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Franklin Electric Co., Inc. (NASDAQ:FELE)

Q4 2013 Earnings Conference Call

February 19, 2014 05:00 pm ET

Executives

Scott Trumbull – Chief Executive Officer

Gregg Sengstack – President & Chief Operating Officer

John Haines – Vice President & Chief Financial Officer

Robert Stone – Senior Vice President & President, International Water Systems

Jeff Frappier – Treasurer

Analysts

Matt Summerville – KeyBanc Capital Markets

Mike Halloran – Robert W. Baird

David Rose – Wedbush Securities

Operator

Good day and welcome to the Franklin Electric Q4 and Full-Year 2013 Earnings Call. (Operator instructions.) As a reminder this conference call is being recorded. I would now like to turn the conference over to Mr. Jeff Frappier, Treasurer. Sir, you may begin.

Jeff Frappier

Thank you, Syed, and welcome everybody to Franklin Electric’s Q4 2013 Earnings Conference Call. With me today are Scott Trumbull, our Chairman and CEO; John Haines, our CFO; Robert Stone, SVP and President of International Water Systems; and Gregg Sengstack, President and COO.

On today’s call Scott will review our Q4 and 2013 full year business results and then John will review our Q4 and full year financial results. When John is through we will have some times for questions and answers.

Before we begin, let me remind you that as we conduct this call we will be making any forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company’s annual report on Form 10(k) and in today’s earnings release.

Also our press release and this call contain non-GAAP financial measures that include but are not limited to earnings after GAAP adjustments, fully diluted earnings per share after non-GAAP adjustments or adjusted EPS, operating income after non-GAAP adjustments, and percent operating income to net sales after non-GAAP adjustments or operating income margin after non-GAAP adjustments.

The company believes that these measures help investors understand underlying trends in the company’s business more easily. The differences between these measures and the most comparable GAAP measures are reconciled in the table in our earnings release.

All forward-looking statements made during this call are based on information currently available and except as required by law the company assumes no obligation to update any forward-looking statements.

With that I will now turn the call over to our Chairman and CEO. Scott?

Scott Trumbull

Thanks, Jeff. We’re pleased to report that our sales and adjusted net income for both Q4 and full-year 2013 were again records for any Q4 and year in the company’s history, and we ended the year on a strong note.

During Q4 our consolidated sales grew by 12% and our consolidated operating income after non-GAAP adjustments grew by 14% compared to Q4 the prior year. Our Global Water Systems business had a very strong quarter with sales increasing by 13%, and operating income after non-GAAP adjustments increasing by 18%.

While our Water Systems businesses grew in virtually all regions of the world, our Water Teams in the US and Canada w2re our star performers, providing 39% of our consolidated sales during Q4 and achieving 25% sales growth led by strong demand for mobile dewatering systems, residential and light commercial groundwater pump systems, and drives and controls.

The US demand for our Pioneer branded mobile dewatering equipment grew rapidly in the upstream oil & gas market during Q4. In addition, we believe that Pioneer is gaining share in the US pump rental market because of that brand’s reputation for efficiency and durability. Our Pioneer team also achieved significant sales gains in the commercial construction market, particularly in Western Canada during Q4.

Our US and Canadian sales of residential and light commercial groundwater pumps increased by 25% during the quarter. During Q3 2013 last year our sales of residential and light commercial groundwater pumps declined, and we believe that this decline resulted in our distributors’ inventory falling below target levels.

So we believe a portion of the 25% sales increase during Q4 is attributable to distributors rebuilding their stock to target levels in the face of perceived growing demand in the residential construction market. We also believe that during Q4 a number of our distributors increased their purchases in order to achieve their annual sales volume rebate targets.

Our US and Canadian drive and control business grew by 18% in Q4. Our sales of drives and controls in the residential and light commercial market grew by over 20% during the quarter, a reflection again of anticipated more robust new home construction activity. Our line of drives for agricultural and industrial applications also grew at a strong double-digit rate as we’re having success selling the high horsepower drive product line that we obtained in our 2012 acquisition of Cerus Industrial.

Our Water Systems Q4 sales in Latin America represented 13% of our consolidated sales and grew organically by 8% after excluding foreign exchange. Most of our sales growth in Latin America occurred in Brazil and most of our growth in Brazil came from continued growth in demand for the line of 4-inch groundwater pumps and motors that we launched in Brazil two years ago. In total our sales in Brazil grew organically by 13% excluding foreign exchange. The new factory that we’re building in Brazil to support additional growth is scheduled to open in Q2 2014.

