10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________

FORM 10-Q

_________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 2, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 0-362

FRANKLIN ELECTRIC CO., INC.

(Exact name of registrant as specified in its charter)

Indiana	35-0827455
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
400 East Spring Street
Bluffton, Indiana	46714
(Address of principal executive offices)	(Zip Code)

(260) 824-2900

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

YES x NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES x NO o

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

	Outstanding at
Class of Common Stock	July 2, 2005
$.10 par value	21,999,972 shares

Page 1 of 20

FRANKLIN ELECTRIC CO., INC.

Index

		Page
PART I.	FINANCIAL INFORMATION	Number
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of July 2, 2005 and January 1, 2005	3
	Condensed Consolidated Statements of Income for the Second Quarter and Six Months Ended July 2, 2005 and July 3, 2004	4
	Condensed Consolidated Statements Of Cash Flows for the Six Months Ended July 2, 2005 and July 3, 2004	5
	Notes to Condensed Consolidated Financial Statements	6-10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10-13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	13-14
PART II.	OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 6.	Exhibits	14
Signatures		15
Exhibits		16-20

 

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FRANKLIN ELECTRIC CO., INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)	July 2,			January 1,
	2005			2005
ASSETS
Current assets:
Cash and equivalents	$	25,480		$	50,604
Investments		15,525			-
Receivables, less allowances of $2,170 and $2,281, respectively		47,249			39,312
Inventories		75,772			62,442
Other current assets (including deferred income taxes of $10,887 and $10,391, respectively)		14,378			13,784
Total current assets		178,404			166,142
Property, plant and equipment, net		89,492			95,924
Deferred and other assets		13,834			14,010
Goodwill		55,354			57,397
Total assets	$	337,084		$	333,473
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term debt and short-term borrowings	$	1,269		$	1,304
Accounts payable		17,603			16,594
Accrued expenses		33,915			33,354
Income taxes		4,405			3,193
Total current liabilities		57,192			54,445
Long-term debt		13,271			13,752
Deferred income taxes		6,998			6,304
Employee benefit plan obligations		18,467			18,801
Other long-term liabilities		5,770			5,838
Shareowners' equity:
Common shares (45,000 shares authorized, $.10 par value)
outstanding (22,000 and 22,041, respectively)		2,200			2,204
Additional capital		60,105			52,743
Retained earnings		169,658			166,557
Loan to ESOP Trust		(432	)		(665	)
Accumulated other comprehensive income		3,855			13,494
Total shareowners' equity		235,386			234,333
Total liabilities and shareowners' equity	$	337,084		$	333,473

See Notes to Condensed Consolidated Financial Statements.

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FRANKLIN ELECTRIC CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	Second Quarter Ended						Six Months Ended
	July 2,			July 3,			July 2,			July 3,
	2005			2004			2005			2004
Net sales	$	123,537		$	106,144		$	205,971		$	186,351
Cost of sales		82,117			71,632			139,072			128,219
Gross profit		41,420			34,512			66,899			58,132
Selling and administrative expenses		19,976			16,003			36,248			30,981
Restructuring expense		505			1,387			710			1,952
Operating income		20,939			17,122			29,941			25,199
Interest expense		(183	)		(93	)		(355	)		(199	)
Other income, net		190			10			341			28
Foreign exchange loss		(43	)		(174	)		(32	)		(224	)
Income before income taxes		20,903			16,865			29,895			24,804
Income taxes		7,358			5,987			10,539			8,805
Net income	$	13,545		$	10,878		$	19,356		$	15,999
Per share data:
Basic Earnings per Share	$	.61		$	.50		$	.88		$	.73
Diluted Earnings per Share	$	.59		$	.48		$	.84		$	.70
Dividends per common share	$	.10		$	.08		$	.18		$	.15

See Notes to Condensed Consolidated Financial Statements.

