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 3, 1998
OR
[ ] 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 24, 1998 was $344,234,395. The stock price used in the
computation was the closing price on that date.
Number of shares of common stock outstanding at February 24, 1998:
5,870,960 shares
Page 1 of 118
2
DOCUMENTS INCORPORATED BY REFERENCE
A portion of the Proxy Statement for the Annual Meeting of Shareholders to be
held on April 17, 1998 (Part III).
The exhibits filed with this Form 10-K are listed in the exhibit index located
on pages 39-40.
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................................ 7
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................. 8
Item 6. Selected Financial Data......................... 9
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations...................................... 10-12
Item 8. Financial Statements and Supplementary Data..... 13-34
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 35
Part III
Item 10. Directors and Executive Officers
of the Registrant............................... 35
Item 11. Executive Compensation.......................... 35
Item 12. Security Ownership of Certain
Beneficial Owners and Management................ 35
Item 13. Certain Relationships and Related
Transactions.................................... 35
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K......................... 36
Signatures ................................................ 38
Exhibit Index ................................................ 39-40
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), conducts business
in a single business segment: the design, manufacture and distribution of
electric motors, electronic motor controls and related equipment.
On October 24, 1997, the Company sold the common stock of Oil Dynamics, Inc.
(ODI), previously a wholly-owned subsidiary, to an unrelated entity. ODI's
operations represented substantially all of the Company's oil well pumping
systems product line.
Products and Markets Served
- ---------------------------
The Company manufactures and distributes electric motors, electronic motor
controls and related equipment. These motors 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.
Goulds Pumps, Inc., a customer of the Company, accounted for 12.4 percent,
12.5 percent and 12.9 percent of the Company's consolidated sales in 1997,
1996 and 1995, 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.
The Company employed 2,338 persons at the end of 1997.
Financial Information by Geographic Area
- ----------------------------------------
Financial information by geographic area is included within this Form 10-K at
page 32.
5
Research and Development
- ------------------------
The Company spent approximately $5.1 million in 1997, $4.8 million in 1996 and
$4.7 million in 1995 on activities related to the development of new products,
on improvements of existing products and manufacturing methods, and on other
applied research and development.
In 1997, development continued on the product line expansion of rewindable
motors, production startup of severe duty motors and a new line of variable
speed drives integrated with custom motors. Research continued on new
materials and processes which will result in more cost effective manufacture
of high volume products.
The Company owns several 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 1997 and 1996 was as follows:
(In thousands)
Fiscal Year Ending
------------------
1997 1996
---- ----
Backlog....................... $17,477 $21,324
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. The amount for 1996 included ODI's backlog of $7.1 million.
All backlog orders are expected to be filled in fiscal 1998.
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.
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) - 34,750
Wittlich, Rhineland, Germany 6.8 70,444
Eight facilities with less
than 30,000 square feet each (2) 1.7 97,342
----- ---------
Total 106.9 1,173,536
===== =========
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, 1998.
(2) Seven of the facilities are leased with approximately 74,000
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 $1.4 million and $1.6
million at January 3, 1998 and December 28, 1996, 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 3, 1998 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 $35,000.
7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None
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 61 Chairman of the Board and 1985
Chief Executive Officer
John B. Lindsay 55 President 1995
Jess B. Ford 46 Vice President and
Chief Financial Officer 1995
William J. Foreman 61 Vice President 1995
Kirk M. Nevins 54 Vice President, Sales 1995
Donald R. Hobbs 56 Vice President, Submersible 1996
Motor Marketing
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.
8
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- --------------------------------------------------------------------------
MATTERS
- -------
The number of shareowners of record as of February 24, 1998 was 1,221. 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 1997 and 1996 were as follows:
DIVIDENDS PER SHARE PRICE PER SHARE
1997 1996 1997 1996
---- ---- ---- ----
Low High Low High
--- ---- --- ----
1st Quarter... $.12 $.10 $42 3/4 $49 1/2 $31 1/4 $38 1/4
2nd Quarter... $.15 $.12 $41 1/4 $49 3/8 $35 $37
3rd Quarter... $.15 $.12 $47 1/2 $61 1/2 $30 3/4 $35 5/8
4th Quarter... $.15 $.12 $55 9/16 $64 1/4 $33 3/4 $45 1/4
9
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
FIVE YEAR FINANCIAL SUMMARY
- --------------------------------------------------------------------------------------------
FRANKLIN ELECTRIC CO., INC.
(In thousands, except per share amounts)
1997 1996 1995 1994 1993
<F1> <F2>
- --------------------------------------------------------------------------------------------
Operations:
Net sales............................. $303,298 $300,689 $276,440 $241,440 $206,406
Gross profit.......................... 85,533 79,214 65,471 63,134 53,131
Income before change in accounting
principle........................... 25,505 21,510 15,502 18,709 16,103
Gain on sale of subsidiary............ 3,500 - - - -
Interest expense...................... 1,435 1,308 2,128 2,172 2,949
Income taxes <F3>..................... 15,004 11,827 8,777 11,504 5,796
Net income............................ 25,505 21,510 15,502 18,709 17,096
Net income available to common shares. 25,505 21,510 15,502 18,556 16,485
Depreciation and amortization......... 7,628 8,389 8,890 6,961 6,185
Capital expenditures.................. 8,598 6,235 6,111 7,612 6,359
Balance sheet:
Working capital....................... 87,973 89,471 69,267 51,005 45,598
Property, plant and equipment, net.... 32,357 40,097 41,670 41,896 25,591
Total assets.......................... 163,110 172,959 153,357 151,581 122,703
Long-term debt........................ 19,163 20,276 20,171 20,000 30,016
Shareowners' equity................... $ 92,841 $ 99,823 $ 80,557 $ 64,865 $ 50,127
Other data:
% Net income to sales................. 8.4% 7.2% 5.6% 7.8% 8.3%
% Net income to total average assets.. 15.2% 13.2% 10.2% 13.6% 15.4%
Current ratio......................... 3.2 3.2 2.7 1.9 2.3
Per share:
Market price range
High.................................. $ 64.25 $ 45.25 $ 34.50 $ 36.50 $ 37.25
Low................................... 41.25 30.75 28.25 24.50 22.00
Income before change in accounting
principle........................... 4.33 3.43 2.51 3.02 2.50
Income before change in accounting
principle, assuming dilution........ 4.01 3.22 2.35 2.84 2.37
Net income per weighted average
common share........................ 4.33 3.43 2.51 3.02 2.66
Net income per weighted average
common share, assuming dilution..... 4.01 3.22 2.35 2.84 2.52
Book value............................ 14.58 14.95 12.21 9.92 7.65
Cash dividends on common stock........ $ 0.57 $ 0.46 $ 0.38 $ 0.29 $ 0.15
- --------------------------------------------------------------------------------------------
<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.
