-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ue7+WpRBEM5CoJI5jFBAbJ+mILmqYUU7pVV/wgKyW9656I58P0+S/JT77JCqO1o8 Y79dIo09S5DzUq5eePJA0g== /in/edgar/work/0000038725-00-000017/0000038725-00-000017.txt : 20001114 0000038725-00-000017.hdr.sgml : 20001114 ACCESSION NUMBER: 0000038725-00-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN ELECTRIC CO INC CENTRAL INDEX KEY: 0000038725 STANDARD INDUSTRIAL CLASSIFICATION: [3621 ] IRS NUMBER: 350827455 STATE OF INCORPORATION: IN FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00362 FILM NUMBER: 759199 BUSINESS ADDRESS: STREET 1: 400 E SPRING ST CITY: BLUFFTON STATE: IN ZIP: 46714 BUSINESS PHONE: 2198242900 MAIL ADDRESS: STREET 1: 400 E SPRING STREET CITY: BLUFFTON STATE: IN ZIP: 46714 10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ------------------ 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 BLUFFTON, INDIANA 46714 ----------------- ----- (Address of principal executive offices) (Zip Code) (219) 824-2900 ------------- (Registrant's telephone number, including area code) NOT APPLICABLE -------------- (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 ----- ----- 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 NOVEMBER 13, 2000 --------------------- ---------------- $.10 par value 5,553,567 shares Page 1 of 1 2 FRANKLIN ELECTRIC CO., INC. Index Page PART I. FINANCIAL INFORMATION Number - --------------------------------- ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2000 (Unaudited) and January 1, 2000 (Unaudited)............... 3 Condensed Consolidated Statements of Income for the Third Quarter and Nine Months Ended September 30, 2000 (Unaudited) and October 2, 1999 (Unaudited).................. 4 Condensed Consolidated Statements Of Cash Flows for the Nine Months Ended September 30, 2000 (Unaudited) and October 2, 1999 (Unaudited).................. 5 Notes to Condensed Consolidated Financial Statements (Unaudited).............. 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 10-11 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 11 PART II. OTHER INFORMATION - ----------------------------- Item 1. Legal Proceedings............................. 11 Item 2. Changes in Securities and Use of Proceeds..... 12 Item 6. Exhibits and Reports on Form 8-K.............. 12 Signatures................................................ 13 - ---------- 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) September 30, January 1, 2000 2000 ---- ---- ASSETS Current assets: Cash and equivalents.................... $ 11,991 $ 27,844 Marketable securities................... - 8,968 Receivables, less allowances of $1,578 and $1,333, respectively....... 24,500 17,995 Inventories (Note 2).................... 52,523 39,717 Other current assets (including deferred income taxes of $8,444 and $7,934, respectively)............. 11,485 9,719 -------- -------- Total current assets.................. 100,499 104,243 Property, plant and equipment, net (Note 3)............................ 61,758 57,047 Deferred and other assets (including deferred income taxes of $1,905 and $1,530, respectively)............... 13,365 14,811 Goodwill, less accumulated amortization of $61 (Note 4)......................... 15,721 - -------- -------- Total assets.............................. $191,343 $176,101 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Current maturities of long-term debt and short-term borrowings........ $ 1,109 $ 1,018 Accounts payable........................ 15,609 20,669 Accrued expenses........................ 28,018 23,558 Income taxes............................ 904 2,112 -------- -------- Total current liabilities............. 45,640 47,357 Long-term debt............................ 17,042 17,057 Employee benefit plan obligations......... 12,835 11,892 Other long-term liabilities............... 3,648 3,502 Shareowners' equity: Common stock (Note 7)................... 555 541 Additional capital...................... 29,082 17,695 Retained earnings....................... 90,913 84,242 Loan to ESOP Trust...................... (1,594) (1,827) Accumulated other comprehensive loss (Note 9)......................... (6,778) (4,358) -------- -------- Total shareowners' equity............. 112,178 96,293 -------- -------- Total liabilities and shareowners' equity. $191,343 $176,101 ======== ======== See Notes to Condensed Consolidated Financial Statements. 4 FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) Third Qtr. Ended Nine Months Ended ---------------- ----------------- Sept 30, Oct 2, Sept 30, Oct 2, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales.............................. $85,173 $81,795 $236,099 $214,404 Costs and expenses: Cost of sales........................ 64,255 58,734 174,402 154,381 Selling and administrative expenses.. 11,253 10,562 32,344 30,907 Interest expense..................... 284 327 855 979 Other expense/(income), net.......... (210) (422) (584) (1,690) Foreign exchange loss/(gain)......... 818 (133) 1,499 456 Costs of unsuccessful acquisition (Note 5)........................... 3,237 - 3,237 - ------- ------- -------- -------- 79,637 69,068 211,753 185,033 Income before income taxes............. 5,536 12,727 24,346 29,371 Income taxes........................... 2,094 4,609 9,216 10,768 ------- ------- -------- -------- Net income............................. $ 3,442 $ 8,118 $ 15,130 $ 18,603 ======= ======= ======== ======== Per share data (Note 8): Net income per common share.......... $ .63 $ 1.49 $ 2.79 $ 3.37 ======= ======= ======== ======== Net income per common share, assuming dilution.................. $ .61 $ 1.40 $ 2.67 $ 3.17 ======= ======= ======== ======== Dividends per common share........... $ .22 $ .20 $ .64 $ .57 ======= ======= ======== ======== See Notes to Condensed Consolidated Financial Statements. 