Franklin Electric Co Inc (FELE) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Franklin Electric third quarter 2009 earnings conference call.

As a reminder, today's call is being recorded.

I would now like to turn the conference over to Mr. Patrick Davis. Please go ahead, sir.

Thank you, Nancy.

Welcome to the Franklin Electric third quarter 2009 earnings conference call. With me today are Scott Trumbull, our Chairman and CEO; John Haines, our CFO; Robert Stone, SVP of America's Water; and Gregg Sengstack, SVP of fueling and international water. On today's call, Scott will review our third quarter business results, and John will review our third quarter financials. When John is through, we will be some time for questions and answers.

Before we begin, let me remind you that any forward-looking statements contained herein, including those relating to the Company's financial results, business goals, and sales growth, involve risks and uncertainties. These include, but are not limited to, risk and uncertainties with respect to general economic and currency conditions, various conditions specific to the Company's business and industry, the weather conditions, new housing starts, market demand, competitive factors, changes in distribution channels, supply constraints, technology factors, litigation, government and regulatory actions, the Company's accounting policies, and future trends and other risk; which are detailed in the Company's SEC filings included in item 1A of part 1 of the Company's annual report on Form 10K for the fiscal year ended January 3, 2009, Exhibit 99.1 attached thereto, and in item 1A of part two of the Company's quarterly reports on Form 10Q.

These risk and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements made herein are based on information currently available, and the Company assumes no obligations to update any forward-looking statements. I will now turn the call over to our Chairman and CEO.

Scott?

Thank you.

Water systems represent about 83% of our total sales; and in this segment, our operating earnings before restructuring expenses improved by $2.3 million or 12% versus the third quarter last year. And our operating income margin increased by 320 basis points. Much of the water profitability improvement is attributable to a sharp increase in operating income margins in our businesses, in the US and Canada.

The US and Canadian water systems' revenues account for about 43% of our total sales. And during the third quarter, operating margin on these sales increased by over 500 basis points compared to prior year. This improvement in operating income margin was brought about by reduced raw material costs, reduced price promotion activity, and the start up of expanded production operations in our Linares, Mexico factory; and the curtailment of capacity in more expensive North American plants.

As a result, our operating earnings in the US and Canada grew by about $3 million despite a $14.1 million or 16% reduction in sales. Based on trade association data, we are confident that we are continuing to gain share in our key product lines in the US and Canada. But we have not been able to offset the decline in the residential and light commercial pumping equipment market. Again, according to trade association data, the North American residential and light commercial pump market was down 25% during the first half of this year in units brought on by the decline, consumer spending and credit availability.

We believe that the rate of decline of our sales in the US and Canada is slowing; and that during the fourth quarter our sales in this region will approach prior year levels. Certainly, the significant increase in operating margin in our US and Canadian water business, coupled with an improving sales outlook was the most encouraging development during the quarter.

Our water systems' businesses in international markets represent about 40% of our total sales. During the third quarter, our sales in these markets declined by about 5%. Excluding acquisitions in foreign currency effects, they declined by about 6%. Sales increases in Latin America and Asia Pacific were not sufficient to offset declines in Europe, the Middle East and Africa. International operating income declined modestly.

Fueling systems represent 17% of our total sales during the quarter. And fueling operating income declined by $15 million versus prior year, which more than accounts for the $12 million decline in total company third quarter operating earnings.

During the third quarter last year, fueling systems achieved record earnings as we benefited from surging sales of vapor control equipment to gas station owners in California who were complying with an environmental mandate in that state. We have known for quite some time that the fueling system sales surge in California would wind down in late 2009 or 2010. And since the fourth quarter of last year, we have also experienced an unprecedented decline in our water systems' markets. As I mentioned earlier, based on trade association data, the overall market for residential and light commercial pumps in North America is down 25% through the first six months of this year.

In light of this situation, we focused much of our effort in 2009 on fixed cost reduction and cash generation. We've reduced fixed cost, which are the combination of SG&A spending and plant fixed spending throughout the year. In the third quarter, fixed spending was lower than prior year by $6.3 million or 10%. We've concentrated on cutting costs without jeopardizing our competitive position.

So for example, while we've reduced our corporate staff head count by 17% during the first quarters of the--three quarters of this year, we have also increased our RD&E spending over the same period. During the first three quarters of this year, we generated cash flow from operations of $88.3 million, an increase of $60 million versus the same period prior year. This has enabled us to reduce our net debt from $141 million last year to $81 million at the end of the third quarter this year. And our net debt to equity from 40% last year to 21% at the end of the third quarter this year.

