Greetings and welcome to the fiscal 2008 and fourth quarter earnings release for Franklin Electric Company. (Operator Instructions). It is now my pleasure to introduce your host, Mr. Patrick Davis, Treasurer for Franklin Electric. Thank you. Mr. Davis, you may begin.

Thank you, [Manny], and welcome to the Franklin Electric fourth quarter 2008 earnings conference call. With me today are Scott Trumbull, our Chairman and CEO, John Haines, our CFO, Robert Stone, SVP of Americas Water and Gregg Sengstack, SVP of our Fueling and Asia Pacific business unit. On today's call Scott will review our fourth quarter and full year 2008 results and discuss the key issues confronting our company for 2009. John will review our fourth quarter and full year 2008 financials and when John is through we will allow some time for questions and answers. Before we begin let me remind you that any forward-looking statements contained herein including those related to the company's financial results, business goals and sales growth involve risk and uncertainties including but not limited to risk and uncertainties with respect to general economic and currency conditions, various conditions specific to the company's business and industry, weather conditions, new housing starts, market demand, competitive factors, changes in distribution channels, supply constraints, technology factors, litigation, government and regulatory actions, the company's accounting policies and future trends and other risk which are detailed in the company's Securities and Exchange Commission filings included in item 1A of Part 1 of the company's annual report on Form 10-K for the fiscal year ended December 29, 2007, Exhibit 99.1 attached thereto, and in item 1A of Part 2 of the company's quarterly reports on form 10-Q. Of note, the company's 2008 10-K will be filed this Wednesday, March 4th. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements made herein are based on information currently available and the company assumes no obligation to update any forward-looking statements. I will now turn the call over to our Chairman and CEO, Scott.

Thank you, Patrick. After a record third quarter we experienced an abrupt change in market trajectory during the fourth quarter. Through the first nine months of 2008 our sales increased by 32% and our operating income increased by 78%. During the fourth quarter our sales declined by 1% and our operating income before restructuring charges declined by 21%. In our Water segment, acquisitions increased fourth quarter sales by about 10% but this growth was more than offset by an organic sales decline of 6% and negative foreign exchange translation effects of 7%. The organic sales decline occurred in the United States where according to trade association data the market for water systems products fell by approximately 15% during the quarter. While we continued to gain share during the quarter we were nevertheless impacted by the drop in the overall market. We believe that demand in the overall market fell for several recession-related reasons. First, U.S. new housing starts fell by approximately 40% versus the fourth quarter 2007. We estimate that about 15% of our total Water segment sales are tied to U.S. new housing starts. For planning purposes we are assuming that new home construction will continue to decline by 30 to 40% through the first half of 2009. In the back half of 2009 we believe that housing starts will meet the depressed prior year levels. Second, as the banking crisis unfolded and credit availability became an issue, we believe that distributors and contractors focused on reducing their inventories and therefore curtailed their purchases of additional pumps and motors. We expect that these downstream inventories will continue to be reduced into the first quarter and that inventory levels will stabilize as the spring construction season approaches in March and April. Our sales of water systems products in international markets,…

Thank you, Scott. Our fully diluted earnings per share for 2008 were $1.90 a 56% increase over 2007. Earnings per share before the impact of restructuring charges were $1.96 up 47% from 2007. For the fourth quarter earnings per share was $0.15 in 2008 versus $0.23 in 2007, a decline of 35%. However, the quarterly earnings per share before the impact of restructuring was $0.21 in 2008 versus $0.29 in 2007, a decline of 28%. On a consolidated basis our fourth quarter revenue was $152.1 million down about 1% from the fourth quarter 2007. As Scott mentioned the organic sales decline in our water segment, slower growth in fueling and the impact of a strengthening U.S. dollar all contributed to this flat sales result. For the full year, gross profit increased by 170 basis points, operating income before the impact of restructuring charges decreased as a percent of sales by 160 basis points in the fourth quarter versus 2007. For the full year 2008 operating income before the impact of restructuring charges increased as a percent of sales by 180 basis points. Despite the significant market weakness globally our water systems segment sales only declined by $4.2 million or 4% in the fourth quarter of 2008. Eight million dollars of this decline was due to translation impacts of the strengthening U.S. dollar against most foreign currencies. Our water systems customers tell us they are focused on cash and the preservation of working capital given the uncertain economic times. As a result they've lowered the levels of our products they have normally carried in inventory and we believe this was a key driver of our lower water sales in the fourth quarter. For the full year our water system segment grew revenue by 19% primarily as a result of acquisitions. Operating…

