Welcome to the major leagues of debt. Collateralized debt obligations, almost always referred to as a CDOs, are horrendously complicated deals that often leave anyone without a MBA wondering what was put into these CDOs.

The first thing to understand about bonds, (aka debt) is that bonds are often backed by something else. Think about your home mortgage. If you don't pay your mortgage, the bank can take the house. You end up homeless, and the bank sells the house to pay off the rest of that mortgage. There is something "backing" that mortgage; something lender can fall back on, if you don't pay your bills like a good human being. That's called collateral.

CDOs are one flavor of an entire sector of investing called structured finance, and they are also backed. CDOs, in the simplest concept, are just bonds backed by something else. In most cases, a CDO is backed by a collection of various types of debt. CDOs can be home mortgages, or other types of debt like credit cards, auto loans, and personal loans. Most of these types of debt are usually considered a bit more risky and they don't have the backing that a home loan does. So, if you think it through, you can imagine that CDOs are usually considered a risky investment.

To take a step further, understand that CDOs have multiple flavors within each CDO. These flavors are called tranches. If you've taken French, you might recognize the word, it means "slice" or "portion." Each slice of that CDO you invest in is a little different and carries different amounts of risk.

You could invest in the lowest risk tranche of the CDO, which would provide you lower risk. But, you don't get a good return on that investment. Or, you can be the heroic adventurer of bonds and invest in the lowest-grade tranche of the CDO. You'll make an amazing return, but if the economy even looks at you wrong, you might lose the entire investment.

CDOs aren¿t easy, and are almost always invested in by mutual funds, insurance companies and hedge funds. As an individual investor, you will probably not come across a CDO you can participate in.

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Friday, July 25, 2008

Federal Signal Corporation Announces Second Quarter Earnings of $.17 Per Share From Continuing Operations

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Comtex

OAK BROOK, Ill., July 25, 2008 /PRNewswire-FirstCall via COMTEX/ ----Federal Signal Corporation (NYSE: FSS), a leader in advancing security and well-being, reported net income from continuing operations of $8.0 million, or $.17 per share, for the second quarter of 2008 on net sales of $254 million. For the same period of 2007, the Company earned $12.2 million from continuing operations, or $.25 per share, on net sales of $243 million. The year-over-year reduction in net income from continuing operations is due to increased litigation expense, lower sales of mobile lightbars and sirens and a higher effective tax rate.

Jim Goodwin, interim president and chief executive officer, stated, "Our second quarter order intake was encouraging, with new business exceeding shipments in all three segments. Despite the publicized pressures on US municipal spending, we saw a 6% increase in municipal orders due to strong demand for outdoor warning sirens, a recovery in street sweeper orders and the addition of the PIPS products. Our international business remains robust, particularly outside of Europe. Our pipeline of new business for our Public Safety and Security division is growing as planned; our investment in additional sales resources should bear fruit in the back half of the year.

We remain concerned about escalating materials costs. While our purchase contracts protected us during most of the second quarter, we are beginning to see cost increases flow through. We have raised our selling prices on most of our products, which should cover the cost impact later this year.

We expect to complete the sale of E-ONE during the third quarter and will liquidate more of our leasing portfolio. When these transactions are completed, Federal Signal will emerge as a stronger $1 billion corporation with good financial flexibility."

The Company recorded a second quarter net loss including discontinued operations of $13.4 million, compared to $11.1 million of net income in the prior year period. The loss in the second quarter of 2008 is driven primarily by an after-tax loss of $21.4 million on discontinued operations due principally to a further impairment charge and operating losses with respect to the Company's E-ONE subsidiary. On July 16, 2008 the Company announced that it had signed a definitive agreement to sell E-ONE for approximately $20 million subject to working capital adjustments. The sale is expected to be completed in the third quarter of 2008.

Cash flow from operations totaled $85.9 million for the first six months, significantly improved from the $18.0 million in the prior year. The improvement is primarily the result of the sale of a portion of the Company's municipal leasing portfolio for proceeds of $53.5 million and a reduction in outstanding dealer floor plans.