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FRANKLIN ELECTRIC CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)	Six Months Ended
	July 2,			July 3,
	2005			2004
Cash flows from operating activities:
Net income	$	19,356		$	15,999
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization		7,783			7,758
Deferred income taxes		694			-
Loss on disposals of plant and equipment		51			7
Changes in assets and liabilities:
Receivables		(9,244	)		(8,163	)
Inventories		(16,879	)		(12,904	)
Accounts payable and other accrued expenses		6,879			12,258
Employee benefit plan obligations		451			(3,713	)
Other, net		(234	)		1,173
Net cash flows from operating activities		8,857			12,415
Cash flows from investing activities:
Additions to plant and equipment		(5,569	)		(10,110	)
Proceeds from sale of plant and equipment		1,048			-
Additions to deferred and other assets		(1,005	)		(5	)
Cash paid for securities		(93,500	)		-
Proceeds from sale of securities		77,975			-
Net cash flows from investing activities		(21,051	)		(10,115	)
Cash flows from financing activities:
Repayment of long-term debt		(142	)		(414	)
Proceeds from issuance of common stock		4,356			3,034
Purchases of common stock		(12,318	)		(3,091	)
Reduction of loan to ESOP Trust		233			232
Dividends paid		(3,970	)		(3,296	)
Net cash flows from financing activities		(11,841	)		(3,535	)
Effect of exchange rate changes on cash		(1,089	)		121
Net change in cash and equivalents		(25,124	)		(1,114	)
Cash and equivalents at beginning of period		50,604			29,962
Cash and equivalents at end of period	$	25,480		$	28,848

See Notes to Condensed Consolidated Financial Statements.

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FRANKLIN ELECTRIC CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all accounting entries and adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and the results of operation for the interim period have been made. Prior year amounts are reclassified when necessary to conform to current year presentation. Operating results for the second quarter ended July 2, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2005. For further information, including a description of Franklin Electric's critical accounting policies, refer to the consolidated financial statements and footnotes thereto included in Franklin Electric Co., Inc.'s annual report on Form 10-K for the year ended January 1, 2005.

Note 2: Current Investments

As of July 2, 2005 the Company held $15.5 million of current investments consisting of auction rate municipal bonds classified as available-for-sale securities and titled “Investments” in the current balance sheet. Investments in these securities are recorded at cost, which approximates fair market value due to the variable interest rates, which typically resets every 7 to 35 days. While the underlying municipal bonds have stated contractual maturities which may be long-term, the Company has the ability to quickly liquidate these securities. As a result, there were no cumulative gross unrealized holding gains (losses) or gross realized gains (losses) from these current investments. All income generated from these current investments was recorded as other income, net. The purchase and sale of these securities has been included under the Investing Activities section of the cash flow statement.

Note 3: Inventories

Inventories consist of the following:

(In millions)	July 2,			January 1,
	2005			2005
Raw Materials	$	25.1		$	25.3
Work in Process		6.6			7.9
Finished Goods		61.0			44.9
LIFO Reserve		(16.9	)		(15.7	)
Total Inventory	$	75.8		$	62.4

Note 4: Property, Plant and Equipment

Property, plant and equipment, at cost, consists of the following:

(In millions)	July 2,			January 1,
	2005			2005
Land and Building	$	48.4		$	52.8
Machinery and Equipment		159.5			164.0
		207.9			216.8
Allowance for Depreciation		(119.2	)		(120.9	)
Other - Held for Sale		0.8			-
	$	89.5		$	95.9

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Note 5: Goodwill and Other Intangible Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, the Company tests goodwill and intangible assets for impairment on an annual basis, or more frequently if circumstances warrant. During the fourth quarter of 2004, the Company performed its annual impairment testing and it was determined that no impairment exists.

The carrying amount of the Company’s intangible assets, which is included in deferred and other assets, and goodwill include:

	July 2,			Jan 1,
(In millions)	2005			2005
Amortized intangibles
Patents	$	3.5		$	3.5
Supply agreements		10.0			10.4
Other		2.6			1.7
Accumulated amortization		(9.5	)		(9.3	)
Total	$	6.6		$	6.3
Goodwill	$	55.4		$	57.4

In the second quarter, the Company recorded $1.0 million as an intangible asset when it entered into an agreement to purchase certain pump designs and intellectual property from a third party.

Other changes in the carrying amount of intangibles and goodwill reflect foreign currency fluctuations.