(Operator instructions) Our first question is from the line of Matt Summerville – KeyBanc Capital Market. Matt Summerville – KeyBanc Capital Markets: [Break in audio] Provide similar color as to what you're seeing in your key international markets through the first couple of months of the year?

Of course the most pronounced effect has been on dollar translation and as I mentioned the translation effect that cost our sales to the client by about 7% in our water segment during the fourth quarter and that really, that rate hasn't changed much in the first quarter of this year. But beyond that we, while our sales in our international markets organically were flat in the fourth quarter, based on what we've seen so far it appears that the first sign that they were down modestly organically in the first 60 days of the year. Matt Summerville – Keybanc Capital Markets: Okay and then with respect to fueling have you seen any change on the part of station owners ability to get credit now versus what you were experiencing I guess in the fourth quarter? And how comfortable are you that we haven't seen in fueling any real demand impairment?

I don't think that the impact of the – there's evidence that the impact of the banking crisis is greater now in the first quarter than it was in the fourth quarter. And I also don't see any reduction in the determination of the regulators in California to enforce the vapor mandate that's in place, and that as we said there's 11,200 stations in California somewhere between 90 and 100% of them will convert and some percentage won't convert; they'll go out of business. And that all those stations are going to convert and it would be very optimistic for us to assume that in light of the fact that we now have a competitor in the market that we would maintain the same market penetration on the remaining roughly 4,500 stations that are going to convert that we have had on the first roughly 5,500 stations that have converted, because now there's a competitor in the market. So we are not, and nor have we ever projected that we would maintain a 90% plus share of the market with a competitor and in the market. So as I've indicated or we indicated – I indicated in my remarks and we indicated in our press release, we do however, anticipate that we will continue to supply the majority of the remaining conversions. Matt Summerville – KeyBanc Capital Markets: As we think about how to model fueling in 2009, what quarter would you believe would be the high water mark in terms of revenue and fueling given the dynamics impacting that segment right now?

I'm going to turn – I'm going to let Gregg Sengstack respond to that one, Matt.

Yes, Matt, given the slowing that we saw in the fourth quarter as compared to the third quarter of last year and the likelihood that this California initiative is going to extend out, then toward the back half of the year we're going to be picking up the California in-station diagnostic or ISD sales, we're expecting the back half to see more international sales of vapor recovery, particularly with respect to the initiatives in China in both the Shanghai and Guangzhou areas. So I'm not sure that I can say there's going to be a high water mark, we would have initially thought it would have been first quarter or certainly first half, but that's a little clouded depending on the rate of conversion in California. Matt Summerville – KeyBanc Capital Markets: Are you seeing any signs that your business in China – well, are the same issues that are impacting California at all at play in China, with regards to just the general crunch and the banking system? And I guess how good do you feel about your ability or the fact that you're looking for higher international volumes in the second half of the year, in fueling?

In fueling, the sense is in Asia and China in particular, that the business is going to happen. It may start a little bit later, but given that the Asian games World Expo are coming in 2010, that the initiatives that were mandated by the Chinese government in the Shanghai and Guangzhou areas are going to happen much like they happen in Beijing before the Olympics. Matt Summerville – KeyBanc Capital Markets: What are your competitive win rates in Beijing, or what did they look like? And I guess how are you looking at Shanghai and Guangzhou, in a similar fashion?