We have generated cash flow of about $40 million by reducing inventories. Reducing inventory by 20%, at a time when sales are down by 19%, requires drastic reductions in plant capacity utilization and concurrent penalties to the P&L. But focusing on cash flow and inventory reduction in these market conditions is clearly the right thing to do and positions us well for the future.

While the rate of decline in our water systems business has abated sequentially in each of the last three quarters, we have not seen consistent signs of a market recovery. Nevertheless, we believe our water systems' sales should increase modestly during the fourth quarter, as the prior year comparison is easier and the dollar is weakened. We believe that our water systems' operating income margin should exceed prior year in the fourth quarter.

We are reluctant to provide guidance regarding overall fueling sales in the fourth quarter. While we believe approximately 1,800 California station owners, or about 15% to 20% of the total have yet to comply with the January 1, 2010 deadline, their equipment purchases will be heavily influenced by their expectations regarding the State of California's policy on levying fines; as well as the availability of financing for station owners to make the investment.

Last year, our fueling sales, other than those related to California--the California initiative, were about $27 million and we believe they will be 5% to 10% less this year due to the reduction in overall commercial construction activity and the lack of availability of credit to small business in the United States. We believe fueling systems' operating margins will be sequentially higher in the fourth quarter 2009.

In summary, while we are sobered by the difficult market conditions we have been facing, we are encouraged by the improved profitability of our water systems' business brought on by reduced raw material costs, reduced price promotion activity, and the start up of our expansion in Linares. These factors, combined with reduced fixed cost and inventories, position us well to achieve significant operating leverage as our sales increase from the current depressed levels.

Now I will turn the call over to John Haines, our CFO, who will provide additional color on the quarter.

Thank you, Scott, and good afternoon.

Our fully diluted earnings per share were $0.37 for the third quarter 2009, a decrease of 50% compared to 2008 third quarter earnings per share of $0.74. Earnings per share before restructuring charges, were $0.40, a decrease of 46% compared to the prior year. Third quarter 2009 sales were $166 million, a decrease of 23% compared to 2008 third quarter sales of $215.8 million. The strengthened US dollar lowered sales by about $5.5 million in the quarter versus the third quarter of 2008.

Water systems' revenues declined by $17.2 million or about 11% overall from the third quarter of 2008. The water systems' organic sales decline, excluding foreign currency translation and acquisitions, was $18.3 million or about 12%. Internationally, water systems' sales, excluding currency translation and acquisitions, declined by about $5 million or about 6% versus the third quarter of 2008.

Sales improvements in both the Latin America and Asia Pacific regions were not enough to offset declines in the Europe, Middle East and Africa regions. Fueling system sales declined by about 53% during the third quarter of 2009, compared to the same period in the prior year. Sales of fueling systems vapor recovery products in the State of California decreased $26.7 million, or 90% in the third quarter 2009 versus the same period in 2008.

The Company's consolidated gross profit was $50.2 million for the third quarter of 2009, down $16.2 million from $66.5 million in the third quarter of 2008. Correspondingly, the gross profit margin decreased to 30.3% for the third quarter of 2009, from 30.8% for the third quarter of 2008. Overall, operating income before restructuring expenses was $15.5 million or 9.9% of sales in the third quarter of 2009; down 40.5% from the same period in 2008; however, up 110 basis points sequentially versus the second quarter of 2009. The entire decline in operating income before restructuring expenses can be attributed to the volume declines in fueling systems.

During the third quarter of 2009, SG&A expenses decreased by $5.1 million consistent with management's fixed cost reduction initiatives started in the fourth quarter of 2008. SG&A expenditures for corporate administrative related costs declined by 19% in the third quarter of 2009 versus 2008. Water systems' operating margin before restructuring expenses improved dramatically in the quarter, as a result of the cost reduction efforts previously disclosed by the Company despite a decline in the water systems' volume of 11%.

Operating income before restructuring expenses increased $2.3 million or 12% in the third quarter of 2009 versus the same period of 2008. Operating income before restructuring expenses as a percent of sales improved to 15.3% in the third quarter of 2009, a 320 basis point improvement versus the third quarter of 2008. Sequentially water systems' operating income before restructuring expenses as a percent of sales improved by 120 basis points versus the second quarter of 2009.

