Federal Signal Corp (FSS) 2010 Q4 法說會逐字稿

Please stand by for realtime transcript.(Operator Instructions) Good day, ladies and gentlemen, and welcome to the Fourth-Quarter 2010 Federal Signal Earnings conference call. My name is Jenada and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Bill Barker, Senior Vice President and Chief Financial Officer. Please proceed.

Thank you. Good morning and welcome to Federal Signal's Fourth-Quarter 2010 conference call. I'm Bill Barker, Federal Signal's Chief Financial Officer. Joining me on the call today is Dennis Martin, Federal Signal's President and Chief Executive Officer, and Jennifer Sherman, General Counsel and Chief Administrative Officer. We'll be using some slides in the presentation. The slides can be found by going to our web site, www.federalsignal.com, clicking on the Q4 Investor Call icon and selecting the webcast. We'll also post the slide presentation to our webcast after the call.

Before we get to the business review, I'd 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. We expect to file our form 10K shortly. And now I'd like to turn the call over to Dennis Martin.

Thanks Bill. And thank you for joining us this morning.First let me explain why we delayed our call from yesterday to today. Yesterday afternoon, we received a signed waiver for one of our Q4 debt covenants and have amended our debt agreement with all of our lenders. Bill will go through the details of the amendment shortly, but broadly speaking, we worked with our lenders to waive the Q4 interest covenant -- coverage covenant, and replaced the interest coverage covenant with a minimum EBITDA test going forward. We appreciate the support of our lenders in getting the agreement amended. As we have indicated before, we intend to refinance our debt later this year.

While the key terms of our amendment have been agreed for sometime, we wanted to be sure we had all of the necessary documents finalized with signatures with all of our lenders before having our earnings call today and filing our 10K. This has now been accomplished and my apologies to you for the delay.

We have a lot to cover today. I will give you an overview of the actions we've taken to date. Bill will go through Q4 financials in some detail, and then I'll give my perspective on the Company and my turn around plans as we move forward. After that, we will have time for questions from analysts and shareholders.

We recorded some significant charges in the first quarter. Bill will go through the specifics. But in general, the charges fall into two categories; Those that represent investments to improve future profitability and those that were driven by accounting guidelines.

The first charge fits into the investment category, and that's the $3.8 million charge we took to settle a significant portion of our hearing loss litigation. This should substantially reduce our expenses related to litigation in 2011 and beyond. It also validates our strategy of aggressively defending our position. The costs of this litigation, which is included in our corporate budget, has been a significant drag on the Company's profitability over the last 3 years. This settlement is an important step in my turn around plan to return the Company to better levels of profitability.

In addition, we took a $1 million restructuring charge in the first quarter, primarily related to head count reductions in our corporate office. We have decentralized much of our procurement and human resources functions, putting the accountability for these functions in our business units and reducing our corporate allocated costs. Decentralization is a major change in our strategy.

The other significant charges were non-cash and were driven by accounting guidelines. They do not have any cash flow or direct economic impact on our business. First, we recognize the $85 million charge for tax valuation allowance. I will let Bill go through the details on this. But it is essentially a non-cash bookkeeping entry that offsets the value of deferred tax assets on our balance sheet. The valuation allowance was driven by accounting guidelines related to our historical results. It is not related to our profit outlook for our business and we still have full access to the future tax benefit of our deferred tax assets.

Secondly, we recognize a $79 million impairment charge for good will and other intangible assets related to the FS Tech business. Let me take a moment to explain this. We acquired 3 businesses in 2009 and early 2010 and combined them with our existing PIPS, Camera and Parking businesses to form Federal Signal Tech, or FS Tech.

During the fourth quarter, we performed our annual assessment and determined that goodwill and other intangible assets within FS Tech were impaired. The impairment charges result from decreased sales and cash flows estimated in the impairment analysis model. We continue to strongly believe there is a large and growing market opportunity, both domestically and internationally for the FS Tech businesses. In fact, as I will discuss later, we have had some good contract wins and have made some exciting progress over the past few months at FS Tech.

