Greeting ladies and gentlemen and welcome to the FranklinElectric Company Incorporated Third Quarter 2007 Earnings Release. At thistime, all participants are in a listen-only mode. A brief question-and-answersession will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It's nowmy pleasure to introduce your host, Mr. Mike Butchko, the Treasurer for FranklinElectric. Thank you, Mr. Butchko, you may begin. Mike Butchko Thank you, Rob and welcome to Franklin Electric's thirdquarter 2007 Earnings Call. With me today, are Scott Trumbull, our chairman andCEO, Tom Strupp, our CFO and Gregg Sengstack, our Senior Vice President ofFranklin Electric's, President of Asia-Pacific Water Systems Fueling. Ontoday's call Scott will review the key issues confronting our company this yearand our prospects as we end and 2007 and move into 2008. Tom will review thethird quarter and year-to-date financials. When Tom is through we'll allow sometimefor questions and answers. Before we begin let me remind you that any forward-lookingstatements contained herein including those relating to the company's financialresults, business goals and sales growth involve risks and uncertainties,including but not limited to, risk and uncertainties with respect to generaleconomic and currency conditions, various conditions specific to the company's businessand industry, weather conditions, new housing starts, market demand,competitive factors, changes in distribution channels, supply constraints,technology factors, litigation, government and regulatory actions, the company'saccounting policies, future trends, and other risks which are detailed in the company'sSecurities and Exchange Commission filings included in Item 1A of Part I of thecompany's Annual Report on Form 10-K for the fiscal year ending December 30,2006, Exhibit 99.1 attached thereto and in Item 1A of Part II of the company'sQuarterly Reports on Form 10-Q. These risks and uncertainties may cause actualresults to differ materially from those indicated by the forward-lookingstatements. All forward-looking statements are made herein are based oninformation currently available, and the company assumes no obligation toupdate any forward-looking statements. I will now turn the call over to our Chairman and CEO, ScottTrumbull.

Thank you, Mike. Good afternoon. As we remain attentive tothe decline in our earnings this year, we are also confident that the factorscausing the decline are acute, not chronic, and the actions we are taking thisyear will result in a return to solid earnings growth in 2008. My comments thisafternoon will focus on our basis for this confidence. We are achieving strong sales and earnings growth in bothour Fueling and International Water Systems end markets. Together these endmarkets represent 53% of our total revenues. This year our Fueling sales are uporganically by 28% and up 48% overall. Our International Water sales are up 11%organically and 22% overall, our sales in developing regions are driving thisorganic growth. Operating earnings from Fueling and International Water havegrown more rapidly than sales. So in Fueling and International Water, whichtogether represent 53% of our total revenue, our performance has been verygood. The reasons that I will discuss in a moment, we have strong momentum inboth these markets and expect sustained growth through 2008. However, our growth in these areas in 2007 has been maskedby reduced sales in earnings in the U.S. and Canadian Water Systemsmarket. As those of you who follow the company know, in 2004 we made animportant strategic decision: that is to sell our Water Systems products in theU.S. and Canada primarily through thedistributors, as opposed to large pump OEMs, and to enter the pump businessourselves. We made this decision because we determined that our salesand earnings, from a complete line of Water Systems products sold todistributors, would grow to exceed the sales in earnings we could achieve fromselling only submersible motors to a highly concentrated group of large pump OEMs. In the course of implementing of this decision we enteredinto a settle agreement with the two largest pump OEMs, which ensures that…