<F3> Includes credit for cumulative effect of change in accounting principle -
SFAS No. 109, "Accounting for Income Taxes" of $993 in 1993.
</FN>
Certain prior year amounts have been reclassified to conform to the current
year presentation.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
RESULTS OF OPERATIONS
- ---------------------
Net sales for 1997 were $303.3 million, a 0.9 percent increase over 1996 net
sales of $300.7 million. Sales volume in the submersible water systems and
the gasoline systems product lines increased during 1997. This increase was
partially offset by the effect of having only 10 months of Oil Dynamics,
Inc.'s (ODI) net sales for 1997. ODI was a wholly owned subsidiary of the
Company until its sale on October 24, 1997. The strengthening of the US
dollar relative to the German mark and South African rand also resulted in
lower translated dollar sales for 1997. In 1995, net sales were $276.4
million. The increase in 1996 net sales over 1995 was due to higher unit sales
volume at ODI and FE Petro, Inc., a wholly owned subsidiary, and due to higher
average selling prices throughout the Company.
Net income for 1997 was $25.5 million, or $4.01 per diluted share, compared to
1996 net income of $21.5 million, or $3.22 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. 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 1995 was
$15.5 million, or $2.35 per diluted share. The increase from 1995 to 1996 was
primarily due to higher net sales and improvements in the operations of ODI
and in the Company's European operations.
Cost of sales as a percent of net sales for 1997, 1996 and 1995 was 71.8
percent, 73.7 percent and 76.3 percent, respectively. The decrease in 1997
was primarily due to lower manufacturing costs. The 1996 decrease was a net
result of increased sales and decreases in both fixed and variable
manufacturing costs at ODI and the Company's European operations.
Selling and administrative expenses as a percent of net sales for 1997, 1996
and 1995 was 16.2 percent, 15.3 percent and 14.7 percent, respectively. The
increase in 1997 was primarily a result of higher employee medical costs and
employee compensation. The increase in 1996 was primarily due to sales
commissions on ODI's sales to Russian oil companies, performance incentives
and expenses associated with employee stock awards and stock appreciation
rights granted prior to 1996.
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 1997, 1996 and 1995 was interest income of
$2.4 million, $2.1 million and $1.9 million, respectively, primarily derived
from the investment of cash balances in short-term U.S. treasury bills.
Interest expense for 1997, 1996 and 1995 was $1.4 million, $1.3 million and
$2.1 million, respectively. Foreign currency based transactions produced a
$1.0 million loss in 1997, a $0.3 million loss in 1996, and a $0.7 million
loss in 1995. 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 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 foreign currency transaction loss in 1995 was primarily due
11
to the weakening of the Italian lira relative to the German mark and the
strengthening of the U.S. dollar relative to the Australian dollar and Mexican
peso.
The provision for income taxes in 1997, 1996 and 1995 was $15.0 million, $11.8
million and $8.8 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.
As customer sales volume incentive plans and other programs are based on the
fiscal year of the Company, the additional week in the fiscal year 1997 did
not have a measurable effect on the results of operations of the Company.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Cash flows from operations provide the principal source of current liquidity.
Net cash flows provided by operating activities were $22.0 million, $30.9
million and $15.6 million in 1997, 1996 and 1995, respectively. 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. The 1996
increase was due primarily to the increase in net income and decrease in
inventories.
Net cash flows provided by investing activities were $9.6 million in 1997
versus net cash flows used in investing activities of $38.0 million and $6.7
million in 1996 and 1995, respectively. The increase in 1997 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. The fluctuation between 1996 and 1995 was primarily due
to purchases of short-term marketable securities less the proceeds from the
maturities of these securities. During 1996, the Company changed its cash
investment practice to take advantage of higher yields on treasury bills with
maturities extending beyond three months.
Net cash flows used in financing activities were $31.8 million, $2.5 million
and $15.5 million in 1997, 1996 and 1995, respectively. 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. In 1995, the
Company borrowed $3.5 million on a short-term basis to finance current working
capital requirements, of which $3.1 million was repaid by year-end. The
Company also repaid $15.2 million of short-term borrowings originating in
1994.
Cash, cash equivalents and marketable securities at the end of 1997 were $71.7
million compared to $54.6 million at the end of 1996. Working capital
decreased $1.5 million in 1997 and the current ratio of the Company was 3.2 at
the end of 1997 and 1996.
Principal payments on the Company's $20.0 million of unsecured long-term debt
will begin in 1998 and 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
12
"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 1997 and 1996.
At January 3, 1998, the Company had $4.1 million of commitments for the
purchase of machinery and equipment. During 1998, 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
- -----
Sale of Subsidiary
- ------------------
On October 24, 1997, the Company sold the common stock of ODI, previously a
wholly owned subsidiary, to an unrelated entity for $34.4 million. The
Company's Consolidated Statements of Income for the year ended January 3, 1998
include ODI's results of operations for the first ten months of 1997 and the
gain on the sale of $2.3 million, after tax.
