FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-362
FRANKLIN ELECTRIC CO., INC.
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(Exact name of registrant as specified in its charter)
Indiana 35-0827455
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East Spring Street
Bluffton, Indiana 46714
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(Address of principal executive offices) (Zip Code)
(219) 824-2900
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock August 3, 1998
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$.10 par value 5,765,805 shares
FRANKLIN ELECTRIC CO., INC.
Index
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of July 4, 1998 (Unaudited)
and January 3, 1998
Condensed Consolidated Statements of
Income for the Second Quarter and First
Half ended July 4, 1998 (Unaudited) and
June 28, 1997 (Unaudited)
Condensed Consolidated Statements
Of Cash Flows for the First Half
Ended July 4, 1998 (Unaudited) and
June 28, 1997 (Unaudited)
Notes to Condensed Consolidated
Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of
Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) July 4, January 3,
1998 1998
(Unaudited) (Audited)
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ASSETS
Current assets:
Cash and equivalents.................... $ 34,087 $ 23,191
Marketable securities................... 25,984 48,497
Receivables, less allowances of
$891 and $1,349, respectively......... 18,916 16,978
Inventories (Note 2).................... 44,020 31,259
Other current assets (including
deferred income taxes of $8,428
and $7,490, respectively)............. 9,614 8,575
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Total current assets.................. 132,621 128,500
Property, plant and equipment,
net (Note 3)............................ 33,059 32,357
Deferred and other assets (including
deferred income taxes of $972
and $1,001, respectively)............... 2,073 2,253
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Total assets.............................. $167,753 $163,110
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 3,557 $ 1,196
Accounts payable........................ 7,277 10,472
Accrued expenses........................ 26,444 24,346
Income taxes............................ 30 4,513
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Total current liabilities............. 37,308 40,527
Long-term debt............................ 19,103 19,163
Employee benefit plan obligations......... 8,437 7,237
Other long-term liabilities............... 3,213 3,342
Shareowners' equity:
Common stock (Note 5)................... 592 585
Additional capital...................... 12,667 10,295
Retained earnings....................... 91,516 87,508
Stock subscriptions..................... (136) (625)
Loan to ESOP Trust...................... (2,059) (2,292)
Accumulated other comprehensive
loss (Note 7)......................... (2,888) (2,630)
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Total shareowners' equity............. 99,692 92,841
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Total liabilities and shareowners' equity. $167,753 $163,110
======== ========
See Notes to Condensed Consolidated Financial Statements.
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Second Qtr. Ended First Half Ended
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July 4, June 28, July 4, June 28,
1998 1997 1998 1997
---- ---- ---- ----
Net sales.............................. $67,907 $75,935 $123,921 $140,135
Costs and expenses:
Cost of sales........................ 47,484 56,234 88,318 103,943
Selling and administrative expenses.. 11,197 11,504 20,924 22,968
Interest expense..................... 321 324 635 669
Other income, net.................... (889) (465) (1,764) (962)
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58,113 67,597 108,113 126,618
Income before income taxes............. 9,794 8,338 15,808 13,517
Income taxes........................... 3,799 3,069 6,153 5,053
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Net income............................. $ 5,995 $ 5,269 $ 9,655 $ 8,464
======= ======= ======== ========
Per share data (Note 6):
Net income per common share.......... $ 1.02 $ .90 $ 1.65 $ 1.43
======= ======= ======== ========
Net income per common share,
assuming dilution.................. $ .95 $ .84 $ 1.53 $ 1.33
======= ======= ======== ========
Dividends per common share........... $ .17 $ .15 $ .32 $ .27
======= ======= ======== ========
See Notes to Condensed Consolidated Financial Statements.
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) First Half Ended
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July 4, June 28,
1998 1997
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Cash flows from operating activities:
Net income................................ $ 9,655 $ 8,464
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization........... 3,385 3,753
(Gain)/loss on disposals of plant
and equipment......................... (39) 41
Changes in assets and liabilities:
Receivables........................... (2,030) (1,537)
Inventories........................... (13,029) (12,736)
Other assets.......................... (979) (925)
Accounts payable and other accrued
expenses............................ (5,122) (6,714)
Employee benefit plan obligations..... 1,206 1,500
Other long-term liabilities........... (128) (109)
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Net cash flows from
operating activities.............. (7,081) (8,263)
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Cash flows from investing activities:
Additions to plant and equipment.......... (3,534) (2,273)
Proceeds from sale of plant and
equipment............................... 51 966
Purchase of marketable securities......... - (6,846)
Proceeds from maturities of marketable
securities ............................. 22,513 31,596
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Net cash flows from
investing activities.................. 19,030 23,443
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Cash flows from financing activities:
Repayment of long-term debt............... (58) (76)
Borrowing on line of credit............... 2,496 -
Repayment of line of credit............... (172) -
Proceeds from issuance of common stock.... 2,072 526
Purchase of common stock.................. (3,772) (24,000)
Proceeds from stock subscriptions......... 352 100
Reduction of loan from ESOP Trust......... 233 232
Dividends paid............................ (1,880) (1,591)
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Net cash flows from
financing activities.................. (729) (24,809)
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Effect of exchange rate changes on cash..... (324) 42
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Net change in cash and equivalents.......... 10,896 (9,587)
Cash and equivalents at
beginning of period....................... 23,191 22,968
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Cash and equivalents at end of period....... $34,087 $13,381
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See Notes to Condensed Consolidated Financial Statements.