Thank you Scott, further discussed comments third quartersales for 2007 for the company were a record $165.3 million, an increase ofabout 6%, with solid growth in international Water Systems sales outside theUnited States and Canada and significant organic in total growth from the Fuelingbusiness. The Healy Systems, and pump brands acquisition, increased overallsales by about 12% during the quarter and foreign exchange changes increasedsales an additional 2%. Third quarter sales, exclusive of acquisitions andforeign exchange, declined by 8% from the same period a year ago. The company's sales volume of 4-inch submersible water loadmotors in the United Statesand Canadawas reduced due to the continued inventory liquidation by several largeintegrated pump OEMs that began in the first quarter of 2007. This factor was further compounded with continuing weaknessin the water world industry being off in the high single-digits, as indicated fromtrade association data for the third quarter compared to 2006. We areencouraged by the underlying expansion of our water systems pump product lines,being sold to distributors and other customers in the United States and Canada. Operating margins for the consolidated business declined to11.8% in the third quarter compared to 16.4% during last year's third quarter. Grossprofit for the company was down $5.4 million or about 10% from the thirdquarter 2006. The company’s overall third quarter gross profit rate was 29.0%of sales versus 34.2% in the prior year. Global Water Systems gross profit declined by about $7.5million or 16% versus the third quarter of 2006. Water Systems gross profit ininternational markets continued to grow at a faster rate than sales; however,this growth was offset by gross profit declines in the U.S. and Canada Water Systemsmarket. In the United Statesand Canada,2006 gross profits benefited from unusually high sales of submersible motors tolarge pump OEMs as they built their stockpile. The loss of gross…

Thank you. (Operator Instructions). Our first question comesfrom Matt Summerville with KeyBanc. Please proceed with your question.

Couple of questions. First I guess all things consideredthat you went through Scott, how much should your spending go down next year in'08 compared to '07 around new product development, product launch costengineering, or there is a more concrete way to quantify them and I guess howwe think about SG&A going forward now?

Well, we indicated that while our fixed spending overallwhich includes SG&A, manufacturing fixed and depreciation was up in thelast 12 months as a percentage of sales, I think it went from 29.1% to 31.3%,220 basis points. Our plan is to reduce that percentage by about 200 basispoints in 2008; while that’s above this much guidance as I give you on that.

Okay, your discussion around fuel, I mean, looking for a 20%growth or more. It sounded like ’08 versus ’07, I guess. If you think aboutyour capacity in that business, doesn’t your capacity contemplate significantlyhigher growth in that -- I guess and try and understand, if that’s a prettyconservative viewpoint?

I think it is a conservative viewpoint. The issue for uswill be that the timing of the demand surge as it pertains to this California mandate,which by the way isn’t the only thing driving the demand for our fuelingbusinesses. But that is obviously a major factor over the next 24 to 36 months.In the past, we have seen mandated capital investments for filling stationoperators, for instance, the tank change that occurred at the end of the 90’swhere they had to go to double walk-off tanks. And what typically happens is the station operators will putoff the capital expenditures as long as they can and do it near the end of theconversion figures. So, that’s certainly will -- if not everybody is going todo it in the last month that’s not going to happen, but we don’t know for surewhat the timing will be of the demand surge, are they little, you know,occurred kind of evenly over 2008 really picked up in the back half of 2008,what have you. Our -- we are gearing up to supply this demand surge and weare structuring our facilities and capacity to respond to it, even if it occursfairly intensively late in the gain. We’re going to be prepared to supply asignificant share of this total gains. I don't think it’s going to come all ofthe -- in the last six months or some or anything like that. But we don't knowfor sure how that demand surge is going to come to us over the course of 2008and in the early part of 2009, and if even to the back half of 2009.

Outside of California, canyou kind of walk through what other states, if they are considering legislationor have passed legislation, kind of, what is the outlook for fueling in the US, outside of California. And then, when you look acrossinto the international piece of businesses, I mean, maybe you can give a littlemore color on the kinds of growth rates you are seeing place of like China and India. And how do you expect thatto play out over the next year too?

In response to the question on fueling I'm going to ask GreggSengstack, who is with us today and who is President of our Fuel and Businessto comment on that.

Hi, Matt.

Hi.