As I mentioned up front, we reached agreement with our lenders to amend our debt agreement. The terms of the amendment place limits on dividend and share repurchases. As announced in today's press release, Federal Signal will not pay a first quarter dividend. We know the dividend is important to our shareholders, and it is important to us as well. We will recommend reinstatement of the dividend to the Board of Directors as soon as cash flow and our capital structure allow.

So as I said, we've covered a lot of ground over the past few months. I believe the steps we have taken have positioned the Company for a strong and profitable future. Many of our industrial businesses performed very well in 2010. Good growth with good margins and some with very good margins.

However, some of our municipal focus businesses struggled last year. And my turn around plan, which I will discuss in a few minutes, is to recognize that we are a diversified company. We will further enhance and grow our strong businesses. We will segment, simplify and improve the businesses where the margins are not where they need to be. And we will drive scale and FS Tech to leverage the strong margins that our technology delivers. And this will all result in improved cash flow. And now I'll turn the call back over to Bill.

Thanks, Dennis. As Dennis mentioned, we reported several significant charges in the fourth quarter. First, as previously disclosed, we agreed to a $3.8 million settlement related to a significant portion of our hearing loss litigation. This equates to $0.04 per share for the quarter. As a result of the settlement, we expect our 2011 expenses, related to hearing loss, to be about $2 million compared to the $7 million to $8 million of annual expense we've been incurring in our corporate budget.

Secondly, we recognized a $1 million formal restructuring charge related to the head count reductions Dennis mentioned, and also incurred costs associated with the CEO change in the quarter. These combined charges equate to about $0.02 a share. The larger charges are non- cash and driven by accounting guidelines, as Dennis mentioned.

The tax valuation allowance impacted our earnings from continuing operations by $85 million or $1.37 per share. We were required to recognize the valuation allowance because we are at a three-year cumulative loss for domestic operations. It should be noted that all of our corporate expenses, including hearing loss, and most of our interest expense are domestic. Accounting guidelines state that an entity in a three-year cumulative loss could not assume any future income when valuing deferred tax assets.

Thus, even deferred tax assets with expiration dates beyond 2020, or those with no expiration date, need to be offset for balance sheet reporting. So we made a non-cash bookkeeping entry to offset the value of our deferred tax assets on our balance sheet. As Dennis said, this has no impact on our ability to use these deferred tax assets and realize the tax benefits this year, or in the future. However, for reporting purposes, we cannot reflect the value on the balance sheet.

Finally, as Dennis mentioned, we recognize an impairment charge for FS Tech of $79 million or $1.13 per share. This is not intended to reflect any change in our view of the market potential for the FT Tech businesses, as we are pursuing significant opportunities domestically, internationally and through partnerships. However, 2010 revenue with below expectations, as some key projects were either delayed or smaller originally anticipated. While our current projections still indicate strong future profitability for FS Tech, the model used for annual assessment indicated that the impairment charges were necessary. As you can see on the slide, the Q4 charges had a significant impact on our reported Q4 earnings and pushed us into an EPS loss for the quarter.

Turning to operating results for the quarter. Total orders for the fourth quarter were $187 million, which was $17 million higher than the $170 we received in the third quarter, and 7% higher than last year. We saw sequential growth in each of our business groups. Much of the sequential improvement in orders came in our longer lead time businesses, ESG and Bronto. Combined orders for those 2 businesses increased from $100 million in Q3 to $113 million in Q4. This enabled them to begin to build a stronger backlog as we entered 2011. We expect Q1 orders to continue the sequential improvement we saw in Q4, which will lead to higher revenues and profits Q2 and beyond.