FRANKLIN ELECTRIC CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Condensed Consolidated Financial Statements
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The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the first half
ended July 4, 1998 are not necessarily indicative of the results that may be
expected for the year ending January 2, 1999. For further information, refer
to the consolidated financial statements and footnotes thereto included in
Franklin Electric Co., Inc.'s annual report on Form 10-K for the year ended
January 3, 1998.
Note 2: Inventories
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Inventories consist of the following:
(In thousands) July 4, January 3,
1998 1998
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Raw Materials........................ $11,593 $11,119
Work in Process...................... 5,225 5,157
Finished Goods....................... 37,378 24,911
LIFO Reserve......................... (10,176) (9,928)
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Total Inventory...................... $44,020 $31,259
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Note 3: Property, Plant and Equipment
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Property, plant and equipment, at cost, consists of the following:
(In thousands) July 4, January 3,
1998 1998
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Land and Building.................... $20,402 $20,018
Machinery and Equipment.............. 84,810 82,134
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105,212 102,152
Allowance for Depreciation........... 72,153 69,795
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$33,059 $32,357
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Note 4: Tax Rates
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The effective tax rate on income before income taxes in 1998 and 1997 varies
from the United States statutory rate of 35 percent principally due to the
effect of state and foreign income taxes.
Note 5: Shareowners' Equity
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The Company had 5,914,805 shares of common stock (25,000,000 shares
authorized, $.10 par value) outstanding as of July 4, 1998. During the second
quarter of 1998, the Company amended its Articles of Incorporation to increase
the number of authorized common shares to 25,000,000.
During the second quarter of 1998, pursuant to the stock repurchase program
authorized by the Company's Board of Directors, the Company repurchased a
total of 32,000 shares for $2.0 million. All repurchased shares were retired.
Note 6: Earnings Per Share
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Following is the computation of basic and diluted earnings per share:
(In thousands, except Second Qtr. Ended First Half Ended
per share amounts) ----------------- ----------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
---- ---- ---- ----
Numerator:
Net Income..................... $5,995 $5,269 $9,655 $8,464
====== ====== ====== ======
Denominator:
Basic
Weighted average common
shares....................... 5,851 5,849 5,835 5,930
Diluted
Effect of dilutive securities:
Employee and director
incentive stock options
and awards................. 463 442 476 450
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Adjusted weighted average
common shares................ 6,314 6,291 6,311 6,380
====== ====== ====== ======
Basic earnings per share......... $ 1.02 $ .90 $ 1.65 $ 1.43
====== ====== ====== ======
Diluted earnings per share....... $ .95 $ .84 $ 1.53 $ 1.33
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Note 7: Other Comprehensive Income
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The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" in the first quarter of 1998. Comprehensive
income for the second quarter and first half ended July 4, 1998 and
June 28, 1997 are as follows:
(In thousands) Second Qtr. Ended First Half Ended
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July 4, June 28, July 4, June 28,
1998 1997 1998 1997
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Net income......................... $5,995 $5,269 $9,655 $8,464
Other comprehensive loss:
Foreign currency translation
adjustments..................... 153 (209) (258) (949)
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Comprehensive income, net of tax... $6,148 $5,060 $9,397 $7,515
====== ====== ====== ======
Accumulated other comprehensive loss consists of the following:
(In thousands) July 4, January 3,
1998 1998
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Cumulative translation adjustment........... $(2,652) $(2,394)
Minimum pension liability adjustment,
net of tax................................ (236) (236)
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$(2,888) $(2,630)
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Note 8: Accounting Pronouncements
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Disclosures about Pensions and Other Postretirement Benefits
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In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" (SFAS No. 132). This statement revises
employers' disclosures about pension and other postretirement benefits. It
does not change the measurement or recognition of these plans. SFAS No. 132
requires additional information on changes in the benefit obligations and fair
values of plan assets and eliminates certain disclosures that are no longer
considered useful. The Company will include the new disclosures in the notes
to its financial statements beginning with the 1998 fiscal year end financial
reports.
Item 2. Management's Discussion And Analysis Of Financial Condition
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And Results Of Operations
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Operations
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Net sales for the second quarter of 1998 were $67.9 million, a 10.6 percent
decrease from 1997 second quarter net sales of $75.9 million. Year to date
1998 net sales were $123.9 million, down 11.6 percent from year to date 1997
net sales of $140.1 million. Prior year amounts include the sales of Oil
Dynamics, Inc. (ODI). ODI was a previously wholly owned subsidiary that was
sold in October 1997. Second quarter net sales for the Company's ongoing
operations were slightly lower than the prior year due to the strengthening
dollar and softness in the Asian market. Year to date net sales for the
Company's ongoing operations increased due to higher volume in the submersible
water systems motors and changes in the mix of products sold offset in part by
the effects of the strengthening dollar.