Outside the United States,obviously there are huge opportunities basically in Chinaand India.For example, in China theyhave mandated the vapor recovery into the Beijingarea in advance of the Olympics. I would say that, they are expecting a lot toget done. They are going to do that before the Olympics, but that maybe thekickoff for a general move within China. There has also been amandate in the Shanghai area by 2010 and also inGuangzhou areaby 2010, with the balance of the stations by 2015. In India,I do not know the formal mandate, but because of the high temperaturesconditions in India and alarge amount of evaporative loss issues in India. The Indian oil companies arevoluntarily putting in vapor recovery to yield the evaporate loss as well todeal with the safety on the station because they are fulltime dependence in theinhalation of VOCs in Benzene. So we are seeing opportunities in both thosemarkets. Europe is a market where wecurrently are not involved. Europe already has the second highest number of gasstation after the United States in vapor recovery, somewhere there inthe 50,000 station range. And I don't see an initiative in Europe, I do see acontinued vapor recovery need in Europe and Ido see that expanding. Outside the United States,obviously there are huge opportunities basically in Chinaand India.For example, in China theyhave mandated the vapor recovery into the Beijingarea in advance of the Olympics. I would say that, they are expecting a lot toget done. They are going to do that before the Olympics, but that maybe thekickoff for a general move within China. There has also been amandate in the Shanghai area by 2010 and also inGuangzhou areaby 2010, with the balance of the stations by 2015. In India,I do not know the formal mandate, but because of the high temperaturesconditions in India…

Okay. Great. Thanks, very helpful. I'll get back in queue.Thanks.

Our next question comes from the line of Michael Schneiderwith Robert Baird.

Just to finish up though on Matt's question. He asked aboutthe international side and the developing region side. As I mentioned in mycomment our sales in developing regions over the past five years have grownfrom about 40 million to an annualized weight currently of a 145 million. Wetalk about developing regions. We are talking about Latin America, EasternEurope, Middle-East and North Africa, Southern Africaand Asia-Pacific. So from over those five years 38 million to 145 million -- ofthat about 45% of that growth has been by acquisition and 55% has been organic.Mike, we're on to you.

Good afternoon, guys.

Good afternoon.

Maybe first, we can just start with the concept of 35, Ibelieve you said $35 to $40 million you are expecting to recover in 2008, asresult of Beijingact competing against your own motors. Did I that hear that correctly Scott?

Yeah.

Okay. So I'm trying to reconcile, and I may be mixing twodifferent topics here, but the pump roughly did about 60 million last year. AndI believe the goal going into the year was to double that business, which wasroughly 120 million but it sounds like that goal is now abandoned when we scaleback and there is $35 million to $40 million rather than…?

Now, what's that $35 million to $40 million is the -- inthis year, we estimate that the motor sales value -- that of the value of themotors that were sold out of the stockpile, and again, this is all estimate. Weestimated that at 250,000 units or that would have a sales value of $35 millionto $40 million of motors. Okay, that's nowhere to the value of those motorsthat went out of the stockpile. Most of them with the pumps attached butleaving the pumps out of it, the value of those motors we estimate to be $35million to $40 million. So as we look to next year, what we are seeing is thatcustomers who bought $35 million to $40 million worth of Franklin motors are going to need -- willwant to buy pumps and motors, again, next year and we’ll have the opportunityto supply those motors. And by the way also with the pump attached and my pointwas so we are looking at next year being able to address this opportunity whilethis year it was fore closed from us. Because somebody else supplied thosemotors out of their inventory and acknowledging the $35 million to $40 millionactually as a larger opportunity because there are opportunities to also sellthe pumps that go with those we recognized that we will get all thoseopportunities. That certainly our competitors will retain some of that aswith their pumps and their new motor but our expectation is that we’ll get asignificant share of that next year just based on our what we see going on inthe market. In addition, I pointed to the fact that we’ll have a broaderdistribution footprint which will enhance our sales next year we’ll have a varietyof products on line over the course of the full year, which will enhance oursales next year. We’ll have a broaderproduct line over the course of full year, which will enhance our sales. Andwe’re also experiencing good sales growth with our driving control productline. And all of that I indicated would add up to we anticipate $40 million to$50 million of sales growth in the U.S. and Canada next year and that will showup as organic growth next year, because we won't have the headwinds of the stockpileliquidation in the prior year numbers. Is that clear?

