Franklin Electric (FELE) 8-K Results of Operations and Financial Condition

Exhibit Index

EXHIBIT NO. (99) Press release, dated July 28, 2008 issued by Franklin Electric Co., Inc.

EXHIBIT 99

ADDITIONAL EXHIBITS

Press Release

For Immediate Release	For Further Information
	Refer to: John J. Haines
	260-824-2900

FRANKLIN ELECTRIC COMPANY

REPORTS RECORD SALES IN SECOND QUARTER 2008 RESULTS

Bluffton, Indiana - July 28, 2008 -- Franklin Electric Co., Inc. (NASDAQ:FELE) reported diluted earnings per share of $0.66 for the second quarter of 2008, an increase of approximately 135 percent compared to second quarter of 2007 earnings per share of $0.28. Second quarter 2008 net income of $15.3 million increased approximately 130 percent compared to $6.6 million for the same period a year ago.

Second quarter sales were a record $201.7 million, up $49.2 million or 32 percent compared to $152.5 million in 2007.  Sales from businesses acquired during the last 12 months were $30 million and these businesses achieved organic growth of $4.5 million or 18 percent.  Sales revenue increased by $7.0 million in the quarter due to foreign exchange rate changes.  Overall organic growth for the quarter, including organic growth achieved by acquired businesses and foreign exchange rate changes, was $23.7 million or 16 percent.

Gross profit improved to 32.1 percent of sales in the second quarter of 2008 and was approximately 370 basis points higher than the second quarter of 2007.  The Company’s operating income was a record $26.4 million in the second quarter, up $15.3 million or about 140 percent compared to $11.1 million for the second quarter 2007. Operating margins for the quarter were 13.1 percent compared to 7.3 percent last year.

Franklin Electric Chairman and Chief Executive Officer R. Scott Trumbull stated, “We were particularly pleased with the margin improvement that we achieved during the second quarter in spite of the residential housing decline and weak general economic conditions in several key market areas. The improvement was broad based as operating margins in Water increased by 480 basis points and in Fueling by 590 basis points.  In both Water Systems and Fueling Systems we continued to gain share in key markets and experience significant sales increases in developing regions.  While we are benefiting from sales growth in California due to the vapor control mandate, we are laying a solid foundation for sustainable sales and earnings growth in our other Water and Fueling global markets.”

Water Systems sales worldwide were $157.4 million, up $37.4 million or 31 percent for the second quarter of 2008 compared to the same period for 2007.  The Water Systems segment achieved organic sales growth of 10 percent during the quarter.  Organic growth was driven by strong sales to the agricultural segment world wide, increased pump sales in the United States, and solid sales growth in developing regions.  Growth in these sectors offset generally weak sales to the residential market in the United States and portions of Western Europe.

Water Systems operating income was $26.2 million for the quarter, up $12.0 million or 85 percent versus the second quarter of 2007.  Operating margins improved versus prior year by 480 basis points.  Water Systems segment margin improvements were the result of higher sales volumes, which combined with spending controls, resulting in significant fixed cost leverage during the quarter.  Water Systems margins also benefited from reduced promotional price activity and favorable product mix shifts.

Fueling Systems sales worldwide were $44.3 million, an increase of $11.8 million or 37 percent for the second quarter of 2008 compared to the same period for 2007. All of the sales increase for the quarter was organic.  Fueling revenue growth was led by vapor recovery system sales in California and sales in international markets.

Fueling Systems operating income was $10.9 million, an increase of $4.8 million or about 80 percent versus second quarter 2007. Operating margins improved versus prior year by 590 basis points.  The margin improvement primarily resulted from fixed cost leverage due to surging sales.

The Company’s selling, general and administrative (“SG&A”) expenses increased by $6.5 million in the second quarter of 2008 compared to the second quarter last year. The acquisitions of Pump Brands (South Africa), the pump division of Monarch Industries (Canada), Schneider Motobombas (Brazil), and Western Pumps (United States) added approximately $5.6 million of SG&A expenses to the Water Systems segment for the second quarter of 2008. Other SG&A increases were primarily related to higher compensation expenses.  Second quarter SG&A expenses as a percentage of sales declined by 190 basis points versus prior year.

Fixed Costs (which we define as fixed manufacturing costs, restructuring costs and SG&A less commissions) leverage improved operating margin about 360 basis points during the second quarter of 2008 versus the second quarter 2007. The Company anticipates fixed spending leverage will improve operating margin about 220 basis points for the full year 2008 from 2007. The ramp up of the new pump plant in Linares, Mexico will cause the Company’s fixed spending rate to be greater in the second half than the first half of the year.  There were no restructuring charges in the second quarter of 2008 and there were $0.4 million in the second quarter of 2007.

Cash and equivalents were $42.8 million at the end of the second quarter of 2008 versus $63.8 million of cash and investments at the end of the second quarter 2007. Cash was used in the first half of 2008 as accounts receivable increased consistent with sales volume increases.  Inventory also increased overall during the first half of 2008 to support the increased demand in fueling and international water markets offset by decreases in the Water Systems inventory in the US. Other primary uses of cash during the first half of 2008 were for acquisitions and capital expenditures.

Additionally, on Friday, July 25, the Board of Directors of Franklin Electric declared a quarterly cash dividend of twelve and one half cents per share payable August 21, 2008 to shareowners of record on August 7, 2008.

