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 April 3, 1999
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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 _____
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 MAY 11, 1999
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$.10 par value 5,565,620 shares
2
FRANKLIN ELECTRIC CO., INC.
Index
Page
PART I. FINANCIAL INFORMATION Number
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of April 3, 1999 (Unaudited)
and January 2, 1999........................... 3
Condensed Consolidated Statements of
Income for the Three Months Ended
April 3, 1999 and April 4, 1998 (Unaudited).. 4
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
April 3, 1999 and April 4, 1998 (Unaudited).. 5
Notes to Condensed Consolidated
Financial Statements (Unaudited).............. 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations......................... 9-10
PART II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of
Security Holders............................ 11
Item 6. Exhibits and Reports on Form 8-K.............. 11
Signatures................................................ 12
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3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) April 3, January 2,
1999 1999
- ---- ----
ASSETS
Current assets:
Cash and equivalents.................... $ 30,218 $ 17,034
Marketable securities................... - 27,921
Receivables, less allowances of
$1,100 and $1,107, respectively....... 16,730 16,037
Inventories (Note 2).................... 44,806 35,330
Other current assets (including
deferred income taxes of $8,774)...... 10,195 9,961
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Total current assets.................. 101,949 106,283
Property, plant and equipment,
net (Note 3)............................ 51,938 51,461
Deferred and other assets (including
deferred income taxes of $1,296
and $1,362, respectively)............... 9,552 9,846
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Total assets.............................. $163,439 $167,590
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 3,685 $ 3,716
Accounts payable........................ 10,049 13,556
Accrued expenses........................ 21,776 24,539
Income taxes............................ 3,449 2,594
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Total current liabilities............. 38,959 44,405
Long-term debt............................ 18,082 18,089
Employee benefit plan obligations......... 10,983 10,167
Other long-term liabilities............... 3,277 3,332
Shareowners' equity:
Common stock (Note 5)................... 557 557
Additional capital...................... 14,283 14,105
Retained earnings....................... 83,258 81,872
Loan to ESOP Trust...................... (1,827) (2,059)
Accumulated other comprehensive
loss (Note 7)......................... (4,133) (2,878)
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Total shareowners' equity............. 92,138 91,597
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Total liabilities and shareowners' equity. $163,439 $167,590
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
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April 3, April 4,
1999 1998
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Net sales................................. $58,014 $56,014
Costs and expenses:
Cost of sales........................... 42,576 40,834
Selling and administrative expenses..... 9,759 9,727
Interest expense........................ 326 314
Other income, net....................... (166) (875)
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52,495 50,000
Income before income taxes................ 5,519 6,014
Income taxes.............................. 2,042 2,354
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Net income................................ $ 3,477 $ 3,660
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Per share data (Note 6):
Basic earnings per share................ $ .63 $ .63
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Diluted earnings per share.............. $ .59 $ .58
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Dividends per common share.............. $ .17 $ .15
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See Notes to Condensed Consolidated Financial Statements.
5
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) Three Months Ended
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April 3, April 4,
1999 1998
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Cash flows from operating activities:
Net income................................ $ 3,477 $ 3,660
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization........... 1,731 1,786
(Gain)/loss on disposals of plant
and equipment......................... - (9)
Changes in assets and liabilities:
Receivables........................... (1,052) (1,505)
Inventories........................... (10,872) (9,383)
Other assets.......................... (117) (864)
Accounts payable and other accrued
expenses............................ (4,937) (3,946)
Employee benefit plan obligations..... (36) 602
Other long-term liabilities........... 915 (5)
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Net cash flows from
operating activities.............. (10,891) (9,664)
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Cash flows from investing activities:
Additions to plant and equipment.......... (2,529) (1,679)
Proceeds from sale of plant and
equipment............................... - 10
Proceeds from maturities of marketable
securities ............................. 27,921 16,766
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Net cash flows from
investing activities.................. 25,392 15,097
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Cash flows from financing activities:
Repayment of long-term debt............... - (7)
Borrowing on line of credit............... 366 -
Repayment of line of credit............... (174) (174)
Proceeds from issuance of common stock.... 401 1,484
Purchase of common stock.................. (1,043) (1,728)
Proceeds/(reduction) from stock
subscriptions........................... (324) 352
Reduction of loan from ESOP Trust......... 232 233
Dividends paid............................ (948) (881)
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Net cash flows from
financing activities.................. (1,490) (721)
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Effect of exchange rate changes on cash..... 173 106
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Net change in cash and equivalents.......... 13,184 4,818
Cash and equivalents at
beginning of period....................... 17,034 23,191
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Cash and equivalents at end of period....... $30,218 $28,009
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See Notes to Condensed Consolidated Financial Statements.
