FRANKLIN ELECTRIC CO INC, 10-K, 1999-03-02

FRANKLIN ELECTRIC CO INC
10-K, 1999-03-02
MOTORS & GENERATORS

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
--------------

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JANUARY 2, 1999

[ ] 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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

400 EAST SPRING STREET 46714-3798
BLUFFTON, INDIANA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(219) 824-2900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE NONE
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
(TITLE OF EACH CLASS)

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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES X NO
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant at February 26, 1999 was $291,831,954. The stock price used in the
computation was the closing price on that date.

Number of shares of common stock outstanding at February 26, 1999:

5,577,620 shares

Page 1 of 43

<PAGE> 2

DOCUMENTS INCORPORATED BY REFERENCE

A portion of the Proxy Statement for the Annual Meeting of Shareholders to be
held on April 16, 1999 (Part III).

The exhibits filed with this Form 10-K are listed in the exhibit index located
on pages 37-38.

<PAGE> 3
TABLE OF CONTENTS

Page
Part I

Item 1. Business........................................ 4-5
Item 2. Properties...................................... 6
Item 3. Legal Proceedings............................... 6
Item 4. Submission of Matters to a Vote of
Security Holders................................ 6

Part II

Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................. 7
Item 6. Selected Financial Data......................... 8
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations...................................... 9-12
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk .................................... 12
Item 8. Financial Statements and Supplementary Data..... 13-32
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 33

Part III

Item 10. Directors and Executive Officers
of the Registrant............................... 33
Item 11. Executive Compensation.......................... 33
Item 12. Security Ownership of Certain
Beneficial Owners and Management................ 33
Item 13. Certain Relationships and Related
Transactions.................................... 33

Part IV

Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K......................... 34-35

Signatures ................................................ 36

Exhibit Index ................................................ 37-38

<PAGE> 4
PART I
------

ITEM 1. BUSINESS
- -----------------

Franklin Electric Co., Inc. is an Indiana corporation founded in 1944 and
incorporated in 1946, and together with its subsidiaries (hereinafter referred
to as the "Company" unless the context requires otherwise), engages in the
design, manufacture and distribution of electric motors, electronic motor
controls and related equipment.

Description of Business
- -----------------------

The Company's products are sold principally by a single company sales force in
the United States, Canada, Europe, Australia, South Africa, Mexico and other
world markets.

The market for electric motors is highly competitive and includes both large
and small suppliers. The Company's motor sales are primarily to original
equipment manufacturers of pumps, petroleum pumping equipment, compressors,
fans, heating and air conditioning equipment, swimming pool equipment, medical
furniture and business machines. Motors are also sold in the replacement
market through independent distributors and repair shops.

ITT Industries, Inc., a customer of the Company, accounted for 14.0 percent,
12.4 percent and 12.5 percent of the Company's consolidated sales in 1998,
1997, and 1996, respectively.

The Company offers normal and customary trade terms to its customers, no
significant part of which is of an extended nature. Special inventory
requirements are not necessary, and customer merchandise return rights do not
extend beyond normal warranty provisions.

The principal raw materials used in the manufacture of the Company's products
are steel in coils and bars, copper wire, and aluminum ingot. Major
components are capacitors, motor protectors, forgings, gray iron castings and
bearings. Most materials are available from many sources in the United States
and in many world markets. In the opinion of management, no single source of
supply is critical to the Company's business. Availability of fuel and energy
is adequate to satisfy current and projected overall operations unless
interrupted by government direction or allocation.

During 1998, the Company purchased certain operating and intangible assets
from a motor manufacturer. The Company paid $17.5 million in cash at the
acquisition date, and may pay additional contingent consideration according to
terms that expire on December 31, 2001. The amount, if any, of this contingent
consideration is not currently determinable.

The Company employed 2,321 persons at the end of 1998.

Segment and Geographic Information
- ----------------------------------

Segment and geographic information is included within this Form 10-K at page
29-30.

<PAGE> 5

Research and Development
- ------------------------

The Company spent approximately $4.7 million in 1998, $5.1 million in 1997 and
$4.8 million in 1996 on activities related to the development of new products,
on improvements of existing products, manufacturing methods, and on other
applied research and development. Included in 1997 and 1996 is $0.6 million,
each, related to research and development activities for Oil Dynamics, Inc., a
previously wholly owned subsidiary which was sold in 1997.

In 1998, development continued on a line of submersible severe duty motors, on
further expansion into the European motor market, and on applications for an
integrated suction pump. Research continued on new materials and processes
designed to achieve higher quality and more cost effective construction of the
Company's high volume products.

The Company owns a number of patents. In aggregate, these patents are of
material importance in the operation of the business; however, the Company
believes that its operations are not dependent on any single patent or group
of patents.

Backlog
- -------

The dollar amount of backlog at the end of 1998 and 1997 was as follows:

(In thousands)
Fiscal Year Ending
------------------
1998 1997
---- ----

Backlog....................... $12,097 $17,477

The backlog is composed of written orders at prices adjustable on a price-at-
the-time-of-shipment basis for products, some of which are specifically
designed for the customer, but most of which are standard catalog items. Both
add-ons and cancellations of catalog items are made without charge to the
customer, but charges are generally made on any cancellation of a specifically
designed product. All backlog orders are expected to be filled in fiscal
1999.

The Company's sales and earnings are not substantially seasonal in nature.
There is no seasonal pattern to the backlog and the backlog has not proven to
be a significant indicator of future sales.

Environmental Matters
- ---------------------

Compliance with federal, state and local provisions regulating the discharge
of material into the environment, or otherwise relating to the protection of
the environment, is not expected to have any material adverse effect upon the
financial position, capital expenditures, earnings or competitive position of
the Company. Refer to Item 3 of this Form 10-K for additional information
regarding legal proceedings related to environmental matters.

<PAGE> 6

ITEM 2. PROPERTIES
- -------------------

The Company maintains its principal executive offices in Bluffton, Indiana;
manufacturing plants are located in the United States and abroad. Location
and approximate square footage for the Company's principal facilities are
described below. All principal properties are owned or held under operating
leases.

The Company's principal properties are as follows:

Acres Approximate
Location of Land Square Feet
-------- ------- -----------
Bluffton, Indiana 35.8 405,660
Siloam Springs, Arkansas 32.6 240,400
Wilburton, Oklahoma 30.0 324,940
Jonesboro, Indiana (1) - 34,720
Gas City, Indiana 9.5 24,000
Wittlich, Rhineland, Germany 6.9 76,516
Nine facilities with less
than 30,000 square feet each (2) 1.7 119,005
----- ---------

Total 116.5 1,225,241
===== =========

In the Company's opinion, its facilities are suitable for their intended use
and are in good condition.

(1) Leased facility, which expires on April 30, 2001.

(2) Eight of the facilities are leased with approximately 95,000
square feet.

ITEM 3. LEGAL PROCEEDINGS
- --------------------------

The Company is defending various claims and legal actions, including
environmental matters, which have arisen in the ordinary course of
business. The Company has attempted, where possible, to assess the
likelihood of an unfavorable outcome to the Company as a result of these
actions. Legal counsel has been retained to assist the Company in making
these determinations, and costs are accrued when an unfavorable outcome is
determined to be probable and a reasonable estimate can be made. As a result,
the Company has an accrual balance of approximately $1.3 million and $1.4
million at January 2, 1999 and January 3, 1998, respectively, to provide for
such actions.

Included in such matters, the Company has been designated, in conjunction with
other parties, as a "potentially responsible party" (PRP) under the
Comprehensive Environmental Response Compensation and Liability Act with
respect to a reclamation and recycling site located in Columbia City, Indiana.
Under consent decree, the Company has paid approximately $153,000 through
January 2, 1999 toward the cost of remediation. Future remediation costs are
estimated at less than $5.0 million over the next four to fourteen years, for
which the Company's share is estimated to be less than $35,000.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------

None

<PAGE> 7

EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------

The names, ages and all positions and offices held by the executive officers
of the Company are:

In this
Name Age Positions and Offices office since
---- --- --------------------- ------------

William H. Lawson 62 Chairman of the Board and 1985
Chief Executive Officer
John B. Lindsay 56 President 1995
Jess B. Ford 47 Senior Vice President and
Chief Financial Officer 1995
William J. Foreman 62 Vice President 1995
Kirk M. Nevins 55 Vice President, Sales 1995
Donald R. Hobbs 57 Vice President, Submersible 1996
Motor Marketing
Thomas A. Miller 49 Vice President, Submersible 1998
Motor Engineering

Each officer is elected for a term of one year or until his successor is
elected and qualified at the meeting of the Board of Directors following the
Annual Meeting of Shareholders.

With the exception of Mr. Ford, each executive officer was employed by the
Company during the preceding five years as an officer or in a management
position. Prior to joining the Company in October 1995, Mr. Ford was employed
by Tokheim Corporation (a manufacturer of petroleum dispensing marketing
systems) from 1992 until 1995 as Vice President-Finance, Secretary and Chief
Financial Officer.

