-----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, Gq5VJEN9Majq8dn6UTqA4N5A7s4M4vemEIbaKNEZhfcm01iqrVNa8JZyAjBzHVfO WH1fJ8kLGWwm2eYtRB9YLw== 0000038725-98-000020.txt : 19981118 0000038725-98-000020.hdr.sgml : 19981118 ACCESSION NUMBER: 0000038725-98-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981116 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: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00362 FILM NUMBER: 98752487 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 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 October 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 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 11, 1998 -------------------- ---------------- $.10 par value 5,590,728 shares 2 FRANKLIN ELECTRIC CO., INC. Index Page PART I. FINANCIAL INFORMATION Number - --------------------------------- ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of October 3, 1998 (Unaudited) and January 3, 1998........................... 3 Condensed Consolidated Statements of Income for the Third Quarter and Nine Months ended October 3, 1998 (Unaudited) and September 27, 1997 (Unaudited)................ 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 3, 1998 (Unaudited) and September 27, 1997 (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 - ----------------------------- Item 6. Exhibits and Reports on Form 8-K.............. 11 Signatures................................................ 11 - ---------- 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) October 3, 1998 January 3, (Unaudited) 1998 ----------- --------- ASSETS Current assets: Cash and equivalents.................... $ 30,383 $ 23,191 Marketable securities................... 31,063 48,497 Receivables, less allowances of $898 and $1,349, respectively......... 8,416 16,978 Inventories (Note 2).................... 37,798 31,259 Other current assets (including deferred income taxes of $8,440 and $7,490, respectively)............. 9,784 8,575 -------- -------- Total current assets.................. 117,444 128,500 Property, plant and equipment, net (Note 3)............................ 35,162 32,357 Deferred and other assets (including deferred income taxes of $988 and $1,001, respectively)............... 2,081 2,253 -------- -------- Total assets.............................. $154,687 $163,110 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Current maturities of long-term debt and short-term borrowings........ $ 3,721 $ 1,196 Accounts payable........................ 7,864 10,472 Accrued expenses........................ 26,264 24,346 Income taxes............................ 1,586 4,513 -------- -------- Total current liabilities............. 39,435 40,527 Long-term debt............................ 19,095 19,163 Employee benefit plan obligations......... 9,037 7,237 Other long-term liabilities............... 3,260 3,342 Shareowners' equity: Common stock (Note 5)................... 558 585 Additional capital...................... 12,647 10,295 Retained earnings....................... 76,023 87,508 Stock subscriptions..................... (68) (625) Loan to ESOP Trust...................... (2,059) (2,292) Accumulated other comprehensive loss (Note 7)......................... (3,241) (2,630) -------- -------- Total shareowners' equity............. 83,860 92,841 -------- -------- Total liabilities and shareowners' equity. $154,687 $163,110 ======== ======== 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 ---------------- ------------------ Oct. 3, Sept 27, Oct. 3, Sept. 27, 1998 1997 1998 1997 ---- ---- ---- ---- Net sales.............................. $75,230 $85,610 $199,151 $225,745 Costs and expenses: Cost of sales........................ 53,627 62,021 141,945 165,964 Selling and administrative expenses.. 10,658 13,858 31,582 36,826 Interest expense..................... 366 325 1,001 994 Other income, net.................... (778) (263) (2,542) (1,225) ------- ------- -------- -------- 63,873 75,941 171,986 202,559 Income before income taxes............. 11,357 9,669 27,165 23,186 Income taxes........................... 4,350 3,546 10,503 8,599 ------- ------- -------- --------- Net income............................. $ 7,007 $ 6,123 $ 16,662 $ 14,587 ======= ======= ======== ======== Per share data (Note 6): Net income per common share.......... $ 1.22 $ 1.04 $ 2.87 $ 2.47 ======= ======= ======== ======== Net income per common share, assuming dilution.................. $ 1.14 $ .96 $ 2.67 $ 2.29 ======= ======= ======== ======== Dividends per common share........... $ .17 $ .15 $ .49 $ .42 ======= ======= ======== ======== See Notes to Condensed Consolidated Financial Statements. 5 FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended ----------------- Oct. 3, Sept. 27, 1998 1997 ---- ---- Cash flows from operating activities: Net income................................ $16,662 $14,587 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization........... 4,818 5,781 (Gain)/loss on disposals of plant and equipment......................... (31) 285 Changes in assets and liabilities: Receivables........................... 