Our Water Systems sales in the Middle East and Africa represented 12% of our consolidated sales during the quarter and grew organically by 9% excluding foreign exchange. Growing demand for our line of Impo branded groundwater pumps and motors produced in our Turkish factory accounted for much of our growth in the Middle East and Africa during Q4.

Our Water Systems sales in Europe represented 7% of our consolidated sales and grew organically by 5% during the quarter. Growing demand for our Pioneer branded mobile dewatering equipment and for our newly launched line of condensate pumps more than offset a modest decline in demand for groundwater pumps in Europe during Q4.

Our Water Systems sales in the Asia-Pacific region represented 7% of our consolidated sales during the quarter and grew organically by 11% excluding foreign exchange. We experienced very strong sales growth in Southeast Asia and China for our high horsepower groundwater motors and pumps used for irrigation, industrial, and municipal applications. Together, our sales in Southeast Asia and China grew by 40% during Q4 compared to the prior year. This growth more than offset a modest decline in sales in the more mature markets in the region, primarily Australia.

Our Global Fueling business represented 22% of our consolidated sales during the quarter and grew by 7%, and our Fueling adjusted operating income also increased by 7%. Demand for our Fueling equipment grew most rapidly in developing regions where there’s an ongoing need for investment in new filing station infrastructure to support the burgeoning number of passenger vehicles on the road.

Developing regions represented 32% of our Fueling sales during Q4 and grew by 24%, with most of the growth coming in Brazil, China, and the rest of the Asia-Pacific region. Our Fueling sales in the more mature North American and European markets grew by about 2% driven primarily by the flexing product line acquired in Q4 2012.

So for the company as a whole, 2013 was our fourth consecutive year of double-digit growth and our balance sheet remains strong. Of equal importance, we continued to make progress on our three most significant strategic growth initiatives: first, our full-year 2013 sales in developing regions represented 37% of our consolidated sales and grew by 6% - and they grew organically after excluding foreign exchange by 10%.

While we recognize the currencies in developing regions are subject to periodic volatility we believe that the most rapid demand growth for water pumping and fueling products will occur in developing regions over the next decade.

Second, our 2013 sales of electronic drives and controls represented nearly 10% of our consolidated sales and grew by 18% compared to the prior year. As the cost of electronic components continues to decline and their performance continues to increase, more and more of our customers want to include these devices in their installations in order to reduce lifecycle costs and improve system reliability. We are the leader in drives and controls in many of our markets and view growing demand for these products to be a major opportunity for the company over the next decade.

Finally, we continued to make progress with new products. Specifically we’re pleased with the results we’re seeing from the field trials of our new artificial lift product line that are underway with a number of large natural gas companies. We’re also pleased with the early market acceptance of our new solar powered groundwater pumping product line.

During the first half of 2014 we’ll be launching a new line of agricultural irrigation pumps and a new line of commercial pressure boosting pumps that will have better overall performance characteristics than those of the current leading suppliers in those markets. Our company has strong engineering and marketing teams that support a robust and disciplined new product development process and we think this will play an important role in our growth going forward.

So with a solid 2013 behind us, looking forward to Q1 2014, we expect that in Q1 2014 our Water Systems sales will improve by6% to 8%, and our adjusted operating income in water will improve by 8% to 10% versus the record Q1 2013.

We estimate that our Fueling Systems sales will be flat in Q1 2014 but that the adjusted operating income will grow by 12% to 14%, primarily due to improved sales mix. Last year in Q1 the Fueling Systems business had large shipments of products to customers in India. While we anticipate Fueling Systems sales in India for the full year 2014 to exceed 2013 we do not forecast that increase in Q1 2014.

In addition, last year we were in the process of consolidating the Flex-ing acquisition into our Fueling Systems business, and this year that acquisition is fully consolidated and that will play a role in improving our margins. Overall we’re expecting our consolidated Q1 sales and adjusted EPS to grow by 6% to 8% compared to Q1 2013.

Now I’ll turn the call over to our CFO John Haines.

John Haines

Thank you, Scott. Our fully diluted earnings per share were $0.27 for Q4 2013 versus $0.27 for Q4 2012. As we note in the tables in the earnings release the company adjusts the as-reported GAAP operating income and earnings per share for items we consider not operational in nature. We believe presenting these matters in this way gives our investors a more accurate picture of the actual operational performance of the company.