Yes and okay. Thank you for that and than that second datapoint is what I wanted and also try and reconcile. So in the release and thenin your prepared comments you said that the growth of sales to distributors hasnow reached a rate of $40 million to $45 million this year. That's anannualized rate. That is pumps, motors and controls all products?

Yes.

Okay. So with that in mind again if you were looking to growthe pump business $60 million this year and the growth to distributors is $40million to $45 million for all three products. Does that mean that you temperedyour pump forecast for the year just given the market conditions or again bymixing apples and oranges here?

No, we have tempered our forecast, our dollars forecast,yes. Compared to where we were as we went into the beginning of this year.

Okay. Can you then maybe attribute the rational is it marketrelated is it the dynamics or just a competitive environment now?

Its market related and as we entered this year we didn'thave as clear a picture of the size of the stockpile.

Okay. And then so looking into '08. Can you give us a senseof what your expectations were for pump market share and what you think you canachieve now in '07 or '08 or however you've analyzed this?

Our pump market share has continued to grow rapidly and as Ihave mentioned I thought that we were either number one or number two in theindustry and I believe that is true as far as pumps alone are concerned. As atotal supplier to the water systems distribution channel, we clearly are thelargest supplier to the water systems distribution channel. But we haven’t Mikedisclosed precise market share numbers and I am not going to for competitivereasons, get into that on the call here.

Okay. and then just given some of the gross margins ormargin topics you talked about, you are adding 200 basis points back or I guessrecovering 200 basis points of the fixed cost. Is that assuming in effect thatyou get back the to one-third, that was lost to materials and freight deflationand then the other one-third of manufacturing under absorption?

No. The fixed costs that we are talking about are SG&A,depreciation and amortization and manufacturing fixed cost, which really isplant supervision and the maintenance departmental and there was people thatare not involved in directly manufacturing the products. All costs that aredirect costs are not in that calculation. So we are going to spread those fixedcosts and get pick up 200 basis points on those alone. That would not includeany assumptions that we have made about freight going up or down or copper orsteel or what have you in our ability to recover those with price. Okay.

Okay, and then just drilling down the SG&A, that wasclearly the swing back during this up [strike] to my model this quarter.Amazingly, it looks like you took $3 million out of SG&A, justsequentially. Can you talk about where that money came out of and just break itdown in rough buckets for us and if that level is sustainable?

I don't believe that we're going to sustain at the samelevel, our SG&A spending going forward that we had in the third quarter.Just a variety of a accruals and accounting entry that enables that to be downsomewhat, not really accounting entries but some of the accruals that we haveworked a little bit lower than they were in the prior year. This quarter isalways the lowest quarter for us as far as the spending as a percentage of salesare concerned. We came in for the quarter at around $28 million and we're goingto be a little bit higher than that in the fourth quarter.

In dollars?

In dollars.

Okay, that makes sense. And the accruals, did you forexample, reverse out any of the warranty accruals or the incentive compensationaccruals for the year?

We may have reversed out some accruals, right. But they werenot the major factors driving the percentage decline in operating expense.

Okay, then just in terms of seasonality, now with all thedynamics of this market. We have somewhat lost touch of the seasonality, wouldyou expect us to return in the fourth quarter to the typical seasonality whereyou're down sequentially in earnings, just generally speaking?