ODI's operations represented substantially all of the Company's oil well
pumping systems product line. Management believes that the sale of ODI will
allow the Company to more effectively build shareholder value at lower risk by
investing its capital and other resources in segments of the world economy
more closely aligned with its historical core markets.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ----------------------------------------------------------------------------
1997 1996 1995
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------
Net sales............................. $303,298 $300,689 $276,440
Cost of sales (including research
and development expenses of $5,058,
$4,846 and $4,742, respectively).... 217,765 221,475 210,969
-------- -------- --------
Gross profit.......................... 85,533 79,214 65,471
Selling and administrative expenses... 49,194 45,915 40,688
-------- -------- --------
Operating income...................... 36,339 33,299 24,783
Interest expense...................... (1,435) (1,308) (2,128)
Gain on sale of subsidiary (Note 2)... 3,500 - -
Other income, net..................... 3,137 1,598 2,341
Foreign exchange loss................. (1,032) (252) (717)
-------- -------- --------
Income before income taxes............ 40,509 33,337 24,279
Income taxes (Note 5)................. 15,004 11,827 8,777
-------- -------- --------
Net income............................ $ 25,505 $ 21,510 $ 15,502
======== ======== ========
Per share data (Note 8):
Net income per common share......... $ 4.33 $ 3.43 $ 2.51
======== ======== ========
Net income per common share,
assuming dilution................. $ 4.01 $ 3.22 $ 2.35
======== ======== ========
Dividends per common share.......... $ .57 $ .46 $ .38
======== ======== ========
See Notes to Consolidated Financial Statements.
14
CONSOLIDATED BALANCE SHEETS
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ----------------------------------------------------------------------------
ASSETS
(in thousands) 1997 1996
- ----------------------------------------------------------------------------
Current assets:
Cash and equivalents........................ $ 23,191 $ 22,968
Marketable securities....................... 48,497 31,624
Receivables (less allowances of $1,349
and $1,435, respectively)................. 16,978 24,634
Inventories:
Raw materials............................. 9,763 15,958
Work-in-process........................... 5,157 4,942
Finished goods............................ 26,267 32,528
LIFO reserve.............................. (9,928) (11,123)
------ ------
31,259 42,305
Other current assets (including deferred
income taxes of $7,490 and $7,755,
respectively, Note 5)..................... 8,575 9,485
-------- --------
Total current assets.................... 128,500 131,016
Property, plant and equipment, at cost:
Land and buildings.......................... 20,018 28,335
Machinery and equipment..................... 82,134 95,457
-------- --------
102,152 123,792
Less allowance for depreciation........... 69,795 83,695
-------- --------
32,357 40,097
Deferred and other assets (including deferred
income taxes of $1,001 in 1997, Note 5).... 2,253 1,846
-------- --------
Total Assets.................................. $163,110 $172,959
======== ========
See Notes to Consolidated Financial Statements.
15
- ---------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
1997 1996
(In thousands)
- ---------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt and
short-term borrowings (Note 6)............ $ 1,196 $ 21
Accounts payable............................ 10,472 14,049
Accrued expenses (Note 4)................... 24,346 23,136
Income taxes (Note 5)....................... 4,513 4,339
-------- --------
Total current liabilities................. 40,527 41,545
Long-term debt (Note 6)...................... 19,163 20,276
Employee benefit plan obligations (Note 3).... 7,237 6,904
Other long-term liabilities................... 3,342 4,228
Deferred income taxes (Note 5)................ - 183
Shareowners' equity (Note 7):
Common shares outstanding
5,847 and 6,371, respectively............. 585 638
Additional capital.......................... 10,295 7,613
Retained earnings........................... 87,508 95,961
Stock subscriptions......................... (625) (997)
Cumulative translation adjustment........... (2,394) (625)
Loan to ESOP Trust (Note 3)................. (2,292) (2,524)
Minimum pension liability
adjustment, net of taxes (Note 3)......... (236) (243)
-------- --------
Total shareowners' equity................. 92,841 99,823
-------- --------
Total Liabilities and Shareowners' Equity..... $163,110 $172,959
======== ========
See Notes to Consolidated Financial Statements.
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ----------------------------------------------------------------------------
1997 1996 1995
(In thousands)
- ----------------------------------------------------------------------------
Cash flows from operating activities:
Net income................................. $25,505 $21,510 $15,502
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization............ 7,628 8,389 8,890
Gain on sale of subsidiary (Note 2)...... (3,500) - -
Deferred income taxes.................... (919) (56) (2,091)
(Gain)/Loss on disposals of plant
and equipment.......................... 273 (20) (43)
Changes in assets and liabilities:
Receivables............................ (2,290) (3,018) 41
Inventories............................ (3,069) 2,164 (7,628)
Other assets........................... (1,882) (360) 495
Accounts payable and other
accrued expenses..................... 11 3,638 (691)
Employee benefit plan obligations...... 1,093 (567) 1,166
Other long-term liabilities............ (846) (807) (69)
------- ------- -------
Net cash flows from operating activities..... 22,004 30,873 15,572
------- ------- -------
Cash flows from investing activities:
Additions to plant and equipment........... (8,598) (6,235) (6,111)
Proceeds from sale of plant and equipment.. 1,163 257 70
Proceeds from sale of subsidiary (Note 2).. 34,402 - -
Transferred cash of subsidiary............. (535) - -
Additions to deferred assets............... - (445) (630)
Purchases of marketable securities......... (64,521) (52,866) -
Proceeds from maturities of marketable
securities............................... 47,648 21,242 -
------- ------- -------
Net cash flows from investing activities..... 9,559 (38,047) (6,671)
------- ------- -------
Cash flows from financing activities:
Borrowing on long-term debt................ - 199 -
Repayment of long-term debt (Note 6)....... (79) (97) -
Borrowing on line of credit................ 186 - 3,549
Repayment of line of credit................ - (393) (18,300)
Proceeds from issuance of common stock..... 1,781 811 530
Purchases of common stock (Note 7)......... (30,649) - -
Proceeds from stock subscriptions.......... 100 25 866
Loan to ESOP Trust......................... - (324) -
Reduction of loan to ESOP Trust............ 232 200 200
Dividends paid............................. (3,371) (2,912) (2,370)
------- ------- -------
Net cash flows from financing activities..... (31,800) (2,491) (15,525)
------- ------- -------
Effect of exchange rate changes on cash...... 460 556 (189)
------- ------- -------
Net change in cash and equivalents........... 223 (9,109) (6,813)
Cash and equivalents at beginning of year.... 22,968 32,077 38,890
------- ------- -------
Cash and equivalents at end of year.......... $23,191 $22,968 $32,077
======= ======= =======
17
Cash paid during 1997, 1996, and 1995 for interest was $1.4 million, $1.3
million and $2.4 million, respectively. Also, cash paid during 1997, 1996 and
1995 for income taxes was $15.2 million, $9.3 million and $12.0 million,
respectively.