5 FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended ----------------- Sept 30, Oct 2, 2000 1999 - ---- ---- Cash flows from operating activities: Net income................................ $15,130 $18,603 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization........... 7,603 6,017 Loss on disposals of plant and equipment......................... 161 46 Changes in assets and liabilities: Receivables........................... (917) (2,719) Inventories........................... (6,015) (8,432) Other assets.......................... (2,503) (628) Accounts payable and other accrued expenses............................ (3,711) 2,423 Employee benefit plan obligations..... 1,075 2,094 Other long-term liabilities........... 175 27 ------- ------- Net cash flows from operating activities.............. 10,998 17,431 ------- ------- Cash flows from investing activities: Additions to plant and equipment.......... (10,460) (7,992) Proceeds from sale of plant and equipment............................... 47 54 Additions to deferred assets.............. (1,677) - Purchase of marketable securities......... (2,915) (27,692) Cash paid for acquisition................. (17,687) - Proceeds from maturities of marketable securities ............................. 11,883 27,921 ------- ------- Net cash flows from investing activities.................. (20,809) (7,709) ------- ------- Cash flows from financing activities: Repayment of long-term debt............... (21) (9) Borrowing on line of credit............... - 362 Repayment of line of credit............... - (362) Proceeds from issuance of common stock.... 1,408 1,763 Purchase of common stock.................. (5,003) (17,908) Reduction of stock subscriptions.......... - (324) Reduction of loan from ESOP Trust......... 233 232 Dividends paid............................ (3,464) (3,151) ------ ------ Net cash flows from financing activities.................. (6,847) (19,397) ------- ------- Effect of exchange rate changes on cash..... 805 246 ------- ------- Net change in cash and equivalents.......... (15,853) (9,429) Cash and equivalents at beginning of period. 27,844 17,034 ------- ------- Cash and equivalents at end of period....... $11,991 $ 7,605 ======= ======= 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 - ---------------------------------------------------- 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 nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 30, 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 1, 2000. Note 2: Inventories - -------------------- Inventories consist of the following: (In thousands) Sept 30, January 1, 2000 2000 ---- ---- Raw Materials........................ $20,950 $15,749 Work in Process...................... 6,477 6,101 Finished Goods....................... 36,321 28,239 LIFO Reserve......................... (11,225) (10,372) ------- ------- Total Inventory...................... $52,523 $39,717 ======= ======= Note 3: Property, Plant and Equipment - -------------------------------------- Property, plant and equipment, at cost, consists of the following: (In thousands) Sept 30, January 1, 2000 2000 - ---- ---- Land and Building.................... $ 25,321 $ 22,145 Machinery and Equipment.............. 118,212 113,452 -------- -------- 143,533 135,597 Allowance for Depreciation........... 81,775 78,550 -------- -------- $ 61,758 $ 57,047 ======== ======== 7 Note 4: Acquisition - -------------------- On August 31, 2000, the Company acquired all of the outstanding shares of capital stock of EBW, Inc. and Advanced Polymer Technology, Inc. ("EBW" and "APT"), manufacturers of equipment for use in gasoline and diesel fuel pumping systems. The Company paid to the selling shareholders of EBW and APT $20.3 million at the closing date, consisting of $10.3 million in cash and the issuance of $10.0 million of the Company's common stock (154,247 shares). The Company also assumed $7.5 million of EBW and APT's credit obligations, of which $7.4 million was paid to the creditors by the Company on the closing date. In aggregate, the acquisition was recorded at a total purchase price of $27.9 million, including acquisition costs, at the closing date. The Company may pay additional consideration contingent on the future earnings performance of EBW and APT through December 31, 2003. The acquisition was accounted for using the purchase method of accounting. Accordingly, a portion of the purchase price was allocated to the net assets acquired based on the estimated fair values. The fair value of the net assets acquired was estimated to be $12.1 million at the closing date, however, the fair value of the net assets acquired will continue to be evaluated by the Company over the next year. The excess of purchase price over the fair value of the net assets acquired ($15.8 million at the August 31, 2000 closing date) has been recorded as goodwill which is being amortized on a straight-line basis over 20 years. Any additional future payments made to the selling shareholders of EBW and APT upon the resolution of the earnings contingency will be recorded as additional goodwill and amortized over the remainder of the initial 20 year period. Note 5: Legal Proceedings - -------------------------- On August 30, 2000, the Federal District Court in Madison, Wisconsin issued an