0000038725-16-000381.txt : 20160726 0000038725-16-000381.hdr.sgml : 20160726 20160726080052 ACCESSION NUMBER: 0000038725-16-000381 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20160726 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20160726 DATE AS OF CHANGE: 20160726 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN ELECTRIC CO INC CENTRAL INDEX KEY: 0000038725 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 350827455 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-00362 FILM NUMBER: 161783212 BUSINESS ADDRESS: STREET 1: 9255 COVERDALE ROAD CITY: FORT WAYNE STATE: IN ZIP: 46809 BUSINESS PHONE: 2608242900 MAIL ADDRESS: STREET 1: 9255 COVERDALE ROAD CITY: FORT WAYNE STATE: IN ZIP: 46809 8-K 1 a201607268-k.htm 8-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 26, 2016

FRANKLIN ELECTRIC CO., INC.
(Exact name of registrant as specified in its charter)
Indiana
 
0-362
 
35-0827455
(State of incorporation)
 
(Commission File Number)
 
(IRS employer identification no.)

9255 Coverdale Road
 
 
Fort Wayne, Indiana
 
46809
(Address of principal executive offices)
 
(Zip code)

(260) 824-2900
(Registrant's telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[    ]    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[    ]    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[    ]    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[    ]    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 





Item 2.02. Results of Operations and Financial Condition

On July 26, 2016, Franklin Electric Co., Inc. issued a press release announcing its earnings for the second quarter of 2016. A copy of the release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference. This Current Report on Form 8-K and the press release attached hereto are being furnished pursuant to Item 2.02 of Form 8-K.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits:

Exhibit Number
 
Description
99.1
 
Press release - "Franklin Electric Reports Second Quarter 2016 Sales and Earnings"





SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

FRANKLIN ELECTRIC CO., INC.
(Registrant)

Date: July 26, 2016
 
By
/s/ John J. Haines
 
 
 
John J. Haines
 
 
 
Vice President and Chief Financial Officer and Secretary
 
 
 
(Principal Financial and Accounting Officer)





EXHIBIT INDEX

Exhibit Number
 
Description
99.1
 
Press release - "Franklin Electric Reports Second Quarter 2016 Sales and Earnings"




 EX-99.1 2 a201607268-kexhibit991.htm EXHIBIT 99.1 Exhibit



Exhibit 99.1

For Immediate Release    

For Further Information
Refer to: John J. Haines
260-824-2900

FRANKLIN ELECTRIC REPORTS SECOND QUARTER
2016 SALES AND EARNINGS

Fort Wayne, Indiana - July 26, 2016 - Franklin Electric Co., Inc. (NASDAQ: FELE) reported second quarter 2016 GAAP fully diluted earnings per share (EPS) of $0.50, versus a GAAP fully diluted EPS in the second quarter 2015 of $0.33, an increase of 52 percent. In the second quarter of 2016, the Company’s adjusted EPS was $0.51 compared to 2015 second quarter adjusted EPS of $0.35, a 46 percent increase (see table below for a reconciliation of GAAP EPS to the adjusted EPS).

Second quarter 2016 sales were $252.1 million, an increase of 2 percent compared to 2015 second quarter sales of $247.4 million. The Company’s organic sales growth was 5 percent excluding the impact of foreign currency translation.

Gregg Sengstack, Franklin Electric’s Chairman and Chief Executive Officer, commented:

“We’re pleased with the overall performance of our Company in the second quarter in which we achieved five percent organic sales growth that was broad based and led by higher groundwater sales in the United States combined with strong Water Systems sales in Latin America and Asia Pacific. Consolidated adjusted operating income increased 33 percent as we realized the continuing benefits of lower raw material costs, pricing and a favorable sales mix. Fueling Systems adjusted operating income was $15.5 million, an increase of 22 percent versus the second quarter 2015 and a record for any second quarter in the segment’s history.”