Mr. Trumbull added:

“While pleased with the progress we have made to date, we are mindful of the challenges we anticipate in the second half of the year as we expect significant material and freight cost increases.   Our plan is to offset these cost increases with purchasing initiatives, productivity gains, and price increases, but weak economic conditions in several key market areas make our outlook less certain for sustaining the rate of performance improvement that we achieved during the first half of the year.” 

A conference call to review earnings and other developments in the business will commence at approximately 5:00pm EDT. The call-in number is 877-407-0778 for domestic calls and 201-689-8565 for international calls. A replay of the conference call will be available until midnight on August 4, 2008, by dialing 877-660-6853 for domestic calls and 201-612-7415 for international calls. The replay account number is 286 and the conference ID is 291620. 

Franklin Electric is a global leader in the production and marketing of systems and components for the movement of water and automotive fuels. Recognized as a technical leader in its specialties, Franklin serves customers around the world in residential, commercial, agricultural, industrial, municipal, and fueling applications.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including those relating to the Company’s financial results, business goals and sales growth, involve risks and uncertainties, including but not limited to, risks and uncertainties with respect to general economic and currency conditions, various conditions specific to the Company’s business and 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’s accounting policies, future trends, and other risks which are detailed in the Company’s Securities and Exchange Commission filings, included in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ending December 29, 2007, Exhibit 99.1 attached thereto and in Item 1A of Part II of the Company’s Quarterly Reports on Form 10-Q. These risks 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 obligation to update any forward-looking statements.

FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
	Second Quarter Ended				First Half Ended
	June 28,		June 30,		June 28,		June 30,
		2008		2007		2008		2007
Net sales	$	201,696	$	152,529	$	377,706	$	283,025
Cost of sales		136,979		109,216		261,530		200,783
Gross profit		64,717		43,313		116,176		82,242
Selling, general and administrative expenses		38,274		31,806		74,585		61,261
Restructuring expense		-		369		82		1,607
Operating income		26,443		11,138		41,509		19,374
Interest expense		(2,780)		(2,196)		(5,404)		(3,408)
Other income/(expense)		(314)		921		157		1,219
Foreign exchange gain/(loss)		(64)		399		(391)		646
Income before income taxes		23,285		10,262		35,871		17,831
Income taxes		8,004		3,622		12,442		6,294
Net income	$	15,281	$	6,640	$	23,429	$	11,537
Net income per share:
Basic	$	0.67	$	0.29	$	1.02	$	0.50
Diluted	$	0.66	$	0.28	$	1.01	$	0.49
Weighted average shares and equivalent
shares outstanding:
Basic		22,882		23,100		22,956		23,075
Diluted		23,174		23,465		23,230		23,462

FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)	June 28,		Dec. 29,
		2008		2007
ASSETS:
Cash and equivalents	$	42,835	$	65,252
Receivables		116,515		64,972
Inventories		178,549		156,146
Other current assets		30,724		23,109
Total current assets		368,623		309,479
Property, plant and equipment, net		156,537		134,931
Goodwill and other assets		247,109		217,827
Total assets	$	772,269	$	662,237
LIABILITIES AND SHAREOWNERS' EQUITY:
Accounts payable	$	41,436	$	27,986
Accrued liabilities		64,519		52,265
Current maturities of long-term
debt and short-term borrowings		70,453		10,398
Total current liabilities		176,408		90,649
Long-term debt		151,621		151,287
Deferred income taxes		13,190		11,686
Employee benefit plan obligations		23,530		24,713
Other long-term liabilities		5,234		5,358
Shareowners' equity		402,286		378,544
Total liabilities and shareowners' equity	$	772,269	$	662,237

FRANKLIN ELECTRIC CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)		June 28,		June 30,
		2008		2007
Cash flows from operating activities:
Net income	$	23,429	$	11,537
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization		12,318		9,976
Stock based compensation		2,196		2,400
Deferred income taxes		782		1,095
(Gain)/loss on disposals of plant and equipment		49		464
Changes in assets and liabilities:
Receivables		(46,106)		(23,112)
Inventories		(17,013)		(30,411)
Accounts payable and other accrued expenses		11,327		(1,583)
Accrued income taxes		2,508		(4,258)
Excess tax from share-based payment arrangements		(122)		(1,169)
Employee benefit plans		(1,204)		1,125
Other, net		(6,736)		(3,559)
Net cash flows from operating activities		(18,572)		(37,495)
Cash flows from investing activities:
Additions to plant and equipment		(12,566)		(10,697)
Proceeds from sale of plant and equipment		10		303
Additions to other assets		(700)		(3)
Purchases of securities		(9,000)		(146,700)
Proceeds from sale of securities		9,000		124,607
Cash paid for acquisitions		(38,331)		(13,331)
Proceeds from sale of business		-		1,310
Net cash flows from investing activities		(51,587)		(44,511)
Cash flows from financing activities:
Proceeds from short-term debt		70,000		-
Repayment of short-term debt		(10,019)		-
Proceeds from long-term debt		83		160,000
Repayment of long-term debt		(950)		(60,161)
Proceeds from issuance of common stock		353		2,165
Excess tax from share-based payment arrangements		122		1,169
Purchases of common stock		(7,813)		(8,118)
Reduction of loan to ESOP Trust		-		200
Dividends paid		(5,632)		(5,308)
Net cash flows from financing activities		46,144		89,947
Effect of exchange rate changes on cash		1,598		(212)
Net change in cash and equivalents		(22,417)		7,729
Cash and equivalents at beginning of period		65,252		33,956
Cash and equivalents at end of period	$	42,835	$	41,685