Exhibit Index
EXHIBIT NO. (99) Press release, dated April 28, 2008 issued by Franklin Electric Co., Inc.
EXHIBIT 99
ADDITIONAL EXHIBITS
Press Release
| For Immediate Release | For Further Information |
| | Refer to: John J. Haines |
| | 260-824-2900 |
FRANKLIN ELECTRIC COMPANY REPORTS
RECORD SALES AND OPERATING INCOME FOR THE FIRST QUARTER
Bluffton, Indiana - April 28, 2008 -- Franklin Electric Co., Inc. (NASDAQ:FELE) reported diluted earnings per share of $0.35 for the first quarter of 2008, an increase of 67 percent compared to 2007 first quarter earnings per share of $0.21, and first quarter income of $8.1 million in 2008, an increase of 66 percent compared to $4.9 million for the same period a year ago.
First quarter sales were a record $176.0 million, up $45.5 million or 35 percent compared to $130.5 million in 2007. First quarter sales attributed to acquisitions were $28.7 million. The Company’s total organic growth was about 17 percent for the quarter including organic growth achieved by acquired companies and $7.0 million of growth from foreign exchange rate changes.
Water Systems sales worldwide were $136.7 million, up $36.1 million or 36 percent for the first quarter of 2008 compared to the same period for 2007. Water Systems’ total organic growth was about 12 percent for the quarter. The growth was primarily attributable to increased sales in the United States, Canada, Latin America and the Middle East.
Fueling Systems sales worldwide were $39.3 million, an increase of approximately 31 percent for the first quarter of 2008 compared to the same period for 2007. Fueling Systems’ sales growth was organic and driven by increased sales of vapor recovery and electronic fuel management systems.
R. Scott Trumbull, Chairman and Chief Executive Officer of the Company, stated: “First quarter 2008 sales of $176.0 million were on track with our expectations. Our sales and operating income were records for any first quarter in the Company’s history, and net income was the second best first quarter on record. Growth in the Water Systems segment occurred in spite of the dramatic drop in housing starts in the United States as our pump product lines continued to gain market share. Our Fueling Systems business is benefiting from high demand for vapor recovery systems in California as gas stations upgrade their emissions control systems to be in compliance with clean air regulatory standards.”
Gross profit margin, at 29.2 percent of sales, declined in the first quarter of 2008 approximately 60 basis points from the comparable quarter of 2007. The primary cause for the 2008 margin decline was reduced facility utilization consistent with management’s plan to reduce finished goods inventory and so increase turns over the course of the year. In response to rising commodity costs (e.g., aluminum, copper and steel), the Company announced market price increases for most of its product lines effective during the first and second quarters of 2008.
Selling, general, and administrative expenses increased by $6.9 million in the first quarter of 2008 compared to first quarter last year. The acquisitions of Pump Brands (South Africa), the pump division of Monarch Industries (Canada) and Schneider Motobombas (Brazil) added approximately $6.1 million to selling, general and administrative expenses for the first quarter of 2008. Selling, general, and administrative expenses as a percentage of sales declined by about 195 basis points versus the first quarter prior year.
For the first quarter 2008, the Company’s operating income was a record $15.1 million, up $6.8 million or about 80 percent compared to $8.2 million for the same period a year ago. Operating margins for the quarter were 8.6 percent compared to 6.3 percent last year.
Interest expense increased by $1.4 million due to the debt incurred to fund acquisitions coupled with the first quarter seasonal build-up of working capital to serve the Water Systems and Fueling Systems markets in the second and third quarters.
The effective tax rate for 2008 increased to 36.3 percent (before the impact of one-time benefits) from the prior year’s rate of 35.0 percent. The increase was primarily due to the loss of the research and development tax credit which has not been renewed by the Congress at this time.
During the first quarter of 2007, the Company initiated Phase 2 of its Global Manufacturing Realignment Program. Phase 2 of the Realignment Program included expanding facilities in low-cost regions and shifting production out of higher cost manufacturing facilities. During the first quarter 2008, having finished construction of the new pump plant in Linares, Mexico, the Company completed Phase 2 of the Global Manufacturing Realignment Program. In total, this phase included severance and equipment relocation costs of $4.0 million pre-tax with $3.9 million occurring in 2007 and $0.1 million occurring in the first quarter 2008. As previously disclosed, Phase 1 of the Realignment Program, which was completed in December 2005, resulted in $7.5 million of pre-tax restructuring expenses.