Key Performance Indicators:

Earnings Before and After Non-GAAP Adjustments
 
For the Second Quarter
(in millions)
 
2016
2015
Change
 
 
 
 
 
Net Income attributable to FE Co., Inc. Reported
 
$
24.0

$
16.2

48
 %
Allocated Undistributed Earnings
 
$
(0.5
)
$
(0.2
)
 
Earnings for EPS Calculations
 
$
23.5

$
16.0

47
 %
 
 
 
 
 
Non-GAAP adjustments (before tax):
 
 
 
 
Restructuring
 
$
—

$
0.8

 
Non-GAAP items
 
$
0.3

$
0.9

 
 
 
 
 
 
Non-GAAP adjustments, net of tax:
 
 
 
 
Restructuring
 
$
—

$
0.5

 
Non-GAAP items
 
$
0.2

$
0.5

 
 
 
 
 
 
Earnings after Non-GAAP Adjustments
 
$
23.7

$
17.0

39
 %
 
 
 
 
 
Earnings Per Share
 
For the Second Quarter
Before and After Non-GAAP Adjustments
 
2016
2015
Change
(in millions except Earnings Per Share)
 
 
 
 
 
 
 
 
 
Average Fully Diluted Shares Outstanding
 
46.7

48.1

(3
)%
 
 
 
 
 
Fully Diluted Earnings Per Share ("EPS") Reported
 
$
0.50

$
0.33

52
 %
 
 
 
 
 
Restructuring Per Share, net of tax
 
$
—

$
0.01

 
Non-GAAP items, net of tax
 
$
0.01

$
0.01

 
 
 
 
 
 
Fully Diluted EPS after Non-GAAP Adjustments
(Adjusted EPS)
 
$
0.51

$
0.35

46
 %

















 
Net Sales
(in millions)
United States & Canada
Latin America
Europe, Middle East & Africa
Asia Pacific
Total Water
Fueling
Consolidated
 
 
 
 
 
 
 
 
Q2 2015
$
91.2

$
31.3

$
48.4

$
20.7

$
191.6

$
55.8

$
247.4

Q2 2016
$
96.3

$
31.7

$
43.1

$
23.5

$
194.6

$
57.5

$
252.1

Change
$
5.1

$
0.4

$
(5.3
)
$
2.8

$
3.0

$
1.7

$
4.7

% Change
6
 %
1
 %
(11
)%
14
 %
2
 %
3
 %
2
 %
 
 
 
 
 
 
 
 
Foreign currency translation
$
(0.7
)
$
(3.9
)
$
(2.4
)
$
(0.2
)
$
(7.2
)
$
(0.3
)
$
(7.5
)
% Change
(1
)%
(12
)%
(5
)%
(1
)%
(4
)%
(1
)%
(3
)%
 
 
 
 
 
 
 
 
Volume/Price
$
5.8

$
4.3

$
(2.9
)
$
3.0

$
10.2

$
2.0

$
12.2

% Change
7
 %
13
 %
(6
)%
15
 %
6
 %
4
 %
5
 %


Operating Income and Margins
 
 
 
 
Before and After Non-GAAP Adjustments
 
 
 
 
(in millions)
For the Second Quarter 2016
 
Water
Fueling
Other
Consolidated
Reported Operating Income/(Loss)
$
31.5

$
15.5

$
(14.3
)
$
32.7

% Operating Income To Net Sales
16.2
%
27.0
%
 
13.0
%
 
 
 
 
 
Non-GAAP Adjustments:
 
 
 
 
Restructuring
$
—

$
—

$
—

$
—

Non-GAAP
$
—

$
—

$
0.3

$
0.3

Operating Income/(Loss) after Non-GAAP Adjustments
$
31.5

$
15.5

$
(14.0
)
$
33.0

% Operating Income to Net Sales After Non-GAAP Adjustments (Operating Income Margin after Non-GAAP Adjustments)
16.2
%
27.0
%
 