Non-GAAP expenses for Q4 2013 were $2.4 million and included $1.5 million in restructuring costs, of which $1.3 million related to an asset write down on the pending sale of a property in Oklahoma City, Oklahoma. Additionally relocation costs for the new corporate headquarters and engineering center in Ft. Wayne Indiana were $0.2 million and other legal and advisory costs primarily related to potential acquisitions were $0.9 million.

Q4 2013 non-GAAP adjustments round to an EPS impact of about $0.03. The non-GAAP EPS adjustments in Q4 2012 rounded to an EPS impact of about $0.01. So after considering these non-GAAP items Q4 2013 adjusted EPS is $0.30 which is 7% higher than the $0.28 adjusted EPS the company reported in Q4 2012.

Overall, for Q4 2013 revenue, gross profit, adjusted operating income, adjusted net income, and adjusted earnings per share were records for any Q4 in the company’s history. Water Systems sales were $178.4 million in Q4 2013, an increase of $20.9 million or about 13% versus the Q4 2012 sales of $157.5 million.

Sales from businesses acquired since Q4 2012 were $0.6 million or less than 1%. Water Systems sales were reduced by $4.9 million or about 3% in the quarter due to foreign currency translation. Water Systems sales growth excluding acquisitions and foreign currency translation was about 16%.

Water Systems operating income after non-GAAP adjustments was $26.1 million in Q4 2013, an increase of 18% versus Q4 2012. The Q4 operating income margin after non-GAAP adjustments was 14.6%, up 50 basis points from 14.1% in Q4 2012. Operating income margin after non-GAAP adjustments increased in Water Systems primarily due to fixed costs leverage on higher sales.

Fueling Systems sales represented 22% of the consolidated sales and were $51.3 million in Q4 2013, an increase of $3.6 million or about 7% versus the Q4 2012 sales of $47.7 million. Sales from businesses acquired since Q4 2012 were $2.1 million or about 4%. Fueling Systems sales were increased by $0.5 million or about 1% in the quarter due to foreign currency translation. Fueling Systems sales growth excluding acquisitions and foreign currency translation was about 2%.

Fueling Systems operating income after non-GAAP adjustments was $11.8 million in Q4 2013 compared to $11.0 million after the after non-GAAP adjustments in Q4 2012, an increase of about 7%. The Q4 operating income margin after non-GAAP adjustments in Fueling Systems was 23.0%, flat to the 23.1% of net sales in Q4 2012.

The company’s consolidated gross profit was $76.0 million for Q4 2013, an increase of $7.5 million or about 11% from Q4 2012 gross profit of $68.5 million. The gross profit as a percent of net sales was 33.1% and flat for Q4 2012.

Selling, general, and administrative expenses were $52.3 million in Q4 2013 compared to $47.4 million from Q4 the prior year, an increase of $4.9 million or about 10%. SG&A expenses as a percent of sales were 22.8% in Q4, 30 basis points lower than Q4 2012. The most significant increases in SG&A spending in Q4 2013 related to certain strategic initiatives including new product development expenses, the launch of the company’s pump rental initiative, the commercialization of the company’s new artificial lift product offering, and opening new product distribution centers. Additionally SG&A in Q4 2013 increases related to information technology expenditures and higher building related costs, primarily depreciation on the new Ft. Wayne headquarters.

During Q4 the company incurred foreign exchange losses of $2.2 million primarily as a result of rapidly changing foreign currency valuations versus the US dollar in many markets the company does business in. Third-party debt in our Turkish subsidiary denominated in US dollars drove a significant portion of the loss. The company borrowed the US dollars from Turkey to obtain a favorable interest rate. Other foreign exchange losses included certain US dollar-denominated customer receivables in Europe and Latin America, and Canadian dollar-denominated customer receivables in the United States.

These foreign exchange losses explain why the company’s consolidated adjusted operating income increased by 14% and the adjusted EPS increased by 7%. If these foreign exchange losses had not occurred the adjusted EPS for Q4 2013 would have increased by about 18%.

The tax rate for 2013 was about 26%, down about 200 basis points from the 2012 rate which was about 28%. We believe 28% is a reasonable estimate for the full year 2014 tax rate before discrete events.

The company ended Q4 2013 with a cash balance of $134.6 million which was $31.2 million higher than at the end of 2012. The cash balance increased primarily as a result of cash generated from operations and proceeds from debt offset by additions to property, plant, and equipment.

In 2013 capital expenditures were $67.6 million driven primarily by the new building projects in Indiana and in Brazil. The company estimates this amount will decline in 2014 to about $35 million to $40 million. The company had no outstanding balance on its revolving debt agreement at the end of Q4 2013 and Q4 2012.