PART II
-------

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------

The number of shareowners of record as of February 26, 1999 was 1,195. The
Company's stock is traded on NASDAQ National Market: Symbol FELE.

Dividends paid and the price range per common share as quoted in The Wall
Street Journal for 1998 and 1997 were as follows:

DIVIDENDS PER SHARE PRICE PER SHARE
1998 1997 1998 1997
---- ---- ---- ----
Low High Low High
--- ---- --- ----
1st Quarter... $.15 $.12 $57 3/4 $72 1/2 $42 3/4 $49 1/2
2nd Quarter... $.17 $.15 $63 $72 1/2 $41 1/4 $49 3/8
3rd Quarter... $.17 $.15 $60 3/4 $67 3/4 $47 1/2 $61 1/2
4th Quarter... $.17 $.15 $40 $68 1/4 $55 9/16 $64 1/4

<PAGE> 8

ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------

<TABLE>
<CAPTION>
FIVE YEAR FINANCIAL SUMMARY
- --------------------------------------------------------------------------------------------
FRANKLIN ELECTRIC CO., INC.
(In thousands, except per share amounts)
1998 1997 1996 1995 1994
<F1> <F2>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net sales............................. $272,533 $303,298 $300,689 $276,440 $241,440
Gross profit.......................... 79,955 85,533 79,214 65,471 63,134
Gain on sale of subsidiary............ - 3,500 - - -
Interest expense...................... 1,364 1,435 1,308 2,128 2,172
Income taxes ......................... 15,237 15,004 11,827 8,777 11,504
Net income............................ 24,784 25,505 21,510 15,502 18,709
Net income available to common shares. 24,784 25,505 21,510 15,502 18,556
Depreciation and amortization......... 7,532 7,628 8,389 8,890 6,961
Capital expenditures.................. 24,601 8,598 6,235 6,111 7,612
Balance sheet:
Working capital....................... 61,878 87,973 89,471 69,267 51,005
Property, plant and equipment, net.... 51,461 32,357 40,097 41,670 41,896
Total assets.......................... 167,590 163,110 172,959 153,357 151,581
Long-term debt........................ 18,089 19,163 20,276 20,171 20,000
Shareowners' equity................... $ 91,597 $ 92,841 $ 99,823 $ 80,557 $ 64,865
Other data:
% Net income to sales................. 9.1% 8.4% 7.2% 5.6% 7.8%
% Net income to total average assets.. 15.0% 15.2% 13.2% 10.2% 13.6%
Current ratio......................... 2.4 3.2 3.2 2.7 1.9
Per share:
Market price range
High.................................. $ 72.50 $ 64.25 $ 45.25 $ 34.50 $ 36.50
Low................................... 40.00 41.25 30.75 28.25 24.50
Net income per weighted average
common share........................ 4.32 4.33 3.43 2.51 3.02
Net income per weighted average
common share, assuming dilution..... 4.02 4.01 3.22 2.35 2.84
Book value............................ 14.84 14.58 14.95 12.21 9.92
Cash dividends on common stock........ $ 0.66 $ 0.57 $ 0.46 $ 0.38 $ 0.29
- --------------------------------------------------------------------------------------------

<FN>
<F1> Includes ten months of the results of operations of Oil Dynamics, Inc.
until its sale on October 24, 1997.
<F2> Includes only one month of results of operations of Oil Dynamics, Inc.,
but total assets and liabilities of Oil Dynamics, Inc. at
December 31, 1994. If the effect of including Oil Dynamics, Inc. on a
fully consolidated basis beginning November 29, 1994 was excluded, net
income as a percent of total average assets would have been 15.8 percent
and the current ratio would have been 2.3. Previously, the Company
maintained an investment in affiliate account approximately equal to 50
percent of the net assets of Oil Dynamics, Inc.
</FN>
Certain prior year amounts have been reclassified to conform to the current
year presentation.
</TABLE>

<PAGE> 9

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------

RESULTS OF OPERATIONS
- ---------------------
Net sales for 1998 were $272.5 million, a 10.2 percent decrease from 1997 net
sales of $303.3 million. Prior year net sales included the sales of Oil
Dynamics, Inc. (ODI), a previously wholly-owned subsidiary that was sold in
October 1997. Net sales in 1998 compared to 1997, excluding ODI, increased 1.4
percent. Net sales for the Company's ongoing operations increased due to
higher volume in submersible water systems motors and changes in the mix of
products sold, offset in part by the effects of the strengthening U.S. dollar
relative to the German mark and South African rand. In 1996 net sales were
$300.7 million. The increase in 1997 net sales over 1996 was due to increased
sales volume in the submersible water systems and the gasoline systems product
lines. This increase was partially offset by the effect of having only ten
months of ODI net sales in 1997. The strengthening of the U.S. dollar relative
to the German mark and South African rand also resulted in lower translated
dollar sales for 1997.

Net income for 1998 was $24.8 million, or $4.02 per diluted share, compared to
1997 net income of $25.5 million, or $4.01 per diluted share. Net income for
1997 includes the after-tax gain on the sale of ODI of $2.3 million or $.36
per diluted share. Net income in 1998 compared to 1997, excluding the gain on
the sale of ODI, was up 6.9 percent. Excluding the gain on the sale of ODI,
1997 net income was $23.2 million, up 8.0 percent over the prior year. Net
income for 1996 was $21.5 million, or $3.22 per diluted share.

Cost of sales as a percent of net sales for 1998, 1997 and 1996 was 70.7
percent, 71.8 percent and 73.7 percent, respectively. Prior year cost of sales
included ODI. The improvements in 1998 were primarily the result of selling
ODI and productivity improvements. The improvement in 1997 was primarily due
to lower manufacturing costs.

Selling and administrative expenses as a percent of net sales for 1998, 1997
and 1996 was 15.4 percent, 16.2 percent and 15.3 percent, respectively. The
improvement in 1998 was primarily the result of selling ODI and lower medical
costs. The increase in 1997 was primarily a result of higher employee medical
costs and employee compensation.

The before tax gain on sale of subsidiary of $3.5 million resulted from the
sale of ODI on October 24, 1997. All shares of ODI's common stock were sold
to an unrelated entity for $34.4 million.

Included in other income, net for 1998, 1997 and 1996 was interest income of
$3.6 million, $2.4 million, and $2.1 million, respectively, primarily derived
from the investment of cash balances in short-term U.S. treasury bills.
Interest expense for 1998, 1997 and 1996 was $1.4 million, $1.4 million, and
$1.3 million, respectively. Foreign currency based transactions produced a
$0.1 million loss in 1998, a $1.0 million loss in 1997, and a $0.3 million
loss in 1996. The foreign currency transaction loss in 1998 was primarily due
to the movement of the U.S. dollar relative to the Mexican peso. The foreign
currency transaction loss in 1997 was primarily due to the impact of the
strengthening dollar on intercompany transactions denominated in German marks
and South African rands. The foreign currency transaction loss in 1996 was

<PAGE> 10

primarily due to the weakening in the South African rand and German mark
relative to the U.S. dollar. This loss was partially offset by the
strengthening of the Italian lira relative to the German mark.

The provision for income taxes in 1998, 1997 and 1996 was $15.2 million, $15.0
million, and $11.8 million, respectively. The effective tax rate for each
year differs from the United States statutory rate of 35 percent
principally due to the effects of state and foreign income taxes, net of
federal tax benefits.

Inflation has not had a significant effect on the Company's operations or
financial condition.

CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Cash flows from operations provide the principal source of current liquidity.
Net cash flows provided by operating activities were $31.0 million, $22.0
million, and $30.9 million in 1998, 1997 and 1996, respectively. The increase
in 1998 was primarily related to increases in accounts payable and accrued
employee benefit plan obligations. The decrease in 1997 was primarily related
to increases in receivables and inventories at ODI from the beginning of the
year to the date of the sale of ODI.

Net cash flows used in investing activities were $11.4 million in 1998, versus
net cash flows provided by investing activities of $9.6 million in 1997. Net
cash flows used in investing activities were $38.0 million in 1996. The
primary uses of cash in 1998 related to the purchase of certain operating and
intangible assets from a motor manufacturer for $17.5 million and additions to
plant and equipment. The increase in 1997 over 1996 was primarily due to $34.4
million of proceeds from the sale of ODI offset in part by an increase in
purchases of marketable securities and an increase in additions to plant and
equipment.

Net cash flows used in financing activities were $26.1 million, $31.8 million,
and $2.5 million in 1998, 1997 and 1996, respectively. During 1998, the
Company repurchased 406,000 shares of its common stock for $26.0 million.
Also during 1998, the Company paid $3.8 million in dividends on the Company's
common stock. During 1997, the Company repurchased 615,000 shares of its
common stock for $30.6 million. Also during 1997, the Company paid $3.4
million in dividends on the Company's common stock. The primary use of cash
for financing activities in 1996 was for the payment of dividends on the
Company's common stock.

Cash, cash equivalents and marketable securities at the end of 1998 were $45.0
million compared to $71.7 million at the end of 1997. Working capital
decreased $26.1 million in 1998 and the current ratio of the Company was 2.4
and 3.2 at the end of 1998 and 1997, respectively.