GROUP RESULTS

Safety and Security Systems

-- Orders rose 6% from the prior year period to $99 million. Non-US orders increased 16% over the prior year from $38 million in 2007 to $44 million in 2008 primarily as a result of foreign currency translation and orders for products manufactured by the PIPS business which was acquired in the third quarter of 2007. US orders remained relatively flat year-over-year, with increased municipal demand for warning sirens and ALPR cameras offset by weaker orders for police products and industrial lighting.

-- Net sales were relatively flat compared to the second quarter of 2007, despite the addition of PIPS, due to fewer large police product export orders and lower US sales of police products. US sales of police products were constrained as a result of municipal budget pressures and an interruption in police car conversions triggered by an automotive supplier strike, which has since been resolved.

-- Operating income of $10.9 million was down 24% from the prior year. The reduction is primarily due to lower global sales of police products, a $0.7 million inventory write-off in a satellite location and a less-rich mix of product shipments overall in the quarter. Additionally, segment margins are impacted by expenses incurred to launch the new Public Safety Systems division.

Fire Rescue

-- Orders for Bronto articulated aerial devices remained strong at $45 million, up principally due to the strong Euro. Although demand for work platforms in Europe has weakened from the prior year, orders from other international locations have risen.

-- Net sales of $43 million rose 38% from the prior year period as a result of the strong Euro and higher value shipments. Bronto is in the process of a 40% capacity expansion which will come on line in the third quarter to help meet the increased demand.

-- Operating income of $4.3 million was up 19% over 2007, due to the higher sales revenue.

Environmental Solutions

-- Orders totaled $118 million, up 9% from the prior year quarter. Orders in the US municipal and government markets were up 8% as a result of increased demand for sweepers and parts, which had been weaker during the first quarter of 2008.

-- Net sales totaled $117 million, essentially unchanged from 2007. Sales of sweepers were down year-over-year reflecting weaker orders from the first quarter and some delays caused by the implementation of a new integrated business system at the Elgin sweeper plant. Sales of sewer cleaners, industrial vacuums and parts and accessories remained strong.

 -- Operating income of $11.2 million was essentially unchanged from 2007. OTHER

-- Second quarter corporate expense totaled $7.7 million, an increase of $1.3 million from the prior year primarily as a result of $3.7 million higher costs associated with the Company's firefighter hearing loss litigation. This was partially offset by a decrease of $1.1 million in workers' compensation and casualty expenses due to a reduction in claims and the impact of staffing and expense reductions.

-- The second quarter effective tax rate was 32.3% versus 26.0% in 2007. The higher tax rate reflects lower profits in foreign jurisdictions with tax loss carry forwards and reduced tax-exempt interest.

-- At quarter-end, manufacturing debt net of cash totaled $238 million, down from $276 million at the beginning of the year.

CONFERENCE CALL

Federal Signal will host its second quarter conference call on Friday, July 25, 2008 at 11:00 a.m. Eastern Time to highlight results of the quarter. The call will last approximately one hour. The call may be accessed over the Internet through Federal Signal's website at http://www.federalsignal.com. A replay accessible from this company website will be available shortly after the call.

About Federal Signal

Federal Signal Corporation (NYSE: FSS) is a leader in advancing security and well-being for communities and workplaces around the world. The company designs and manufactures a suite of products and integrated solutions for municipal, governmental, industrial and airport customers. Federal Signal's portfolio of trusted, high-priority products include Bronto aerial devices, Elgin and Ravo street sweepers, E-ONE fire apparatus, Federal Signal safety and security systems, Guzzler industrial vacuums, Jetstream waterblasters and Vactor sewer cleaners. Federal Signal was founded in 1901 and is based in Oak Brook, Illinois. http://www.federalsignal.com

This release contains unaudited financial information and various forward-looking statements as of the date hereof and we undertake no obligation to update these forward-looking statements regardless of new developments or otherwise. Statements in this release that are not historical are forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Such risks and uncertainties include but are not limited to: economic conditions in various regions, product and price competition, supplier and raw material prices, foreign currency exchange rate changes, interest rate changes, increased legal expenses and litigation results, legal and regulatory developments and other risks and uncertainties described in filings with the Securities and Exchange Commission.