Mr. Trumbull commented on the Company’s continued emphasis on earnings growth in 2008 and beyond: “For several quarters I have assured our shareowners that while earnings declined in 2007 for the first time in six years, the impact of the competitive factors that caused the decline would diminish in 2008 and we would return to the path of growing earnings. I am pleased that our first quarter performance begins to validate this forecast.
| · | Our improvement during the quarter was driven by a combination of organic sales growth, fixed cost leverage, and accretion from recent acquisitions. Globally, the Water Systems segment achieved organic growth of 12 percent during the quarter led by solid sales increases to distributors in the United States; and to both distributors and OEMs in Latin America and the Middle East. |
| · | Our Fueling Systems segment achieved organic growth of 31 percent as vapor recovery system sales grew rapidly in both California and in international markets. |
| · | For several years we have focused on expanding our sales base in developing regions where we foresee growing demand for our Water Systems products. During the first quarter, sales in developing regions represented about 35 percent of our total Water Systems revenues and grew organically by about 14 percent. |
| · | Fixed Costs (which we define as fixed manufacturing costs, restructuring costs and SG&A less commissions,) as a percentage of sales during the first quarter of 2008 are on track to improve on a full year basis from the prior year. Fixed cost spending reductions contributed to offset higher material and freight costs and achieve a 225 basis point improvement in operating income as a percent of sales versus the first quarter of the prior year. |
| · | Our recently acquired companies, Pump Brands (South Africa), the pump division of Monarch Industries (Canada), and Schneider Motobombas (Brazil) all performed well during the quarter and the integrations are on track. |
As we look forward we anticipate organic sales growth in excess of 12 percent and total sales growth in the range of 25 percent. This growth combined with spending controls should allow us to achieve Fixed Costs improvements of about 220 basis points for the full year 2008. While these factors will have a significant impact on earnings growth, we are carefully monitoring signs of increased material cost inflation in copper, steel, and freight to determine our pricing and cost reduction plans for the second half of the year. We also anticipate opportunities to complete additional “bolt-on” acquisitions that will enhance our product offering and expand our global distribution footprint.”
Franklin Electric is a global leader in the production and marketing of systems and components for the movement of water and automotive fuels. Recognized as a technical leader in its specialties, Franklin serves customers around the world in residential, commercial, agricultural, industrial, municipal, and fueling applications.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including those relating to the Company’s financial results, business goals and sales growth, involve risks and uncertainties, including but not limited to, risks 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, future trends, and other risks which are detailed in the Company’s Securities and Exchange Commission filings, included in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ending December 29, 2007, Exhibit 99.1 attached thereto and in Item 1A of Part II of the Company’s Quarterly Reports on Form 10-Q. 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.
| |
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |
| | | | |
| (In thousands, except per share amounts) | | | |
| | | | |
| | | First Quarter Ended | |
| | | March 29, 2008 | | | March 31, 2007 | |
| | | | | | | |
| Net sales | | $ | 176,010 | | | $ | 130,496 | |
| | | | | | | | | |
| Cost of sales | | | 124,551 | | | | 91,567 | |
| | | | | | | | | |
| Gross profit | | | 51,459 | | | | 38,929 | |
| | | | | | | | | |
| Selling and administrative expenses | | | 36,311 | | | | 29,455 | |
| | | | | | | | | |
| Restructuring expense | | | 82 | | | | 1,238 | |
| | | | | | | | | |
| Operating income | | | 15,066 | | | | 8,236 | |
| | | | | | | | | |
| Interest expense | | | (2,624 | ) | | | (1,212 | ) |
| Other income | | | 471 | | | | 298 | |
| Foreign exchange gain (loss) | | | (327 | ) | | | 247 | |
| | | | | | | | | |
| Income before income taxes | | | 12,586 | | | | 7,569 | |
| | | | | | | | | |
| Income taxes | | | 4,438 | | | | 2,672 | |
| | | | | | | | | |
| Net income | | $ | 8,148 | | | $ | 4,897 | |