We had a greater than 50% share in Beijing from our information and we would expect that we have similar economic opportunities in the southern regions as well. I would say that anecdotally on the water side, our business not directly to your question, but in China is that the impact in the housing market we have seen slowdown in apartment building and construction and we have a very small water business today in China, but we do see where that side of the business is slowing down and where the banking has affected the construction market, but we are not getting indications at this point that it's going to affect the fueling industry. Matt Summerville – KeyBanc Capital Markets: And then just one question on raw material costs and I'll hop out of the queue. You mentioned that you expect the rate of benefit to increase through the first half of the year, in terms of lower raw material costs, Scott, how much of that downward pressure in input prices do you anticipate actually being able to capture and then this sort of feeds into my next question, which is in the fourth quarter what did you see in terms of pricing and what are we looking at early on in the year? And I'm speaking to the water business now, obviously.

Our cost reductions fall into three categories; one is the raw material cost reduction that will flow through. We buy some commodities directly, copper being the principal commodity that we buy directly, and then we buy – much of what we buy beyond that are products that are made directly from the commodities, so we're going to capture for the roughly $20 million of copper that we purchase annually, most of the commodity price decline. However, not all because we did have some forward contracts all of which were below the average price for 2008. So all of which locked in a deflation in copper prices, but a number of which were over the current spot price. So – but we'll capture the majority of the copper reductions and beyond that, we – I hate to put a number out there of the remaining roughly $300 million of purchases of products that are made out of these other materials, what we will capture in the way of a price reduction, we just have chosen not to disclose that number for competitive and market reasons. But we would expect that you know, Matt, very well how much the commodity prices have come down and those commodity costs are probably 30 to 50% of the cost of our vendors and we're going to want to capture as much of that as we can. And we're negotiating with them now and we're having a good deal of success in that regard but the price reductions will phase in over the course of the first half of this year and then they have to get through inventory, so I would say the major impact of the reductions will start really showing up in our financials as we go into the back half of 2009…

Okay. Our – first of all, as you know 2007 was a disruptive year for us pricing wise in water, 2008 the scenario improved and overall price was a positive factor as far as margins were concerned in 2008. And as we came to the end of 2008 we saw a, I would say a modest increase in promotional pricing activity. And our expectation is that there will be a modest increase of promotional pricing activity through at least the first half of 2009. But we're not seeing that math as a major factor in our margin equation for the water business. In other words it has not been important enough to make us change our basic thinking around the equation that I mentioned to you at this point. That okay? Matt Summerville – KeyBanc Capital Markets: Yes and then just pricing on fueling, Scott.

Gregg, do you want to talk.

Yes. We made a price change in the third quarter of 2008. We've made no pricing changes since then.

Your next question is from the line of Ned Borland – Next Generation Equity Research. Ned Borland – Next Generation Equity Research: Back to fueling here for a second. I mean if you've got 50 to 55% of the stations yet to retrofit, I'm just trying to get a sense for how to look at the first half. I mean are we trending now in the first quarter more towards like third quarter '08 levels or is it more consistent with the fourth quarter levels in fueling.

Yes Ned I would say that given the inventory that was in the system in the fourth quarter and the slowdown in the end markets, I would say that it looks like first quarter will be more like fourth quarter than the third quarter of last year. Depending on when the regulators come out and to what degree they come out with what actions they are going to take on the fining side or on enforcement after April 1st will then I think give greater clarity to how the balance of the year will unfold. Ned Borland – Next Generation Equity Research: Okay. So some of the laggards could fall into the second quarter and beyond is what you're saying?

Yes. We think for sure Ned that the tail is going to go right in 2009 which means that more of these than we had originally thought will go into the second quarter and perhaps more will even go into the third and fourth quarter, but a lot of that is going to depend on the enforcement actions that the state takes and it's hard for us to really necessarily predict that in this environment. Ned Borland – Next Generation Equity Research: Okay and can you give me a sense to what your non California portion of fueling did in the fourth quarter?

I'd say in general the fueling business did okay in the fourth quarter that activity was basically steady but we've gone into a fairly hard winter and we've gone into I think a period where I think again new station construction may actually be delayed but generally speaking the market held up well in the fuel business outside of California. Ned Borland – Next Generation Equity Research: Okay and then just finally on some of these SG&A actions that your taking. I want to get a sense for how it flows through throughout the year.

