-----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, CPJDdkGc9dxeuoSw3FM8RsadUohpeoxbiAEQkf/6QHhNaqAW7F7fJCmlygDJFLzX r848FFVV2p3c5AVkZ6Nv6A== 0000038725-99-000028.txt : 19991117 0000038725-99-000028.hdr.sgml : 19991117 ACCESSION NUMBER: 0000038725-99-000028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991110 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: 99745164 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 2, 1999 --------------- 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 8, 1999 --------------------- ---------------- $.10 PAR VALUE 5,437,220 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 October 2, 1999 (Unaudited) and January 2, 1999 (Unaudited)............... 3 Condensed Consolidated Statements of Income for the Third Quarter and Nine Months Ended October 2, 1999 (Unaudited) and October 3, 1998 (Unaudited)................... 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 2, 1999 (Unaudited) and October 3, 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......................... 9-11 PART II. OTHER INFORMATION - - ----------------------------- Item 5. Other Information............................. 11 Item 6. Exhibits and Reports on Form 8-K.............. 11 Signatures................................................ 12 - - ---------- 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - - ----------------------------- FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) October 2, January 2, 1999 1999 ---- ---- ASSETS Current assets: Cash and equivalents.................... $ 7,604 $ 17,034 Marketable securities................... 27,692 27,921 Receivables, less allowances of $1,169 and $1,107, respectively....... 18,463 16,037 Inventories (Note 2).................... 42,331 35,330 Other current assets (including deferred income taxes of $8,826 and $8,774, respectively)............. 10,631 9,961 -------- -------- Total current assets.................. 106,721 106,283 Property, plant and equipment, net (Note 3)............................ 53,749 51,461 Deferred and other assets (including deferred income taxes of $1,293 and $1,362, respectively)............... 8,864 9,846 -------- -------- Total assets.............................. $169,334 $167,590 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Current maturities of long-term debt and short-term borrowings........ $ 3,485 $ 3,716 Accounts payable........................ 14,843 13,556 Accrued expenses........................ 24,707 24,539 Income taxes............................ 2,951 2,594 -------- -------- Total current liabilities............. 45,986 44,405 Long-term debt............................ 18,072 18,089 Employee benefit plan obligations......... 12,155 10,167 Other long-term liabilities............... 3,339 3,332 Shareowners' equity: Common stock (Note 5)................... 544 557 Additional capital...................... 15,635 14,105 Retained earnings....................... 79,343 81,872 Loan to ESOP Trust...................... (1,827) (2,059) Accumulated other comprehensive loss (Note 7)......................... (3,913) (2,878) -------- -------- Total shareowners' equity............. 89,782 91,597 -------- -------- Total liabilities and shareowners' equity. $169,334 $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) Third Qtr. Ended Nine Months Ended ---------------- ----------------- Oct 2, Oct 3, Oct 2, Oct 3, 1999 1998 1999 1998 ---- ---- ---- ---- Net sales.............................. $81,795 $75,230 $214,404 $199,151 Costs and expenses: Cost of sales........................ 58,734 53,627 154,381 141,945 Selling and administrative expenses.. 10,562 10,658 30,907 31,582 Interest expense..................... 327 366 979 1,001 Other income, net.................... (555) (778) (1,234) (2,542) ------- ------- -------- -------- 69,068 63,873 185,033 171,986 Income before income taxes............. 12,727 11,357 29,371 27,165 Income taxes........................... 4,609 4,350 10,768 10,503 ------- ------- -------- -------- Net income............................. $ 8,118 $ 7,007 $ 18,603 $ 16,662 ======= ======= ======== ======== Per share data (Note 6): Net income per common share.......... $ 1.49 $ 1.22 $ 3.37 $ 2.87 ======= ======= ======== ======== Net income per common share, assuming dilution.................. $ 1.40 $ 1.14 $ 3.17 $ 2.67 ======= ======= ======== ======== Dividends per common share........... $ .20 $ .17 $ .57 $ .49 ======= ======= ======== ======== 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 2, Oct 3, 1999 1998 ---- ---- Cash flows from operating activities: Net income................................ $18,603 $16,662 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization........... 