Franklin Electric’s Fourth Quarter and Fiscal Year 2006

14.02.2007

Franklin Electric reported record diluted earnings per share from continuing operations of $2.43 for fiscal 2006, an increase of 23 percent compared to 2005 earnings per share from continuing operations of $1.97 and record income from continuing operations of $56.8 million in 2006, an increase of 24 percent compared to last year’s $45.8 million.

The Company reported record diluted earnings per share from continuing operations for the fourth quarter of $0.61, a 7 percent increase from $0.57 for the fourth quarter of 2005. Fourth quarter 2006 income from continuing operations was a record $14.3 million, an increase of 8 percent from $13.2 million for the same period a year ago.

During the fourth quarter of 2006, the Company divested its Engineered Motor Products Division (EMPD). For financial statement purposes, EMPD has been classified as a discontinued operation for all periods presented. As a discontinued operation, EMPD’s sales and operational impact are excluded from the Company’s continuing operations results and reported in the income statement section labeled “discontinued operations”. EMPD’s sales for 2006 through the date of divestiture and for full year 2005 represented less than 10 percent of the Company’s total sales. EMPD’s net earnings for 2006 through the date of divestiture and for full year 2005 were about $0.01 per share in both years. Unless otherwise indicated, the following discussion will relate to continuing operations only.

Sales for fiscal year 2006 were a record $557.9 million from continuing operations, an increase of $154.5 million or 38 percent compared to 2005 sales of $403.4 million. Incremental sales in 2006 related to acquisitions were about $86 million or 21 percent of prior year sales. The majority of the sales growth from acquisitions resulted from the purchase of the Little Giant Pump Company which took place in April 2006. Sales growth occurred across all major product lines of the Company. Global Water Systems sales were $459.1 million, up approximately 37 percent for fiscal 2006. Global Fueling Systems sales were $98.8 million, up approximately 43 percent for fiscal 2006.

Fourth quarter sales were a record $147.9 million from continuing operations, up $42.2 million or 40 percent compared to $105.7 million in 2005. Fourth quarter sales growth attributed to acquisitions were $33 million or 31 percent of prior year sales. Global Water Systems sales increased by 35 percent versus fiscal 2005 while global Fueling Systems sales increased 60 percent over last year.

For fiscal year 2006, operating earnings from continuing operations were $89.1 million, up $19.0 million or 27 percent compared to $70.1 million for fiscal 2005. Operating margins for the year were 16.0 percent compared to 17.4 percent last year. The operating margin was impacted by product mix changes as Fueling Systems products and complete Water Systems pumps (including Little Giant product lines) represent a higher percentage of overall sales and these product lines carry lower gross profit margins than submersible motors.

The operating margin reduction can also be attributed to higher selling, general, and administrative spending resulting from the Company’s strategy of selling to a more diversified customer base by marketing its Water Systems products directly to distributors. Additionally, during fiscal 2006, the Company’s stock-based compensation expense increased $2.7 million, primarily due to the new accounting guidelines of SFAS 123(R). This accounting pronouncement was adopted as of January 1, 2006; therefore, the Company did not record certain expenses related to stock options in 2005.

Operating earnings from continuing operations for the fourth quarter 2006 were $22.3 million, an increase of 11 percent compared to $20.0 million a year ago. Operating earnings during the fourth quarter 2006 included one-time acquisition integration expenses of $0.9 million, manufacturing realignment costs of $0.5 million, higher spending for new product development of $0.8 million and stock-based compensation expense of $0.7 million. While year-on-year market price increases were sufficient to offset cost increases during the first three quarters of 2006, during the fourth quarter, year-on-year price increases fell short of year-on-year cost increases due to the Company recognizing a last-in, first-out (LIFO) inventory charge of $1.4 million, which was an increase of $1.6 million from the fourth quarter of 2005. The cost increases were primarily due to the volatility of commodity prices (e.g., copper and steel) during 2006 and their impact on the full year LIFO expense. The Company has announced market price increases for most of its global product lines that will be effective at the end of the first quarter 2007.

It was also announced that the Board of Directors declared a quarterly cash divided of eleven cents per share payable February 22, 2007 to shareowners of record on February 8, 2007.

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