I would now like to turn the call back over to Scott.

Scott Trumbull

Thanks, John. Today we’ve announced that after 11 years I’ll be retiring as Chief Executive Officer of Franklin Electric following our Annual Shareholders Meeting on May 2 of this year. I’ll remain as non-executive Chairman of the Board for a period of time.

My successor will be Greg Sengtack whose made much-needed contributions to the company’s success over his entire 25-year career with Franklin Electric – most particularly during his time as President and Chief Operating Officer, and prior to that as Chief Financial Officer. Greg is a strong leader, an excellent strategist, and I am confident the company will continue to grow and prosper under his leadership.

During the past 11 years Franklin people worldwide have accomplished a great deal. We’ve transformed the company from being a submersible motor supplier and pump manufacturer, to being a pumping systems supplier for distributors. We’ve increased our sales in high-growth emerging markets to 37% of our total sales and we’ve increased our market capitalization from around $500 million to around $2 billion.

As an employee, Board member and share owner I’m excited about Franklin’s future and I’m very pleased that Greg Sengstack will be succeeding me as CEO. Thank you.

Jeff Frappier

This concludes our prepared remarks. We’d now like to turn the call over for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions.) Our first question comes from Matt Summerville with KeyBanc. Your line’s open, please go ahead.

Matt Summerville – KeyBanc Capital Markets

Hi. A couple questions – first, in US/Canada you mentioned up 25%. If you were to bucket it or excuse me, quantify the three buckets, how much of that growth would you say was driven by mobile dewatering versus growth in the residential light commercial versus drives and controls if you divided up that 25% growth?

Scott Trumbull

I would say 60% mobile dewatering, no, maybe 50% mobile dewatering; 30% to 35% from the residential groundwater; and 10% to 15% from the drives and controls.

Matt Summerville – KeyBanc Capital Markets

And then I guess how sustainable is what you’re experiencing in the dewatering business as we move through 2014?

Scott Trumbull

We think 2014’s going to be a good year for our mobile dewatering business, for the Pioneer brand. And beyond that it’s difficult to project. I don’t think it’s realistic for us to assume growth at the same rate that’s occurred in Q4 last year to continue indefinitely into the future but our market share in this product line in the US is still relatively low. And so we think we’ve got pretty good headroom for growth and of course right now the demand for pumping systems in the natural gas, oil & gas field is very strong and we all know that that fluctuates over time. So but we are looking at 2014 as being, it should be a very strong year for Pioneer Pump.

Matt Summerville – KeyBanc Capital Markets

What are you seeing in terms of price versus raw material costs in both of your businesses right now?

John Haines

We in Q4 and early Q1 will have increased our prices on average 2% to 3% across our global platform, and we’re seeing pretty stable costs at this point. So we’ve been getting good support for the price increases and the combination of productivity and purchasing programs has enabled us to keep the costs in line.

Matt Summerville – KeyBanc Capital Markets

And then just one more on the well de-liquefaction. Can you talk about how much revenue you generated in ’13 and what your projection is as far as 2014, and then maybe update us as to how these test wells are progressing in number?

Scott Trumbull

Okay. We sold a couple million dollars’ worth of product in 2013. We are targeting $5 million for that product line this year, 2014. However, there’s… I don’t think there’s a great deal of downside to the $5 million and there’s potentially some fairly significant upside – and I think we could start to see very good growth for this product, in particular as we move into 2015.

At the end of last year in southern Africa we got our first million-dollar order for equipment for this type of artificial lift equipment for a company that’s developing gas fields in that part of the world. Just this week we received orders for eight systems from two of the national Chinese oil companies that, assuming success with these initial eight installations could in relatively short order turn into very large orders for this type of equipment. We’ve got tests underway with several large natural gas exploration companies in North America that are going well and that we believe also have the potential to turn into very large orders.

But as I’ve pointed out in the past, the sales cycle for this kind of thing is we’ve got a new concept, it’s proving itself out but generally these customers want to buy a couple, put them in the ground; see how they perform in many cases up to a year before they’ll commit to ordering dozens of systems or large quantities. And we’re just kind of… I know it’s perhaps frustrating a little bit because this is the way it is but we’re happy with the progress we’re making, Matt, in this product line and we think there’s smoke now and before long there may be some fire.

Matt Summerville – KeyBanc Capital Markets

Got it, thanks Scott.

Operator

Thank you. And our next question comes from Mike Halloran with Robert W Baird. Your line’s open, please go ahead.