Yeah, the fourth quarter normally is down versus the thirdquarter and the second quarter. Frequently in the fourth quarter there is asurge in sales at the of the quarter as customers try to reach year end rebatelevels. The levels are progressive and so the more you buy the better yourebate and if customers are close to a incremental rebate level they maystretch at the end of the fourth quarter to hit back. This year because theindustry’s been all off, we’re not certain how much of that will occur and sowe’re anticipating that just sequentially the fourth quarter will be down andthe fourth quarter may also be off a little bit. And again this is notsomething that I am certain of but it’s something that should be considered.Fourth quarter could be off this year, because there will be less buy upactivity in December than there has been in prior year fourth quarter’s.

And there was a big pre-buy last year in the fourth quarterby the integrated OEMs, correct?

Well, as I mentioned $30 million of purchases of motors inthe fourth quarter last year by the OEMs

Okay and then along those lines gross margins againstsequentially you're talking recovering a lot of these fixed costs heading into2008. Does any of that start in Q4 or again or at this 29% gross margin leveldoes that seem at least in the range at least for the fourth quarter till weget some relief in '08?

Mike, I indicated that one of the key issues for us is thepricing environment and the degree to which we’ll be looking at promotionalpricing during the quarter. The good news is that we have not seen list pricereductions. What we've seen are one off promotions, which have same effect tothe bottom line, but at least they are not permanent. And so going into thefourth quarter the question for us that will determine to some extent to alarge extent, our gross profit level will be the degree to which there ispromotional pricing activity over and above what normally occurs. And for thatreason I'm reluctant to get too specific as far as guidance is concerned,because I can't control that.

Although a year ago again just for comparison sake again youwouldn’t have been discounting Q4 of last year. Tell me what you know aboutwhat your largest customers were doing with stockpiling correct?

Right.

Okay. So year-over-year that makes a difference. And thenjust finally before I monopolize all the time here. The European market itselfand the growth you are enjoying over there in the submersibles business. Haveyou seen any impact as a lot of articles including cover stories in the WallStreet Journal about European housing market rolling over? Have you seen anyimpact of that and I guess what are you anticipating in '08 given the trendsthere?

So far we have not seen a significant impact there. I thinkone thing that's important to point out is in Europe were here up in NorthAmerica or in the U.S. and Canada quite a significant percentage of ourproducts go into residential applications. There are 4-inch and they are outthere in individual farms and vacation homes and places where people areoutside the municipal water system and have their own well. In Europe, a much higher percentage of our sales are largerpumps that go into agricultural, industrial, municipal and commercialapplications and so the mix is different in our susceptibility to a housingdecline in Europe is different than it ishere. But having said that, we haven't seen a material impact in our businessas a result of housing. In Europe, the weather seems to be a bigger factor overthere, in a really dry season particularly in Southern Europe will move the needle quite a bit. But we are having adecent year in our European business and our volumes overall have been aboutwhere we have anticipated them to be.

Okay. I'll get back in line. Thank you.

Our next question is from the line of Ned Borland with NextGeneration. Please proceed with your question.

Good afternoon guys. Just a quick question here onutilization, the inventory build here. What is that costing you in terms ofutilization at your plants and how quickly you think you can get through that?

Well, again I think, perhaps the best way to respond to thatis to go back to this issue of fix cost coverage and leverage. And as Imentioned, the combination of us increasing our fixed spending this year and atthe same time suffering a material reduction in volume because of the inventoryliquidation. The impact that had played through year-on-year numbers. Thedouble whammy of selling it last year and not selling it this year. That hasdriven up our fixed cost as a percentage of sales over the last 12 months by220 basis points and as we look out, because those fixed costs are going tolevel off and our sales are going to start showing up as organic sales, becausewe are not going be running against the big negative numbers any more as wemove into the first quarter of next year. We are targeting to bring that back down by 200 basis pointsas we go through the year. I mean, capacity [utilize] we have tremendousflexibility around the amount of capacity that we can bring through ourfacilities, on the upside and so there won't be any issue of responding tosurges in demand. The issue is, how do we cover fixed costs in those facilitiesand I think that's probably the best look at it. It's the clearest guidance wecan give you on that.