Amortization expense related to intangible assets for the six months ended July 2, 2005 and July 3, 2004, was $0.7 and $1.1 million respectively.

During the second fiscal quarter, there has been no material change in the projected amortization expense for each of the five succeeding years, as reported in the Company’s annual report on Form 10-K for the year ended January 1, 2005.

Note 6: Employee Benefits

The following table sets forth aggregated net periodic benefit cost:

(In millions)
	Pension Benefits						Pension Benefits
	Second Quarter Ended						Six Months Ended
	July 2,			July 3,			July 2,			July 3,
	2005			2004			2005			2004
Service cost	$	0.9		$	0.8		$	2.0		$	1.9
Interest cost		2.1			1.9			3.9			3.8
Expected return on assets		(2.8	)		(2.6	)		(5.3	)		(5.3	)
Amortization of unrecognized:
(Gain)/Loss		0.1			-			0.1			-
Prior service cost		0.5			0.3			0.8			0.7
Net periodic benefit cost		0.8			0.4			1.5			1.1
Settlement cost		-			-			0.1			0.1
Total benefit cost	$	0.8		$	0.4		$	1.6		$	1.2

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	Other Benefits				Other Benefits
	Second Quarter Ended				Six Months Ended
	July 2,		July 3,		July 2,		July 3,
	2005		2004		2005		2004
Service cost	$	0.1	$	0.1	$	0.2	$	0.2
Interest cost		0.2		0.2		0.4		0.4
Amortization of unrecognized:
obligation/(asset)		0.2		0.1		0.3		0.2
Prior service costs		0.0		0.1		0.1		0.1
Loss/(Gain)		0.1		0.1		0.1		0.1
Net periodic benefit cost		0.6		0.6		1.1		1.0
Total benefit cost	$	0.6	$	0.6	$	1.1	$	1.0

As of July 2, 2005 the Company has made contributions to the plans of $2.3 million and expects to make additional contributions of $0.9 million in 2005.

Note 7: Tax Rates

The effective tax rate on income before income taxes in 2005 and 2004 varies from the United States statutory rate of 35 percent primarily due to the foreign income exclusion and R & D credits and to the effects of state and foreign income taxes net of federal tax benefits.

Note 8: Shareowners' Equity

The Company had 21,999,972 shares of common stock (45,000,000 shares authorized, $.10 par value) outstanding as of July 2, 2005.

During the second quarter, pursuant to the stock repurchase program authorized by the Company's Board of Directors, the Company has repurchased a total of 276,200 shares for $10.2 million. During the six months ended, the Company repurchased 330,600 shares for $12.3 million. All repurchased shares were retired.

Note 9: Earnings Per Share

Following is the computation of basic and diluted earnings per share:

(In millions, except	Second Quarter Ended				Six Months Ended
per share amounts)	July 2,		July 3,		July 2,		July 3,
	2005		2004		2005		2004
Numerator:
Net Income	$	13.5	$	10.9	$	19.4	$	16.0
Denominator:
Basic
Weighted average common shares		22.0		22.0		22.1		21.9
Diluted
Effect of dilutive securities:
Employee and director incentive stock options and awards		1.0		0.9		1.0		1.0
Adjusted weighted average common shares		23.0		22.9		23.1		22.9
Basic earnings per share	$	.61	$	.50	$	.88	$	.73
Diluted earnings per share	$	.59	$	.48	$	.84	$	.70

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Note 10: Other Comprehensive Income

Comprehensive income is as follows:

(In millions)	Second Quarter Ended					Six Months Ended
	July 2,			July 3,		July 2,			July 3,
	2005			2004		2005			2004
Net income	$	13.5		$	10.9	$	19.4		$	16.0
Other comprehensive loss:
Foreign currency translation adjustments		(5.5	)		1.5		(9.6	)		(1.0	)
Comprehensive income, net of tax	$	8.0		$	12.4	$	9.8		$	15.0

Accumulated other comprehensive income consists of the following:

(In millions)	July 3,			January 1,
	2005			2005
Cumulative translation adjustment	$	6.0		$	15.7
Minimum pension liability adjustment, net of tax		(2.1	)		(2.2	)
Accumulated other comprehensive income	$	3.9		$	13.5

Note 11: Warranty

The Company provides warranties on most of its products. The warranty terms vary but are generally two years from date of manufacture or one year from date of installation. Provisions for estimated expenses related to product warranty are made at the time products are sold or when specific warranty issues are identified. These estimates are established using historical information about the nature, frequency, and average cost of warranty claims. The Company actively studies trends of warranty claims and takes action to improve product quality and minimize warranty claims. The Company believes that the warranty reserve is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the reserve.