13.1
%
 
 
 
 
 
Operating Income and Margins
 
 
 
 
Before and After Non-GAAP Adjustments
 
 
 
 
(in millions)
For the Second Quarter 2015
 
Water
Fueling
Other
Consolidated
Reported Operating Income/(Loss)
$
24.3

$
12.4

$
(13.5
)
$
23.2

% Operating Income To Net Sales
12.7
%
22.2
%
 
9.4
%
 
 
 
 
 
Non-GAAP Adjustments:
 
 
 
 
Restructuring
$
0.6

$
0.2

$
—

$
0.8

Non-GAAP
$
0.5

$
0.1

$
0.3

$
0.9

Operating Income/(Loss) after Non-GAAP Adjustments
$
25.4

$
12.7

$
(13.2
)
$
24.9

% Operating Income to Net Sales After Non-GAAP Adjustments (Operating Income Margin after Non-GAAP Adjustments)
13.3
%
22.8
%
 
10.1
%






Water Systems

Water Systems sales were $194.6 million in the second quarter 2016, an increase of $3.0 million or about 2 percent versus the second quarter 2015 sales of $191.6 million. Foreign currency translation reduced Water Systems sales by $7.2 million or about 4 percent in the quarter. Excluding foreign currency translation, Water Systems sales grew about 6 percent compared to the second quarter 2015.

Water Systems sales in the U.S. and Canada were up about 7 percent compared to the prior year second quarter, excluding the impact of foreign currency. In the second quarter 2016, sales of groundwater pumping equipment grew by about 9 percent. The growth in groundwater equipment sales was led by an 8 percent increase in residential systems and a 13 percent increase in agricultural products. Water Systems sales in markets outside the U.S. and Canada experienced overall growth of about 4 percent, after excluding the impact of foreign currency translation. International Water Systems sales growth was led by improved groundwater product sales in the Asia Pacific and Latin America markets, but was offset by a decline in sales in Europe, the Middle East and Gulf regions.

Water Systems operating income was $31.5 million in the second quarter 2016, up $7.2 million or 30 percent versus the second quarter 2015 as reported and up $6.1 million or 24 percent versus the second quarter 2015 after non-GAAP adjustments. The second quarter operating income margin was 16.2 percent, up 290 basis points from 13.3 percent in the second quarter of 2015 after non-GAAP adjustments.

Fueling Systems

Fueling Systems sales were $57.5 million in the second quarter 2016, an increase of $1.7 million or about 3 percent versus the second quarter 2015 sales of $55.8 million. Fueling Systems sales decreased by $0.3 million or about 1 percent in the quarter due to foreign currency translation. Fueling Systems sales were up about 4 percent, after excluding foreign currency translation.

Fueling Systems sales in the U.S. and Canada grew by about 6 percent during the quarter with most of the sales growth coming from fuel management systems. Internationally, Fueling Systems revenues were down overall with Asia Pacific sales growth being more than offset by lower sales in Europe and Latin America.

Fueling Systems operating income was $15.5 million in the second quarter of 2016, up $3.1 million or about 25 percent compared to $12.4 million in the second quarter of 2015 as reported, and up $2.8 million or 22 percent compared to $12.7 million after non-GAAP adjustments in the second quarter of 2015. The second quarter operating income margin was 27.0 percent, an increase of 420 basis points from the 22.8 percent of net sales in the second quarter of 2015 after non-GAAP adjustments. Fueling Systems operating income in the second quarter of 2016 was a record for any second quarter in the history of the segment.

Overall

The Company’s consolidated gross profit was $90.7 million for the second quarter of 2016, an increase of $10.5 million, or about 13 percent, from the second quarter of 2015 gross profit of $80.2 million. The gross profit as a percent of net sales was 36.0 percent in the second quarter of 2016 and increased about 360 basis points versus 32.4 percent during the second quarter 2015. The gross profit margin increase was primarily due to favorable pricing, lower direct material costs, a better sales mix and lower fixed cost.





