EX-99 2 exhibit_99.htm EXHIBIT 99 Exhibit 99
Exhibit Index

EXHIBIT NO. (99) Press release, dated February 1, 2007 issued by Franklin Electric Co., Inc.

EXHIBIT 99

ADDITIONAL EXHIBITS

Press Release


For Immediate Release
For Further Information
 
Refer to: Thomas J. Strupp
 
260-824-2900


FRANKLIN ELECTRIC COMPANY
REPORTS RECORD INCOME AND SALES
FOR THE FOURTH QUARTER AND FISCAL YEAR OF 2006
AND DECLARES A FOURTH QUARTER DIVIDEND


Bluffton, Indiana - February 1, 2007 -- Franklin Electric Co., Inc. (NASDAQ:FELE) 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.

 
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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.

R. Scott Trumbull, Chairman, and Chief Executive Officer, stated, “Overall, I believe we made good progress on the strategic transformation of the Company in 2006 based on the following accomplishments:
·  
We achieved our sales growth, earnings growth, and return on net assets targets.
·  
In the North American Water Systems sales region, we have established the broadest network of distributor relationships in our industry; our pump sales are growing rapidly and we are gaining share; and, we are introducing a new generation of submersible pumps and jet pumps that provide our customers with industry leading performance and value.
·  
We completed two acquisitions—Little Giant in Water Systems and Healy in Fueling Systems—that are excellent strategic fits and should be accretive during the first year of ownership.  The business integrations of both acquisitions are on track.
·  
We continued the expansion of our manufacturing base in low cost regions and we have started producing Water Systems pumps in addition to submersible motors in our new manufacturing complex in Linares, Mexico. 
·  
Franklin Fueling Systems is achieving rapid growth and significant operating margin improvements; when combined with the Healy acquisition, the outlook for continued Fueling Systems sales and earnings growth is bright.
·  
With net debt to equity at 8.2 percent, we are well positioned to pursue additional strategic opportunities within our core markets.


 
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While these are all positive signs for the business, there are a few areas of concern as we enter 2007. As we have previously disclosed, we believe that the integrated pump OEM customers have stockpiled our 4-inch submersible motors in response to the Company’s sales policy announcement that we will principally sell directly to distributors in 2007 and beyond. We believe that these inventory stockpiles could represent up to a two-month supply of 4-inch submersible motors in North America and could be sold off during the first half of 2007. This submersible motor de-stocking combined with the competitive reaction to our pump market share gains, may result in unusual market place volatility during the first part of 2007. Overall, in spite of these short-term market concerns, we are well positioned to continue the growth of both our Water Systems and Fueling Systems businesses over the course of 2007 and beyond.”

It was also announced today 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.

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. 

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“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward looking statements contained herein involve risks and uncertainties, including but not limited to, general economic and currency conditions, various conditions specific to the Company’s business and industry, 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. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements.



 
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FRANKLIN ELECTRIC CO., INC.
                  
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  
 
                  
                   
(In thousands, except per share amounts)
                  
                   
   
Fourth Quarter Ended
  
Fiscal Year Ended
  
   
Dec. 30,
  
Dec. 31,
  
Dec. 30,
  
Dec. 31,
  
   
2006
  
2005
  
2006
  
2005
  
                   
Net sales
  
$
147,851
  
$
105,705
  
$
557,948
  
$
403,413
  
                           
Cost of sales
    
97,855
   
66,466
   
366,391
   
260,592
 
                           
Gross profit
    
49,996
   
39,239
   
191,557
   
142,821
 
                           
Selling and administrative expenses
    
27,735
   
19,072
   
102,478
   
70,799
 
                           
Restructuring expense
    
-
   
171
   
-
   
1,920
 
                           
Operating income
    
22,261
   
19,996
   
89,079
   
70,102
 
                           
Interest expense
    
(1,011
)
  
(213
)
  
(3,373
)
  
(766
)
Other income
   
402
   
655
   
1,791
   
1,200
 
Foreign exchange gain (loss)
   
(111
)
  
6
   
(64
)
  
213
 
                   
Income before income taxes
    
21,541
   
20,444
   
87,433
   
70,749
 
                           
Income taxes
    
7,231
   
7,220
   
30,671
   
24,953
 
                           
Net income from continuing operations
  
$
14,310
  
$
13,224
  
$
56,762
  
$
45,796
  
                           
Discontinued operations
    
(380
)
  
297
   
381
   
344
 
Income taxes
    
(144
)
  
113
   
145
   
131
 
Net income from discontinued operations
    
(236
)
  
184
   
236
   
213
 
                           
Net income
 
$
14,074
  
$
13,408
  
$
56,998
  
$
46,009
  
 
                          
 
                          
Net income per share:
                    
Basic continuing operations
  
$
0.62
  
$
0.59
  
$
2.49
  
$
2.06
  
Basic discontinued operations
    
(0.01
)
  
0.01
   
0.01
   
0.01
 
   
$
0.61
  
$
0.60
  
$
2.50
  
$
2.07
  
                           
Diluted continuing operations
  
$
0.61
  
$
0.57
  
$
2.43
  
$
1.97
  
Diluted discontinued operations
    
(0.01
)
  
0.01
   
0.01
   
0.01
 
 
  
$
0.60
  
$
0.58
  
$
2.44
  
$
1.98
  
 
                          
Weighted average shares and equivalent
                          
shares outstanding:
                          
Basic
    
22,994
   
22,458
   
22,839
   
22,229
 
Diluted
    
23,458
   
23,284
   
23,329
   
23,181
 
                           
 
 
 
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FRANKLIN ELECTRIC CO., INC.
          