injunction prohibiting the Company's proposed acquisition of the petroleum submersible turbine pump business of Marley Pump Company, a division of United Dominion Industries. The Court found that the proposed acquisition would violate the Federal antitrust laws. The Company recorded a one-time $3.2 million ($2.0 million after-tax) charge to earnings to recognize the costs of this unsuccessful acquisition effort. Note 6: Tax Rates - ------------------ The effective tax rate on income before income taxes in 2000 and 1999 varies from the United States statutory rate of 35 percent principally due to the effect of state and foreign income taxes. Note 7: Shareowners' Equity - ---------------------------- The Company had 5,549,667 shares of common stock (25,000,000 shares authorized, $.10 par value) outstanding as of September 30, 2000. During the third quarter of 2000, pursuant to the stock repurchase program authorized by the Company's Board of Directors, the Company repurchased a total of 10,700 shares for $.7 million. All repurchased shares were retired. 8 Note 8: Earnings Per Share - --------------------------- Following is the computation of basic and diluted earnings per share: (In thousands, except Third Qtr. Ended Nine Months Ended per share amounts) ---------------- ----------------- Sept 30, Oct 2, Sept 30, Oct 2, 2000 1999 2000 1999 ---- ---- ---- ---- Numerator: Net Income..................... $3,442 $8,118 $15,130 $18,603 ====== ====== ======= ======= Denominator: Basic ----- Weighted average common shares....................... 5,448 5,466 5,425 5,525 Diluted ------- Effect of dilutive securities: Employee and director incentive stock options and awards................. 218 330 232 340 ------ ------ ------- ------- Adjusted weighted average common shares................ 5,666 5,796 5,657 5,865 ====== ====== ======= ======= Basic earnings per share......... $ .63 $ 1.49 $ 2.79 $ 3.37 ====== ====== ======= ======= Diluted earnings per share....... $ .61 $ 1.40 $ 2.67 $ 3.17 ====== ====== ======= ======= 9 Note 9: Other Comprehensive Income - ----------------------------------- Comprehensive income is as follows: (In thousands) Third Qtr. Ended Nine Months Ended ---------------- ----------------- Sept 30, Oct 2, Sept 30, Oct 2, 2000 1999 2000 1999 ---- ---- ---- ---- Net income......................... $3,442 $8,118 $15,130 $18,603 Other comprehensive loss: Foreign currency translation adjustments..................... (1,292) 676 (2,420) (1,035) ------ ------ ------- ------- Comprehensive income, net of tax... $2,150 $8,794 $12,710 $17,568 ====== ====== ======= ======= Accumulated other comprehensive loss consists of the following: (In thousands) Sept 30, January 1, 2000 2000 ---- ---- Cumulative translation adjustment........... $(6,483) $(4,063) Minimum pension liability adjustment, net of tax................................ (295) (295) ------- ------- $(6,778) $(4,358) ======= ======= Note 10: Accounting Pronouncements - ----------------------------------- Accounting for Derivative Instruments and Hedging Activities: SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998 and, as amended by SFAS No. 137 and SFAS No. 138, will be effective in the first quarter of the Company's fiscal year ending December 29, 2001. SFAS No. 133 establishes a new model for accounting for derivatives on the balance sheet as either assets or liabilities, measures them at fair value, and requires that changes in fair value be recognized currently in income unless specific hedge accounting criteria are met. Certain disclosures concerning the designation and assessment of hedging relationships are also required. The adoption of SFAS No. 133 is not expected to have a material impact on the Company's financial position or its results of operations. Note 11: Contingencies 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. 10 Item 2. Management's Discussion And Analysis Of Financial Condition And - ------------------------------------------------------------------------ Results Of Operations - --------------------- Operations - ---------- Net sales for the third quarter of 2000 were $85.2 million, a 4.2 percent increase from 1999 third quarter net sales of $81.8 million. Year to date 2000 net sales were $236.1 million, up 10.1 percent from year to date 1999 net sales of $214.4 million. The increase in third quarter sales was principally due to the inclusion of EBW and APT on a fully consolidated basis beginning September 1, 2000. The increase in year to date sales resulted primarily from a higher volume of sales of submersible water systems and fractional horsepower motors. A portion of the growth is from supply agreements entered into in December 1998 and from the acquisition of EBW and APT on August 31, 2000. The increases were partially offset by lower sales of submersible petroleum motor systems. Cost of sales as a percent of net sales for the third quarter of 2000 was 75.4 percent, an increase from 71.8 percent for the same period in 1999. Cost of sales as a percent of net sales for the year to date 2000 was 73.9 percent, an increase from 72.0 percent for the same period in 1999. Both the quarter and year to date cost of sales as a percent of net sales increased primarily as a result of higher employee compensation, energy costs, material costs in key commodities, depreciation and other project costs. In addition, significant unplanned expenses were incurred in moving the Company's large submersible motor product line from Bluffton, Indiana to Wilburton, Oklahoma in the third quarter. Selling and