tax rate, obviously, has been a challenging topic all year long. As we look at next year, our expectation would be that we would be in the 30% range.

Okay, perfect. Thanks.

[Stephen Perley]from Newcastle Partners.

Good morning.

Good morning, Stephen.

You had said, Bob, some time ago that you thought that acceptable margins in the Fire and Rescue area were 10% give or take. Do you still think that that’s an attainable goal?

Yes I do. I think the guidance that we gave was 9.0 to 10% and I still don’t see any reason why we can’t get back there. It’s not in the next year or two, probably, but we get the advantages of the configurator, all of the other operational improvements that we’re working. I don’t see any reason why we can’t.

Okay and then how about a stock repurchase? Has that been on the radar screen at all? Can it be on the radar screen in light of dead covenants? What are your thoughts there as to when you would consider something like that?

Steve, this year we bought back stock basically to offset dilution from stock-based compensation. We don’t have any plans to do anything any more aggressive.

What would it take to do something a little more aggressive?

We’re balancing our debt ration, our availability of funds to invest for growth against the return of dividends and share repurchases and as we’re standing here today, we do not see that as the best long-term use of our funds.

Okay. Thanks.

Michael Harris from Black Diamond Research.

Good morning, Bob, Stephanie, Karen.

Good morning, Michael.

Bob, on the Refuse business, I mean you stated that that’s a high priority. Now, can you put a little bit more, I guess, meat around that? Does that mean you’re going to spend six months in Alberta? Are you going to take a busload of contractors up? What are you doing there?

Well, just short of that, high priority. But to give you an indication, our group president and our group have been up there full time since about September 1st, I think, and the problems aren’t terribly difficult.

But we obviously weren’t moving as fast as we needed to and we lost a considerable amount of money in this business last year and so far, this year, we have as well and we’re just determined to get the bleeding stopped and get it turned around. Right now, it’s the biggest drag we have in the Company, as far as our earnings go, so it deserves high priority.

Okay and help me. Is it the labor that’s killing you or is it process and labor?

Well, there’s a little bit of everything. The labor is killing us from the standpoint that we weren’t able to get the number of trucks completed in the third quarter and back into the second quarter as we had planned.

What we’re able to -- the turnover has been higher than what we expected and so that brings with it not only training costs but also the churn that you get when you have to re-train operators to do something different than they have been doing. And I won’t diminish the effect of that, but it’s not so much of a cost issue as it is just getting the volume out.

Okay. So it’s more [inaudible - multiple speakers] --?

Materials, our material costs have been higher than what we had in our plan. Some of it is because we’ve done more outsourcing than we originally had intended. We did this outsourcing in an environment where steel prices we’re going through the roof and energy costs were going up.

So our costs for some of those components ended up being higher than what we would have expected. Our purchasing people are working very hard with suppliers to bring these costs back in line, but that’s been a big issue.

Also, one that I didn’t talk about today, but we did in our press release a few weeks ago, is we still had a few contracts that were priced in earlier years, where we had not been able to get those re-priced to compensate for the huge run up in steel costs in particular. We still have some of those vehicles, a lot of those vehicles that are flowing through the fourth quarter.

However, we believe that we now have all of those contracts in a position now where we at least won’t be losing money on a direct cost basis and then, of course, the inventory write-offs, Michael. We expected some, obviously.

We did have an inventory write-off earlier this year of $1.1 million or $1.2 million - I’ve forgotten now - and you can see how much that has impacted us in the quarter and we think we have that cleaned up now, but we need to make sure.

Okay and Bob, have you had a talk with the group president and all his team and come up with, I don’t know, maybe a line in the sand? I mean, “you guys have until a certain date to get this corrected or we evaluate our alternatives”?

Well, all the way through this, of course, we’re always evaluating all our alternatives, but over the next several days I will spend a number of hours with our group president, evaluating our progress and making sure that we’re doing all the necessary things.

Okay. All right. I’ll get back in queue.

Walt Liptak from Key Bank Capital Market.

Hi, thanks, good morning, Stephanie and Bob.

Good morning,

Good morning.

Going back to, I guess, asking that last question again, your losses are bigger than expected this year in the garbage truck business. Will you go back and do a strategic reevaluation because of that?

Well, what I would say, Walt, is that my view is that we should always be looking at all of our businesses, to make sure that they are, first of all, strategic to us. And secondly to make sure that we can grow economic value over time on a sustained basis.

I think the Refuse business has been very challenging to us, as we’ve indicated before. We don’t have as strong a competitive advantage in that product line that we do in our other products in the Environmental Group. Therefore, we don’t think we can get the margins up to where some of these other businesses are. But nonetheless, it’s a business that can contribute economic value.

Our focus right now is to fix the problems, such that it is a profitable business, and then we just continue to evaluate along with everything else whether it fits in the future.

Okay. That’s fine. If you exclude the inventory charge, are the losses YTD larger in garbage trucks than they were in 2004 or are you at least making some progress?

We’re making progress, even though some of our other costs are higher than what we had in the plan, but relative to 2004 we’re in better shape.

Okay and in the fire truck business, I’m not sure if it’s clear to me what the full year profit target would be. The old profit target I believe was 3.0 to 4.0%. Now I think you’re saying it’s going to be below that. Is that right?

Walter, what we said was in the second half it would be 3.0 to 5.0%. I don’t have offhand what that averages out to.

Okay and so you still think that in the second half you’ll be in the 3.0 to 5.0% range?

Right.

Okay. So that implies -- I mean, you’re looking -- because of the throughput, you’re looking for much higher profits in the fourth quarter?

The fourth quarter, I mean, is typically pretty strong anyhow for this business, but we we’ve made programs three quarters running and we expect the fourth quarter will continue to show those kind of improvements.

Okay and you mentioned that the throughput is up 20%. Is there a continued improvement beyond that for whatever reasons, the new processes down there, the configurator? Can you get another 20% throughput?

You know, I haven’t looked at where we can get to eventually, but as we get the business more structured, more defined and more automated, if you will, as far as the up front processes, then we should be able to continue to make improvements. I’m not sure we can do another 20% improvement in the next 12 months, but we certainly will be able to continue to improve from where we are.

Okay. All right. Thanks. And Stephanie, the corporate expenses at $6.0 million, is that a run rate that we should use per quarter going forward?

I think it’s about right. Yes.

Okay. Thank you.

There are no questions in queue at this time.

Okay. We’ll wait a few more seconds. Okay. Hey, thanks everyone. Again, we really appreciate your continuing interest in Federal Signal. We’re pleased with our progress. We’re not pleased with the results, but we’re continuing to get better every quarter and we intend to continue that in the coming quarters.

And thanks, have a great day and thank you, Shamika, for your fine hosting of the conference.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day. 12