Orders for our Safety and Security Group also increased sequentially versus Q3. But were down slightly versus last year due to weakness in our global Light Bar and Siren businesses. Orders for FS Tech were up only slightly from Q3, as some forecasted projects were delayed into 2011, as I have mentioned. The significant increase in FS Tech orders versus last year was driven by the acquired businesses, which were not in the portfolio last year. So in total, we're encouraged by the sequential Q4 order trend, particularly in our long lead time businesses.

On slide 5, we show Q4 sales and operating income by group compared to last year. For purposes of comparison, I've excluded restructuring and impairment charges in both years. The segments shown reflect the new operating group structure we began reporting under in Q2. In prior years have been restated for the transfer of our PIPS and Parking businesses from our Safety and Security group to the FS Tech Group.

Our Safety and Security Group, or FSG, generated $7.2 million of operating income in the quarter, resulting in a 13% operating margin which is almost a point better than last year. Q4 sales of $55 million were down slightly versus last year due to declines in our Light Bar and Siren businesses, both domestically and in Europe. Both of these businesses were impacted by low municipal spending levels. This decline was largely offset by another quarter of double digit sales growth in our Core Industrial Systems business, which grew revenue double digits for the full year. And for the full year, SSG generated a 12% operating margin on $215 million of sales, despite the challenges in municipal markets.

Bronto, our Fire Rescue business, had a significant decline in sales versus last year due to a reduced order backlog resulting from weak orders in Q2 and Q3 of 2010. However, despite the volume decline, Bronto posted an operating margin of nearly 13% as cost improvement initiatives help mitigate the impact of lower sales. For the full year, Bronto generated a 9% operating margin. As I mentioned in the previous slide, Bronto's orders rebounded in the fourth quarter after being weak in Q2 and Q3.

Q1 orders for Bronco last year were $32 million, followed by lower levels of about $20 million in both Q2 and Q3, as a result of the European debt situation. Q4 orders rebounded back up to $29 million and orders for the current quarter are encouraging.

Our Environmental Solutions group, or ESG, generated $72 million in sales and $2 million of operating income in the quarter. ESG is a good illustration of the 2 stories that we saw in our businesses last year. Our industrial focus ESG businesses, JetStream, Water Blasters and Guzzler Vacuum Trucks, performed well with growth in both sales and income in the quarter. However, our Elgin Street Sweeper business, which is very tied to domestic and municipal spending, had a double digit revenue decline and a drop in operating income versus last year. Elgin had a very low backlog to start the quarter, which led to production inefficiencies that impacted ESG's operating margin. For the full year, strength in the Industrial businesses offset the weakness at Elgin. ESG sales grew $10 million and operating margin improved by a point.

Our newest operating group, FS Tech, generated $26 million of revenue in the quarter. As we have discussed, this is somewhat lower than our previous expectation due to project delays and smaller project sizes. Excluding the impairment charge discussed earlier, FS Tech reported an operating loss for the quarter, due to the revenue short fall. For the full year, FS Tech generated $93 million of revenue and generated an operating loss. As Dennis will discuss, the key to profitability for FS Tech is leveraging the group's strong gross margins and we have several initiatives in place to do so. The results for 2009 do not include the recently acquired business.

Corporate expenses in the fourth quarter are $14.5 million, which was $7 million higher than last year driven by the hearing loss settlement and costs associated with the corporate restructuring and the CEO change. The full year amount includes the hearing loss charge, $1.2 million of restructuring costs, costs associated with the CEO change and $4 million related to M&A activity in 2010. As a result of the actions we have taken, we expect 2011 corporate costs to be 30% lower than in 2010.

On slide 6, we show our cash flow for the year. Cash flow from continuing operations was $38 million in 2010, which funded $13 million of CapEx and $13 million of dividends. Working capital continued to be a source of cash in 2010 and will continue to be a source of cash in 2011. The other key cash flow items from 2010 were the acquisitions and the proceeds from the equity offering.