 QTR QTR YTD
   YTD June June June June 30 30 30 30 2008 2007 2008 2007 --------- -------- -------- -------- Quarter June 30: Net Sales $
   254.3 $ 243.2 $ 482.4 $ 456.2 Cost of sales (186.4) (176.2) (354.6) (333.6) Operating expenses (49.2) (44.4) (96.4) (83.2)
   --------- -------- -------- -------- Operating income 18.7 22.6 31.4 39.4 Interest expense (5.5) (5.7) (12.3) (11.8) Other
   expense (1.4) (0.4) (1.9) (0.7) --------- -------- -------- -------- Income before income taxes 11.8 16.5 17.2 26.9 Income
   tax expense (3.8) (4.3) (4.9) (7.5) --------- -------- -------- -------- Income from continuing operations 8.0 12.2 12.3 19.4
   (Loss) gain from discontinued operations and disposal, net of tax (21.4) (1.1) (110.6) 22.3 --------- -------- -------- --------
   Net (loss) income $ (13.4) $ 11.1 $ (98.3) $ 41.7 ========= ========= ========= ========= Gross margin 26.7 % 27.5 % 26.5
   % 26.9 % Operating margin 7.4 % 9.3 % 6.5 % 8.6 % Effective tax rate 32.3 % 26.0 % 28.5 % 27.6 % Diluted earnings per share:
   Earnings from continuing operations $ 0.17 $ 0.25 $ 0.26 $ 0.40 (Loss) earnings from discontinued operations and disposal,
   net of tax (0.45) (0.02) (2.31) 0.47 --------- -------- -------- -------- (Loss) earnings per share $ (0.28) $ 0.23 $ (2.05)
   $ 0.87 --------- -------- -------- -------- Average common shares outstanding 47.6 47.8 47.8 47.9 QTR QTR YTD YTD June 30
   June 30 June 30 June 30 2008 2007 2008 2007 --------- -------- -------- -------- Group results: Safety and Security Systems
   Group: Orders $ 98.7 $ 93.0 $ 194.6 $ 190.9 Net Sales 94.8 95.9 185.6 174.5 Operating Income 10.9 14.3 19.2 23.8 Operating
   Margin 11.5 % 14.9 % 10.3 % 13.6 % Backlog $ 70.0 $ 75.3 Fire Rescue Group: Orders $ 44.8 $ 38.2 $ 103.8 $ 99.7 Net Sales
   42.5 30.7 66.8 51.3 Operating Income 4.3 3.6 6.3 5.3 Operating Margin 10.1 % 11.7 % 9.4 % 10.3 % Backlog $ 181.7 $ 114.8 Environmental
   Solutions Group: Orders $ 117.9 $ 108.1 $ 215.4 $ 218.6 Net Sales 117.0 116.6 230.0 230.4 Operating Income 11.2 11.1 21.0
   21.2 Operating Margin 9.6 % 9.5 % 9.1 % 9.2 % Backlog $ 123.7 $ 117.0 Corporate operating expenses $ (7.7) $ (6.4) $ (15.1)
   $ (10.9) --------- -------- -------- -------- Total Operating Income $ 18.7 $ 22.6 $ 31.4 $ 39.4 ========= ========= =========
   ========= June 30 December 31 ($ in millions) 2008 2007 ------- --------- ASSETS Manufacturing activities: Current assets
   Cash and cash equivalents $ 16.6 $ 12.5 Accounts receivable, net of allowances for doubtful accounts of $6.2 million and $3.8
   million, respectively 155.8 147.8 Inventories 134.7 121.8 Other current assets 46.7 42.7 ------- --------- Total current assets
   353.8 324.8 Properties and equipment, net 70.9 59.6 Other assets Goodwill 349.0 344.7 Intangible assets, net of accumulated
   amortization 62.0 65.2 Deferred charges and other assets 9.1 7.2 ------- --------- Total manufacturing assets 844.8 801.5
   Assets of discontinued operations 44.5 231.8 Financial services activities - Lease financing and other receivables, net of
   allowances for doubtful accounts of $3.6 million and $3.6 million, respectively 71.3 146.8 ------- --------- Total assets
   $960.6 $1,180.1 ======= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Manufacturing activities: Current liabilities Short-term
   borrowings $ 3.5 $ 2.6 Current portion of long-term borrowings 32.7 45.4 Accounts payable 66.8 66.2 Accrued Liabilities Compensation