Below is a table that shows the activity in the warranty accrual accounts:

(In millions)	Second Quarter Ended						Six Months Ended
	July 2,			July 3,			July 2,			July 3,
	2005			2004			2005			2004
Beginning Balance	$	6.3		$	5.5		$	7.1		$	5.4
Accruals related to product warranties		1.2			1.2			2.0			2.4
Reductions for payments made		(1.1	)		(0.9	)		(2.7	)		(2.0	)
Ending Balance	$	6.4		$	5.8		$	6.4		$	5.8

Note 12: Stock-Based Compensation

The Company accounts for stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees." No stock-based employee compensation cost is reflected in net income (loss), as all options granted under those plans had an exercise price equal to the market value of the stock at date of grant. As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," and amended by SFAS No. 148, "Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123," the Company follows the disclosure requirements only of SFAS No. 123. The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123:

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(In millions, except	Second Quarter Ended						Six Months Ended
per share amounts)	July 2,			July 3,			July 2,			July 3,
	2005			2004			2005			2004
Net income	$	13.5		$	10.9		$	19.4		$	16.0
Deduct: Stock-based employee compensation cost, net of income tax		(0.4	)		(0.4	)		(0.9	)		(0.7	)
Pro forma net income	$	13.1		$	10.5		$	18.5		$	15.3
Earnings per share:
Basic — as reported	$	.61		$	.50		$	.88		$	.73
Basic — pro forma	$	.59		$	.48		$	.84		$	.70
Diluted — as reported	$	.59		$	.48		$	.84		$	.70
Diluted — pro forma	$	.57		$	.46		$	.80		$	.67

On December 16, 2004, the FASB issued SFAS No. 123(R) “Share-Based Payment”, that requires compensation costs related to share-based payment transactions be recognized in the financial statements. With minor exceptions, the amount of compensation costs will be measured based on the grant-date fair value of the equity or liability instruments issued, over the period that the employee provides service in exchange for the award. In addition liability awards will be re-measured each reporting period. This pronouncement is effective as of the beginning of the first fiscal year beginning after June 15, 2005. The impact on the Company’s results of operations or financial position as of the adoption of this pronouncement is not expected to be materially different from the pro-forma results.

Note 13: Restructuring

The Company incurred $0.5 million of expenses during the second quarter of 2005 (included as "Restructuring expense" on the income statement) related to its Global Manufacturing Realignment Program. The costs in the second quarter were primarily equipment transfers, travel, and severance related to the consolidation of the Company's Motta di Livenza, Italy factory into other European factories and to the ramp-up of production at the Linares, Mexico four inch motor manufacturing plant.

The components and use of the restructuring reserve is summarized below:

(In millions)
	Severance
	Benefits:			Other:
Balance January 1, 2005	$	0.3		$	0.0
Restructuring Expense		0.1			0.6
Costs Incurred		(0.3	)		(0.6	)
Balance July 2, 2005	$	0.1		$	0.0

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Overview

Sales and earnings for the second quarter of 2005 were up from the same quarter of 2004. The increase in sales is primarily attributable to the impact of customer discount program changes, price increases and the pump acquisition in the fourth quarter of 2004. Earnings improved in the second quarter of 2005 primarily due to the increased sales. Increased earnings were partially offset by increased commodity prices and expenses associated with the Company’s two major strategic initiatives: the Water Systems Distribution Channel Strategy designed to sell certain water systems products direct to distributors (including pump products) and the Global Manufacturing Realignment Program designed primarily to move manufacturing operations to low cost countries. Certain expenses incurred as a result of the Realignment Program are identified quarterly during the implementation period and reflected as “Restructuring expense” in our income statement. Included in the results for the second quarter of 2005 and 2004 are restructuring expenses of $0.5 and $1.4 million pre-tax, respectively.