Non-cash transactions:
- ----------------------
During the first quarter of 1995, the Company issued 20,000 common shares
valued at $0.6 million under the 1988 Executive Stock Purchase Plan.
See Notes to Consolidated Financial Statements.
18
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts)
Common Cumulative Loan to Minimum
Shares Common Additional Retained Stock Translation ESOP Pension
Outstanding Stock Capital Earnings Subscrip. Adjustment Trust Liability
----------- ----- ------- -------- --------- ---------- ----- ---------
Balance year end 1994.............. 6,199,449 $620 $ 4,667 $64,231 $(2,112) $ 59 $(2,600) $ -
Net income......................... 15,502
Dividends on common stock.......... (2,370)
Common stock issued................ 54,553 6 1,084 (530)
Proceeds from stock subscriptions.. 866
Stock subscription amortization
and adjustment................... (68) 461
Currency translation adjustment.... 541
Loan payment from ESOP............. 200
--------- ---- ------- ------- ------- ------- ------- -----
Balance year end 1995.............. 6,254,002 $626 $ 5,683 $77,363 $(1,315) $ 600 $(2,400) $ -
--------- ---- ------- ------- ------- ------- ------- -----
Net income......................... 21,510
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
Currency translation adjustment.... (1,225)
Loan payment from ESOP............. 200
Loan to ESOP Trust................. (324)
Minimum pension liability
adjustment, net of tax benefit... (243)
--------- ---- ------- ------- ------- ------- ------- -----
Balance year end 1996.............. 6,371,029 $638 $ 7,613 $95,961 $ (997) $ (625) $(2,524) $(243)
--------- ---- ------- ------- ------- ------- ------- -----
Net income......................... 25,505
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
Currency translation adjustment.... (1,769)
Loan payment from ESOP............. 232
Minimum pension liability
adjustment, net of tax benefit... 7
--------- ---- ------- ------- ------- ------- ------- -----
Balance year end 1997.............. 5,846,833 $585 $10,295 $87,508 $ (625) $(2,394) $(2,292) $(236)
========= ==== ======= ======= ======= ======= ======= =====
See Notes to Consolidated Financial Statements.
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 3, 1998 (53 weeks), December 28, 1996 (52 weeks) and
December 30, 1995 (52 weeks) and are referred to as 1997, 1996 and 1995,
respectively.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of the Company and all majority-owned subsidiaries. The accounts of
certain foreign subsidiaries are included in the consolidated financial
statements on their fiscal years ended November 30.
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 56 and 64 percent of total inventories in 1997 and 1996,
respectively. In 1997, due to the liquidation of LIFO inventories, net income
increased by $0.2 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.
20
STOCK-BASED COMPENSATION--Management of the Company has elected to adopt the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123). Employee
stock-based compensation will continue to be accounted for under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
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--In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 specifies the
computation, presentation and disclosure requirements for earnings per share.
Under the new requirements, primary earnings per share is replaced with basic
earnings per share and the dilutive effect of stock options is excluded from
the computation. The Company adopted SFAS No. 128 in the fourth quarter of
1997.
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.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform to the current year presentation.
PENDING ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME. In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements and is effective for fiscal years beginning after
December 15, 1997. The adoption of this Statement is not expected to have a
material impact on the presentation of the Company's financial statements.
SEGMENT DISCLOSURES. In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This statement establishes standards for reporting
information about operating segments and for disclosures about products and
services, geographic areas, and major customers. It is effective for fiscal
years beginning after December 15, 1997. The adoption of this Statement is
not expected to have a material impact on the presentation of the Company's
financial statements.
21
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 and 1995 results of
operations include ODI's net sales of $35.9 million and $26.9 million and net
losses of $3.2 million, and $4.0 million, respectively.
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.
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Net sales.............................. $268,912 $264,838 $249,497
Costs and expenses..................... 230,430 225,610 218,498
-------- -------- --------
Income before income taxes............. 38,482 39,228 30,999
Income taxes........................... 14,304 14,514 11,470
-------- -------- --------
Net income............................. $ 24,178 $ 24,714 $ 19,529
======== ======== ========
Per share data:
Net income per common share.......... $ 4.10 $ 3.94 $ 3.16
======== ======== ========
Net income per common share,
assuming dilution.................. $ 3.80 $ 3.70 $ 2.96
======== ======== ========
- -----------------------------------------------------------------------------
22
3. EMPLOYEE BENEFIT PLANS
PENSION PLANS - As of January 3, 1998, the Company's domestic operations
maintain three separate pension plans covering substantially all of its U.S.
employees. A non-contributory defined benefit pension plan covering
substantially all U.S. employees provides benefits based upon years of
credited service. A contributory defined benefit pension plan covering
substantially all U.S. salaried employees provides benefits based upon the
highest average thirty-six (36) consecutive monthly earnings before
retirement. A non-contributory defined benefit pension plan covering certain
management employees provides benefits in excess of those provided under other
plans. Prior to the sale of ODI, the Company maintained a fourth pension
plan. This non-contributory defined benefit pension plan covered
substantially all ODI employees and provided benefits based upon a percentage
of monthly earnings for each year of credited service. The Company's funding
policy is to make the minimum annual contribution required by applicable
regulations.