Cost of sales as a percent of net sales for the second quarter of 1998 was
69.9 percent, a decrease from 74.1 percent for the same period in 1997. Cost
of sales as a percent of net sales for the year to date 1998 was 71.3 percent,
a decrease from 74.2 percent for the same period in 1997. Prior year cost of
sales included ODI. The improvements are primarily a result of selling ODI and
productivity improvements.
Net income for the second quarter of 1998 was $6.0 million, or $.95 per
diluted share, a 13.8 percent increase compared to net income of $5.3 million,
or $.84 per diluted share, for the same period in 1997. Year to date 1998 net
income was $9.7 million, or $1.53 per diluted share, a 14.1 percent increase
compared to year to date 1997 net income of $8.5 million, or $1.33 per diluted
share.
Selling and administrative expenses as a percent of net sales for the second
quarter of 1998 was 16.5 percent compared to 15.1 percent for the same period
in 1997. Selling and administrative expenses as a percent of net sales for
the year to date 1998 was 16.9 percent compared to 16.4 percent for the year
to date 1997. Both the quarter and year to date selling and administrative
expenses as a percent of net sales increased primarily as a result of higher
employee related expenses.
Included in other income, net for the second quarter of 1998 was $.8 million
of interest income and $.1 of foreign currency gains compared to $.3 million
of interest income and $.1 of foreign currency losses for the second quarter
of 1997. Included in other income, net for the year to date 1998 was $1.8
million of interest income and $.1 million of foreign currency losses compared
to $.8 million of interest income and $.6 million of foreign currency losses
for the same period in 1997. Interest income was attributable to amounts
invested principally in short-term US treasury and agency securities.
Capital Resources and Liquidity
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Cash, cash equivalents and marketable securities decreased $11.6 million
during the first half of 1998. The principal use of cash for operating
activities was the typical seasonal increase in inventories. Working capital
increased $7.3 million during the first half of 1998 and the current ratio was
3.6 and 3.2 at July 4, 1998, and January 3, 1998, respectively.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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The 1998 Annual Meeting of Shareholders of the Company was held on
April 17, 1998 for the following purposes: 1) To elect two directors for
terms expiring at the 2001 Annual Meeting of Shareholders; 2) To approve an
amendment to the Franklin Electric Co., Inc. Amended 1988 Executive Stock
Purchase Plan; 3) To approve an amendment to the Restated Certificate of
Incorporation to increase the number of shares of authorized common stock;
and 4) To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the 1998 fiscal year.
The results were:
1) Nominees for Director For Withhold Authority
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William H. Lawson 5,513,275 68,206
Donald J. Schneider 5,513,265 68,216
For Against Abstain
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2) Amendment to the
Amended 1988 Executive
Stock Purchase Plan 4,871,618 115,914 17,116
3) Amendment to increase the
number of shares of
authorized common stock 5,175,339 400,376 5,766
4) Ratification of
Deloitte & Touche LLP 5,574,032 4,615 2,834
Total shares represented at the Annual Meeting in person or by proxy were
5,581,481 of a total of 5,870,960 shares outstanding. This represented 95.1
percent of Company common stock and constituted a quorum. Total broker non-
votes related to the proposal to amend the Amended 1988 Executive Stock
Purchase Plan were 576,833 shares.
Item 5. Other Information
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On August 3, 1998, the Company completed the repurchase of 125,000 shares of
its Common Stock pursuant to the stock repurchase program authorized by the
Company's Board of Directors. These shares were purchased from the Franklin
Electric Co., Inc. Basic Pension Plan and the Franklin Electric Co., Inc.
Contributory Pension Plan. The purchase price for these shares of $65.577 was
based upon the stock's average closing price for the twenty trading days prior
to the transaction date of July 31, 1998.
In addition to the above repurchase, the Company repurchased, in the open
market, a total of 26,000 shares of its Common Stock for $1.7 million during
the period from July 5, 1998 to August 3, 1998. All repurchased shares were
retired.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits (Filed with this quarterly report)
3(i) Amended and Restated Articles of Incorporation of Franklin
Electric Co., Inc.
3(ii) Amended and Restated By-Laws of Franklin Electric Co., Inc.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report to be signed on its behalf by
the undersigned thereunto duly authorized.
FRANKLIN ELECTRIC CO., INC.
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Registrant
Date August 3, 1998 By /s/ William H. Lawson
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William H. Lawson, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date August 3, 1998 By /s/ Jess B. Ford
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Jess B. Ford, Senior Vice
President and Chief Financial
Officer (Principal Financial
and Accounting Officer)