Mike Halloran – Robert W. Baird

Good afternoon everyone. So just on the dewatering on the share side, maybe just dig a little bit into what you’re attributing it to. Is it now that you’ve got a bigger piece of Pioneer in your portfolio you can do more in the marketplace? Is it just brand recognition and momentum? Is there a pricing component to how you’re gaining the share or is it just baseline blocking and tackling?

Scott Trumbull

Robert Stone will respond to that who among other things is responsible for our Pioneer business unit.

Robert Stone

Hi, Mike. There is a lot of blocking and tackling but the real story is that we have a superior product and we have a customer base that is winning in the marketplace on top of a market that’s picking up a little bit as Scott mentioned in terms of gas and oil. Gas prices have picked up significantly and that’s been a big help, and our customers are winning in the field.

Mike Halloran – Robert W. Baird

And in this case the customers you’re referring to are those who would actually be doing the rental and the work in the field?

Robert Stone

Yes, these are... I’m referring to our customers who have rental pump fleets.

Mike Halloran – Robert W. Baird

Got it. Yep, that’s exactly what I thought. And then on the drives and controls side obviously very healthy growth on that side of the platform, on that light commercial residential side. Maybe you can talk a little bit about what that sell process looks like today. When you talk to the average consumer’s decision making process, why are they starting to move towards these products? Is it as simple as it’s become more cost affordable with better visibility like you referred to? And just kind of what that sales cycle looks like for the average consumer.

Scott Trumbull

I’m going to ask Greg Sengstack to respond to that question.

Greg Sengstack

Yeah, as these systems become more proven and more cost-effective what you’re seeing is the customer has a choice and they’re looking at an opportunity to have a better quality system that provides constant pressure and it’s just a desirable system. But it’s a longer sales cycle to be introduced to the customer where they can see the benefits and where we get the contractors comfortable with installing these systems. And we’ve had a long track record and our customers are getting more comfortable and we continue to train them as they explain the benefits to the consumers; and the consumers are willing to adopt these products.

Scott Trumbull

You know, the products help reduce energy costs in a system and more and more customers are receptive to sustainability arguments and to lifecycle, product lifecycle cost arguments. But a drive will not only protect the motor but can have a significant influence on the operating cost from the electrical consumption perspective. So as the cost of that product comes down that economic equation improves and I think that’s been a factor as well.

But in terms of pump companies that operated in the US we are basic in drives. We make our own drives and we are designing them to be very application-specific. And our principal competitors in this market are not basic – they buy off-the-shelf drives and do some adaptation to it and then resell it in the market. So we believe we’re in a stronger position to develop products that really meet the needs of our customers, and evidence has borne that out.

Mike Halloran – Robert W. Baird

That makes a lot of sense. And then can you talk about your ag expectations as we work through 2014 and what you’re seeing in the environment?

Greg Sengstack

Well certainly with the ag situation, last year we had an extremely wet situation in the Eastern half of the country – you saw a very big change in the drought maps. Now if the conditions continue to be very dry in the United States then we’ll just have to see how things unfold this year after all the snow melts. That’s specific to the US market, and the Europe market also had a very wet year last year. We’ll have to see how that plays out at the margin as well as other Northern Hemisphere markets.

You’ve seen our results. In the Southern Hemisphere we continue to have great double-digit growth in our developing regions in the Southern Hemisphere and so that’s a good part of our story but that’s a smaller part of our overall market.

Mike Halloran – Robert W. Baird

And what do the inventory levels look like at the distributors on the ag side right now?

Scott Trubmbull

Well, our Q4 growth – and first of all, I assume you’re talking about North America.

Mike Halloran – Robert W. Baird

Yeah, I’m sorry, that’s absolutely true.

Scott Trumbull

Our Q4 growth in North America was really fueled by increases in our residential line of groundwater pumping products, not by our ag irrigation lines – our larger pumps and motors. And so I don’t have evidence that the channel is overly stocked with ag irrigation equipment at this point in the year. January is a pretty tough month because of weather but I think that the inventory levels for ag products are probably in line with where they usually are at this time of year.

Mike Halloran – Robert W. Baird

Mm-hmm. Well great, I appreciate the time and congratulations to both you and Greg. Good luck with everything.

Scott Trumbull

Thanks a lot.

Operator

Thank you. And our next question comes from David Rose from Wedbush Securities. Your line’s open, please go ahead.