SG&A expenses were lower in the third quarter of 2009 by $2 million from the same quarter of 2008. Operating margin before restructuring expenses in fueling systems was about 14% of sales in the third quarter 2009, versus 31.5% of sales in the third quarter of 2008.

Despite fixed expenses being 20% lower than the third quarter of 2008, the reductions were not enough to offset the leverage loss from lower sales volumes. Restructuring expenses for the third quarter of 2009 were approximately $1 million and reduced diluted earnings per share by approximately $0.03. Restructuring expenses include asset impairments, severance expenses, and manufacturing equipment relocation cost.

The Company's efforts to improve working capital and cash flows gained significantly in the third quarter, 2009. Cash flow from operations improved by $60.5 million versus the first nine months of 2008. Cash and cash equivalents on hand at the end of the third quarter 2009 were $71.2 million, a $10.4 million or 17% increase compared to the end of the third quarter of 2008.

The Company had no borrowings outstanding on its revolving credit line at the end of the third quarter, 2009. Inventory balances declined to $137.6 million at the end of the third quarter, 2009; 16% lower when compared to $164.4 million at the end of the third quarter, 2008. At the end of the third quarter, the Company's ratio of gross debt divided by earnings before interest, taxes, depreciation and amortization or EBITDA was 2.1 versus 1.8 at the end of 2008; and 1.9 at the end of the third quarter of 2008.

We believe that cash on hand, internally generated funds, and existing credit arrangements provide sufficient liquidity to meet current commitments and service our existing debt. As we have previously disclosed, the Company's revolving loan agreement with its bank is in place until the end of 2011; and we have no scheduled principle payments on our long-term debt until 2015.

Finally, on Friday, October 23rd, the Board of Directors of Franklin Electric declared a quarterly cash dividend of $0.125 per share payable November 25, 2009 to shareholders of record on November 12, 2009.

This concludes our prepared remarks and we would now like to open the call for questions.

Thank you, sir. (Operator Instructions). We will pause for a moment.

We'll take our first question from Mike Schneider from Robert W. Baird.

I am wondering if we can first just talk about the margins and water systems. Last time we talked, on the July call you made a point of calling out that water systems did a 17% margin in June. It looks like it came in in the mid 15's for the quarter now. I suspect raw materials are even lower during the third quarter for you. So could you reconcile what has changed in that mix?

Well, Mike, if you were to take our June sales in water systems and extend them out for a full quarter, at that rate, the quarter's sales would have been about $152 million. Our sales in the third quarter were--in water were about $137 million. If we had had sales of $152 million for the quarter at the contribution margins we're achieving in water, our margins would have been in excess of 17%. So again, the difference is our third quarter sales were lower than the run rate in June.

Okay. Fair enough.

Geographically, is there a mix impact as the US declines more than the foreign markets?

Our contribution margin in our international markets and our current contribution margin in our domestic markets, are very similar. There is--now certainly within product lines some of our products have significantly different margins than other products; but overall, in our water business that the contribution margin that we get on an incremental sales in--on average, in our international markets, are not materially different than the contribution margin we get on incremental sales in our domestic markets.

Okay.

And then your comment--did I hear you correctly, you expect Q4 water revenue in total to be up year on year or just the domestic markets?

No, we said that we think that in the domestic markets, I think we used the term in this region, will approach prior year levels. And then for the overall, we indicated that we felt that in the fourth quarter, overall water systems' sales should be up modestly.

Okay.

And does that statement hold true sequentially as well for water, Scott, because Q4 is fairly low water margins, that's when the cataclysm is there.

We would not expect Q4 sales versus Q3 sales to be up sequentially. Because of the seasonality of the business.

Okay.

But again, just from water overall, $108 million is what you did last fourth quarter. That's a fairly low water mark. So, say you're going to be up year on year, I don't think is all that big of a improvement--move year-over-year especially sequentially if you were even just flat year-over-year, that would be a pretty steep and unusual seasonal decline?

Well, I think our business typically falls off in the fourth quarter pretty significantly, Mike. The--and there has been within the water systems' business, a practice over the last decades where at the end of the year, distributors who are working toward a year-end bogey for discounts--

Yes.

--will push hard; and in fact, frequently the pump companies will encourage that to get year-end sales and to get their products on the shelves going into the first quarter and that sort of thing. And we are not expecting that to occur in the fourth quarter of this year, So to some extent, the fourth quarter will be influenced by a, we believe, a lack of price promotion activity, and a lack of inventory building at the end of the fourth quarter this year; and we are, in fact, some of our conservatism with respect to fourth quarter sales this year is because of that expectation.