Principal payments on the Company's $20.0 million of unsecured long-term debt
began in 1998 and will continue until 2008 when a balloon payment of $10.0
million will fully retire the debt. In January 1996, the Company entered into
an unsecured, five-year $40.0 million revolving credit agreement (the
"Agreement"). The Agreement, which was amended and restated on December 30,
1997 and extended for one year to 2002, provides for various borrowing rate
options and includes a facility fee on the committed amount. Both of the
Company's loan agreements contain certain financial covenants with respect to
borrowings, fixed charge coverage, working capital, loans or advances, and
investments. The Company was in compliance with all debt covenants in 1998 and
1997.

<PAGE> 11

At January 2, 1999, the Company had $2.7 million of commitments for the
purchase of machinery and equipment.

During 1999, the Company intends to continue to seek acquisition candidates
that are both compatible with and can leverage growth off of existing
businesses.

Management believes that internally generated funds and existing credit
arrangements provide sufficient liquidity to meet current and future
commitments.

OTHER
- -----

Year 2000 Readiness
- -------------------
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems may
not correctly recognize the year 2000 which could cause computer applications
to fail or to create erroneous results. The Company recognizes this as a
potential risk and has implemented a plan to address the Year 2000 issue.

THE COMPANY'S STATE OF READINESS -- In 1995, the Company began a project of
implementing a new, company-wide information system. This project was
initiated to replace existing computer software and hardware and to improve
strategic command and control to reduce the response time needed to meet
changing market conditions. The conversion to this new information system was
completed in 1998, which was on schedule with the original plan. The Company
has obtained verification from the developer that the new information system
is Year 2000 compliant.

The Company has instituted an internally managed Year 2000 Plan to identify,
test and correct potential Year 2000 problems, including non-information
technology systems and impacts from external parties including suppliers,
customers, and service providers. The Company's efforts have included
obtaining vendor certifications, direct inquiry with outside parties, and the
performance of internal testing on software products and controls.

THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES -- The costs incurred by
the Company related to the Year 2000 issue were the time spent by employees to
address this issue and the costs of replacing certain non-Year 2000 compliant
equipment. The total Year 2000 costs have not been and are not expected to be
material to the Company's financial position or results of operations.

THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES -- The primary risk to the Company
with respect to the Year 2000 issue is the inability of external parties to
provide goods and services in a timely, accurate manner, resulting in
production delays and added costs while pursuing alternative sources. While
there can be no guarantee that the systems of other parties on which the
Company's operations rely will be Year 2000 compliant, the Company believes
that the performance of the Year 2000 plan and the development of contingency
plans will ensure that this risk will not have a material adverse impact to
the Company.

THE COMPANY'S CONTINGENCY PLANS -- The Company has completed contingency plans
that address recovery of its critical information systems. Ongoing updates to
these plans will continue throughout 1999, and will consider the Company's
ability to perform certain processes manually, repair or obtain replacement

<PAGE> 12

systems, change suppliers and/or service providers, and work around affected
operations.

ITEM 7A. 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 intercompany balances
utilizing a global netting system and limited use of foreign currency
denominated debt. The Company does not use derivative contracts. Interest
rate exposure is principally limited to the $27.9 million of marketable U.S.
treasury and agency securities owned by the Company at January 2, 1999 and is
mitigated by the short-term, generally less than 6 months, nature of these
investments.

"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, supply constraints, technology
factors, government and regulatory actions, the Company's accounting policies,
future trends, and other risks which are detailed in Exhibit 99 of this Form
10-K. These risks and uncertainties may cause actual results to differ
materially from those indicated by the forward looking statements.

<PAGE> 13

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------

CONSOLIDATED STATEMENTS OF INCOME

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- -------------------------------------------------------------------------
1998 1997 1996
(In thousands, except per share amounts)
- -------------------------------------------------------------------------

Net sales............................. $272,533 $303,298 $300,689
Cost of sales (including research
and development expenses of $4,700,
$5,058 and $4,846, respectively).... 192,578 217,765 221,475
-------- -------- --------

Gross profit.......................... 79,955 85,533 79,214

Selling and administrative expenses... 42,027 49,194 45,915
-------- -------- --------

Operating income...................... 37,928 36,339 33,299

Interest expense...................... (1,364) (1,435) (1,308)
Gain on sale of subsidiary (Note 2)... - 3,500 -
Other income, net..................... 3,572 3,137 1,598
Foreign exchange loss................. (115) (1,032) (252)
-------- -------- -------

Income before income taxes............ 40,021 40,509 33,337

Income taxes (Note 5)................. 15,237 15,004 11,827
-------- -------- --------

Net income............................ $ 24,784 $ 25,505 $ 21,510
======== ======== ========

Per share data (Note 8):

Net income per common share......... $ 4.32 $ 4.33 $ 3.43
======== ======== ========

Net income per common share,
assuming dilution................. $ 4.02 $ 4.01 $ 3.22
======== ======== ========

Dividends per common share.......... $ .66 $ .57 $ .46
======== ======== ========

See Notes to Consolidated Financial Statements.

<PAGE> 14

CONSOLIDATED BALANCE SHEETS

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------------------------------
ASSETS
(In thousands) 1998 1997
- --------------------------------------------------------------------------

Current assets:
Cash and equivalents........................ $17,034 $ 23,191
Marketable securities....................... 27,921 48,497
Receivables (less allowances of $1,107
and $1,349, respectively)................. 16,037 16,978
Inventories:
Raw materials............................. 12,080 11,119
Work-in-process........................... 5,281 5,157
Finished goods............................ 27,439 24,911
LIFO reserve.............................. (9,470) (9,928)
-------- --------
35,330 31,259
Other current assets (including deferred
income taxes of $8,774 and $7,490,
respectively, Note 5)..................... 9,961 8,575
-------- --------
Total current assets.................... 106,283 128,500

Property, plant and equipment, at cost:
Land and buildings.......................... 21,889 20,329
Machinery and equipment..................... 104,317 81,823
-------- --------
126,206 102,152
Less allowance for depreciation........... 74,745 69,795
-------- --------
51,461 32,357
Deferred and other assets (including deferred
income taxes of $1,362 and $1,001,
respectively, Note 5)...................... 9,846 2,253
-------- --------

Total Assets.................................. $167,590 $163,110
======== ========

See Notes to Consolidated Financial Statements.

<PAGE> 15

- --------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
(In thousands) 1998 1997
- --------------------------------------------------------------------------

Current liabilities:
Current maturities of long-term debt and
short-term borrowings (Note 6)............ $ 3,716 $ 1,196
Accounts payable............................ 13,556 10,472
Accrued expenses (Note 4)................... 24,539 24,346
Income taxes (Note 5)....................... 2,594 4,513
-------- --------
Total current liabilities................. 44,405 40,527

Long-term debt (Note 6)....................... 18,089 19,163

Employee benefit plan obligations (Note 3).... 10,167 7,237

Other long-term liabilities................... 3,332 3,342

Shareowners' equity (Note 7):
Common shares outstanding
5,574 and 5,847, respectively............. 557 585
Additional capital.......................... 14,105 10,295
Retained earnings........................... 81,872 87,508
Stock subscriptions......................... - (625)
Loan to ESOP Trust (Note 3)................. (2,059) (2,292)
Accumulated other comprehensive loss........ (2,878) (2,630)
-------- --------
Total shareowners' equity................ 91,597 92,841
-------- --------

Total Liabilities and Shareowners' Equity..... $167,590 $163,110
======== ========

See Notes to Consolidated Financial Statements.

<PAGE> 16

CONSOLIDATED STATEMENTS OF CASH FLOWS

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- -----------------------------------------------------------------------------
1998 1997 1996
(In thousands)
- -----------------------------------------------------------------------------

Cash flows from operating activities:
Net income................................. $24,784 $25,505 $21,510
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization............ 7,532 7,628 8,389
Gain on sale of subsidiary (Note 2)...... - (3,500) -
Deferred income taxes.................... (1,645) (919) (56)
(Gain)/Loss on disposals of plant
and equipment.......................... (41) 273 (20)
Changes in assets and liabilities:
Receivables............................ 753 (2,290) (3,018)
Inventories............................ (4,142) (3,069) 2,164
Other assets........................... (25) (1,882) (360)
Accounts payable and other
accrued expenses..................... 1,371 11 3,638
Employee benefit plan obligations...... 2,176 1,093 (567)
Other long-term liabilities............ 247 (846) (807)
------- ------- -------
Net cash flows from operating activities..... 31,010 22,004 30,873
------- ------- -------

Cash flows from investing activities:
Additions to plant and equipment........... (24,601) (8,598) (6,235)
Proceeds from sale of plant and equipment.. 61 1,163 257
Proceeds from sale of subsidiary (Note 2).. - 34,402 -
Transferred cash of subsidiary............. - (535) -
Additions to deferred assets............... (7,395) - (445)
Purchases of marketable securities......... (48,608) (64,521) (52,866)
Proceeds from maturities of marketable
securities............................... 69,184 47,648 21,242
------- ------- -------
Net cash flows from investing activities..... (11,359) 9,559 (38,047)
------- ------- -------