| | | | | | | | | |
| Net income per share: | | | | | | | | |
| Basic | | $ | 0.35 | | | $ | 0.21 | |
| Diluted | | $ | 0.35 | | | $ | 0.21 | |
| | | | | | | | | |
| Weighted average shares and equivalent | | | | | | | | |
| shares outstanding: | | | | | | | | |
| Basic | | | 23,030 | | | | 23,088 | |
| Diluted | | | 23,293 | | | | 23,499 | |
| | | | | | | | | |
| FRANKLIN ELECTRIC CO., INC. |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| | | | | | | | |
| (In thousands) | | Mar. 29, 2008 | | | Dec. 29, 2007 |
| | | | | | |
| ASSETS: | | | | | |
| | | | | | |
| Cash and equivalents | | $ | 33,623 | | | $ | 65,252 | |
| Receivables | | | 99,513 | | | | 64,972 | |
| Inventories | | | 164,593 | | | | 156,146 | |
| Other current assets | | | 26,225 | | | | 23,109 | |
| Total current assets | | | 323,954 | | | | 309,479 | |
| | | | | | | | | | |
| Property, plant and equipment, net | | | 143,576 | | | | 134,931 | |
| Goodwill and other assets | | | 251,221 | | | | 217,827 | |
| Total assets | | $ | 718,751 | | | $ | 662,237 | |
| | | | | | | | | | |
| | | | | | | | | | |
| LIABILITIES AND SHAREOWNERS' EQUITY: | | | | | | | | | |
| | | | | | | | | | |
| Accounts payable | | $ | 32,221 | | | $ | 27,986 | |
| Accrued liabilities | | | 54,979 | | | | 52,265 | |
| Current maturities of long-term | | | | | | | | | |
| debt and short-term borrowings | | | 55,577 | | | | 10,398 | |
| Total current liabilities | | | 142,777 | | | | 90,649 | |
| | | | | | | | | | |
| Long-term debt | | | 152,202 | | | | 151,287 | |
| Deferred income taxes | | | 12,135 | | | | 11,686 | |
| Employee benefit plan obligations | | | 24,473 | | | | 24,713 | |
| Other long-term liabilities | | | 5,134 | | | | 5,358 | |
| | | | | | | | | | |
| Shareowners' equity | | | 382,030 | | | | 378,544 | |
| Total liabilities and shareowners' equity | | $ | 718,751 | | | $ | 662,237 | |
| | | | | | | | | | |
| FRANKLIN ELECTRIC CO., INC. | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| | | | |
| (In thousands) | | March 29, 2008 | | | March 31, 2007 | |
| Cash flows from operating activities: | | | | | | |
| Net income | | $ | 8,148 | | | $ | 4,897 | |
| Adjustments to reconcile net income to net | | | | | | | | |
| cash flows from operating activities: | | | | | | | | |
| Depreciation and amortization | | | 6,229 | | | | 4,730 | |
| Stock based compensation | | | 1,106 | | | | 1,363 | |
| Deferred income taxes | | | (126 | ) | | | 365 | |
| Loss/(gain) on disposals of plant and equipment | | | 42 | | | | 20 | |
| Changes in assets and liabilities: | | | | | | | | |
| Receivables | | | (30,047 | ) | | | (17,984 | ) |
| Inventories | | | (4,141 | ) | | | (20,716 | ) |
| Accounts payable and other accrued expenses | | | (5,222 | ) | | | (10,604 | ) |
| Accrued income taxes | | | 1,351 | | | | (7,415 | ) |
| Excess tax from share-based payment arrangements | | | (64 | ) | | | (1,158 | ) |
| Employee benefit plans | | | (639 | ) | | | 574 | |
| Other, net | | | (1,921 | ) | | | (1,150 | ) |
| Net cash flows from operating activities | | | (25,284 | ) | | | (47,078 | ) |
| Cash flows from investing activities: | | | | | | | | |
| Additions to plant and equipment | | | (6,758 | ) | | | (4,584 | ) |
| Proceeds from sale of plant and equipment | | | 10 | | | | 16 | |
| Additions to other assets | | | (500 | ) | | | - | |
| Purchases of securities | | | (9,000 | ) | | | - | |
| Proceeds from sale of securities | | | 9,000 | | | | - | |
| Cash paid for acquisitions, net of cash | | | (35,465 | ) | | | - | |
| Proceeds from sale of business | | | - | | | | 1,310 | |
| Net cash flows from investing activities | | | (42,713 | ) | | | (3,258 | ) |
| Cash flows from financing activities: | | | | | | | | |
| Additions to short-term debt | | | 45,000 | | | | - | |
| Repayment of short-term debt | | | (19 | ) | | | - | |
| Additions to long-term debt | | | - | | | | 50,000 | |
| Repayment of long-term debt | | | (107 | ) | | | (79 | ) |
| Proceeds from issuance of common stock | | | 176 | | | | 2,266 | |
| Excess tax from share-based payment arrangements | | | 64 | | | | 1,158 | |
| Purchases of common stock | | | (7,813 | ) | | | - | |
| Reduction of loan to ESOP Trust | | | - | | | | 200 | |
| Dividends paid | | | (2,771 | ) | | | (2,536 | ) |
| Net cash flows from financing activities | | | 34,530 | | | | 51,009 | |
| Effect of exchange rate changes on cash | | | 1,838 | | | | (133 | ) |
| Net change in cash and equivalents | | | (31,629 | ) | | | 540 | |
| Cash and equivalents at beginning of period | | | 65,252 | | | | 33,956 | |
| Cash and equivalents at end of period | | $ | 33,623 | | | $ | 34,496 | |