6
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 three
months ended April 3, 1999 are not necessarily indicative of the results that
may be expected for the year ending
January 1, 2000. 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 2, 1999.
Note 2: Inventories
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Inventories consist of the following:
(In thousands) April 3, January 2,
1999 1999
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Raw Materials........................ $12,714 $12,080
Work in Process...................... 5,718 5,281
Finished Goods....................... 35,956 27,439
LIFO Reserve......................... (9,582) (9,470)
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Total Inventory...................... $44,806 $35,330
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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) April 3, January 2,
1999 1999
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Land and Buildings................... $ 21,741 $ 21,889
Machinery and Equipment.............. 105,703 104,317
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127,444 126,206
Allowance for Depreciation........... 75,506 74,745
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$ 51,938 $ 51,461
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7
Note 4: Tax Rates
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The effective tax rate on income before income taxes in 1999 and 1998 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 5,572,920 shares of common stock (25,000,000 shares
authorized, $.10 par value) outstanding as of April 3, 1999.
During the first quarter of 1999, pursuant to the stock repurchase program
authorized by the Company's Board of Directors, the Company repurchased a
total of 16,500 shares for $1.0 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, Three Months Ended
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except per share amounts) April 3, April 4,
1999 1998
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Numerator:
Net Income.......................... $3,477 $3,660
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Denominator:
Basic
Weighted average common shares..... 5,553 5,818
Diluted
Effect of dilutive securities:
Employee and director incentive
stock options and awards........ 362 491
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Adjusted weighted average common
shares.......................... 5,915 6,309
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Basic earnings per share.............. $ .63 $ .63
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Diluted earnings per share............ $ .59 $ .58
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8
Note 7: Other Comprehensive Income
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Comprehensive income is as follows:
(In thousands) Three Months Ended
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April 3, April 4,
1999 1998
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Net income.................................. $ 3,477 $ 3,660
Other comprehensive loss:
Foreign currency translation adjustments.. (1,255) (411)
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Comprehensive income, net of tax............ $ 2,222 $ 3,249
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Accumulated other comprehensive loss consists of the following:
(In thousands) April 3, January 2,
1999 1999
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Cumulative translation adjustment........... $(3,469) $(2,214)
Minimum pension liability adjustment,
net of tax................................ (664) (664)
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$(4,133) $(2,878)
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Item 2. Management's Discussion And Analysis Of Financial Condition And
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Results Of Operations
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Operations
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Net sales for the first quarter of 1999 were $58.0 million, a 3.6 percent
increase from 1998 first quarter net sales of $56.0 million. Net sales
increased due to higher volume in the submersible water systems motors and
changes in the mix of products sold. Net income for the first quarter of 1999
was $3.5 million, or $.59 per diluted share, compared to net income of $3.7
million, or $.58 per diluted share, for the same period a year ago. Since the
beginning of 1998 the Company has repurchased approximately 423,000 of its
outstanding common shares. Cost of sales as a percentage of net sales for the
first quarter of 1999 was 73.4 percent compared to 72.9 percent for the same
period in 1998.
Selling and administrative expenses as a percent of net sales for the first
quarter of 1999 was 16.8 percent compared to 17.4 percent for the same period
in 1998. Interest expense was $0.3 million for both the first quarter of 1999
and 1998. Included in other income, net, for the first quarter of 1999 was
$0.5 million of interest income and $0.3 million of foreign currency losses.
Interest income was $1.0 million and foreign currency losses were $0.1 million
for the same period in 1998. 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 $14.7 million
during the first quarter of 1999. The principal use of cash for operating
activities was the typical seasonal increase in inventories. Working capital
increased $1.1 million during the first quarter of 1999 and the current ratio
was 2.6 and 3.5 at the end of the first quarter of 1999 and 1998,
respectively.