On slide 7, the balance sheet illustrates the impact of some of the charges we took in the fourth quarter. Deferred taxes increased as a result of the tax valuation allowance and equity was reduced due to the Q4 charges impacting earnings.

On slide 8, we show the key provisions of the amended debt agreements. As Dennis mentioned, we worked with our lenders to amend our credit agreements. The key points are the interest coverage covenant was waived for Q4 and has been replaced by a minimum EBITDA covenant. The EBITDA test period began January 1 of this year. The Company's cumulative EBITDA will be tested against minimum covenant levels at the end of the first quarter, and at the end of the second quarter. Then the cumulative 2011 EBITDA will be measured each month beginning in July. However, after Q2 a breach would only exist if the Company missed 2 tests in a row.

The interest rates on all of our debt has increased. We paid a 50 basis point amendment fee and the debt is now secured by the Company's assets. As noted earlier, the amendment places limits on dividends and share repurchases. As mentioned in today's press release, the Company will not pay a first quarter dividend. The Company will review the dividend each quarter. The Company has retained a financial adviser to assist with our cash management efforts and our forecasting processes.

A revolving credit agreement matures in April of 2012 and we intend to refinance our debt later this year. The amendment requires the Company to repay debt commitments with net proceeds of asset sales and with excess quarterly cash flow. Our detailed balance sheet, included in today's press release, shows $76 million as the current portion of long-term borrowing. That $76 million is largely made up of the $30 million of cash that we recently repaid to close the amendment, plus the forecasted quarterly excess cash flow for 2011, as defined in the amended agreements. The full details of the debt amendment will be included in our 10K report. That wraps up the financial summary. And I will now turn the call back over to Dennis.

Thanks, Bill. As you will recall, I was put on Federal Signals Board 3 years ago by a group of activist shareholders. Last October, I was asked by the Board of Directors to serve as CEO. I want to lay out very clearly what I stand for, and what I'll be working on at the Company. My sole objective is to improve shareholder value. In order to accomplish this, I'll focus on 4 things; cash management, including reducing working capital; margin improvement in all the businesses; achieving the financial results that we commit; and transparency and cooperation with our loyal shareholders.

We are digging in hard on cash management, with a particular focus on improving inventory turns and reducing inventory levels. By effectively applying the 80/20 tools as I have throughout my career, I know we can cut slow moving or unprofitable SKUs and focus on higher margin, faster turning products. Aggressive working capital targets have been included in the personal objectives of each group president and throughout each organization.

Similarly, margin improvement will be achieved through operating improvements at every business. And we're implementing our profitable growth strategy by customer and product segment. Profitable growth, as I use it, means combining strong management of cash, 80/20 process, lean operating improvements, and revenue growth driven by investments in customer desired product services and strategies.

In our November call, I emphasized my commitment to help our team utilize 80/20 tools to analyze each of our operating units. We have been applying 80/20 tools to the 4 business groups that we will report and further down into every customer and product market segment. While we have reported 4 segments at Federal Signal, I am looking for profitable growth in each of our 15 sub-segments that focus on customers, products, or market segments. When we focus on these segments, we create shareholder value by getting much closer to the profit drivers including customer buying preferences, market competitors and pricing. We can clearly say where we have excellent returns and we can see where we need to drive our improvement.

As I turn to our forecast for 2011, we are currently forecasting EPS for the year in a range of $0.25 to $0.30. We expect to report a loss of $0.05 to $0.10 in the first quarter, then be consistently profitable beginning in Q2.

Let me explain some of the underlying assumptions in our forecast. First, it's no secret that the municipal budgets around the world continue to be challenged. If I use the US as an example, in the last 2 years, 900,000 public sector jobs have been eliminated. The budgets in the municipalities have been slashed by $74 billion since 2008. Right now, 46 states have short falls in their 2010 budgets of $200 billion and are projecting this to continue at $127 billion rates through 2012.