8,153 5,619 Inventories........................... (7,263) (5,051) Other assets.......................... (1,144) (1,287) Accounts payable and other accrued expenses............................ (3,090) (5,812) Employee benefit plan obligations..... 1,780 675 Other long-term liabilities........... 18 (270) ------- ------- Net cash flows from operating activities.............. 19,903 14,527 ------- ------- Cash flows from investing activities: Additions to plant and equipment.......... (7,054) (4,894) Proceeds from sale of plant and equipment............................... 51 1,137 Purchase of marketable securities......... (24,761) (33,270) Proceeds from maturities of marketable securities ............................. 42,195 34,327 ------- ------- Net cash flows from investing activities.................. 10,431 (2,700) ------- ------- Cash flows from financing activities: Repayment of long-term debt............... (68) (78) Borrowing on line of credit............... 2,657 - Repayment of line of credit............... (161) - Proceeds from issuance of common stock.... 2,130 893 Purchase of common stock.................. (25,324) (24,000) Proceeds from stock subscriptions......... 352 100 Reduction of loan from ESOP Trust......... 233 232 Dividends paid............................ (2,861) (2,477) ------- ------- Net cash flows from financing activities.................. (23,042) (25,330) ------- ------- Effect of exchange rate changes on cash..... (100) (1,167) ------- ------- Net change in cash and equivalents.......... 7,192 (14,670) Cash and equivalents at beginning of period....................... 23,191 22,968 ------- ------- Cash and equivalents at end of period....... $30,383 $ 8,298 ======= ======= 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 October 3, 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 - -------------------- Inventories consist of the following: (In thousands) October 3, January 3, 1998 1998 ---- ---- Raw Materials........................ $12,771 $11,119 Work in Process...................... 4,951 5,157 Finished Goods....................... 30,283 24,911 LIFO Reserve......................... (10,207) (9,928) ------- ------- Total Inventory...................... $37,798 $31,259 ======= ======= Note 3: Property, Plant and Equipment - -------------------------------------- Property, plant and equipment, at cost, consists of the following: (In thousands) October 3, January 3, 1998 1998 ---- ---- Land and Building.................... $20,420 $20,018 Machinery and Equipment.............. 88,519 82,134 ------- ------- 108,939 102,152 Allowance for Depreciation........... 73,777 69,795 ------- ------- $35,162 $32,357 ======= ======= Note 4: Tax Rates - ------------------ 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. 7 Note 5: Shareowners' Equity - ---------------------------- The Company had 5,581,228 shares of common stock (25,000,000 shares authorized, $.10 par value) outstanding as of October 3, 1998. As previously reported, during the third quarter of 1998, pursuant to the stock repurchase program authorized by the Company's Board of Directors, the Company repurchased a total of 335,707 shares for $21.6 million. This completed the Board authorized program to repurchase 500,000 shares which was approved by the Board on July 11, 1997. All repurchased shares were retired. Note 6: 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) ---------------- ----------------- Oct. 3, Sept. 27, Oct. 3, Sept. 27, 1998 1997 1998 1997 ---- ---- ---- ---- Numerator: Net Income..................... $7,007 $6,123 $16,662 $14,587 ====== ====== ======= ======= Denominator: Basic ----- Weighted average common shares....................... 5,724 5,867 5,798 5,908 Diluted ------- Effect of dilutive securities: Employee and director incentive stock options and awards................. 405 485 453 463 ------ ------ ------- ------- Adjusted weighted average common shares................ 6,129 6,352 6,251 6,371 ====== ====== ======= ======= Basic earnings per share......... $ 1.22 $ 1.04 $ 2.87 $ 2.47 ====== ====== ======= ======= Diluted earnings per share....... $ 1.14 $ .96 $ 2.67 $ 2.29 ====== ====== ======= ======= 8 Note 7: Other Comprehensive Income - ----------------------------------- The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" in the first quarter of 1998. Comprehensive income for the third quarter and nine months ended October 3, 1998 and September 27, 1997 are as follows: (In thousands) Third Qtr. Ended Nine Months Ended ---------------- ----------------- Oct. 3, Sept. 27, Oct. 3, Sept. 27, 1998 1997 1998 1997 ---- ---- ---- ---- Net income......................... $7,007 $6,123 $16,662 $14,587 Other comprehensive loss: Foreign currency translation adjustments..................... (353) (768) (611) (1,717) ------ ------ ------- ------ Comprehensive income, net of tax... $6,654 $5,355 $16,051 $12,870 ====== ====== ======= ======= Accumulated other comprehensive loss consists of the following: (In thousands) Oct. 3, January 3, 1998 1998 ---- ---- Cumulative translation adjustment........... $(3,005) $(2,394) Minimum pension liability adjustment, net of tax................................ (236) (236) ------- ------- $(3,241) $(2,630) ======= ======= Note 8: Accounting Pronouncements - ---------------------------------- Disclosures about Pensions and Other Postretirement Benefits - ------------------------------------------------------------ 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. Note 9: Subsequent Event - ------------------------ On October 16, 1998, the Company's Board of Directors authorized the repurchase of up to 500,000 shares of its common stock. 9 Item 2. Management's Discussion And Analysis Of Financial Condition And - ------------------------------------------------------------------------ Results Of Operations - --------------------- Operations - ---------- Net sales for the third quarter of 1998 were $75.2 million, a 12.1 percent decrease from 1997 third quarter net sales of $85.6 million. Year to date 1998 net sales were $199.2 million, down 11.8 percent from year to date 1997 net sales of $225.7 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. Third quarter net sales for the Company's ongoing operations increased from the prior year due to increased submersible motor sales in North America and Europe. Year to date net sales for the Company's ongoing operations increased due to higher volume in submersible water systems motors and changes in the mix of products sold offset in part by the effects of the strengthening dollar. Net income for the third quarter of 1998 was $7.0 million, or $1.14 per diluted share, a 14.4 percent increase compared to net income of $6.1 million, or $.96 per diluted share, for the same period in 1997. Year to date 1998 net income was $16.7 million, or $2.67 per diluted share, a 14.2 percent increase compared to year to date 1997 net income of $14.6 million, or $2.29 per diluted share. Cost of sales as a percent of net sales for the third quarter of 1998 was 71.3 percent, a decrease from 72.4 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 73.5 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. Selling and administrative expenses as a percent of net sales for the third quarter of 1998 was 14.2 percent compared to 16.2 percent for the same period in 1997. Selling and administrative expenses as a percent of net sales for the year to date 1998 was 15.9 percent compared to 16.3 percent for the year to date 1997. The improvements are primarily a result of selling ODI. Included in other income, net for the third quarter of 1998 was $.9 million of interest income and $.1 of foreign currency losses compared to $.5 million of interest income and $.2 of foreign currency losses for the third quarter of 1997. Included in other income, net for the year to date 1998 was $2.7 million of interest income and $.1 million of foreign currency losses compared to $1.3 million of interest income and $.8 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 - ------------------------------- Cash, cash equivalents and marketable securities decreased $10.2 million during the first nine months of 1998. The decrease was principally due to the repurchase of 394,851 shares of the Company's common stock during 1998, at an aggregate purchase price of $25.3 million. 10 Year 2000 Readiness - ------------------- 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 substantially reduce the response time needed to meet changing market conditions. The conversion to this new information system will be substantially completed by the end of 1998, which is on schedule with the original plan. The Company has obtained verification from the developer that the new information system is Year 2000 compliant. The Company has instituted an internally managed Year 2000 Plan to identify, test and correct potential Year 2000 problems, including non-information technology systems and impacts from outside parties including suppliers, customers, and service providers. The Company's efforts have 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 Year 2000 costs have not been and are not expected to be 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. Ongoing updates to these plans will continue throughout 1999. "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. 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (b) Reports on Form 8-K A Form 8-K was filed by the Company dated September 9, 1998, to report the Company's repurchase of 79,300 shares of its common stock. Another Form 8-K was filed by the Company dated September 24, 1998, to report the Company's repurchase of 105,407 shares of its common stock. 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 11, 1998 By /s/ William H. Lawson ----------------- --------------------------- William H. Lawson, Chairman and Chief Executive Officer (Principal Executive Officer) Date November 11, 1998 By /s/ Jess B. Ford ----------------- --------------------------- Jess B. Ford, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 2 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q FOR THE PERIOD ENDED OCTOBER 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JAN-02-1999 OCT-03-1998 30383 31063 9314 898 37798 117444 108939 73777 154687 39435 0 0 0 558 83302 154687 75230 76008 53627 64651 0 0 366 11357 4350 7007 0 0 0 7007 1.22 1.14
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