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Results of Operations

Net sales for the second quarter of 2005 were $123.5 million, an increase of $17.4 million or 16 percent from the 2004 second quarter net sales of $106.1 million. Foreign currencies, particularly the euro and the Rand, strengthened relative to the U.S. dollar compared to the second quarter of 2004. The impact of the changes in exchange rates was a $1.1 million increase in the Company’s reported second quarter 2005 sales. Excluding the impact of changes in foreign currencies, net sales increased $16.3 million or 15 percent. The impact of previously announced price increases and changes in the customer discount programs which were necessary due to significant increased costs for certain commodities used in the manufacture of the electric motors, primarily steel and copper, resulted in a sales increase of approximately 9 percent for the second quarter of 2005. Unit sales of submersible motor products were generally flat worldwide with North America benefiting from improving weather conditions and product promotions. As a result of our Channel Strategy, we decreased sales to two major pump OEMs from about 40 percent of worldwide sales for full year 2004 to about 25 percent of worldwide sales for the first half of 2005. Sales of pumps related to the acquisition of certain assets of JBD, Inc. resulted in a year over year increase of about 5 percent for the second quarter of 2005. Fueling systems product sales were comparable to the second quarter of 2004. For the first half of 2005, sales were $206.0 million, an increase of $19.6 million or 11 percent compared to 2004 sales of $186.4 million for the same period. The sales increase for the first half of 2005 was partially attributable to foreign currency changes which accounted for $2.5 million due primarily to the stronger euro and Rand. Excluding the impact of the change in exchange rates, the Company’s first half sales were up about 9 percent, again, primarily due to pricing changes and acquisition related sales and reduced by lower fueling system product sales in the first quarter.

Cost of sales as a percent of net sales was 66.5 percent and 67.5 percent for the second quarter of 2005 and 2004, respectively. Cost of sales as a percent of net sales continues to decrease primarily as a result of increased sales. The decrease in cost of sales as a percent of net sales during the second quarter of 2005 and 2004 was partially offset by increased costs for certain commodities used in the manufacture of the electric motors, primarily steel and copper. Cost of sales as a percent of net sales year to date was 67.5 percent and 68.8 percent for 2005 and 2004, respectively. Cost of sales as a percent of net sales continues to decrease primarily as a result of the increased sales noted above. The decrease in cost of sales as a percent of net sales during the first half of 2005 was partially offset by increased costs for certain commodities used in the manufacture of the electric motors.

Selling and administrative (“SG&A”) expenses at $20.0 million for the second quarter of 2005 were up $4.0 million or 25 percent from the second quarter of 2004 of $16.0 million. The increase of SG&A expenses in the second quarter of 2005 from the same period for 2004 was due primarily to additional costs related to the acquired pump manufacturer, about $0.8 million, and the Channel Strategy, about $0.8 million. The Company also incurred increased commission costs related to the increased sales for the second quarter of 2005. SG&A expense for the first half of 2005 was $36.2 million compared to $31.0 million for the first half of 2004. The increase of SG&A expense of $5.2 million in the first half of 2005 from the same period for 2004 was primarily due to additional costs related to the acquired pump manufacturer, about $1.7 million and the Channel Strategy, about $1.3 million.

The Company’s previously announced Realignment Program, primarily consists of the ramp up of production at a four inch motor manufacturing plant in Mexico, a new six inch motor manufacturing facility in the Czech Republic and the consolidation of certain manufacturing operations. The Company projected it would incur approximately $10 million of pre-tax restructuring expense as the Program began in the first quarter of 2004 and is expected to be complete in the fourth quarter of 2005. Restructuring expense primarily includes: severance, relocation, and the cost of transferring equipment. These expenses continue to be identified quarterly and are reflected as “Restructuring expense” in our income statement. The Company has incurred approximately $6.2 million of pre-tax expense for the Program to date, including $0.5 million for the second quarter of 2005. The Company expects to incur the remaining costs during the balance of 2005 when the Program will be substantially complete. This Program will result in the transfer of a significant amount of production to lower cost regions of the world as well as a consolidation of certain manufacturing operations.