Okay.

And raw materials sequentially, have you seen your low water mark in raw materials during the third quarter, or do they go lower yet in the fourth quarter?

We saw the low water mark in the second quarter.

Okay.

Let me clarify that.

We buy two classes of material. The bulk of the material we buy are components that are made out of commodity metals typically. That has got to be 70% of our purchases, maybe more. And the other--the remaining portion is the commodity purchases themselves, steel, copper--

Aluminum.

--aluminum, polypropylene. Those commodity materials actually bottomed out in April. The product that we buy that is made of those materials, it has--we are still seeing price reductions in that because of the lag between the decline in the material cost--the commodity cost and then the cost of those materials. But as far as our commodity purchases are concerned, they bottomed in the second quarter.

Okay.

And then just final question, looking at water again. In the higher thrust, higher horsepower motors; which, I believe, are principally ag, can you give us a sense what the trajectory is in that market and what your expectations are for that market?

Mike, I would say consistent with what we said earlier in the year and even late last year: the ag markets have been down year-over-year from what we have seen. Last year was an exceptional year, with energy prices driving a lot of ethanol production and very good weather conditions drove a lot of business. We expected that this year's ag business would be down; and it is down and consistent with what we are seeing in the rest of the market, really.

Is it--are they declines moderating like the water group overall or are they accelerating?

I would say they're moderating.

Okay. Thank you.

Okay. Thank you, Mike.

We will take our next question from Matt Summerville from Keybanc.

Morning, a couple of questions or good afternoon, I should say.

With regards to the fueling business, how much inventory do you think is in the channel for the remaining 1,800 stations in California on the monitor or on the vapor management systems, Gregg.

Matt, I would say that there is at least from our point of view, not very much inventory in the channel. We have done various vendor managed inventory for our distribution and distributions run down their inventories as well. So we don't think there's very much inventory in the channel for the conversion or the balance of the conversion.

How quickly can a station place an order and get a system installed right now would you say, Gregg?

I would say that they can get the equipment very quickly. We have inventory on the ground in California through our vendor managed inventory and they can go to their distributor and get that equipment or a contractor can go to the distributor and get that equipment; and install it in a very short order, if the station has had the permits they need to install the equipment.

Then while I have you, Gregg, on the vapor monitoring side, how many stations do you believe still have to move with regards to ISD?

Matt, we don't have a lot of clarity on that. We know that in some of the air districts, they mandated that they put in the ISD system at the same time as they put in their vapor recovery systems. So many ISD systems were put in early in the conversion. There are other air districts that do not or did not require that. So, that would be an estimate that there are 2,000 to 3,000 I'd put out there; but we don't have very much visibility to that number.

Okay.

And then, Gregg, maybe one last quick question for you. On past calls, you have sort of done a walk around the world with the opportunities you see out there in fueling. Would you mind going through what you see in Europe, Asia, and if there's anything in Latin America looking out over the next several quarters from a vapor management standpoint?

If you focus only on vapor management, there's a European initiative that approximately 25,000 stations will need to convert before 2018. So that's fairly far out. There are small pockets of upgrades or vapor management and countries in the Middle East, but there's no mandates that I know of. When you move to the Far East, we have talked repeatedly about China, particularly in the Shanghai area and then in the GuanJoe area, we're beginning to see some movement, but not as quickly as we saw in Beijing.

There's still an initiative in Korea. It is moving slowly. There's initiative in Australia which is again a small market, which we expect to start a year from now. So those would be the initiatives that I'm aware of in vapor manage.

If you go beyond vapor management, there are several areas in the world where we are going see organic growth as people continue to convert to pressure systems we're going to see additional opportunity--organic growth as people install more tank aging and monitoring particularly as fuel prices begin to climb again. So those are the other opportunities as well.

Thanks.

Then, Scott, I just want to be clear, with regards to Mike's question. Will your actual raw material costs flowing through your P&L, will that be more favorable in the fourth quarter, or less relative to the third; bearing in mind what you stated around--about the 30% of underlying raw commodities you buy versus the 70% of components that contain those commodities? I just want to make sure I am clear on that.

Matt, this is John Haines.