Net domestic pension cost for 1997, 1996 and 1995 was as follows:
(In thousands)
- ---------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Service cost.................... $ 2,506 $ 2,295 $ 1,846
Interest on projected
benefit obligation............ 5,716 5,291 4,952
Actual return on plan assets.... (20,580) (16,769) (13,082)
Net amortization and deferral... 14,538 11,331 7,559
------- ------- -------
Net domestic pension cost....... $ 2,180 $ 2,148 $ 1,275
======= ======= =======
- ---------------------------------------------------------------------------
The following table sets forth the funded status of the Company's domestic
plans and accrued pension costs reflected in the Company's balance sheet at
year end. The Company's German subsidiary, which does not report pension
information under the Employee Retirement Income Security Act of 1974 (ERISA),
calculates the pension liability based on local requirements. Pension
liability for the German subsidiary was $1,058 at January 3, 1998 and $1,163
at December 28, 1996. 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.
23
(In thousands)
- --------------------------------------------------------------------------
ABO Exceeds Assets Assets Exceed ABO
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Actuarial Present Value of
Benefit Obligations:
Vested employees.............. $ 1,245 $ 1,120 $71,210 $66,271
Nonvested employees........... 40 38 3,721 2,787
------- ------- ------- -------
Accumulated benefit
obligation (ABO).............. 1,285 1,158 74,931 69,058
Additional amount related to
projected benefit
or pay increases.............. 205 307 4,647 5,624
------- ------- ------- -------
Projected benefit obligation.... 1,490 1,465 79,578 74,682
Fair value of plan assets,
primarily common stocks and
bonds, including $32,030
and $23,306 of the Company's
common stock in 1997 and
1996, respectively............ - - 100,827 86,030
------- ------- ------- -------
Funded status................... (1,490) (1,465) 21,249 11,348
Unrecognized net (gain)/loss.... 598 712 (30,087) (18,698)
Unrecognized net obligation
(asset) at date of initial
application of SFAS No. 87.... - - (198) (242)
Unrecognized prior service cost. 24 32 6,315 4,674
Adjustment required to
recognize minimum liability... (417) (437) - -
------- ------- ------- -------
Accrued pension liability....... $(1,285) $(1,158) $(2,721) $(2,918)
======= ======= ======= =======
Actuarial Assumptions:
1997 1996 1995
---- ---- ----
Discount rate................... 7.25% 7.50% 7.50%
Rate of increase in future
compensation.................. 0-5.0% 0-5.0% 0-5.0%
Expected long-term rate of
return on plan assets......... 8.25-9.0% 8.25-9.0% 8.25-9.0%
- ----------------------------------------------------------------------------
Pursuant to the provisions of Statement of Financial Accounting Standards
No.87, "Employers' Accounting for Pensions," the Company recorded in other
non-current liabilities an additional minimum pension liability adjustment of
$417,000 and $437,000 as of January 3, 1998 and December 28, 1996,
respectively, to recognize the amount of the accumulated plan benefits which
exceeds the fair value of the plan assets and the accrued pension liability.
At January 3, 1998, and December 28, 1996, the liability exceeded the
unrecognized prior service cost resulting in a minimum pension liability, net
of taxes, of $236,000 and $243,000, respectively, recorded as a reduction of
the Company's equity.
EMPLOYEE STOCK OWNERSHIP PLAN - The Company maintains an Employee Stock
Ownership Plan (ESOP) for substantially all of its domestic employees
excluding hourly employees at its Bluffton and Jonesboro, Indiana; Siloam
Springs, Arkansas; and McFarland, Wisconsin, locations.
24
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
3, 1998), 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.
At January 3, 1998, 99,312 shares were allocated to the accounts of
participants, 10,736 shares were committed to be released and allocated to the
accounts of participants for service rendered during 1997, and 76,767 shares
were held by the ESOP Trust in suspense.
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
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.
The following table sets forth the interest expense and Company contributions
to the integrated ESOP and 401(k) Plan (dividends on the Company's common
stock held by the ESOP have not been used for debt service for 1997, 1996 or
1995):
(In thousands)
- ---------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Interest expense incurred by the plan
on ESOP debt............................. $ 148 $ 153 $ 155
Company contributions to integrated plan... 1,200 1,023 1,072
- ---------------------------------------------------------------------------
ODI employees participated in a separate 401(k) plan. The Company contributed
$189,000, $194,000, and $220,000 for this plan in 1997, 1996 and 1995,
respectively.
POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS - The Company's
postretirement health plans cover 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 health insurance benefits at
1991 levels for current and future beneficiaries with actuarially reduced
benefits for employees who retire before age 65.