Okay, well just sort of a follow up on that and one of theprevious questions on SG&A. I mean, should we be thinking in '08 17% ofsales rate is sustainable?

Ned, I think you need to look at the year-to-date run ratethis year at 20% and factor in a component of the improvement in fixed costSG&A that Scott mentioned the 200 basis points, a significant component ofthat would apply to SG&A, yes.

Okay thanks

Work of the year-to-date rates.

Okay.

Then we have a follow up question from the line of MattSummerville of KeyBanc

So Scott, I guess when we think about this over hang andwhat you are hearing in the market in terms of duration how much do we haveleft and now that we are pretty through October do you think it’s fullyresolved?

Well, one word I've got to say that we just had our nationalsales meeting, which I sat through the whole thing and in the meeting we askedour sales people each individual territory manager talking account-by-accountdistributor-by-distributor to identify the degree to which our competitorspumps are still being sold with Franklin motors. The bottom line of that surveyand again these guys are out there in the market and have no reason to beanything other than completely accurate in their projections as best as theycan. We’re still seeing 50% to 70% depending on the markets of what’s going ofthe competitors products that are going off the distributor shelves stillhaving a Franklinmotor on it. Now having said that we are also picking up increased datapoints where distributors are telling us that they will no longer be able toget one of our competitors brands with a Franklin motor or a state, there areseveral states where our competitors have now indicated that they will only beable to supply Teradyne product no longer will they be able to supply Franklinproducts. So we are seeing more and more instances and getting moreand more calls from distributors and contractors who are saying, hey, I can'tget my product anymore with a Franklinmotor. Let's talk about me getting started or accelerating my use of Franklin pumps in order to ensure that I continue to getthe Franklinmotor. So we are seeing more and more incidences of that showing up in themarket. So I think there is still product and inventory that I thinkthat they are starting to run out and they are starting to allocate it amongcustomers and that it will become less and less a factor, certainly as we gothrough the fourth quarter and as we go into next year. I think they'll continue to hold some in inventory to supplycustomers who they think they have a chance to convert, but who are remainabsolutely committed to a Franklinmotor and so they will increasingly try to allocate the product around, aroundthose kind of customers.

Okay and then in terms of I think you mentioned that theNorth America Water Systems industry was down 12% year-to-date. I was wonderingfirst you have a figure on the third quarter and then can you talk about yourNorth American volume in context of that and then whether or not the magnitudeof pricing degradation you saw in Q3 was equivalent to what you saw in thefirst six months?

Okay. The industry was down probably high single-digits inthe third quarter. On the back of a strong September and when we talk about theindustry, we are talking about shipments from the pub companies thedistributors, because our only data point on industry shipments is tradeassociation data, which measures the shipments of selected products from thepub companies to the distributors. And sales in the month of September were up significantly,primarily driven because of price promotions, which were occurring in Septemberwhich they – the distributors knew would go away on October 1. So, whether ornot that represents a permanent increase in demand or just a bulge in inventoryremains to be seen. But having said that, demand was down in the third quarterby less than it was in the prior quarters this year. There was, from our perspective, somewhat less pricepromotional activity in the third quarter then there was in the first andsecond quarter of this year. Not altogether surprising, because the pricepromotional activity, kind of trends down under any circumstance in the thirdquarter, because distributors are not that interested in stocking up, becausewe are going in to the slow season at this point. Or as in the first quarterand the second quarter, promotional activity can result in getting moreproducts on the shelf. But there was, more in the third quarter this year thenthere was in the third quarter last year, significantly although, whensequentially it was down somewhat. And how that will play through in the fourthquarter remains to be seen. Did that respond to your questions?

Yeah. I guess the other one that I'll logged in there it wasjust, all right, if the market was down high-single, how much do you think yourNorth American motor volume is down?