This weakness in municipal markets has affected us, and it has largely offset the significant cost reductions enacted by the Company in 2009 that reduced our overhead costs by $20 million. Municipal budgets, particularly impact our Street Sweeper, Bronto, PIPS, Light Bar and Siren businesses in the US and in Europe. For 2011, we've assumed no growth in these businesses. Collectively, their revenue is forecasted to be flat to 2010.

Second, we've assumed improving sequential revenues from our longer lead businesses. As Bill mentioned, based on the sequential order of growth we saw in Q4 and the encouraging trend so far in Q1, we expect these orders to generate higher revenues and profits beginning in Q2.

Third, we've assumed that our industrial businesses will continue to have strong performance. Our industrial businesses, JetStream, Water Blasters, Guzzler Vacuum Trucks, Industrial Safety Systems and Victor Mining business, all had double digit order growth and good margins in 2010. We expect the trend to continue.

And fourth, we expect to see an improvement in FS Tech business. In FS Tech, we are experiencing excellent proposal growth and improving order flow into the first quarter. As with municipal, we're encouraged by the recent activity but maintaining moderate expectations for the time being. Some of the recent projects at FS Tech are the first for our full product line offering. Full solutions, full systems, including products from all of our acquired businesses, combined with PIPS. Our integration of the acquired businesses is progressing as expected with sales leading the way, followed by manufacturing in the fourth quarter of the year.

Fifth, we will realize significant savings from the hearing loss settlement. Total corporate costs related to hearing loss litigation, including this settlement, were over $10 million last year. We are forecasting that number to be about $2 million this year.

And finally, we expect to begin seeing tangible results from the 80/20 work we're doing in each business. We have 125 leaders trained in the use of the 80/20 business simplification tools and we have a dedicated executive leading this initiative.

By segment, we are tracking and measuring projects, some include discontinuation of product lines, focusing teams on markets, and consolidation of a corporate function back into the divisions. Each project is measurable. Some projects are investments in growth, some are pure cost cutting.

To date, we have identified $30 million operating income run rate from these and we expect to be operating at half of that rate by year end 2011. And we have included that in our plan. We expect to achieve the full run rate by second half of 2012 and we continue to identify opportunities for 80/20 and will share our progress quarterly.

So I feel we have a good, solid forecast for 2011, which delivers consistent profitability beginning in the second quarter. Now that being said, we have no excuses here. If certain elements of our forecast don't materialize, we will do whatever it takes to return Federal Signal to profitability regardless of the market conditions. Each operating segment will target an improved operating income percentage, utilizing the profitable growth strategies.

We are working toward 2012 stretch goal run rates for each business. FSG, the operating income target range, is 14% to 16%. Our Industrial Safety business had a strong 2010 and is expected to have another strong year in 2011. Our Outdoor Alerting and Notification business was weaker in 2010 than in prior years, but remains profitable and we should see a pickup this year. The Middle East activity of late, should drive increased demand for our products to enhance public safety and the federal warning systems provided life-saving alert throughout the Pacific region last week.

Our Light Bar and Siren businesses have been challenged by the market conditions and we are taking steps to improve their profitability. We have recently reorganized our domestic Safety business by creating separate focused teams to drive profitable growth in police, fire, and yellow lights.

ESG operating income target range of 10% to 12%. ESG Industrial continues to see good order activity in its Vactor, Guzzler and JetStream businesses. Our Vactor plant expansion investment is now fully operational and producing the full line including the Vactor 2100 Plus. JetStream is growing through expansion of its rental center operations. And it has recently successfully launched a gear drive. For the first time, JetStream has a gear driven unit preferred by European and South American consumers.

Elgin Sweeper did struggle through 2011 on reduced municipal sweeper orders. During that period, the team took advantage of the opportunity to continue lean work and streamline the product line, lowering its break-even point. In addition, the team has provided its strong dealer network with additional selling tools and training programs over the period. We have seen orders for sweepers come in stronger than planned in last year for the last few months, and we hope that this continues.