Okay. Our expectation is that – as I mentioned that we would reduce the combination of SG&A and fixed manufacturing significantly and it would build throughout the year. In other words that the back – that the reductions in the back half will be greater than the reductions in the first half because of the timing of the facilities consolidations which would drive down the fixed manufacturing expenditures. We do expect SG&A spending to be equal to or less than prior year levels during the first quarter.

Your next question is form the line of Paul Mammola – Sidoti & Company Paul Mammola – Sidoti & Company: Are there any areas of the water products business that are stable or buoying at this point, maybe in the terms of waste water fresh water or in any of the brands?

I'm not sure I understand the question, but are you saying are there any areas that we're experiencing some growth? Paul Mammola – Sidoti & Company: Sure some growth or stable. I know that you commented that the broad business was down 15% or the industry. So for your businesses was there anything that was stable if we talk in terms of fresh water versus waste water or an AGG or any of the brands if you thought in terms of Monarch Little Giant.

Okay. Well internationally in the fourth quarter as I mentioned our basically the international business which is about half of our water systems business I would describe as stable. We did see a decline in Asia Pacific, but a lot of our Asia Pacific volume is export and the buyers tend to play with currency fluctuations and place orders when it's opportune for them from a currency perspective. And we think that was a major factor in our – in a chunk. Several of our Asian markets in the fourth quarter, but in Latin America and in Africa and in the Middle East we continue to see pretty good increases to offset the Asia decline. So I'd say half of our business which is outside of the water business which is outside of the U.S., I'd describe in total as stable through the fourth quarter. In the U.S., I would say that Robert do you want to comment on that?

Sure. Paul, we've had a number of new product introductions over the past couple of years and several of those are taking off pretty nicely. Given our share position in some of the AGG markets we think we've got some very good growth opportunities there we've made some small acquisitions recently to help shore up our product portfolio in those areas and I think we've got some good opportunities there. We have not forecasted the AGG market to be bigger this year than last year but again we've got good growth opportunities in terms of share in those areas. Our dry products have been very successful we'll have to try to maintain that momentum but in those areas we've had good success and they're stable. Paul Mammola – Sidoti & Company: Okay that's all very helpful. And then on the fueling side do we know or would you share how many insoles there were in the fourth quarter or conversions rather?

We have not for competitive reasons chosen to disclose that. Paul Mammola – Sidoti & Company: Okay. So see if you can work with me here. Say it's in the 1,300 to 1,400 range, there is 4,500 left that puts you around three grand left to install. If 1Q is running at a 4Q rate that means you're going to have 3000 plus stations in March and beyond. So I guess the question is what do you expect to fall in 2Q and beyond and past that April 1st deadline?

Well I think that if your saying is that your math is there are 3,000 stations at the end of the first quarter you would think that there is going to be – to the degree that there are fines and enforcement actions for those that want to keep their fueling business they are going to do those relatively quickly in Q2. So then there will be probably another group that says I don't have the financing at reasonable rates I need to put this off I'm either going to stop pumping fuel or I'm just going to get out of the business and then may come back later in the year when they have financing arranged or feel the economics are awarded to go ahead and do the conversion. So it's a little tough to tell how the market is going to react to what the regulators do. Paul Mammola – Sidoti & Company: Okay Gregg, so I guess what can the gas stations do to get past that April 1st deadline at this point? Is there any sort of leniency from the regulators do you know?

We have not seen a published leniency and I can't answer for the regulators but somebody can stop pumping fuel for a period of time until such time they either have the financing in place or the money in place to go ahead and proceed.

Our next question is form the line of [Bryan Myer] – Robert W. Baird [Bryan Myer] – Robert W. Baird: So first we can get back to the expected savings from the headcount move to Mexico. You said you'll hit the $8 million run rate it looks like in the back half of the year. I guess then is it fair to assume for the full year the benefit is roughly $4 million or are you going to realize some lesser benefit in the first half such as it's something like $6 million for the year?