Interest expense for the second quarter of 2005 was $0.2 million and for the first half was $0.4 million. Both periods for 2005 were higher than the respective prior year periods due to higher interest rates.

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Foreign currency-based transactions resulted in a slight loss for the second quarter 2005 compared to a loss for the second quarter of 2004 of $0.2 million. Foreign currency-based transactional gains and losses are caused primarily by fluctuations of the euro and the Rand relative to the U.S. dollar during the respective periods noted above.

The provision for income taxes for the second quarter of 2005 was $7.4 million and for the first half of 2005 was $10.5 million. The effective tax rate for 2005 is projected at 35.3 percent, about the same as the 2004 full year rate of 35.5 percent. The effective tax rate differs from the United States statutory rate of 35 percent, due to the foreign income exclusion and R&D credits and to the effects of state and foreign income taxes, net of federal tax benefits.

Net income for the second quarter of 2005 was $13.5 million, or $0.59 per diluted share, a 25 percent increase compared to the second quarter of 2004 net income of $10.9 million, or $0.48 per diluted share. First half 2005 net income was $19.4 million, or $0.84 per diluted share, an increase of 21 percent compared to the first half of 2004 net income of $16.0 million, or $.70 per diluted share.

Capital Resources and Liquidity

Operating activities generated approximately $8.9 million of cash during the first half of 2005 compared to cash generated during the first half of 2004 of $12.4 million. The cash generated during the first half of 2005 and 2004 is primarily from earnings and increased accounts payable and other accrued expenses. Uses of operating cash flow during the first half of 2005 and 2004 are primarily related to increases in inventory, about $16.9 million and $12.9 million, respectively. Inventory increased primarily in finished goods as the Company carries higher inventory during the summer months to meet demand and due to the acquisition of the pump company. The Company is further stocking more water systems products in 2005 related to its Channel Strategy change. Cash was also used as accounts receivable increased during the first half of 2005 and 2004, $9.2 million and $8.2 million, respectively, consistent with sales levels for the periods.

The primary sources and uses of cash for investing activities for the first half of 2005 were for the buying and selling of short term investment securities (See notes for further discussion of these securities). The Company also purchased about $5.6 million of primarily manufacturing equipment during the first half of 2005 and purchased certain pump product technology for $1.0 million. The Company intends to expand its pump product offerings through the on-going acquisition of pump technologies and product lines. The Company is further actively searching for potential acquisitions of Fueling system related products and businesses on an on-going basis. The primary uses of cash for the first half of 2004 were additions to property, plant and equipment of $10.1 million. Additions during the first half of 2004 were primarily related to the building additions and equipment included in the Realignment Program.

Net cash consumed in financing activities during the first half of 2005 and 2004 was $11.8 million and $3.5 million, respectively. The principal uses of cash during 2005 and 2004 were for purchases of Company common stock under the Company’s repurchase program and the payment of dividends. The principal source of cash from financing activities during 2005 and 2004 was from the issuance of common stock related to the exercise of stock options.

Cash and equivalents at the end of the first half of 2005 and 2004 were $25.5 million and $28.8 million, respectively. The Company also had $15.5 million of short term investment securities as of the end of the first half of 2005.

In September 2004, the Company entered into an unsecured, 60 month $80.0 million revolving credit agreement (the “Agreement”). The Agreement includes a facility fee of one-tenth of one percent on the committed amount. As of July 2, 2005, the Company had no outstanding borrowings under the Agreement.

As of July 2, 2005, the Company’s current commitments approximate $5 million.

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Critical Accounting Policies and Estimates

Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, allowance for doubtful accounts, accounts receivable, inventories, recoverability of long-lived assets, intangible assets, income taxes, warranty obligations, pensions and other employee benefit plan obligations, and contingencies. Management bases its estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Certain liabilities have also been adjusted based on the announced change in distribution channels. Actual results may differ from these estimates under different assumptions or conditions.