CONDENSED CONSOLIDATED BALANCE SHEETS
          
           
(In thousands)
  
Dec. 30,
 
Dec. 31,
 
 
 
2006
  
2005
  
           
ASSETS:
              
 
              
Cash and equivalents
  
$
33,956
  
$
52,136
  
Investments
    
-
   
35,988
 
Receivables
    
52,679
   
30,165
 
Inventories
   
111,563
   
70,381
 
Other current assets
    
19,592
   
14,350
 
Total current assets
    
217,790
   
203,020
 
 
              
Property, plant and equipment, net
    
115,976
   
95,732
 
Goodwill and other assets
    
193,159
   
81,010
 
Total assets
  
$
526,925
  
$
379,762
  
               
               
LIABILITIES AND SHAREOWNERS' EQUITY:
              
 
              
Current maturities of long-term
            
debt and short-term borrowings
  
$
11,310
  
$
1,303
  
Accounts payable
   
30,832
   
26,409
 
Accrued liabilities
    
51,815
   
36,310
 
Total current liabilities
    
93,957
   
64,022
 
               
Long-term debt
    
51,043
   
12,324
 
Deferred income taxes
    
4,597
   
4,296
 
Employee benefit plan obligations
    
25,969
   
25,830
 
Other long-term liabilities
    
5,528
   
5,728
 
               
Shareowners' equity
    
345,831
   
267,562
 
Total liabilities and shareowners' equity
  
$
526,925
  
$
379,762
  
               
 
 
 
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FRANKLIN ELECTRIC CO., INC.
          
CONSOLIDATED STATEMENTS OF CASH FLOWS
          
           
   
 
      
(In thousands)
  
Dec. 30,
 
Dec. 31,
 
 
 
2006
 
2005
  
           
           
Cash flows from operating activities:
              
Net income
  
$
56,998
  
$
46,009
  
Adjustments to reconcile net income to net
              
cash flows from operating activities:
              
Depreciation and amortization
    
17,989
   
14,971
 
Stock based compensation
    
3,206
   
147
 
Deferred income taxes
    
(9,933
)
  
284
 
Loss/(gain) on divestiture and disposals of plant and equipment
    
(4,637
)
  
174
 
Changes in assets and liabilities:
              
Receivables
    
(5,380
)
  
7,354
 
Inventories
    
(10,978
)
  
(10,642
)
Accounts payable and other accrued expenses
    
(4,540
)
  
5,930
 
Accrued income taxes
    
15,012
   
8,076
 
Excess tax from share-based payment arrangements
    
(5,743
)
  
-
 
Employee benefit plans
   
4,956
   
2,420
 
Other, net
    
(2,738
)
  
(559
)
Net cash flows from operating activities
    
54,212
   
74,164
 
Cash flows from investing activities:
              
Additions to plant and equipment
    
(23,190
)
  
(17,845
)
Proceeds from sale of plant and equipment
    
343
   
1,073
 
Additions to other assets
    
-
   
(2,184
)
Purchases of securities
    
(63,500
)
  
(236,773
)
Proceeds from sale of securities
    
99,488
   
200,785
 
Cash paid for acquisitions, net of cash acquired
    
(158,028
)
  
(8,509
)
Divestiture of operation
    
14,470
   
-
 
Net cash flows from investing activities
    
(130,417
)
  
(63,453
)
Cash flows from financing activities:
              
Additions to long-term debt
    
130,000
   
-
 
Repayment of long-term debt
    
(81,296
)
  
(1,280
)
Proceeds from issuance of common stock
    
10,120
   
14,298
 
Excess tax from share-based payment arrangements
    
5,743
   
-
 
Purchases of common stock
    
(198
)
  
(13,775
)
Reduction of loan to ESOP Trust
    
232
   
233
 
Dividends paid
    
(9,833
)
  
(8,447
)
Net cash flows from financing activities
    
54,768
   
(8,971
)
Effect of exchange rate changes on cash
    
3,257
   
(208
)
Net change in cash and equivalents
    
(18,180
)
  
1,532
 
Cash and equivalents at beginning of period
    
52,136
   
50,604
 
Cash and equivalents at end of period
  
$
33,956
  
$
52,136
  
               
 
 
 
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