I suppose it'd be – there will be more in the back half than in the first half. And the savings – the easy to quantify savings I mean we know how many man hours of work we're transferring down. We know what the labor costs are in the two arenas so that's a pretty easy calculation to make. In addition there will be these fixed manufacturing costs savings because we're – the number of fixed manufacturing dollars that have gone through Siloam will be reduced by a significant extent through this change and we're not adding that much on Linares, so there is going to be a fixed cost savings as well. [Bryan Myer] – Robert W. Baird: Okay and then continuing with this them, you guys said that or kind of hinted that you'll be – or that you had the space to move 350,000 more man hours to Linares and that could be done by 1Q 2010. If you do the same math there that's another $5.6 million in annualized savings, do you start to realize that kind of at a run rate in 1Q '10 or is 2Q 10?

Well I would say by two Q '10 we should have both the Siloam Springs and the whatever additional savings as a result of the other roughly 300,000 man hours of activity that we would move down Linares. [Bryan Myer] – Robert W. Baird: Sure and then I would expect then that if your expecting to complete that by 1Q '10 that you'll also have some smaller benefit in the second half of 2009 as a result of these additional 350,000.

Yes although during the move we actually incur some cost penalties because what we'll do is we'll bring on the troops in Linares and we'll be going through training and what have you and we'll not have let the troops elsewhere go and so there is a period of when we're going through this of where our cost are actually a little bit higher than they normally would be. [Bryan Myer] – Robert W. Baird: Okay fair enough and then switching gears to your comments on inventory in the channel I think you guys had said that you kind of expected depletion to I don't know if cease is the right word, but at least kind of stabilize here in the first half or even the first quarter. And now that we're already two thirds of the way through the quarter I guess my question is have you seen the ramped destocking kind of flatten out already or is that still on the horizon for you guys.

Okay what we – what we said was that we saw the destocking continuing into the first quarter but that inventory levels would stabilize as we approached the construction season which for this industry the early part of it starts in March. So I would say up to now we've continued to see destocking. And that we anticipate that the inventory reductions will start to – distributors and contractors start feeling better about keeping inventory when they have a backlog and by the time March and April comes around they will have a backlog of jobs to work against. [Bryan Myer] – Robert W. Baird: Sure. Okay and then one last one here just getting back to kind of the end market during the fourth quarter. It sounds like AGG was probably still a decent market for you guys in the quarter has been all year, wondering if more of the commercial, industrial, municipal kind of applications slowed down during the fourth quarter along with obviously the residential PMA stuff.

Yes Brian this is Robert. The – we don't play terribly strongly today in some of the industrial municipal. Anecdotally, we have heard that that business came, it slowed down dramatically but that was not a big factor – it is not a big factor in our sales so we were not largely affected by that at the end of '08.

Your next question from the line of Matt Summerville – Keybanc Capital Markets Matt Summerville – KeyBanc Capital Markets: Just a couple more questions, first can you just talk about what you're seeing Scott or Robert from a competitive standpoint with [Fairdine's] larger motor now begin out in the market and then just a house keeping question. What should we assume your tax rate is in 2009?

As to the larger thrust rating motors Matt, we have seen almost nothing of the product. We understand that they've some inventory and they've sold a few and that they are giving several away but we have not seen any major impact of that and in fact we know that several distributors are still trying to source our motor from other OEMs or other distributors to have it available. Matt Summerville – KeyBanc Capital Markets: Okay and then the tax rate.

Thirty five percent is a good estimate for '09 Matt. Matt Summerville – KeyBanc Capital Markets: Okay and then just one final one I think it was you John, in your prepared remakes you had mentioned a lawsuit that you're – or that you've initiated I guess in California I would assume that is probably somewhat of a matter of public record, are you able to comment on that in more detail around what your particularly – or what your asserting in particular in that lawsuit?

Well we – the lawsuit is filed today so if it's not already it will shortly become a matter of public record so you can see that Matt. But we're not going to comment broadly about the lawsuit but we will say what our claim is and what it's based on is that we believe that Veeder-Root in an effort to gain market share has started to deploy what we view as unfair and illegal marketplace practices. And what our lawsuit is attempting to do is to stop those practices and to prevent any further or any harm at all against Franklin. So that's what's in the lawsuit and that's what the litigation is about that was filed today.

Well, this will be the end of our call. Thank you for your attention.

Thank you ladies and gentleman. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.