Cash flows from financing activities:
Borrowing on long-term debt................ - - 199
Repayment of long-term debt (Note 6)....... (1,079) (79) (97)
Borrowing on line of credit................ 2,678 186 -
Repayment of line of credit................ (271) - (393)
Proceeds from issuance of common stock..... 1,778 1,781 811
Purchases of common stock (Note 7)......... (25,995) (30,649) -
Proceeds from stock subscriptions.......... 352 100 25
Loan to ESOP Trust......................... - - (324)
Reduction of loan to ESOP Trust............ 233 232 200
Dividends paid............................. (3,811) (3,371) (2,912)
------- ------- -------
Net cash flows from financing activities..... (26,115) (31,800) (2,491)
------- ------- -------

Effect of exchange rate changes on cash...... 307 460 556
------- ------- -------

Net change in cash and equivalents........... (6,157) 223 (9,109)
Cash and equivalents at beginning of year.... 23,191 22,968 32,077
------- ------- -------

Cash and equivalents at end of year.......... $17,034 $23,191 $22,968
======= ======= =======

<PAGE> 17

Cash paid during 1998, 1997, and 1996 for interest was $1.4 million, $1.4
million and $1.3 million, respectively. Also, cash paid during 1998, 1997 and
1996 for income taxes was $18.8 million, $15.2 million and $9.3 million,
respectively.

See Notes to Consolidated Financial Statements.

<PAGE> 18

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts)
Accumulated
Common Loan to Other
Shares Common Additional Retained Stock ESOP Comprehensive Comprehensive
Outstanding Stock Capital Earnings Subscrip. Trust Income (Loss) Income
----------- ----- ------- -------- -------- ----- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance year end 1995.............. 6,254,002 $626 $ 5,683 $77,363 $(1,315) $(2,400) $ 600
Net income......................... 21,510 $21,510
Currency translation adjustment... (1,225) (1,225)
Pension liability adjustment...... (243) (243)
-------
Comprehensive income, net of tax. $20,042
=======
Dividends on common stock.......... (2,912)
Common stock issued................ 117,027 12 1,470
Proceeds from stock subscriptions.. 25
Stock subscription amortization
and adjustment................... 460 293
Loan payment from ESOP............. 200
Loan to ESOP Trust................. (324)
--------- ---- ------- ------- ------- ------- -------
Balance year end 1996.............. 6,371,029 $638 $ 7,613 $95,961 $ (997) $(2,524) $ (868)
--------- ---- ------- ------- ------- ------- -------
Net income......................... 25,505 $25,505
Currency translation adjustment... (1,769) (1,769)
Pension liability adjustment...... 7 7
-------
Comprehensive income, net of tax. $23,743
=======
Dividends on common stock.......... (3,371)
Common stock issued................ 91,404 9 1,772
Common stock repurchased........... (615,600) (62) (30,587)
Proceeds from stock subscriptions.. 100
Stock subscription amortization
and adjustment................... 910 272
Loan payment from ESOP............. 232
--------- ---- ------- ------- ------- ------- -------
Balance year end 1997.............. 5,846,833 $585 $10,295 $87,508 $ (625) $(2,292) $(2,630)
--------- ---- ------- ------- ------- ------- -------

Net income......................... 24,784 $24,784
Currency translation adjustment... 180 180
Pension liability adjustment...... (428) (428)
-------
Comprehensive income, net of tax. $24,536
=======
Dividends on common stock.......... (3,811)
Common stock issued................ 142,746 14 2,420
Common stock repurchased........... (415,859) (42) (26,609)
Proceeds from stock subscriptions.. 352
Stock subscription amortization
and adjustment................... 1,390 273
Loan payment from ESOP............. 233
--------- ---- ------- ------- ------- ------- -------
Balance year end 1998.............. 5,573,720 $557 $14,105 $81,872 $ - $(2,059) $(2,878)
========= ==== ======= ======= ======= ======= =======

See Notes to Consolidated Financial Statements.
</TABLE>

<PAGE> 19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ----------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR--The Company's fiscal year ends on the Saturday nearest December
31. The financial statements and accompanying notes are as of and for the
years ended January 2, 1999 (52 weeks), January 3, 1998 (53 weeks) and
December 28, 1996 (52 weeks) and are referred to as 1998, 1997 and 1996,
respectively.

PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of the Company and its subsidiaries.

REVENUE RECOGNITION--Sales are recognized when the Company's products are
shipped.

CASH EQUIVALENTS--Cash equivalents consist of highly liquid investments which
are readily convertible to cash, present insignificant risk of changes in
value due to interest rate fluctuations and generally have original or
purchased maturities of three months or less.

MARKETABLE SECURITIES--Marketable securities consist of short-term U.S.
Treasury Bills with maturities of greater than 3 months at the date of
purchase. All securities are categorized as held-to-maturity and are stated
at amortized cost. Due to the nature of these securities, the difference
between the amortized cost and fair value is immaterial.

FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts for cash and
equivalents, long-term debt and short-term debt approximate fair value. The
fair value of long-term debt is estimated based on current borrowing rates for
similar issues. The Company's off-balance sheet instruments are not
significant.

INVENTORIES--Inventories are stated at the lower of cost or market. The
majority of the cost of domestic inventories is determined using the last-in,
first-out (LIFO) method; all remaining inventory costs are determined using
the first-in, first-out (FIFO) method. Inventories stated on the LIFO method
approximated 55 percent and 56 percent of total inventories in 1998 and 1997,
respectively. In 1998, due to the liquidation of LIFO inventories, net income
increased by $0.3 million.

PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Depreciation of plant and equipment is provided principally on a
straight line basis over the estimated useful lives of 5 to 50 years for land
improvements and buildings, 2 to 10 years for machinery, equipment, furniture,
and fixtures and 3 to 5 years for automobiles and trucks. Accelerated methods
are used for income tax purposes. The Company reviews its property and
equipment for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable.

STOCK-BASED COMPENSATION--Management of the Company has elected to adopt the
disclosure-only provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation". Employee stock-
based compensation will continue to be accounted for under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".

<PAGE> 20

Accordingly, no compensation expense is recognized in the financial statements
as the exercise price of the Company's stock options equals the market price
of the underlying stock on the dates of the grants.

EARNINGS PER COMMON SHARE--Basic and diluted earnings per share are computed
and disclosed under SFAS No. 128, "Earnings Per Share". Diluted earnings per
share is computed based upon earnings applicable to common shares divided by
the weighted-average number of common shares outstanding during the period
adjusted for the effect of other dilutive securities.

COMPREHENSIVE INCOME--In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income". This statement
establishes standards for reporting and display of comprehensive income and
its components. The Company adopted SFAS No. 130 in the first quarter of 1998
and has elected to display comprehensive income and its components in its
consolidated statements of shareowners' equity.

TRANSLATION OF FOREIGN CURRENCIES--All assets and liabilities of foreign
subsidiaries whose functional currency is other than the U.S. dollar are
translated at year-end exchange rates. All revenue and expense accounts are
translated at average rates in effect during the period.

USE OF ESTIMATES--Management's best estimates of certain amounts are required
in preparation of the consolidated financial statements in accordance with
generally accepted accounting principles, and actual results could differ from
those estimates.

RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform to the current year presentation.

2. SALE OF SUBSIDIARY

On October 24, 1997, the Company sold Oil Dynamics, Inc. (ODI), previously a
wholly-owned subsidiary, to Baker Hughes Incorporated (BHI), an unrelated
entity. The operations of ODI represented substantially all of the Company's
oil well pumping systems product line.

The Company received $34.4 million in cash proceeds from BHI in exchange for
the common stock of ODI. The net assets of ODI at October 24, 1997, were
$27.9 million and the Company incurred $3.0 million in related expenses
resulting in an after tax gain on the sale of $2.3 million. The Company's
1997 results of operations include ODI's ten month net sales of $34.4 million
and net loss of $1.0 million. The Company's 1996 results of operations
include ODI's net sales of $35.9 million and a net loss of $3.2 million.

The following unaudited pro forma consolidated statements of income have been
prepared to show the Company's results of operations after eliminating the
gain on the sale of ODI and the historical results of ODI for each period
presented. This unaudited pro forma information is not necessarily
representative of the results which would have been obtained for the
respective periods.

<PAGE> 21

(In thousands, except per share amounts)
- ------------------------------------------------------------------------
1997 1996
---- ----

Net sales.............................. $268,912 $264,838
Costs and expenses..................... 230,430 225,610
-------- --------
Income before income taxes............. 38,482 39,228
Income taxes........................... 14,304 14,514
-------- --------
Net income............................. $ 24,178 $ 24,714
======== ========

Per share data:
Net income per common share.......... $ 4.10 $ 3.94
======== ========
Net income per common share,
assuming dilution.................. $ 3.80 $ 3.70
======== ========
- ------------------------------------------------------------------------

3. EMPLOYEE BENEFIT PLANS

Effective January 4, 1998, the Company adopted the provisions of SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits".
This statement revises employers' disclosures about pension and other
postretirement benefit plans.