Well…

I'm trying to put this in context for your utilization ratesand kind of build that picture.

Okay. Our North American pump and motor combination, pumpmotor product, when I talk about the market being down, what I'm doing reallyis talking about the Bellwether product is the pump motor, 4-inch pump motorassembly.

Yeah.

Which is the Bellwether product in the industry, that wasdown a high single-digits in the quarter and our pump motor business was updramatically. And I'm not going to give you a precise number, but it wasn'tquite double, but it was up at a very high rate in the quarter.

Okay. And then just, Tom, maybe can you talk about what yourthoughts are on share repurchase going forward and maybe, given that the stocksitting here below 40 why not get more aggressive?

Well, we are certainly going to deploy our cash, looking ata number of strategic options including acquisitions as we go forward. Andthose decisions will play out as we have our options that we consider goingforward. And yes, that would be a possibility, but we are not going to providespecific guidance in that area in terms of what you will expect.

And then maybe just one more comment on SG&A, as we moveinto '08 product development cost, engineering spend coming down is that partof the 200 bit, Scott? And then just to clarify in the third quarter thesequential decline, was that related to maybe some of the spend here or I guessI am trying to understand as well why it was down so much, because I don'tthink just accrual reversal would have done that?

Certainly the front part of 2007 had a heavier spend for thenew product development projects that we have spoken about and that would be afactor, as well as the third quarter of 2006 having a somewhat higher spendversus the third quarter of 2007. So it’s really a combination of both and some of the accrualactivity that was mentioned.

But really, part of it I think, because what we arereferencing here is sequential. The part of the what makes it look like such anextraordinary decline is that in the first quarter our SG&A was around $29million, the second quarter it bounced up to $32 million, the third quarter itwent back to $28 million, the unusual number was the $32 million in the secondquarter.

Okay

And we will not go back to $32 million, but it wasn’t thethird quarter was so much dramatically low, it was that the second quarter waspretty high and now as we are kind of providing some guidance in the fourthquarter, it will certainly be higher than it was in the third quarter, but alsocertainly lower than it was in the second quarter.

Okay great, that clarifies that, thanks a lot.

And final question of today comes from line of [Brad Schneider]with Schneider Capital

Good afternoon guys.

Yes, Brad.

I just wanted to clarify, a couple of things. When you talkabout the -- I am sorry to ask another question on the expense side, but withthe consolidation that you announced the first part of the fourth quarter forsome of your fueling systems satellite office, , is that incremental to theexpense reductions, the 200 basis points that you are planning for 2008?

No, that would be part of it. Although we will also havewhat we'll work out to be direct cost reductions as a result of that. We willhave, because we have consolidated the fueling operation, the fill tight operation,and the extrusion operations for our pipe business, all of those going out ofstandalone facilities into or satellite facilities into medicines. That willgive us an opportunity to reduced fixed costs, which is part of the 200 basispoint reduction. But, in addition, the pipe product line that we were buying,we have had all equipment in an outside vendor who was supplying that pipeproduct line to us as a variable cost, they were charging us for that. When wemoved that in to medicine and produced it ourselves we are going to find amaterial cost reduction, as well which will help us out as a result of thatmove. So, it's in the 200 basis points reduction, but will also have someadditional benefit that will flow through, as a results of the change outsideof the 200 basis point reduction.

Okay. So these expense reduction, the consolidation of theFueling System satellite offices, as well as, I believe you've talkedpreviously when you entered the year, you were looking for some expensereductions, because of the Siloam Springs facility is in some of the layouts atthose facility. Is there a way to think of and I assume that is our pro formafor the acquisitions and the incremental SG&A from Monarch and from pumpbrands, which would be included in this 200 basis points reduction?

I am sorry. Please repeat your question?