Bronto, we have an operating target income range of 10% to 12%. We are leveraging our technology with exclusive marketing agreement we executed, announced yesterday with Pierce Oshkosh, the largest US manufacturer of fire equipment. Bronto's operating margin remains strong last year despite lower sales thanks in part to 80/20 savings.

Bronto's modular project -- product redesign is well along and this facilitates the restructuring of both the [poree boom] plant and the [tempura] assembly plant. This 80/20 project was started 3 years ago and will complete by this year end. The balance of the operating leverage will come by the fourth quarter. As mentioned above, orders have been trending up for Bronto. In addition, we have linked Bronto to ESG for leverage in the United States on the industrial and the wind generator maintenance side.

FS Tech operating income target to be in the range of 5% to 10%. We will operate FS Tech within the same profitable growth framework that we outlined above. Our strategy to grow FS Tech will not be driven by heavy acquisition and we have unique advanced technology that is in demand. We have and will grow by establishing market joint ventures with leading suppliers to the various segments that we serve. We have recently signed license agreements for joint marketing and supply with a number of strategic industrial market leaders. Each will deliver global reach of our advanced technologies and hardware in specific diverse markets.

FS Tech currently holds leads positions in a number of technical areas that are ahead of direct competitors and we have expanded our global reach through these agreements. We will also grow by implementing our strategic plan at FS Tech driven by full line system sales on a global scale. These actions leverage the capital already deployed and will drive profitability.

In 2010, half of our sub segments are operating at, or above, the 2012 margin targets for their respective groups. Improvement actions are being made to these segments that are below the target and enhancements are being made to those that are above their targets. Our plan for 2011 is for two-thirds of our units that reach or exceed their 2012 target, utilizing the profitable growth strategies and for all the units to improve even the best performance. If all of our investments in hard work fail to bring measurable progress toward those goals in 2012, we will make the necessary tough decisions.

Turning now to cooperation with shareholders. You may recall that in 2008, Joe Wright and I joined the Federal Signal Board of Directors. We were put forward as candidates by a large shareholder that desired a change in performance at FS, Federal Signal and an introduction of new thinking to the Federal Signal Board of Directors. You may also recall that during 2010, Dick Mudge and Dom Romeo joined the Board and continue the process of bringing new experience to our Board. Each has made important contributions.

We recently reached out to a number of shareholders seeking references for additional talent that might be considered for our Board this year. We interviewed some excellent candidates. As a result, we have asked Bill Owens, one of the recommended candidates, to join our Board. Mr. Owens is the former Governor of Colorado and we believe that his extensive experience in international business, his management expertise across a broad range of industries, and his distinguished political background make him an Ideal fit for the Company's Board.

I'll respond to a number of questions raised by shareholders before we go into the Q&A. 2011 will be a year focused on improving our capital structure and our cash flow. We need to reduce debt and refinance our balance sheet. Second, we regret the necessary elimination of our dividends, will recommend reinstatement of the dividends to the Board of Directors as soon as earning and our capital structure do allow. Our best information tells us that we should be able to refinance our debt and return to profitability and profitable growth this year.

So, in summary, I've concluded my early analysis with the Company. Federal Signal will continue to operate as an industrial conglomerate. We will focus on high value industrial product segments and operate for profitable growth. Unprofitable units will be improved, shut down or divested. Each unit will compete for capital based on the ability to create shareholder value. We will consider divestiture of certain businesses if that will create shareholder value beyond that which we can achieve operating the unit. We'll also consider divestiture as a tool to deleverage the balance sheet.

We have no defined plan to break up Federal Signal and have a fire sale. I also just want to repeat that I am fully committed to work with shareholders, improve Federal Signal's profitability through my focus on cash management, including reducing working capital, margin improvement in all businesses, achieving the financial results that we commit to, and transparency and cooperation with shareholders.