DEFINED BENEFIT PLANS - As of January 2, 1999, the Company's domestic
operations maintain three separate pension plans. The Company previously
maintained a fourth pension plan covering substantially all employees of ODI
prior to its sale on October 24, 1997.

The Company's other postretirement benefit plans provide health and life
insurance benefits to domestic employees hired prior to 1992. The Company
effectively capped its cost for those benefits through plan amendments made in
1992, freezing Company contributions for insurance benefits at 1991 levels for
current and future beneficiaries with actuarially reduced benefits for
employees who retire before age 65.

The following table sets forth aggregated information related to the Company's
domestic pension benefits and other postretirement benefits, including changes
in the benefit obligations, changes in plan assets, funded status, amounts
recognized in the Consolidated Balance Sheets, and actuarial assumptions:

<PAGE> 22

(In thousands)
- ------------------------------------------------------------------------------
Pension Benefits Other Benefits
1998 1997 1998 1997
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation, b/o/y...... $81,068 $76,147 $12,181 $12,049
Service cost................... 2,509 2,216 258 235
Interest cost.................. 5,868 5,485 840 858
Plan amendments................ 601 2,353 - -
Actuarial gain................. 6,734 2,398 551 249
Employee contributions......... 324 303 - -
ODI plan obligations........... - (3,492) - -
Benefits paid.................. (4,806) (4,342) (1,190) (1,210)
------- ------- ------- -------
Benefit obligation, e/o/y...... $92,298 $81,068 $12,640 $12,181
======= ======= ======= =======

Change in plan assets:
Fair value of assets, b/o/y.... $100,827 $ 86,030 $ - $ -
Actual return on plan assets... 13,623 20,546 - -
Company contributions.......... 324 1,410 1,190 1,210
Employee contributions......... 250 287 - -
ODI plan assets................ - (3,104) - -
Benefits paid.................. (4,806) (4,342) (1,190) (1,210)
------- -------- ------- -------
Fair value of assets, e/o/y.... $110,218 $100,827 $ - $ -
======== ======== ======= =======
Reconciliation of funded status:
Funded status.................. $17,920 $19,759 $(12,640) $(12,181)
Unrecognized net (gain)/loss... (29,038) (29,489) 3,070 2,674
Unrecognized transition
obligation/(asset)............ (155) (198) 6,845 7,334
Unrecognized prior service
cost.......................... 6,172 6,339 - -
------- ------- -------- -------
Net amount recognized.......... $(5,101) $(3,589) $ (2,725) $(2,173)
======= ======= ======== =======

Amounts recognized in the
Consolidated Balance Sheets:
Accrued benefit liability...... $(6,204) $(4,006) $(2,725) $(2,173)
Intangible asset............... 16 24 - -
Deferred tax asset............. 423 157 - -
Accumulated other comprehensive
loss.......................... 664 236 - -
------- ------- -------- -------
Net amount recognized.......... $(5,101) $(3,589) $(2,725) $(2,173)
======= ======= ======== =======

Actuarial assumptions:
Discount rate................... 6.75% 7.25% 7.25% 7.25%
Rate of increase in future
compensation.................. 0-5.00% 0-5.00% 5.00% 5.00%
Expected long-term rate of
return on plan assets......... 9.25% 8.25%-9.00% - -
- ------------------------------------------------------------------------------

<PAGE> 23

The following table sets forth aggregated net domestic periodic benefit cost
for 1998, 1997, and 1996:

(In thousands)
- ------------------------------------------------------------------------------
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Service cost.... $2,509 $2,506 $2,295 $ 258 $ 235 $ 244
Interest cost... 5,868 5,716 5,291 840 858 803
Expected return
on assets...... (7,224) (6,658) (5,958) - - -
Amortization of
unrecognized:
Obligation/
(asset)...... (43) (43) (61) 489 489 489
Prior service
cost......... 769 719 528 - - -
Loss/(gain)... (118) (60) 53 162 136 59
------ ------ ------ ------ ------ ------
Net periodic
benefit cost... $1,761 $2,180 $2,148 $1,749 $1,718 $1,595
====== ====== ====== ====== ====== ======
- ------------------------------------------------------------------------------

The plan assets of the pension plans consist primarily of common stocks and
bonds, including $25,212 and $32,030 of the Company's common stock in 1998 and
1997, respectively. In August 1998, the Company purchased 125,000 shares of
its common stock from the pension plans for $8.2 million.

One of the Company's three pension plans covers certain management employees.
The Company does not fund this plan, and its assets were zero in 1998 and
1997. The plan's projected benefit obligation and accumulated benefit
obligation were $2,491 and $2,159, respectively at January 2, 1999, and $1,490
and $1,285, respectively at January 3, 1998.

The Company's German subsidiary, which does not report pension information
under the Employee Retirement Income Security Act of 1974, calculates the
pension liability based on local requirements. The long-term pension
liability for the German subsidiary was $1,238 at January 2, 1999 and $1,058
at January 3, 1998. The difference between calculating the pension liability
under local requirements versus SFAS No. 87 requirements is immaterial.
Pension liabilities for other foreign subsidiaries are not significant.

DEFINED CONTRIBUTION PLANS - The Company maintains an integrated 401(k) and
Employee Stock Ownership Plan (ESOP).

In June 1996 and in July 1992, the ESOP Trustee acquired additional shares of
Company common stock on the open market using the proceeds of a ten-year, $0.3
million loan and a fifteen-year, $3.0 million loan, respectively, from the
Company. Under the terms of the variable rate loan (6.31 percent at January
2, 1999), principal plus interest is payable in equal annual installments.
The shares of stock purchased with the loan proceeds are collateral for the
loan and are considered outstanding for purposes of calculating earnings per
share.

The Company contributes a portion of its 401(k) matching contribution as well
as an additional annual contribution, both subject to the Company's annual
financial results, to the ESOP Trust. The ESOP Trustee uses a portion of the

<PAGE> 24

Company's contributions to make principal and interest payments on the loan.
As loan payments are made, shares of common stock are released as collateral
and are allocated to participants' accounts. The balance of the Company's
contributions in cash or common stock is made to the 401(k) and ESOP Trusts,
and allocated to participants' accounts to satisfy the balance of the
Company's 401(k) matching contribution.

At January 2, 1999, 103,142 shares were allocated to the accounts of
participants, 10,363 shares were committed to be released and allocated to the
accounts of participants for service rendered during 1998, and 66,404 shares
were held by the ESOP Trust in suspense.

The following table sets forth the interest expense and Company contributions
to the integrated ESOP and 401(k) Plan.

(In thousands)
- ----------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Interest expense incurred by the plan
on ESOP debt............................. $ 133 $ 148 $ 153
Company contributions to integrated plan... 1,010 1,244 1,310
- ----------------------------------------------------------------------------

4. ACCRUED EXPENSES

Accrued expenses consisted of:

(In thousands)
- ----------------------------------------------------------------------------
1998 1997
---- ----
Salaries, wages and commissions....... $ 7,518 $ 7,345
Product warranty costs................ 4,382 4,282
Insurance............................. 5,426 5,198
Employee benefits..................... 1,890 1,763
Other................................. 5,323 5,758
------- -------
$24,539 $24,346
======= =======
- ----------------------------------------------------------------------------

5. INCOME TAXES

Income before income taxes consisted of:

(In thousands)
- ---------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Domestic.................... $33,900 $34,269 $27,664
Foreign..................... 6,121 6,240 5,673
------- ------- -------
$40,021 $40,509 $33,337
======= ======= =======
- ---------------------------------------------------------------------------
<PAGE> 25

The income tax provision consisted of:

(In thousands)
- ---------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Currently payable:
Federal................... $12,095 $10,606 $ 8,110
Foreign................... 2,432 2,397 1,611
State..................... 2,355 2,920 2,162
Deferred:
Federal................... (1,512) (757) (44)
Foreign................... 72 58 50
State..................... (205) (220) (62)
------- ------- -------
$15,237 $15,004 $11,827
======= ======= =======
- ---------------------------------------------------------------------------

Significant components of the Company's deferred tax assets and liabilities
were as follows:

(In thousands)
- ---------------------------------------------------------------------------
1998 1997
---- ----
Deferred tax assets:
Accrued expenses and reserves.............. $ 6,945 $ 6,125
Compensation and employee benefits......... 6,491 4,868
Other items................................ 364 564
------- -------
Total deferred tax assets................ 13,800 11,557
------- -------
Deferred tax liabilities:
Accelerated depreciation on fixed assets... 3,437 2,908
Other items................................ 227 158
------- -------
Total deferred tax liabilities........... 3,664 3,066
------- -------
Net deferred tax assets...................... $10,136 $ 8,491
======= =======
- ---------------------------------------------------------------------------

The portions of current and non-current deferred tax assets and liabilities
were as follows:

(In thousands)
- ---------------------------------------------------------------------------
1998 1997
-------------------- ----------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Current........ $ 8,774 $ - $ 7,490 $ -
Non-current.... 5,026 3,664 4,067 3,066
------- ------ ------- ------
$13,800 $3,664 $11,557 $3,066
======= ====== ======= ======
<PAGE> 26

There was no valuation allowance for deferred tax assets required in 1998 or
1997.