25
Net postretirement benefit cost for 1997, 1996 and 1995 was as follows:
(In thousands)
- ----------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Service cost............................... $ 235 $ 244 $ 219
Interest cost.............................. 858 803 837
Amortization of transition obligation...... 489 489 489
Net amortization and deferral.............. 136 59 7
------ ------ ------
Net postretirement benefit cost............ $1,718 $1,595 $1,552
====== ====== ======
- ----------------------------------------------------------------------------
The following table sets forth the funded status of the Company's
postretirement benefit plans and accrued postretirement benefit cost reflected
in the Company's balance sheet at year end:
(In thousands)
- ----------------------------------------------------------------------------
1997 1996
---- ----
Accumulated Postretirement
Benefit Obligation:
Retirees................................ $(8,498) $(7,640)
Active employees........................ (3,683) (3,562)
------- -------
(12,181) (11,202)
Unrecognized net obligation at date
of adoption of SFAS No. 106................ 7,334 7,823
Unrecognized net loss........................ 2,674 1,714
------- -------
Accrued postretirement benefit cost.......... $(2,173) $(1,665)
======= =======
- ----------------------------------------------------------------------------
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.25, 7.50 and 7.50 percent in 1997, 1996 and 1995,
respectively.
4. ACCRUED EXPENSES
Accrued expenses consisted of:
(In thousands)
- ---------------------------------------------------------------------------
1997 1996
---- ----
Salaries, wages and commissions....... $ 7,345 $ 7,092
Product warranty costs................ 4,282 4,717
Insurance............................. 5,198 4,895
Employee benefits..................... 1,763 1,654
Other................................. 5,758 4,778
------- -------
$24,346 $23,136
======= =======
- --------------------------------------------------------------------------
26
5. INCOME TAXES
Income before income taxes consisted of:
(In thousands)
- --------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Domestic.................... $34,269 $27,664 $23,647
Foreign..................... 6,240 5,673 632
------- ------- -------
$40,509 $33,337 $24,279
======= ======= =======
- --------------------------------------------------------------------------
The income tax provision consisted of:
(In thousands)
- --------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Currently payable:
Federal................... $10,606 $ 8,110 $ 8,714
Foreign................... 2,397 1,611 113
State..................... 2,920 2,162 2,041
Deferred:
Federal................... (757) (44) (2,293)
Foreign................... 58 50 343
State..................... (220) (62) (141)
------- ------- -------
$15,004 $11,827 $ 8,777
======= ======= =======
- ----------------------------------------------------------------------------
Significant components of the Company's deferred tax assets and liabilities
were as follows:
(In thousands)
- ----------------------------------------------------------------------------
1997 1996
---- ----
Deferred tax assets:
Accrued expenses and reserves.............. $ 6,125 $ 6,835
Compensation and employee benefits......... 4,868 4,380
Other items................................ 564 670
------- -------
Total deferred tax assets................ 11,557 11,885
------- -------
Deferred tax liabilities:
Accelerated depreciation on fixed assets... 2,908 4,132
Other items................................ 158 181
------- -------
Total deferred tax liabilities........... 3,066 4,313
------- -------
Net deferred tax assets...................... $ 8,491 $ 7,572
======= =======
- ---------------------------------------------------------------------------
27
The portions of current and non-current deferred tax assets and liabilities
were as follows:
(In thousands)
- ---------------------------------------------------------------------------
1997 1996
--------------------- ---------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Current........ $ 7,490 $ - $ 7,840 $ 85
Non-current.... 4,067 3,066 4,045 4,228
------- ------ ------- ------
$11,557 $3,066 $11,885 $4,313
======= ====== ======= ======
- ---------------------------------------------------------------------------
There was no valuation allowance for deferred tax assets required in 1997 or
1996.
The differences between the statutory and effective tax rates were as follows:
- ---------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
U.S. Federal statutory rate...... 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit................ 4.3 4.1 5.1
Effect of higher foreign
tax rates...................... .6 (.5) 1.0
Earnings of foreign sales
corporation ................... (1.4) (3.1) (.4)
Utilization of foreign
tax credits.................... (1.5) - (5.2)
Other items...................... - - .7
----- ----- -----
37.0% 35.5% 36.2%
===== ===== =====
- ---------------------------------------------------------------------------
Accumulated undistributed earnings of foreign subsidiaries expected to be
permanently invested approximated $0.1 million at January 3, 1998. The
Company does not anticipate incurring any tax should these earnings be
repatriated in the future.
28
6. DEBT
Short-term borrowings consisted of:
(In thousands)
- --------------------------------------------------------------------------
1997 1996
---- ----
Bank--other............................. $177 $ -
==== ====
- ---------------------------------------------------------------------------
Long-term debt consisted of:
(In thousands)
- --------------------------------------------------------------------------
1997 1996
---- ----
Insurance Company--6.31%, principal
payments of $1.0 million due in
annual installments, starting in
1998 with a balloon payment of
$10,000 in 2008....................... $20,000 $20,000
Bank--other............................. 182 297
------- -------
20,182 20,297
Less current maturities................. (1,019) (21)
------- -------
$19,163 $20,276
======= =======
- --------------------------------------------------------------------------
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 financial covenants in
1997 and 1996.
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. 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 5,846,833 shares of common stock (10,000,000 shares
authorized, $.10 par value) outstanding at the end of 1997.
During 1997, pursuant to stock repurchase programs authorized by the Company's
Board of Directors, the Company repurchased a total of 615,000 shares for
$30.6 million. Of these shares, 175,000 were repurchased from a director of
the Company. All repurchased shares were retired.
Stock subscriptions are principally deferred costs recognized in connection
with the issuance of common stock under the 1988 Stock Incentive Award Plan
and loans to officers under the 1988 Executive Stock Purchase Plan.
29
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Numerator:
Net Income.......................... $25,505 $21,510 $15,502
======= ======= =======
Denominator:
Basic
-----
Weighted average common shares..... 5,895 6,279 6,186
Diluted
-------
Effect of dilutive securities:
Employee and director incentive
stock options and awards........ 471 397 412
------- ------- -------
Adjusted weighted average common
shares.......................... 6,366 6,676 6,598
======= ======= =======
Basic earnings per share.............. $ 4.33 $ 3.43 $ 2.51
======= ======= =======
Diluted earnings per share............ $ 4.01 $ 3.22 $ 2.35
======= ======= =======
- ----------------------------------------------------------------------------
9. STOCK-BASED COMPENSATION
At January 3, 1998, the Company had seven stock-based compensation plans which
are described as follows.