I guess, with the moving pieces, with the acquisitions ofpump brands and with the acquisitions of Monarch, there is some incrementalSG&A that's going to be consolidated into the business. And I believe inthe past, that you've spoken about some expense reduction, headcount reductionsas your motor facility and also with your pump facility in moving themanufacturing down to Monarch?

Yes.

Correct. I am just -- is the 200 basis points that you arediscussing, is that fully incompact sort of all of these changes to thedifferent pieces of the business? Is that sort of pro forma for everything allthe moving parts?

It is pro forma for the SG&A, the manufacturing fixedand the depreciation and amortization on all of the businesses that arecurrently part of the business, including pump brands and Monarch.

Okay. And just one last --

But it does not include the savings that we get, forinstance if we have moved as we have over the course of this year, if we hadmoved manufacturing to Siloam and replaced direct labor in Siloam, with directlabor in Linares, or as we move forward next year having curtailed pumpproduction in Little Rock replacing Little Rock a direct labor with directlabor in Linares. That savings because of the difference between $18 to $20 anhour labor, and $2 an hour labor to $50, that savings is not included in thatcalculation.

Okay. So thas saving is still incremental.

Yes.

Okay. And just one last question, then, I'll follow-up withyou guys a little bit later. You've outlined over the past three quarters verywell the impacts from, let's call it this year's change in the product mix withthe motors versus the pumps and some of the aspects that are taking place inthe water systems. Is there a way to think about the revenue dollar leverage,is it fair to say that the revenue dollar leverage that you would have receivedin motors as you work through the inventory adjustment going into 2008, ifyou're able to achieve the same kinds of rates that within motors, withinfueling systems that the incremental margins, is it right to think of the samehistoric incremental margins on that business as you received previously?

Well, you know, when we talked about this in the pressrelease, but as our mix of business has changed, and we are selling more pumpsand the pump portion of the business becomes a higher percentage of our overallbusiness that mix effect because pumps generally carry a lower gross profitmargin than motors. They are somewhat less capital intensive but they carry alower gross profit margin than motors. Then, as pumps grow the gross profit margin will be down andwe’re saying of the 520 basis points or so, reduction that we have incurredthis year in gross profit margin about a third of it you’d call structural dueto the affect of just the mix shift. And about a third of it pertains to fixedcost coverage and the subject that we’ve discussed and about a third of itpertains to prices relative to direct costs. And the price direct costcontribution margin squeeze that we have incurred this year. Okay

I’m sorry, I guess what I’m asking is I understand that theproduct mix shift in the pumps, maybe, I can check with you later. But I justwant to understand when you talk about the incremental business, the inventoryoverhead; you’ll be competing for that business, because you were previouslycompeting against yourself. Within the motor segment of the PMA market that youare going to be addressing, is there any reason to think that the historicalmargins, the operating margins that you received in motors would be anydifferent in 2008 if you are able to achieve that business than it was in 2005or 2004, just in the motor segment?

Most of that $35 million to $40 million opportunity is --that reflects the motors that we sold to OEM’s in 2006. The 250,000 motors thatwe think went into the stockpile and the value of those was $35 million to $40million.

Right.

As we have an opportunity to address those in themarketplace in 2008, for the most part we will be selling motors attached topumps or pumps attached to motors.

Right.

And the key to answering your question will be what will themarket price be of the PMA -- and of -- the pump motor assembly, because theprice of the motor will be varied in that. And the issue there will be whatkind of a pricing environment where we face is, we sell those products in themarket as pumps next year.

Okay.

And so as motors they should be the same price. The issue willbe as PMAs, how will they come through in the marketplace, sustain in next yearas far as margin are concerned. Do you understand?

I do. Thank you.

Okay.

Gentlemen. We are out of time for today's conference, Iwould like to turn the floor back over to you for any closing comments.

Thank you for participating in our call. And we'll lookforward to having a discussion with you at the end of the next quarter.

This concludes today's teleconference you may disconnectyour lines at this time. Thank you for your participation.