The differences between the statutory and effective tax rates were as follows:

- --------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
U.S. Federal statutory rate...... 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit................ 3.8 4.3 4.1
Effect of higher (lower) foreign
tax rates...................... 0.5 0.6 (0.5)
Earnings of foreign sales
corporation ................... (1.4) (1.4) (3.1)
Utilization of foreign
tax credits.................... - (1.5) -
Other items...................... 0.2 - -
----- ----- -----
38.1% 37.0% 35.5%
===== ===== =====
- --------------------------------------------------------------------------

Accumulated undistributed earnings of foreign subsidiaries expected to be
permanently invested approximated $4.0 million at January 2, 1999. The
Company does not anticipate incurring any tax should these earnings be
repatriated in the future.

6. DEBT

Short-term borrowings consisted of:

(In thousands)
- -------------------------------------------------------------------------
1998 1997
---- ----
Bank................................... $2,697 $177
====== ====
- -------------------------------------------------------------------------

Long-term debt consisted of:

(In thousands)
- -------------------------------------------------------------------------
1998 1997
---- ----
Insurance Company--6.31%, principal
payments of $1.0 million due in
annual installments, with a balloon
payment of $10,000 in 2008............ $19,000 $20,000
Bank.................................... 108 182
------- -------
19,108 20,182
Less current maturities................. (1,019) (1,019)
------- -------
$18,089 $19,163
======= =======
- -------------------------------------------------------------------------

Both the Company's short-term borrowings and long-term debt are unsecured. The
Company's long-term debt agreement provides for certain financial covenants
relative to working capital, additional borrowings, loans or advances and
investments. The Company was in compliance with all debt covenants in 1998
and 1997.

On January 5, 1996, the Company entered into an unsecured, five-year $40.0
million revolving credit agreement (the "Agreement"). The Agreement, which
includes a facility fee of one-tenth of one percent on the committed amount,
was amended and restated (the "Amended Agreement") on December 30, 1997.

<PAGE> 27

The Amended Agreement provides for various borrowing rate options including
interest rates based on the London Interbank Offered Rates (LIBOR) plus
interest spreads keyed to the Company's ratio of debt to earnings before
interest, taxes, depreciation, and amortization (EBITDA). The Amended
Agreement contains certain financial covenants with respect to borrowings,
fixed charge coverage, working capital, loans or advances, and investments.

7. SHAREOWNERS' EQUITY

The Company had 5,574,000 shares of common stock (25,000,000 shares
authorized, $.10 par value) outstanding at the end of 1998.

During 1998 and 1997, pursuant to stock repurchase programs authorized by the
Company's Board of Directors, the Company repurchased a total of 406,000
shares for $26.0 million and 615,000 shares for $30.6 million, respectively.
Of these shares, 175,000 were repurchased from a director of the Company in
1997. All repurchased shares were retired.

During 1998, under terms of a Company stock option plan, a participant
remitted 9,851 shares of Company common stock as consideration for stock
issued upon the exercise of stock options. The total exercise price of the
respective stock options was $0.6 million, and the shares remitted to the
Company were subsequently retired.

Stock subscriptions are principally deferred costs recognized in connection
with the issuance of common stock under the 1988 Stock Incentive Award Plan
(1988 Award Plan) and loans to officers under the 1988 Executive Stock
Purchase Plan (1988 Purchase Plan). Under the 1988 Purchase Plan, executives
of the Company are awarded the right to purchase shares of its common stock
through a Company loan at the closing price on the day prior to the date of
purchase. In 1998 the Company extended the 1988 Purchase Plan ten additional
years, and at January 2, 1999, 512,800 shares are available for future awards.
The 1988 Award Plan expired in 1998. No shares were awarded under either plan
in 1998 or 1997.

8. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings
per share:

(In thousands, except per share amounts)
- ----------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Numerator:
Net Income.......................... $24,784 $25,505 $21,510
======= ======= =======
Denominator:
Basic
-----
Weighted average common shares..... 5,733 5,895 6,279

Diluted
-------
Effect of dilutive securities:

Employee and director incentive
stock options and awards........ 437 471 397
------- ------- -------
Adjusted weighted average common
shares.......................... 6,170 6,366 6,676
======= ======= =======
Basic earnings per share.............. $ 4.32 $ 4.33 $ 3.43
======= ======= =======

Diluted earnings per share............ $ 4.02 $ 4.01 $ 3.22
======= ======= =======
- ----------------------------------------------------------------------------

<PAGE> 28

9. STOCK-BASED COMPENSATION

The Company has authorized the grant of options to purchase common stock of
the Company to employees and non-employee directors of the Company and its
subsidiaries under five fixed stock option plans. The plans and the original
number of authorized shares available for grants are as follows:

- -----------------------------------------------------------------------------
Shares
------
1981 Incentive Stock Option Plan (1981 Plan) 555,000
1986 Non-Qualified Stock Option Plan (1986 Plan) 555,000
1996 Employee Stock Option Plan (1996 Plan) 600,000
1990 Non-Employee Director Stock Option Plan (1990 Director Plan) 60,000
1996 Non-Employee Director Stock Option Plan (1996 Director Plan) 90,000
- -----------------------------------------------------------------------------

Under each of the above plans, the exercise price of each option equals the
market price of the Company's common stock on the date of grant and the
options expire ten years after the date of the grant. Generally, options
granted under the 1981 Plan, the 1986 Plan, and the 1996 Plan vest 20 percent
a year and become fully vested and exercisable after five years. Options
granted under the 1990 and 1996 Director Plans vest 33 percent a year and
become fully vested and exercisable after three years.

A summary of the Company's fixed stock option plans activity and related
information for 1998, 1997 and 1996 follows:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996
Weighted-Average Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------- ------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 762,296 $25.73 850,125 $23.51 861,092 $18.69
Granted 43,500 66.27 18,000 46.47 116,500 41.74
Exercised (142,746) 16.50 (104,829) 7.96 (121,467) 6.90
Forfeited (20,433) 39.55 (1,000) 26.50 (6,000) 22.13
------- ------- -------
Outstanding at
end of year 642,617 $30.09 762,296 $25.73 850,125 $23.51
======= ======= =======
- ----------------------------------------------------------------------------------------------------------
</TABLE>

The following summarizes information about fixed stock options outstanding
at January 2, 1999:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 1/02/99 Contractual Life Exercise Price at 1/02/99 Exercise Price
- --------------- ----------- ---------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$ 8.38 to 30.99 318,380 3.76 years $19.90 318,380 $19.90
31.00 to 59.24 280,737 7.08 36.04 202,177 33.94
59.25 to 70.50 43,500 9.31 66.27 2,000 59.25
------- -------
$ 8.38 to 70.50 642,617 5.59 $30.09 522,557 $25.48
======= =======
- -----------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE> 29

For pro forma information regarding net income and earnings per share, the
fair value for the options awarded in 1998, 1997 and 1996 for all fixed stock
option plans was estimated as of the date of the grant using a Black-Scholes
option valuation model. The following table sets forth the weighted average
assumptions for 1998, 1997 and 1996, respectively.

- -----------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Risk-free interest rate............ 5.49% 6.51% 6.18%
Dividend yield..................... 1.20% 1.20% 1.40%
Volatility factor.................. .230 .236 .257
Weighted average expected life..... 6 years 6 years 6 years
- ------------------------------------------------------------------------------

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting period. Therefore, in the year of
adoption and subsequently affected years, the effects of applying SFAS No. 123
for providing pro forma net income and earnings per share are not likely to be
representative of the effects on reported income in future years. The
Company's pro forma information follows:

(In thousands, except per share amounts)
- ------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Reported net income................. $24,784 $25,505 $21,510
Pro forma net income................ $24,312 $25,037 $21,245

Reported net income available
per common share.................. $4.32 $4.33 $3.43
Pro forma net income available
per common share.................. $4.22 $4.25 $3.38

Reported net income available per
common share, assuming dilution... $4.02 $4.01 $3.22
Pro forma net income available per
common share, assuming dilution... $3.94 $3.93 $3.18
- ------------------------------------------------------------------------------

The Black-Scholes option valuation model used by the Company was developed for
use in estimating the fair value of fully tradable options which have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including
the expected stock price volatility. It is management's opinion that the
Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, the existing models
do not necessarily provide a reliable single measure of the fair value of its
stock options.

10. SEGMENT AND GEOGRAPHIC INFORMATION

Effective January 4, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information". Based
on the management approach established by SFAS No. 131, the Company's business
consists of two operating segments that offer different products; the motor
segment, and the electronic controls segment.

<PAGE> 30

The motor segment designs, manufactures and sells motors and related parts and
equipment for use in water systems, gasoline and diesel fuel pumping systems,
wastewater handling systems and in a wide variety of industrial products. The
electronic controls segment designs and manufactures electronic controls for
the principal purpose of being a supplier to the motor segment.