This Company has a 100-year history of creating and producing outstanding [prospects]. I continue to be impressed with the outstanding employees I meet each day. And their commitment and work ethic give me the great confidence in our future together. Now we'll open the call lines for questions.

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

Hello Thanks, good morning guys.

Good Morning.

With regard to FS Tech, just a couple of questions. In the release it talked about, I guess it was deferred retention expense for diamond. Then you talked about the margin being affected by higher R&D and higher amortization. Can you give a little more detail on those specific items?

On the deferred compensation, when we acquired the business in December of 2009, part of the deal was some money up front and some money to be paid two years down the road. The accounting for that money is that it's treated as deferred expense, I mean, deferred compensation, because the employees had to be employed two years down the road to get it. It's about $1 million a year of expense that will run through the end of 2011, then will be gone.

Thanks. Then on the impairment charge, which parts of FS Tech, or which of the businesses was that directed at? Or was it more than one?

I'm sorry. Say it again, Charlie.

On the impairment charge in FS Tech, was there one of the businesses that largely came out? Or was it a spread across the business group?

No, the impairment analysis is done at the group level. So we did it at the total group level and then spread the impairment impact across the business.

Okay. With regard to the interest rate increase on the debt from the change in the covenant, is it just an increase for Q1 and Q2 and then it drops back or how does that work?

No, as long as we keep the debt in place. We have always assumed that we would refinance, probably in the second half of the year. So we don't expect an incremental increase over what we had on our forecast. So, those are what's in there for the first quarter and second quarter for the agreement.

Okay. You laid out some 2012 margin targets. And I'm just wondering, why not give 2011 margin targets for the businesses?

We just haven't thought about that, Charlie. I think it's more important to look at the total business for 2011, the $0.25 range we gave you.

Charlie, we're really, if you look at what's in there for 2010 and the margin targets for 2011, you can you kind of bridge what's in the middle there and get a pretty good range for 2011.

You can actually see in the K2010 results for the division.

Do you expect FS Tech to be profitable in 2011?

We expect to be running at a profitability rate in 2011. Yes. We have a nice backlog of orders there.

I'll hop back in the queue. Thanks.

Thank you.

Your next question comes from the line of Deane Dray with Citigroup Investment Research. Please proceed.

Good Morning

Hi this is James [Bink] filling in for Deane. Thank you for taking the call.

You're welcome.

Dennis, wondering if you could elaborate a little bit more on the businesses that you are segmenting. I would be curious to know which ones.

Well, we look at every business and we've segmented every one of them. The only one we didn't segment is Bronto because it's one business. In Bronto we look at it from region to region, a little bit differently. But if you take the Safety business, we have an Industrial piece. We have the piece the Alerting and Warning. We have police, fire, and we have the heavy duty light businesses. And we found that it's helpful to look at each of the customer bases and channels as a way to really understand how to drive profitability.

Right. I understand.

And ESG at Elgin Sweeper, Vactor, Guzzler and JetStream. So when you look at that you can kind of see where the industrial and muni split. And then FS Tech, of-course, it's all a piece as you're familiar with. Parking, PIPS and diamond.

So on the Bronto and ESG, sort of a surprising increase in orders with those longer cycle businesses. You definitely referenced the fact that municipal budgets are still tough. Those markets are tough. But is this any type of inflection point here potentially, and could you please share with us maybe what your municipal customers are saying? For the near --

Yes, we can. The municipal customers are still saying what they have been saying which is there's no money there. But they also had--These are equipment businesses and they need this equipment to perform the services in the cities. So we think it is an inflection point. We don't know how long it's going to stick.

But in the case of Bronto, their business is global, worldwide so they actually are picking up orders in places they have in the past that are not, say, affected such much by the muni. So Asia, for example, where there's a pretty good amount of business. I think it's part of replacement of equipment that's really past its useful life in this state, and then also the Bronto business which is really more global.