Selling, general, and administrative (SG&A) expenses were $58.0 million in the second quarter of 2016 compared to $56.3 million in the second quarter of the prior year, an increase of $1.7 million or about 3 percent. The Company’s SG&A expenses increased by $2.5 million in the quarter due to higher variable compensation expenses, which were partially offset by lower fixed cost from the effect of foreign currency translation.

The Company ended the second quarter of 2016 with a cash balance of about $72 million, which was $10 million lower than at the end of 2015. The cash balance decreased primarily due to higher capital expenditures and seasonal working capital requirements in the Northern hemisphere.

Commenting on the outlook, Mr. Sengstack said:
“As we look to the second half of the year we believe the underlying organic demand for our products is steadily improving. We remain cautious about our business in the Middle East and specifically, Turkey, as recent political disruptions create uncertainty. Considering these factors, we re-affirm our annual guidance of $1.60 to $1.70 adjusted earnings per share for full year 2016.”
A conference call to review earnings and other developments in the business will commence at 9:00 am EDT. The second quarter 2016 earnings call will be available via a live webcast. The webcast will be available in a listen only mode by going to:

http://edge.media-server.com/m/p/9vfv3icq

If you intend to ask questions during the call, please dial in using (877) 643-7158 for domestic calls and (914) 495-8565 for international calls. The conference ID is: 47328288.

A replay of the conference call will be available Tuesday, July 26, 2016 at 12:00 noon EDT through midnight EDT on Tuesday, August 2, 2016, by dialing (855) 859-2056 for domestic calls and (404) 537-3406 for international calls. The replay passcode is: 47328288.

Franklin Electric is a global leader in the production and marketing of systems and components for the movement of water and fuel. Recognized as a technical leader in its products and services, Franklin Electric serves customers around the world in residential, commercial, agricultural, industrial, municipal, and fueling applications.
The Company presents the non-GAAP financial measures of earnings after non-GAAP adjustments, fully diluted earnings per share after non-GAAP adjustments (or adjusted EPS), operating income after non-GAAP adjustments and percent operating income to net sales after non-GAAP adjustments (or operating income margin after non-GAAP adjustments) because the Company believes the information helps investors understand underlying trends in the Company's business more easily. The differences between these measures and the most comparable GAAP measures are reconciled in the tables above.



“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including those relating to market conditions or the Company’s financial results, costs, expenses or expense reductions, profit margins, inventory levels, foreign currency translation rates, liquidity expectations, business goals and sales growth, involve risks and uncertainties, including but not limited to, risks and uncertainties with respect to general economic and currency conditions, various conditions specific to the Company’s business and industry, weather conditions, new housing starts, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases,  raw material costs, technology factors, integration of acquisitions, litigation, government and regulatory actions, the Company’s accounting policies, future trends, and other risks which are detailed in the Company’s Securities and Exchange Commission filings, included in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ending January 2, 2016, Exhibit 99.1 attached thereto and in Item 1A of Part II of the Company’s Quarterly Reports on Form 10-Q. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements made herein are based on information currently available, and the Company assumes no obligation to update any forward-looking statements.






FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
 
 
 
 
 
 
 
 
Second Quarter Ended
 
Six Months Ended
 
July 2, 2016
 
July 4, 2015
 
July 2, 2016
 
July 4, 2015
 
 
 
 
 
 
 
 
Net sales
$
252,081

 
$
247,427

 
$
470,511

 
$
473,155

Cost of sales
161,403

 
167,219

 
305,597

 
321,457

Gross profit
90,678

 
80,208

 
164,914

 
151,698

Selling, general, and administrative expenses
57,954

 
56,278

 
110,299

 
111,438

Restructuring expense
45

 
758

 
865

 
1,221

Operating income
32,679

 
23,172

 
53,750

 
39,039

Interest expense
(2,221
)
 