Under SFAS No. 131's quantitative threshold and aggregation criteria, the
Company's two operating segments have been combined into a single reportable
segment. As a result, there are no significant differences between reportable
segment financial information and the Company's consolidated results.

The Company's products are primarily sold to original equipment manufacturers
in the United States, Canada, Europe, Australia, South Africa, Mexico and
other world markets. Net sales attributed to customers located in the United
States were $192.8 million, $191.2 million, and $187.3 million in 1998, 1997
and 1996, respectively. Net sales attributed to foreign customers were $79.7
million, $77.7 million, and $77.7 million in 1998, 1997 and 1996,
respectively, of which no single country was significant. Long-lived assets
located in the United States totaled $43.4 million, $26.9 million, and $23.8
million in 1998, 1997 and 1996, respectively. Long-lived assets in foreign
countries totaled $8.1 million, $5.5 million, and $5.2 million in 1998, 1997
and 1996, respectively, of which no single country was significant. ODI's net
sales and long-lived assets are excluded from enterprise-wide geographic
information.

One customer accounted for 14.0 percent, 12.4 percent, and 12.5 percent of the
Company's consolidated sales in 1998, 1997 and 1996, respectively.

11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Unaudited quarterly financial information for 1998 and 1997 is as follows:

(In thousands, except per share amounts)
- ----------------------------------------------------------------------------
Basic Diluted
Net Gross Net Earnings Earnings
Sales Profit Income Per Share Per Share
----- ------ ------ --------- ---------
1998
- ----
1st Quarter..... $ 56,014 $15,180 $ 3,660 $ .63 $ .58
2nd Quarter..... 67,907 20,423 5,995 1.02 .95
3rd Quarter..... 75,230 21,603 7,007 1.22 1.14
4th Quarter..... 73,382 22,749 8,122 1.47 1.37
-------- ------- -------
$272,533 $79,955 $24,784 $4.32 $4.02
======== ======= =======
1997
- ----
1st Quarter..... $ 64,200 $16,491 $ 3,195 $ .53 $ .49
2nd Quarter..... 75,935 19,701 5,269 .90 .84
3rd Quarter..... 85,610 23,589 6,123 1.04 .96
4th Quarter..... 77,553 25,752 10,918 1.86 1.72
-------- ------- -------
$303,298 $85,533 $25,505 $4.33 $4.01
======== ======= =======
- ----------------------------------------------------------------------------

<PAGE> 31

12. CONTINGENCIES AND COMMITMENTS

The Company is defending various claims and legal actions which have arisen in
the ordinary course of business. The Company has attempted, where possible,
to assess the likelihood of an unfavorable outcome as a result of these
actions. Legal counsel has been retained to assist the Company in making
these determinations, and costs are accrued when an unfavorable outcome is
determined to be probable and a reasonable estimate can be made. As a result,
the Company has an accrual balance of approximately $1.3 million and $1.4
million at January 2, 1999 and January 3, 1998, respectively, to provide for
such actions.

Total rent expense charged to operations for operating leases including
contingent rentals was $1.9 million, $2.3 million, and $2.4 million for 1998,
1997 and 1996, respectively. The future minimum rental payments for
noncancellable operating leases as of January 2, 1999, are as follows: 1999,
$0.6 million; 2000, $0.5 million and 2001, $0.2 million. Rental commitments
subsequent to 2001 are not material.

<PAGE> 32

INDEPENDENT AUDITORS' REPORT
- ----------------------------

To the Shareowners and Directors, Franklin Electric Co., Inc.:

We have audited the accompanying consolidated balance sheets of Franklin
Electric Co., Inc. and consolidated subsidiaries as of January 2, 1999 and
January 3, 1998 and the related consolidated statements of income,
shareowners' equity and cash flows for each of the three years in the period
ended January 2, 1999. Our audits also included the financial statement
schedule listed in the index at Item 14. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Franklin Electric Co., Inc. and
consolidated subsidiaries as of January 2, 1999 and January 3, 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended January 2, 1999, in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP
Chicago, Illinois
January 28, 1999

<PAGE> 33

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------

None.

PART III
--------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------

The information concerning directors required by this Item 10 is set forth in
the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 16, 1999, under the headings of "ELECTION OF DIRECTORS" and
"INFORMATION CONCERNING NOMINEES AND DIRECTORS," and is incorporated herein by
reference.

The information concerning executive officers required by this Item 10 is
contained in Part I of this Form 10-K under the heading of "EXECUTIVE OFFICERS
OF THE REGISTRANT."

ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------

The information required by Item 11 is set forth in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 16, 1999,
under the headings of "INFORMATION ABOUT THE BOARD AND ITS COMMITTEES,"
"COMPENSATION COMMITTEE REPORT," "SUMMARY COMPENSATION TABLE," "OPTION GRANTS
IN 1998 FISCAL YEAR," "1998 FISCAL YEAR-END OPTION VALUES," "COMPENSATION
PURSUANT TO PLANS" and "AGREEMENTS," and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------

The information required by Item 12 is set forth in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 16, 1999,
under the heading of "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT," and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by Item 13 is set forth in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 16, 1999,
under the headings of "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" and "AGREEMENTS," and is incorporated herein by reference.

<PAGE> 34

PART IV
-------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------

Form 10-K
Annual Report
(page)
-------------
(a) 1. Financial Statements - Franklin Electric
----------------------------------------

Independent Auditors' Report........................ 32
Consolidated Statements of Income for the
three years ended January 2, 1999................. 13
Consolidated Balance Sheets, as of
January 2, 1999 and January 3, 1998............... 14-15
Consolidated Statements of Cash Flows
for the three years ended January 2, 1999......... 16-17
Consolidated Statements of Shareowners' Equity
for the three years ended January 2, 1999......... 18
Notes to Consolidated Financial Statements
(including quarterly financial data).............. 19-31

2. Financial Statement Schedules - Franklin Electric
-------------------------------------------------
II Valuation and Qualifying Accounts................ 35

Schedules other than those listed above are omitted for
the reason that they are not required or are not
applicable, or the required information is disclosed
elsewhere in the financial statements and related notes.

3. Exhibits
--------
See the Exhibit Index located on pages 37-38.
Management Contract or Compensatory Plan or
Arrangement is denoted by an asterisk (*).

(b) Reports on Form 8-K filed during the fourth quarter
ended January 2, 1999:

During the fourth quarter ended January 2, 1999, a Form 8-K was
filed by the Company dated October 9, 1998, to report certain
"Forward Looking Statements" for the purpose of establishing a
readily available document which may be referred to in the future
in accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.

(d) Individual financial statements and all other schedules
of the Registrant are omitted as they are not required.

<PAGE> 35

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years 1998, 1997 and 1996
(In thousands)
--------------

Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
- ----------- ---------- ---------- ---------- ---------

Allowance for doubtful accounts:

1998 $1,349 $271 $513 (B) $1,107
====== ==== ==== ======

1997 $1,435 $248 $334 (A) $1,349
====== ==== ==== ======

1996 $1,351 $227 $143 (B) $1,435
====== ==== ==== ======

NOTES:

(A) Uncollectible accounts written off, net of recoveries, and the
elimination of Oil Dynamics Inc.

(B) Uncollectible accounts written off, net of recoveries.

<PAGE> 36

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Franklin Electric Co., Inc.

/s/ WILLIAM H. LAWSON
--------------------------
William H. Lawson
Chairman of the Board and
(Date) February 12, 1999 Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

/s/ WILLIAM H. LAWSON Chairman of the Board and
- ------------------------------------- Chief Executive Officer
William H. Lawson February 12, 1999 (Principal Executive
Officer)

/s/ JOHN B. LINDSAY
- -------------------------------------
John B. Lindsay February 12, 1999 President and Director

/s/ JESS B. FORD Senior Vice President and Chief
- ------------------------------------- Financial Officer (Principal
Jess B. Ford February 12, 1999 Financial and Accounting
Officer)
/s/ JEROME D. BRADY
- -------------------------------------
Jerome D. Brady February 12, 1999 Director

/s/ ROBERT H. LITTLE
- -------------------------------------
Robert H. Little February 12, 1999 Director

/s/ PATRICIA SCHAEFER
- -------------------------------------
Patricia Schaefer February 12, 1999 Director

/s/ DONALD J. SCHNEIDER
- -------------------------------------
Donald J. Schneider February 12, 1999 Director

/s/ R.SCOTT TRUMBULL
- -------------------------------------
R. Scott Trumbull February 12, 1999 Director

/s/ JURIS VIKMANIS
- -------------------------------------
Juris Vikmanis February 12, 1999 Director

/s/ HOWARD B. WITT
- -------------------------------------
Howard B. Witt February 12, 1999 Director

<PAGE> 37

FRANKLIN ELECTRIC CO., INC.
EXHIBIT INDEX TO THE ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 2, 1999

Exhibit
Number Description
- ------- -----------

3.1 Amended and Restated Articles of Incorporation of Franklin
Electric Co., Inc. (incorporated herein by
reference to the Company's Form 10-Q for the quarter
ended July 4, 1998)

3.2 By-Laws of Franklin Electric Co., Inc. as amended
to date, (incorporated herein by reference to the
Company's Form 10-Q for the quarter ended July 4,
1998)