FIXED STOCK OPTION PLANS--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.
30
A summary of the Company's fixed stock option plans activity and related
information for 1997, 1996 and 1995 follows:
- ---------------------------------------------------------------------------------------------------------
1997 1996 1995
Weighted-Average Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------------ ------------------------- ------------------------ --------------------------
Outstanding at
beginning of year 850,125 $23.51 861,092 $18.69 753,645 $15.90
Granted 18,000 46.47 116,500 41.74 192,000 31.82
Exercised (104,829) 7.96 (121,467) 6.90 (34,553) 15.36
Forfeited (1,000) 26.50 (6,000) 22.13 (50,000) 29.25
------- ------- -------
Outstanding at
end of year 762,296 25.73 850,125 $23.51 861,092 $18.69
======= ======= =======
- ---------------------------------------------------------------------------------------------------------
The following summarizes information about fixed stock options outstanding
at January 3, 1998:
- ---------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
-------------------------------------------------- ------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 1/03/98 Contractual Life Exercise Price at 1/03/98 Exercise Price
- --------------- ---------- ---------------- -------------- ---------- --------------
$ 5.86 to 10.00 189,196 1.88 years $ 8.22 189,196 $ 8.22
10.01 to 30.00 245,600 6.08 25.35 199,600 25.09
30.01 to 54.13 327,500 8.04 36.14 182,100 32.92
------- -------
$ 5.86 to 54.13 762,296 5.88 $25.73 570,896 $22.00
======= =======
- ---------------------------------------------------------------------------------------------------------
For pro forma information regarding net income and earnings per share, the
fair value for the options awarded in 1997, 1996 and 1995 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 1997, 1996 and 1995, respectively.
- ----------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Risk-free interest rate............ 6.51% 6.18% 6.42%
Dividend yield..................... 1.2 % 1.4 % 1.4 %
Volatility factor.................. .236 .257 .260
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:
31
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Reported net income................. $25,505 $21,510 $15,502
Pro forma net income................ $25,037 $21,245 $15,362
Reported net income available
per common share.................. $4.33 $3.43 $2.51
Pro forma net income available
per common share.................. $4.25 $3.38 $2.48
Reported net income available per
common share, assuming dilution... $4.01 $3.22 $2.35
Pro forma net income available per
common share, assuming dilution .. $3.93 $3.18 $2.33
- ----------------------------------------------------------------------------
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.
ADDITIONAL AWARD PLANS--The Company has authorized the grant of up to 888,000
restricted shares of its common stock to employees of the Company and its
subsidiaries under the 1988 Stock Incentive Award Plan (1988 Award Plan).
Vesting of shares awarded under the 1988 Award Plan can be contingent upon
individual or Company performance relative to certain thresholds. No shares
were awarded under the 1988 Award Plan during 1997, 1996 or 1995. At
January 3, 1998, 671,936 shares were reserved for future awards.
The Company has allocated 888,000 shares of its common stock for the 1988
Executive Stock Purchase Plan (1988 Purchase Plan). Under this plan
executives of the Company and its subsidiaries are awarded the right to
purchase shares of its common stock through a Company loan. The purchase price
per share is the closing price of a share on the day prior to the date of
purchase. No shares were awarded in 1997 or 1996. During 1995, 20,000 shares
were awarded under this plan. At January 3, 1998, 512,800 shares were
reserved for future awards.
32
10. SEGMENT AND GEOGRAPHIC INFORMATION
The Company's single business segment is the design, manufacture and sale of
electric motors, electronic motor controls and related equipment. These
products are primarily sold to original equipment manufacturers in the United
States, Canada, Europe, Australia, South Africa, Mexico and other world
markets.
Manufacturing plants are located in the United States, Germany, Czech
Republic, Italy and South Africa.
GEOGRAPHICAL AREAS
(In thousands)
- ----------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
NET SALES
North America.............. $251,842 $252,007 $225,958
Foreign.................... 51,456 48,682 50,482
-------- -------- --------
$303,298 $300,689 $276,440
======== ======== ========
OPERATING MARGIN
North America.............. $ 48,149 $ 44,011 $ 38,885
Foreign.................... 7,848 7,425 2,148
Interest expense........... (1,435) (1,308) (2,128)
Interest income............ 2,379 2,052 1,866
Corporate expenses......... (16,432) (18,843) (16,492)
-------- -------- --------
Income before taxes........ $ 40,509 $ 33,337 $ 24,279
======== ======== ========
IDENTIFIABLE ASSETS
North America.............. $ 52,565 $ 81,070 $ 84,013
Foreign.................... 27,486 29,966 29,697
Corporate ................. 83,059 61,923 39,647
-------- -------- -------
$163,110 $172,959 $153,357
======== ======== ========
- ----------------------------------------------------------------------------
The Company has no single geographic area within its foreign operations whose
revenues or assets exceed 10 percent of such amounts on a consolidated basis.
The Company had $40.8 million, $44.6 million and $32.7 million of export sales
(from domestic sources) in 1997, 1996 and 1995, respectively, to various
geographic areas, of which no single geographic area was significant.
One customer accounted for 12.4%, 12.5% and 12.9% of the consolidated sales in
1997, 1996 and 1995, respectively.