Year 2000 Readiness
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Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems may
not correctly recognize the year 2000 which could cause computer applications
to fail or to create erroneous results. The Company recognizes this as a
potential risk and has implemented a plan to address the Year 2000 issue.
THE COMPANY'S STATE OF READINESS -- In 1995, the Company began a project of
implementing a new, company-wide information system. This project was
initiated to replace existing computer software and hardware and to improve
strategic command and control to reduce the response time needed to meet
changing market conditions. The conversion to this new information system was
completed in 1998, which was on schedule with the original plan. The Company
has obtained verification from the developer that the new information system
is Year 2000 compliant.
10
The Company also instituted an internally managed Year 2000 Plan to identify,
test and correct potential Year 2000 problems, including non-information
technology systems and impacts from external parties including suppliers,
customers, and service providers. The Company's efforts included obtaining
vendor certifications, direct inquiry with outside parties, and the
performance of internal testing on software products and controls.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES -- The costs incurred by
the Company related to the Year 2000 issue were the time spent by employees to
address this issue and the costs of replacing certain non-Year 2000 compliant
equipment. The total costs to address the Company's Year 2000 issues were not
material to the Company's financial position or results of operations.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES -- The primary risk to the Company
with respect to the Year 2000 issue is the inability of external parties to
provide goods and services in a timely, accurate manner, resulting in
production delays and added costs while pursuing alternative sources. While
there can be no guarantee that the systems of other parties on which the
Company's operations rely will be Year 2000 compliant, the Company believes
that the performance of the Year 2000 plan and the development of contingency
plans will ensure that this risk will not have a material adverse impact to
the Company.
THE COMPANY'S CONTINGENCY PLANS -- The Company has completed contingency
plans that address recovery of its critical information systems. Ongoing
updates to these plans will continue throughout 1999, and will consider the
Company's ability to perform certain processes manually, repair or obtain
replacement systems, change suppliers and/or service providers, and work
around affected operations.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
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1995
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Any forward looking statements contained herein involve risks and
uncertainties, including but not limited to, general economic and currency
conditions, various conditions specific to the Company's business and
industry, market demand, competitive factors, supply constraints, technology
factors, government and regulatory actions, the Company's accounting policies,
future trends, and other risks which are detailed in the Company's Securities
and Exchange Commission filings. These risks and uncertainties may cause
actual results to differ materially from those indicated by the forward
looking statements.
11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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The 1999 Annual Meeting of Shareholders of the Company was held on April
16, 1999 for the following purposes: 1) To elect three directors for terms
expiring at the 2002 Annual Meeting of Shareholders; 2) To approve an
amendment to the Restated Certificate of Incorporation with respect to
Preferred Stock; and 3) To ratify the appointment of Deloitte & Touche LLP as
independent auditors for the 1999 fiscal year.
The results were:
1) Nominees for Director For Withhold Authority
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John B. Lindsay 5,122,570 14,569
Juris Vikmanis 5,123,983 13,156
Howard B. Witt 5,123,677 13,462
For Against Abstain
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2) Amendment to the Restated
Certificate of Incorporation
with respect to Preferred
Stock 3,822,129 673,989 55,648
3) Ratification of
Deloitte & Touche LLP 5,128,169 1,685 7,285
Total shares represented at the Annual Meeting in person or by proxy were
5,137,139 of a total of 5,577,620 shares outstanding. This represented 92.1
percent of Company common stock and constituted a quorum. Total broker non-
votes related to the amendment to the Restated Certificate of Incorporation
with respect to Preferred Stock were 585,373 shares.
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
During the first quarter ended April 3, 1999, a Form 8-K was filed
by the Company dated January 6, 1999, to report the purchase of
certain operating and intangible assets from the Marley Company,
a wholly-owned subsidiary of United Dominion Industries, Inc.
12
SIGNATURES
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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 May 11, 1999 By /s/ William H. Lawson
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William H. Lawson, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date May 11, 1999 By /s/ Gregg C. Sengstack
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Gregg C. Sengstack, Vice
President and Chief Financial
Officer (Principal Financial
and Accounting Officer)
5