What types of cost pressures are you seeing right now, particularly in steel and what if any pricing actions have been put in place recently or what if any do you expect to put in later this year?

We've budgeted and planned pretty well for the steel increases on our contracts. We have seen some PC board activity in our Safety businesses. We baked that pretty much into the plan.

Nothing specific in terms of price increases?

No. Nothing we haven't accounted for.

Okay.

Nothing that we haven't accounted for.

Great. Lastly, on the hearing loss litigation, obviously some good success there getting rid of half of those claimants. Potentially, what's left of the $2 million, is this something you guys would go after this year and hopefully settle with that, too?

The place that we are right now with that, is that our team, as you know, has been extremely active for the last three years defending our position. And this negotiation and settlement was a confirmation that we're on the right track with that. We have an appeal of a case in Chicago that we think will sit through this year so we don't expect any activity this year.

Okay.

And it'll be in the 2012, unless it moves up fast.

That's all I have. Thank you.

Thank you very much.

Your next question comes from the line of Ned Borland with Hudson Securities. Please proceed.

Hello, good morning. Just on the dividend and on the minimum EBITDA covenant threshold, could you share with us just what the EBITDA would have to be in order to reinstate the dividend?

No. We don't know what that is until we get there. We have two issues. One, the refinancing of the Company, and the second would be the entire capital structure. So we don't have a trigger.

Okay. Let's see. Fair enough. On the agreement with Pierce, you guided, I guess, maybe it was collectively, maybe it was individually, on the municipal businesses, Bronto being in there. Just wondering what your thoughts are and what kind of shot in the arm this agreement gives you for Bronto?

Yes. I don't know that we would want to say a number on that.

Pardon me?

Talk about the timing on when we think that might can be.

The timing. That'll start to take place this year. We do think it'll add units to our mix. And we think that it'll grow significantly over the next year. They have a large distribution channel and they are excited about the product. I don't know that I'm comfortable making a projection what we think it's going to bring in terms of volume. We think it was worth doing.

When we talked about the businesses our combined flat for the year. Dennis mentioned, Bronto's seeing some good orders from China and India and other places. Europe is still quite weak for them. So, we're looking at the Pierce deal to help balance off some of the weakness in Europe.

The Bronto piece is upside to the client in that.

Okay. That's sort of what I was getting at there.

Right.

Okay. Then, I guess a final question here on he FS Tech project delays. I guess, maybe, if you could share just sort of what the delays, where they were geographically, where are they contingent on any kind of highway bill spending or anything like that? Are we talking about maybe one or two quarters, or are we talking something more significant?

I think we're talking one or two quarters, and it's been global. It's more, I think, a matter of a cycle time of the project from inception to when it's actually delivered to an order, because of the bonding and all of the things that go into it, they're just moving from quarter to quarter.

Okay. Thanks.

You're welcome. Thank you.

(Operator Instructions) And we do have a follow up question from the line of Charles Brady with BMO Capital Markets. Please proceed.

Thanks. I just wanted to jump back on the Bronto Pierce deal. Does that--In the release, you talked about you'll also be providing parts and services for those. Is from any up front parts, filling the channel with parts, or is that kind of an as needed?

That'll be as needed. We'll maintain the parts until they get rolling.

Okay. I don't --Maybe I missed it. Could you share with us what the inventory turn targets are?

I didn't put those out there.

Would you like to?

We can at some point share them with you, I just don't have them today.

It varies considerably by group. The Bronto Skylifts take a long time to manufacture. A PIPS camera can get out the door pretty soon after we get the order. So there's a wide variety of inventory turns. It's safe to say that they are all going up and it's all going to be included in every group president's objectives as well as their teams.

Okay. Thanks.

Yes.

And at this time, we have no further questions. I would now like to turn the call back over to Dennis Martin for any closing remarks.

Well, I want to thank everybody for joining us today. I look forward to our next call together. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect.Have a great day.