   and withholding taxes 23.7 26.8 Customer deposits 24.8 17.7 Other 47.8 53.6 ------- --------- Total current liabilities 199.3
   212.3 Long-term borrowings 218.5 240.7 Long-term pension and other liabilities 27.7 32.3 Deferred income taxes 43.2 39.3 -------
   --------- Total manufacturing liabilities 488.7 524.6 Liabilities of discontinued operations 63.4 72.8 Financial services
   activities - Borrowings 66.5 137.4 ------- --------- Total liabilities 618.6 734.8 Shareholders' equity Common stock, $1 par
   value per share, 90.0 million shares authorized, 49.5 million and 49.4 million shares issued, respectively 49.4 49.4 Capital
   in excess of par value 105.1 103.2 Retained earnings 229.4 333.8 Treasury stock, 1.9 and 1.5 million shares, respectively,
   at cost (36.1) (30.1) Accumulated other comprehensive (loss) income: Foreign currency translation, net 19.6 15.9 Net derivative
   loss, cash flow hedges, net (1.1) (2.0) Unrecognized pension and postretirement losses, net (24.3) (24.9) ------- ---------
   Total (5.8) (11.0) ------- --------- Total shareholders' equity 342.0 445.3 ------- --------- Total liabilities and shareholders'
   equity $960.6 $1,180.1 ======= ========= Supplemental data: Manufacturing debt $254.7 $ 288.7 Debt-to-capitalization ratio:
   Manufacturing 43.0 % 40.0 % Financial services 93.0 % 94.0 % Net Debt/Cap Ratio 41.4 % 38.8 % Net Debt/Cap Ratio = manufacturing
   debt-to-capitalization ratio, net of cash For the Six Months Ended June 30, ------------------ 2008 2007 -------- ------ ($
   in millions) Operating activities Net (loss) income $(98.3) $41.7 Adjustments to reconcile net (loss) income to net cash provided
   by (used for) operating activities: Loss (gain) on discontinued operations and disposal 110.6 (22.3) Depreciation and amortization
   8.4 5.4 Stock based compensation expense 1.9 2.6 Lease financing and other receivables 75.5 15.7 Pension contributions (5.8)
   (6.2) Working capital (1) (9.8) (13.2) Other 4.0 4.0 -------- ------ Net cash provided by continuing operating activities
   86.5 27.7 Net cash used for discontinued operating activities (0.6) (9.7) -------- ------ Net cash provided by operating activities
   85.9 18.0 Investing activities Purchases of properties and equipment (15.6) (9.6) Payments for acquisitions, net of cash acquired
   - (16.6) Other, net (0.1) (1.7) -------- ------ Net cash used for continuing investing activities (15.7) (27.9) Net cash provided
   by discontinued investing activities 52.8 66.0 -------- ------ Net cash provided by investing activities 37.1 38.1 Financing
   activities Decrease in short-term borrowings, net (0.9) (29.0) Payments on long-term borrowings, net (106.8) (21.1) Purchases
   of treasury stock (6.0) - Cash dividends paid to shareholders (5.8) (5.7) Other, net - 0.4 -------- ------ Net cash used for
   continuing financing activities (119.5) (55.4) -------- ------ Net cash used for financing activities (119.5) (55.4) --------
   ------ Effects of foreign exchange rate changes on cash 0.6 0.2 -------- ------ Increase in cash and cash equivalents 4.1
   0.9 Cash and cash equivalents at beginning of period 12.5 15.7 -------- ------ Cash and cash equivalents at end of period
   $ 16.6 $ 16.6 ======== ====== (1) Working capital is composed of net accounts receivable, inventories, accounts payable and
   customer deposits.

SOURCE Federal Signal Corporation

http://www.federalsignal.com

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