The increases that we have seen as Scott pointed out, have come basically from April forward. And each commodity or base material type is a little bit different. It is important to note that the increases have not reached the '08 level yet. So we are seeing them there--we are seeing the increase take place, but we are not seeing the prices or the costs reach the point of the '08 average.

So, depending on the material, the product that it goes into, how quickly that product is moving through, inventory. We would basically say that the fourth quarter would reflect more of what the prices in the second and third quarter were, and then the third quarter would reflect the prices that were first or second quarter.

So we expect that the fourth quarter prices or costs--material costs will increase marginally over the third quarter.

We are not, however, anticipating that our contribution in water will move materially one way or the other in the fourth quarter. So that the main effect on fourth quarter operating income will not be the relationship between price and raw material costs. It will be volume-related. You understand what I am saying?

Sure.

And then with regards to the overall inventory situation. In water, Scott, I think you mentioned earlier that you have taken out some $40 million, is there more inventory to take out; and I guess what would your overall assessment be of the channel right now?

Well, now that of course, that is our inventory, and our goal is to reduce inventory further in the fourth quarter. So we have taken out about $40 million across the Company. That includes reductions in fueling too. So we have taken out that amount up to now and we will take out more in the fourth quarter.

Thank you.

We will take our next question from Paul Mammola from Sidoti and Company.

Good afternoon, everyone.

Scott, on your comments right there, you suggested you would take out inventory in the fourth quarter. Should we presume that there would be machine down time or shifts taken out, can you comment on any of that?

There will be a lot of shifts taken out in the fourth quarter in order for us--the fourth quarter is always a slow quarter from a sales perspective anyway and to take inventory out during that--and especially with sales, not being particularly robust to begin with, there will be a lot of machine down time in the fourth quarter.

Okay.

So if we looked at it sequentially, could we assume maybe you would go to the equivalent of a three day week versus five. Would you say that's fair?

Well, that's not the way we will do it. Over holiday periods, we will just be down. We won't--we will shut down early for holiday periods and not come back as soon.

That's helpful.

We will take days of production out.

Okay. That's helpful.

You mentioned pricing in the fourth quarter which is helpful, but competitors improved pricing a bit in the third quarter. Did you have any price action either way this quarter, in 3Q?

The--we didn't have any list price increases, but we had less price promotional activity. So it had the effect of moving our average price up. Price was positive in the third quarter for us.

Okay, that's fair.

And then maybe this is for Gregg. What are you hearing from stations right now? I thought you had the mindset that maybe a few hundred stations would just close their doors rather than upgrade. Do you still think that's the case; and if so, should we presume that your share of the remaining stations would be in excess of 60%? Is that how you are looking at it?

I think what you're talking about, Paul, is related to California; is that correct?

Correct.

Okay.

As they approach the deadline, it's going to depend heavily on how the regulators respond. Confronted with large fines, I'd expect the station owner is either going to have to upgrade or they're going to stop pumping. To upgrade they're going to have to find financing. We understand that many of these stations that are left to do are smaller stations that are individually operated or individually owned; and the access to financing today for small businesses is not easy.

So confronted with that, they will maybe elect just not to pump gas. As financial markets improve, or as the economics of the store improves that they want to make that upgrade, then we would expect they would proceed. And then they're going to look at our system and the competitive systems and make a choice based on what's the best economic for them. We would hope to remain--to gain the majority of that business, but that remains to be seen.

Okay.

And then finally, Scott, can you walk me through how you are thinking about the product portfolio right now? You are obviously in a great relative capital position. In terms of acquisitions, where do you add product here? What's attractive in your mind right now?

First of all, acquisitions, generally, are not high on our list of priorities. We are pretty committed right now to organic growth and driving up margins and contribution margins to the greatest extent we can in these kinds of market conditions, and moving toward operating leverage going forward. I mean that's our--and taking inventory out of our systems. So, when things turn up, we can move as quickly as possible to increase utilization rates and further improve margins.

That's really where we are focused right now. I think that we are--would we do acquisitions, we are not--we would be looking at companies that would expand our reach internationally in fueling. We have a very large opportunity to expand our fueling business internationally, and there are companies out there, bolt on kind of acquisitions that would give us a nice additional distribution in product lines that would be relevant to our fueling business. And there are companies that would do the same thing for us on the water side of our business. Expand our product lines, give us more low cost manufacturing capacity, give us distribution of submersible motor products in regions of the world where we are not strong right now. So, those would be the kind of acquisitions that we'd be looking at.

That's helpful. Thanks for your time.