"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 described in detail in Exhibit 99.1 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2005. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates. Foreign currency exchange rate risk is mitigated through several means: maintenance of local production facilities in the markets served, invoicing of customers in the same currency as the source of the products, prompt settlement of inter-company balances utilizing a global netting system and limited use of foreign currency denominated debt. Interest rate exposure is limited to variable rate interest borrowings under the Company's revolving credit agreement and an interest rate swap.

Item 4. Controls and Procedures

As of the end of the period covered by this report (the "Evaluation Date"), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).Based upon that evaluation, the Company's Chief Executive Officer and the Company's Chief Financial Officer concluded that as of the Evaluation Date, the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company and its subsidiaries required to be included in the Company's periodic SEC filings.

During the second fiscal quarter there have been no changes in the Company's internal control over financial reporting that have materially affected or that are reasonably likely to materially affect the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Repurchases of Equity Securities

					Total Number		Maximum Number
	Total				of Shares		of Shares
	Number		Average		Purchased as		that May Yet be
	Of Shares		Price Paid		Part of Publicly		Purchased Under
	Purchased		per Share		Announced Plan		the Plan
Period
April 3, 2005
May 7, 2005		221,200	$	36.8605		221,200		724,400
May 8, 2005
June 4, 2005		55,000		37.3431		55,000		669,400
June 5, 2005
July 2, 2005		-		-		-		669,400
Total		276,200	$	36.9566		276,200

On February 16, 2001, the Company’s Board of Directors unanimously approved a resolution to repurchase 2,000,000 shares.  The plan was announced in the Company’s 10-Q for the third quarter ending September 29, 2001.  There is no expiration date for the plan.

On February 11, 2005, the Company’s Board of Directors unanimously approved a resolution to increase the number of shares remaining for repurchase from 827,412 to 1,000,000 shares.

Item 6. Exhibits

See the Exhibit Index located on page 16.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned thereunto duly authorized.

		FRANKLIN ELECTRIC CO., INC.
		Registrant
Date July 27, 2005	By	/s/ R. Scott Trumbull
		R. Scott Trumbull, Chairman and Chief Executive Officer (Principal Executive Officer)
Date July 27, 2005	By	/s/ Gregg C. Sengstack
		Gregg C. Sengstack, Senior Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

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FRANKLIN ELECTRIC CO., INC.

EXHIBIT INDEX TO THE QUARTERLY REPORT ON FORM 10-Q

FOR THE SECOND QUARTER ENDED JULY 2, 2005

Number	Description
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, R. Scott Trumbull, Chairman and Chief Executive Officer of Franklin Electric Co., Inc., certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of Franklin Electric Co., Inc., for the second quarter ending July 2, 2005;

2.   Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

3.   Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of end of the period covered by this Quarterly Report based on such evaluation; and

d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors or persons performing similar functions:

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	July 27, 2005
	/s/ R. Scott Trumbull
	R. Scott Trumbull
	Chairman and Chief Executive Officer
	Franklin Electric Co., Inc.

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EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gregg C. Sengstack, Senior Vice President, Chief Financial Officer and Secretary of Franklin Electric Co., Inc., certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of Franklin Electric Co., Inc., for the second quarter ending July 2, 2005;

2.   Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly Report;

3.   Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of end of the period covered by this Quarterly Report based on such evaluation; and

d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors or persons performing similar functions:

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	July 27, 2005
	/s/ Gregg C. Sengstack
	Gregg C. Sengstack
	Senior Vice President, Chief Financial Officer and Secretary
	Franklin Electric Co., Inc.

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EX-32.1

EXHIBIT 32.1

CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Franklin Electric Co., Inc. (the “Company”) on Form 10-Q for the second quarter ending July 2, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Scott Trumbull, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	July 27, 2005
	/s/ R. Scott Trumbull
	R. Scott Trumbull
	Chairman and Chief Executive Officer
	Franklin Electric Co., Inc.

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EX-32.2

EXHIBIT 32.2

CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Franklin Electric Co., Inc. (the “Company”) on Form 10-Q for the second quarter ending July 2, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregg C. Sengstack, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	July 27, 2005
	/s/ Gregg C. Sengstack-
	Gregg C. Sengstack
	Senior Vice President, Chief Financial Officer and Secretary
	Franklin Electric Co., Inc.

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