4 Rights Agreement dated as of February 11, 1991
between Franklin Electric Co., Inc. and Lincoln
National Bank & Trust Co. of Fort Wayne (incorporated
herein by reference to the Company's registration
statement on Form 8-A dated February 26, 1991)

10.1 1988 Executive Stock Purchase Plan (incorporated
herein by reference to the Company's 1988 Proxy
Statement for the Annual Meeting held on April
15, 1988, and included as Exhibit E to the Proxy
Statement)*

10.2 1988 Stock Incentive Award Plan (incorporated
herein by reference to the Company's 1988 Proxy
Statement for the Annual Meeting held on April
15, 1988, and included as Exhibit D to the Proxy
Statement)*

10.3 Amended 1981 Incentive Stock Option Plan
(incorporated herein by reference to the
Company's 1988 Proxy Statement for the Annual
Meeting held on April 15, 1988, and included as
Exhibit B to the Proxy Statement)*

10.4 Amended 1986 Stock Option Plan (incorporated
herein by reference to the Company's 1988 Proxy
Statement for the Annual Meeting held on April
15, 1988, and included as Exhibit C to the Proxy
Statement)*

10.5 Franklin Electric Non-Employee Director Stock
Option Plan (incorporated herein by reference to
the Company's 1991 Proxy Statement for the Annual
Meeting on April 19, 1991)*

<PAGE> 38

10.6 1996 Franklin Electric Co., Inc., Employee Stock Option
Plan (incorporated herein by reference to the Company's
1996 Proxy Statement for the Annual Meeting held on
April 12, 1996, and included as Exhibit A to the Proxy
Statement)*

10.7 1996 Franklin Electric Co., Inc., Non-Employee Director
Stock Option Plan (incorporated herein by reference to the
Company's 1996 Proxy Statement for the Annual Meeting held
on April 12, 1996, and included as Exhibit B to the Proxy
Statement)*

10.8 Employment Agreement dated December 5, 1986 between
the Company and William H. Lawson (incorporated herein
by reference to Exhibit 10.7 of the Company's Form
10-K for the fiscal year ended December 28, 1991)*

10.9 Employment Agreement dated October 23, 1995 between
the Company and Jess B. Ford (incorporated herein by
reference to Exhibit 10.7 of the Company's Form 10-K for
the fiscal year ended December 30, 1995)*

10.10 Amended and Restated Credit Agreement dated as of
December 30, 1997 between the Company and various
commercial banks (incorporated herein by reference to
Exhibit 10.8 of the Company's Form 10-K for the fiscal
year ended January 3, 1998)

21 Subsidiaries of the Registrant............................ 39
23 Independent Auditors' Consent............................. 40
27 Financial Data Schedule................................... 41
99 Additional Exhibits....................................... 42-43

* Management contract or compensatory plan or arrangement

<PAGE> 39
EXHIBIT 21
----------
FRANKLIN ELECTRIC CO., INC.

SUBSIDIARIES OF THE REGISTRANT
____________

Percent of
State or country voting
of incorporation stock owned
---------------- -----------
Subsidiaries consolidated:

FE Petro, Inc. Indiana 100

Franklin Electric Subsidiaries, Inc.
[inactive] Indiana 100

Franklin Electric International, Inc. Delaware 100

Franklin Electric B.V. Netherlands 100

Franklin Electric Europa, GmbH Germany 100

Franklin Electric spol s.r.o. Czech Republic 100

Franklin Electric S.r.l. Italy 100

Franklin Electric (Australia) Pty. Ltd. Australia 100

Franklin Electric (South Africa)
Pty. Limited South Africa 100

Franklin Electric Foreign Sales
Corporation U.S. Virgin Islands 100

Motores Franklin S.A. de C.V. Mexico 100

<PAGE> 40

EXHIBIT 23
----------

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in the Registration Statements of
Franklin Electric Co., Inc. on Form S-8 (file numbers 33-35958, 33-35960, 33-
35962, 33-38200, 333-01957 and 333-01959) of our report dated January 28, 1999
appearing in the Annual Report on Form 10-K of Franklin Electric Co., Inc. for
the year ended January 2, 1999.

/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP
Chicago, Illinois
March 1, 1999

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FORM 10-K FOR THE PERIOD ENDED JANUARY 2, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-02-1999 JAN-03-1998 DEC-28-1996
<PERIOD-END> JAN-02-1999 JAN-03-1998 DEC-28-1996
<CASH> 17,034 23,191 22,968
<SECURITIES> 27,921 48,497 31,624
<RECEIVABLES> 17,144 18,327 26,069
<ALLOWANCES> 1,107 1,349 1,435
<INVENTORY> 35,330 31,259 42,305
<CURRENT-ASSETS> 106,283 128,500 131,016
<PP&E> 126,206 102,152 123,792
<DEPRECIATION> 74,745 69,795 83,695
<TOTAL-ASSETS> 167,590 163,110 172,959
<CURRENT-LIABILITIES> 44,405 40,527 41,545
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 557 585 638
<OTHER-SE> 91,040 92,256 99,185
<TOTAL-LIABILITY-AND-EQUITY> 167,590 163,110 172,929
<SALES> 272,533 303,298 300,689
<TOTAL-REVENUES> 276,105 309,935 302,287
<CGS> 192,578 217,765 221,475
<TOTAL-COSTS> 236,084 269,426 268,950
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,364 1,435 1,308
<INCOME-PRETAX> 40,021 40,509 33,337
<INCOME-TAX> 15,237 15,004 11,827
<INCOME-CONTINUING> 24,784 25,505 21,510
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 24,784 25,505 21,510
<EPS-PRIMARY> 4.32 4.33 3.43
<EPS-DILUTED> 4.02 4.01 3.22

</TABLE>

<PAGE> 42
EXHIBIT 99
----------
ADDITIONAL EXHIBITS

Forward Looking Statements
- --------------------------
Written and oral statements provided by the Company from time to time may
contain certain forward looking information, as that term is defined by the
Private Securities Litigation Reform Act of 1995 (the "Act") and in releases
made by the Securities and Exchange Commission ("SEC"). The cautionary
statements which follow are being made pursuant to the provisions of the Act
and with the intention of obtaining the benefits of the "safe harbor"
provisions of the Act. While the Company believes that the assumptions
underlying such forward looking information are reasonable based on present
conditions, forward looking statements made by the Company involve risks and
uncertainties and are not guarantees of future performance. Actual results may
differ materially from those in the Company's written or oral forward looking
statements as a result of various factors, including but not limited to, the
following:

A significant decline in sales with the Company's largest customer, who
represents over 10% of consolidated sales, or other significant customers.

Continued or increased competitive pressure to reduce selling prices of
products or increase financial incentives to customers.

A prolonged disruption of scheduled deliveries from suppliers when
alternative sources of supply are not available to satisfy the Company's
requirements for raw material and components.

Delays in the Company's ability to pass along significant increases in
the cost of raw material, components, other materials and/or services.

The amount of and rate of growth in selling, general and administrative
expenses, and occurrences which could affect the Company's ability to reduce
or limit the increase in such expenses.

The costs and other effects of legal and administrative cases and
proceedings (whether civil or criminal), settlements and investigations,
claims, developments or assertions by or against the Company relating to
intellectual property rights and licenses, and adoption of new or changes in
accounting policies and practices.

Difficulties or delays in the development, production, testing and
marketing of products, including, but not limited to, a failure to
ship new products when anticipated, failure of customers to accept these
products when planned, any defects in products or a failure of manufacturing
economies to develop when planned.

Circumstances impacting the Company's ability to fund and accomplish
technological innovation, improve processes, and attract and retain capable
staff in order to deal with increasing volume and complexity in its products.

Occurrences affecting the slope or speed of decline of the life cycle of
the Company's products, or affecting the Company's ability to reduce product
and other costs, and to increase productivity.

<PAGE> 43

The impact of unusual items resulting from the Company's ongoing
evaluation of its business strategies, acquisitions or divestitures, asset
valuations and organizational structures.

The effects of and changes in, trade, monetary and fiscal policies, laws
and regulations and other activities of governments, agencies and similar
organizations, including but not limited to trade restrictions or
prohibitions, inflation, monetary fluctuations, import and other charges or
taxes, foreign exchange rates, nationalizations and unstable governments.

The future health of the U.S. and international economies and other
economic factors that directly or indirectly affect the demand for the
Company's products.

Labor strikes or work stoppages by employees of the Company, its
customers, suppliers, or freight contractors or other providers.

Environmental factors such as fires, floods, or other natural disasters
and weather conditions which could impact the company's ability to produce
products or the demand for its products.

The inability of parties external to the Company to provide goods and
services in a timely, accurate manner as a result of Year 2000 processing
problems.

Increased competition due to industry consolidation or new entrants into
the Company's existing markets.

The introduction of alternative products or governmental and regulatory
activities that favor alternative methods of serving the same function as the
Company's products.

All forward-looking statements included herein are based upon information
presently available, and the Company assumes no obligation to update any
forward-looking statements.