It appear there is are no further questions at this time.

Mr. Davis, I would like to turn the conference back over to you for additional or closing remarks.

Nancy, we saw Matt come back into the queue there. Matt do you have another question?

Yes.

Sir, your line is open.

Yes. I have a couple of questions.

With regards to the cost actions taken in 2009, can you update us as to what you believe the annual cost savings realized will be this year; and how much would be incremental in 2010 versus 2009? And that statement is mostly around water.

Yes, the guidance, Matt that we've provided in the past the $23 million to $27 million based on the third quarter results, we believe that continues to hold. As we've talked about in the past, as well, there will be certain costs that we will add back from an SG&A perspective that we cut out this year: merit increases and matches on 401Ks and things like that.

But for the most part, we believe that these cost reductions will hold going into 2010. Now, the discussion around raw material prices and where those costs go, is something that we have to stay on top of and that we watch very closely, and those may need to be offset by price increases. But in terms of the cost reduction that we have seen year-to-date, and we expect in 2009, we expect the bulk of that to carry over and continue into 2010.

You have discussed in the past, the contemplation beyond what you have done already with additional relocation of man hours from the US to Mexico. What is your thinking on that for 2010?

We have fortunately--we have a very talented management team in Linares; and as I have mentioned before, we designed our Linares facility to house the capacity or the production that's currently in it. But because they have leaned out their processes, we have got room for roughly 100,000 square feet more of production activity. And so we would say right now that about 60% of our overall manufacturing head count is located in the low cost regions; and by the end of next year, that number will be 67% or 68%. I don't know whether that response to your question or not but that's the way we're looking at it.

And then, Scott, can you maybe comment from an international water standpoint. As you look at how the business has progressed this year, is the magnitude of the decline you're seeing getting worse, getting less severe; and then how do you think about southern hemisphere seasonality moving into Q4?

Okay.

First of all, we would say generally across the piece in our international water business, we would not see our sales situation getting worse. Both because we see the unit sales outlook firming somewhat; and I will ask Gregg, he can give you a travel log of comment on a couple of the regions of the world. But also because on a year to date bases in water, our sales have declined by about $27 million because of FX. And as we go into next year, if exchange rates stay where they are now, not only would that $27 million go away, we would actually start to pick up sales because of translation gains. Gregg, why don't you comment on what's going on in a few of the regions?

Matt, in the southern hemisphere, I would speak to Australia is having a good start to a--their season. In southern Africa, we are beginning to see increased activities as minds begin to open. Certainly as commodity prices rise, that will help our business in southern Africa.

Robert, from a standpoint of Brazil and South America, your view is?

That is Brazil and Argentina, in particular, our two large areas there have not been as affected by the economic slow down, at least, in our segment as a lot of other areas, more developed areas in the world. Matt, to address your issue on the cyclicality. It is counter-cyclical. In summer they're basically six months off. So while inventories are typically coming down low in the northern hemisphere this time of year, we are building up inventories in those markets because their seasons are about to start. So that is a factor, and that is beneficial to us overall in that it will remove a little better or minimize to a degree the seasonality of our overall water business.

Then, Matt, moving back to the north, you would say Europe has been--hasn't seen a slow down that we saw in the United States. It is steady in the European theater, but it is still weaker than in some of our other international markets.

It is steady but it's down year on year.

It is down year on year. But if you look at Asia. We look at our Asia Pacific business, we've continued to have a record performance partially because of Australia, and partially because of a very strong market in Korea. And as those currencies strengthen against the US dollar we're seeing a very steady business in Asia.

With regards to FX, John, if current rates hold through 2010, how many points of FX benefit would you see in your water business?

Not one, Matt, I can give you a quick answer to.

Do you know what exchange rates will be? He's saying if they hold where they are.

Assuming the exchange rates hold steady with where they are today, how many point, you mentioned very specifically a $27 million. Have you--?

We know what it has been through the third quarter in term of our FX loss. I have not seen a calculation which would look out at applying the current exchange rates to various future scenarios of sales by region. Unfortunately, I don't think we have that--the $27 million loss would go away and it would become positive. But how positive, we just haven't done that calculation, Matt yet.

Okay. Thanks.

Okay.

And again, it appears there are no further questions at this time. Mr. Davis, I would like to turn the conference over to you.

Nancy, on our end, I think we are done. We would like to thank everybody for dialing in and wish you all a good evening.

That concludes today's presentation. Thank you for your participation.