administrative expenses as a percent of net sales for the third quarter of 2000 was 13.2 percent compared to 12.9 percent for the same period in 1999. Selling and administrative expenses as a percent of net sales for the year to date 2000 was 13.7 percent compared to 14.4 percent for the year to date 1999. The decrease is primarily due to modest increases in fixed expenses while sales increased at a higher rate. Included in other income, net for the third quarter of 2000 was $.3 million of interest income compared to $.5 million of interest income for the third quarter of 1999. Included in other income, net for the year to date 2000 was $.9 million of interest income compared to $1.3 million of interest income for the same period in 1999. Interest income was attributable to amounts invested principally in short-term U.S. treasury and agency securities. During the third quarter of 2000, the Company recorded a one-time $3.2 million ($2.0 million after-tax) charge to earnings to recognize the costs of the unsuccessful acquisition of the fuel pumping systems business of the Marley Pump Company, a division of United Dominion Industries. The foreign currency based transactions for the third quarter of 2000 produced a loss of $.8 million compared to a $.1 million gain for the same period of 1999. Year to date 2000 foreign currency based transactions produced a loss of $1.5 million compared to a $.5 million loss for the same period of 1999. The increase in the foreign currency transaction losses for both the third quarter and year to date 2000 compared to the same periods of 1999 was due primarily to the strong dollar and/or the weak Euro. 11 Net income for the third quarter of 2000 was $3.4 million, or $.61 per diluted share, a 58.0 percent decrease compared to net income of $8.1 million, or $1.40 per diluted share, for the same period in 1999. Year to date 2000 net income was $15.1 million, or $2.67 per diluted share, an 18.8 percent decrease compared to year to date 1999 net income of $18.6 million, or $3.17 per diluted share. Capital Resources and Liquidity - ------------------------------- Cash, cash equivalents and marketable securities decreased $24.8 million during the first nine months of 2000. The principal use of cash was for the acquisition of EBW and APT. Working capital decreased $2.0 million during the first nine months of 2000 and the current ratio was 2.2 at both September 30, 2000, and January 1, 2000. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of - ----------------------------------------------------------------------------- 1995 - ---- 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk - ------------------------------------------------------------------- The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates. Foreign currency exchange rate risk is mitigated through several means: maintenance of local production facilities in the markets served, invoicing of customers in the same currency as the source of the products, prompt settlement of intercompany balances utilizing a global netting system and limited use of foreign currency denominated debt. Interest rate exposure is principally limited to any marketable U.S. treasury and agency securities owned by the Company and is mitigated by the short-term, generally less than 6 months, nature of these investments. PART II. OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- On August 30, 2000, the Federal District Court in Madison, Wisconsin issued an injunction prohibiting the Company's proposed acquisition of the petroleum submersible turbine pump business of Marley Pump Company, a division of United Dominion Industries. The Court found that the proposed acquisition would violate the Federal antitrust laws. The Company recorded a one-time $3.2 million ($2.0 million after-tax) charge to earnings to recognize the costs of this unsuccessful acquisition effort. 12 Item 2. Changes in Securities and Use of Proceeds - -------------------------------------------------- In connection with its acquisition of all of the outstanding shares of capital stock of EBW and APT, on August 31, 2000 the Company issued $10.0 million (154,247 shares) of its common stock, par value $.10 per share, to the selling shareholders of EBW and APT as part of the consideration for the EBW and APT stock. The issued shares were exempt from registration under Section 4(2) of the Securities Act of 1933. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits (Filed with this quarterly report) Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K A Current Report on Form 8-K was filed with the SEC by the Company on September 13, 2000 to report the August 31, 2000 acquisition of all of the outstanding shares of capital stock of EBW, Inc. and Advanced Polymer Technology, Inc. 13 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. --------------------------- Registrant Date November 13, 2000 By /s/ William H. Lawson ----------------- --------------------- William H. Lawson, Chairman and Chief Executive Officer (Principal Executive Officer) Date November 13, 2000 By /s/ Gregg C. Sengstack ----------------- ---------------------- Gregg C. Sengstack, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 5 EX-27 2 0002.txt
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY, REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-30-2000 SEP-30-2000 11991 0 26078 1578 52523 100499 143533 81775 191343 45640 0 0 0 555 111623 191343 236099 236683 174402 212337 0 0 855 24346 9216 15130 0 0 0 15130 2.79 2.67
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