(2,405
)
 
(4,648
)
 
(5,113
)
Other income, net
1,373

 
1,390

 
1,341

 
4,409

Foreign exchange income/(expense)
315

 
(359
)
 
238

 
57

Income before income taxes
32,146

 
21,798

 
50,681

 
38,392

Income tax expense
7,959

 
5,360

 
12,914

 
1,978

Net income
$
24,187

 
$
16,438

 
$
37,767

 
$
36,414

Less: Net income attributable to noncontrolling interests
(205
)
 
(274
)
 
(328
)
 
(455
)
Net income attributable to Franklin Electric Co., Inc.
$
23,982

 
$
16,164

 
$
37,439

 
$
35,959

 
 
 
 
 
 
 
 
Income per share:
 
 
 
 
 
 
 
Basic
$
0.51

 
$
0.33

 
$
0.79

 
$
0.74

Diluted
$
0.50

 
$
0.33

 
$
0.78

 
$
0.74

 
 
 
 
 
 
 
 

























FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
 
(In thousands)
 
 
 
 
July 2, 2016
 
January 2, 2016
ASSETS
 
 
 
 
 
 
 
Cash and equivalents
$
71,582

 
$
81,561

Receivables
161,972

 
127,251

Inventories
210,642

 
194,594

Other current assets
29,531

 
34,715

Total current assets
473,727

 
438,121

 
 
 
 
Property, plant, and equipment, net
195,916

 
190,039

Goodwill and other assets
371,320

 
367,951

Total assets
$
1,040,963

 
$
996,111

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
Accounts payable
$
56,983

 
$
57,822

Accrued expenses and other current liabilities
61,636

 
53,903

Current maturities of long-term debt and short-term borrowings
55,673

 
32,946

Total current liabilities
174,292

 
144,671

 
 
 
 
Long-term debt
157,203

 
187,806

Deferred income taxes
39,289

 
33,404

Employee benefit plans
42,337

 
47,398

Other long-term liabilities
18,660

 
16,511

 
 
 
 
Redeemable noncontrolling interest
7,617

 
6,856

 
 
 
 
Total equity
601,565

 
559,465

Total liabilities and equity
$
1,040,963

 
$
996,111

 
 
 
 





FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
(In thousands)
July 2, 2016
 
July 4, 2015
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
37,767

 
$
36,414

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
17,633

 
18,044

Share-based compensation
4,155

 
3,457

Realized gain on share purchase liability
—

 
(2,723
)
Other
4,404

 
(6,777
)
Changes in assets and liabilities:
 
 
 
Receivables
(31,221
)
 
(16,655
)
Inventory
(10,982
)
 
(6,355
)
Accounts payable and accrued expenses
3,091

 
(15,110
)
Other
4,464

 
(3,263
)
Net cash flows from operating activities
29,311

 
7,032

 
 
 
 
Cash flows from investing activities:
 
 
 
Additions to property, plant, and equipment
(19,490
)
 
(9,758
)
Proceeds from sale of property, plant, and equipment
2,166

 
402

Acquisitions and investments
—

 
(4,028
)
Other investing activities
178

 
174

Net cash flows from investing activities
(17,146
)
 
(13,210
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Change in debt
(7,851
)
 
47,777

Proceeds from issuance of common stock
610

 
1,240

Excess tax from share-based payment arrangements
—

 
811

Purchases of common stock
(4,736
)
 
(6,218
)
Dividends paid
(9,821
)
 
(9,783
)
Share purchase liability payment
—

 
(20,200
)
Net cash flows from financing activities
(21,798
)
 
13,627

Effect of exchange rate changes on cash
(346
)
 
(3,556
)
Net change in cash and equivalents
(9,979
)
 
3,893

Cash and equivalents at beginning of period
81,561

 
59,141

Cash and equivalents at end of period
$
71,582

 
$
63,034