33
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited quarterly financial information for the years 1997 and 1996 is as
follows:
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------
Basic Diluted
Net Gross Net Earnings Earnings
Sales Profit Income Per Share Per Share
----- ------ ------ --------- ---------
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
======== ======= ======= ===== =====
1996
- ----
1st Quarter..... $ 62,754 $14,960 $ 3,008 $ .48 $ .45
2nd Quarter..... 73,107 19,249 5,081 .81 .76
3rd Quarter..... 79,380 20,047 5,612 .89 .84
4th Quarter..... 85,448 24,958 7,809 1.25 1.17
-------- ------- ------- ----- -----
$300,689 $79,214 $21,510 $3.43 $3.22
======== ======= ======= ===== =====
- ----------------------------------------------------------------------------
12. CONTINGENT LIABILITIES 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 $1.4 million and $1.6
million at January 3, 1998 and December 28, 1996, 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 3, 1998 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 $35,000.
Total rent expense charged to operations for operating leases including
contingent rentals was $2.3 million, $2.4 million and $2.0 million for 1997,
1996 and 1995, respectively. The future minimum rental payments for
noncancellable operating leases as of January 3, 1998, are as follows: 1998,
$0.5 million; 1999, $0.4 million and 2000, $0.3 million. Rental commitments
subsequent to 2000 are not material.
34
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 3, 1998 and
December 28, 1996 and the related consolidated statements of income,
shareowners' equity and cash flows for each of the three years in the period
ended January 3, 1998. 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 financial statements present fairly, in all material
respects, the financial position of Franklin Electric Co., Inc. and
consolidated subsidiaries as of January 3, 1998 and December 28, 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended January 3, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic 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 30, 1998
35
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 17, 1998, 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 17, 1998,
under the headings of "INFORMATION ABOUT THE BOARD AND ITS COMMITTEES,"
"SUMMARY COMPENSATION TABLE," "OPTION GRANTS IN 1997 FISCAL YEAR," "1997
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 17, 1998,
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 17, 1998,
under the headings of "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" and "AGREEMENTS," and is incorporated herein by reference.
36
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........................ 34
Consolidated Statements of Income for the
three years ended January 3, 1998................. 13
Consolidated Balance Sheets, as of
January 3, 1998 and December 28, 1996............. 14-15
Consolidated Statements of Cash Flows
for the three years ended January 3, 1998......... 16-17
Consolidated Statements of Shareowners' Equity
for the three years ended January 3, 1998......... 18
Notes to Consolidated Financial Statements
(including quarterly financial data).............. 19-33
2. Financial Statement Schedules - Franklin Electric
-------------------------------------------------
II Valuation and Qualifying Accounts................ 37
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 39-40.
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 3, 1998:
During the fourth quarter ended January 3, 1998, a Form 8-K was
filed by the Company dated October 24, 1997, to report the sale of
Oil Dynamics Inc. Another Form 8-K was filed by the Company dated
November 7, 1997, to report the Company's repurchase of 75,000
shares of its common stock.
(c) See the Exhibit Index located on pages 39-40.
(d) Individual financial statements and all other schedules
of the Registrant are omitted as they are not required.
37
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years 1997, 1996 and 1995
(In thousands)
--------------
Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
- ----------- --------- -------- ---------- ---------
Allowance for doubtful accounts:
1997 $1,435 $248 $334 (A) $1,349
====== ==== ==== ======
1996 $1,351 $227 $143 (B) $1,435
====== ==== ==== ======
1995 $1,271 $190 $110 (B) $1,351
====== ==== ==== ======
NOTES:
(A) Uncollectible accounts written off, net of recoveries, and the
elimination of Oil Dynamics Inc.
(B) Uncollectible accounts written off, net of recoveries.
38
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
(Date) February 13, 1998 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 13, 1998 (Principal Executive
Officer)
/s/ JOHN B. LINDSAY
- -------------------------------------
John B. Lindsay February 13, 1998 President and Director
/s/ JESS B. FORD Vice President and Chief
- ------------------------------------- Financial Officer (Principal
Jess B. Ford February 13, 1998 Financial and Accounting
Officer)
/s/ ROBERT H. LITTLE
- -------------------------------------
Robert H. Little February 13, 1998 Director
/s/ PATRICIA SCHAEFER
- -------------------------------------
Patricia Schaefer February 13, 1998 Director
/s/ DONALD J. SCHNEIDER
- -------------------------------------
Donald J. Schneider February 13, 1998 Director
/s/ GERARD E. VENEMAN
- -------------------------------------
Gerard E. Veneman February 13, 1998 Director
/s/ JURIS VIKMANIS
- -------------------------------------
Juris Vikmanis February 13, 1998 Director
/s/ HOWARD B. WITT
- -------------------------------------
Howard B. Witt February 13, 1998 Director
39
FRANKLIN ELECTRIC CO., INC.
EXHIBIT INDEX FOR THE FISCAL YEAR
ENDED JANUARY 3, 1998
Sequentially
Numbered
Item Description Pages
- ---- ----------- -----
3(i) Restated Articles of Incorporation of Franklin
Electric Co., Inc. (incorporated herein by
reference to Exhibit 3 of the Company's Form 10-K
for the fiscal year ended December 30, 1989)
Articles of Amendment of the Restated Articles of
Incorporation of Franklin Electric Co., Inc.
effective February 26, 1991 (incorporated herein
by reference to the Company's current report on
Form 8-K dated February 26, 1991)
3(ii) By-Laws of Franklin Electric Co., Inc. as amended,
effective July 15, 1994 (incorporated herein by
reference to the Company's Form 10-K for the fiscal
year ended December 31, 1994)
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)*
40
10.5 Franklin Electric Nonemployee Director Stock
Option Plan (incorporated herein by reference to
the Company's 1991 Proxy Statement for the Annual
Meeting on April 19, 1991)*
10.6 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).
10.7 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)*
10.8 Amended and Restated Credit Agreement dated as of
December 30, 1997 between the Company and various
commercial banks.......................................... 41-115
10.9 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).*
10.10 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).*
21 Subsidiaries of the Registrant............................ 116
23 Independent Auditors' Consent............................. 117
27 Financial Data Schedule................................... 118
* Management contract or compensatory plan or arrangement