David Rose – Wedbush Securities

Good afternoon. A couple follow-up questions: one is if you could provide a little bit more color around the acquisition expense line item. Obviously you have some legal expenses. Can I assume that since nothing took place that we’ll see something very similar in Q1 or did a product move away and we won’t see that line item repeat in Q1?

John Haines

David, this is John. Are you talking about the non-GAAP item we called out in acquisition expenses?

David Rose – Wedbush Securities

Yeah.

John Haines

Yeah, so our pipeline right now for deals, I think we would all agree we would say is pretty robust. We have both platform deals, we have bolt-on deals – many of them are international opportunities. So just remember that when we go into these international acquisition opportunities we’re largely using professional service providers that speak the local language, that know the local rules be it for financial due diligence, legal due diligence, those kinds of things. So those are the costs we’re bussing here and saying “Hey, it doesn’t really make sense because they all related to a specific transaction to put them in the operations if you will.”

But at the same time I will point out that the close cycle on many of these deals is very long, and we have been working on certain transactions for six, nine months through the agreements, through the final negotiations, through the closing. So that’s really what that is and that’s a little bit of why we call it out as non-GAAP.

David Rose – Wedbush Securities

And I appreciate that, John, and I guess the question is, is that something we’re going to see ramp up as you get closer to consummating a transaction or is that sort of an ongoing number?

John Haines

Well, I’d hate to say it’s an ongoing number – I think it’s going to fluctuate a bit. But as I said I also think there’s some things kind of in the hopper here that could keep that going. So I guess I’d hate to guess too much about what that’s going to look like but if I think about some of the indications of interest that we’re working on right now, which is very early in that process, and the countries that some of those are in we’re going to spend some money to complete those transactions. There’s just no doubt about it. So I don’t know if I’d hang onto that amount every quarter but there’s going to be some more like that. I don’t think there’s any question about it.

David Rose – Wedbush Securities

Okay, that’s helpful. And then a couple quick ones – can you provide us with a little more color on the DC, the distribution center updates, just what you saw the last six months and what we should expect in terms of new openings for 2014?

Scott Trumbull

We opened a new distribution center for our Pioneer product lines in Australia; and then we opened a whole, for that Pioneer product line, network of pump rental facilities in the UK. And the operation in Australia is up and operating and contributing to the company and the pump rental facilities in the UK, which is a new business model for us, are up and operating. During 2013 they were a noticeable drag in terms of startup costs on our quarterly earnings. We think that we’re going to be in good shape in that business. It should not be a drag on our earnings in Q1 so we’ve got that stabilized and up and running and hopefully it will prove to be a platform for us to expand that business both in the UK and then that business model into other regions in the world as well.

In addition we opened a new distribution center for our Water Systems business at the end of last year in Sao Paulo, Brazil, and that has really taken off well and is a reasonably important part of our growth story in the back half of the year, the last quarter or so of the year in Brazil. We opened a new distribution center in Bogota, Colombia, and that quite frankly has gotten off to a slower start. So we’re working on that one but it’s not a material factor on the company’s overall performance, but it’s something that we opened it with certain expectations and we attend to achieve them. We’re not quite achieving them yet.

David Rose – Wedbush Securities

And India?

Scott Trumbull

India is really just now getting started and so it’s a little early to say how the operation in Delhi is going to impact our Asia-Pacific Water Systems performance.

David Rose – Wedbush Securities

Okay, and then Zambia?

Scott Trumbull

Oh yeah, Zambia. That one is also not quite up and operating yet.

Greg Sengstack

The Zambian operation, we’ve run into a couple of snags. So from a facility being operational standpoint we are a little behind but I can say that our presence there already is helping us win business by a significant measure. We will have it up sometime this quarter and then expect greater growth in that area from that point on.

David Rose – Wedbush Securities

Okay, and then how many more DCs can we model in for 2014?

Scott Trumbull

Right now we are at this moment not focusing on launching additional DCs in ’14. As John mentioned we are focused on hopefully getting one or two transactions done that will give us additional distribution in areas of the world that we think have very good potential growth.

David Rose – Wedbush Securities

Okay, that’s helpful. Thank you very much.

Operator

Thank you. I’m showing no further questions at this time. I’d like to hand the conference back over to Mr. Scott Trumbull for closing remarks.

Scott Trumbull

Well, I’ve had a great ride over the last eleven years. I will be eternally grateful for having the opportunity to lead Franklin Electric and thank you for your attention.

Operator

Ladies and gentlemen, thanks for participating in today’s conference. This concludes our program. You may all disconnect and have a wonderful day.

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