6,017 4,818 (Gain)/loss on disposals of plant and equipment......................... 46 (31) Changes in assets and liabilities: Receivables........................... (2,719) 2,135 Inventories........................... (8,432) (7,263) Other assets.......................... (628) (1,144) Accounts payable and other accrued expenses............................ 2,423 2,928 Employee benefit plan obligations..... 2,094 1,780 Other long-term liabilities........... 27 18 ------- ------- Net cash flows from operating activities.............. 17,431 19,903 ------- ------- Cash flows from investing activities: Additions to plant and equipment.......... (7,992) (7,054) Proceeds from sale of plant and equipment............................... 54 51 Purchase of marketable securities......... (27,692) (24,761) Proceeds from maturities of marketable securities ............................. 27,921 42,195 ------- ------- Net cash flows from investing activities.................. (7,709) 10,431 ------- ------- Cash flows from financing activities: Repayment of long-term debt............... (9) (68) Borrowing on line of credit............... 362 2,657 Repayment of line of credit............... (362) (161) Proceeds from issuance of common stock.... 1,763 2,130 Purchase of common stock.................. (17,908) (25,324) Proceeds/(reduction) from stock subscriptions........................... (324) 352 Reduction of loan from ESOP Trust......... 232 233 Dividends paid............................ (3,151) (2,861) ------- ------- Net cash flows from financing activities.................. (19,397) (23,042) ------- ------- Effect of exchange rate changes on cash..... 246 (100) ------- ------- Net change in cash and equivalents.......... (9,429) 7,192 Cash and equivalents at beginning of period. 17,034 23,191 ------- ------- Cash and equivalents at end of period....... $ 7,605 $30,383 ======= ======= 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 2, 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 - - -------------------- Inventories consist of the following: (In thousands) Oct 2, January 2, 1999 1999 ---- ---- Raw Materials........................ $13,111 $12,080 Work in Process...................... 5,997 5,281 Finished Goods....................... 33,265 27,439 LIFO Reserve......................... (10,042) (9,470) ------- ------- Total Inventory...................... $42,331 $35,330 ======= ======= Note 3: Property, Plant and Equipment - - -------------------------------------- Property, plant and equipment, at cost, consists of the following: (In thousands) Oct 2, January 2, 1999 1999 ---- ---- Land and Building.................... $ 21,938 $ 21,889 Machinery and Equipment.............. 110,567 104,317 -------- -------- 132,505 126,206 Allowance for Depreciation........... 78,756 74,745 -------- -------- $ 53,749 $ 51,461 ======== ======== Note 4: Tax Rates - - ------------------ 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. 7 Note 5: Shareowners' Equity - - ---------------------------- The Company had 5,440,520 shares of common stock (25,000,000 shares authorized, $.10 par value) outstanding as of October 2, 1999. During the third quarter of 1999, pursuant to the stock repurchase program authorized by the Company's Board of Directors, the Company repurchased a total of 203,300 shares for $14.6 million. 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 2, Oct 3, Oct 2, Oct 3, 1999 1998 1999 1998 ---- ---- ---- ---- Numerator: Net Income..................... $8,118 $7,007 $18,603 $16,662 ====== ====== ======= ======= Denominator: Basic ----- Weighted average common shares....................... 5,466 5,724 5,532 5,798 Diluted ------- Effect of dilutive securities: Employee and director incentive stock options and awards................. 330 405 333 453 ------ ------ ------- ------- Adjusted weighted average common shares................ 5,796 6,129 5,865 6,251 ====== ====== ======= ======= Basic earnings per share......... $ 1.49 $ 1.22 $ 3.37 $ 2.87 ====== ====== ======= ======= Diluted earnings per share....... $ 1.40 $ 1.14 $ 3.17 $ 2.67 ====== ====== ======= ======= 8 Note 7: Other Comprehensive Income - - ----------------------------------- Comprehensive income is as follows: (In thousands) Third Qtr. Ended Nine Months Ended ---------------- ----------------- Oct 2, Oct 3, Oct 2, Oct 3, 1999 1998 1999 1998 ---- ---- ---- ---- Net income......................... $8,118 $7,007 $18,603 $16,662 Other comprehensive loss: Foreign currency translation adjustments..................... 676 (353) (1,035) (611) ------ ------ ------- ------- Comprehensive income, net of tax... $8,794 $6,654 $17,568 $16,051 ====== ====== ======= ======= Accumulated other comprehensive loss consists of the following: (In thousands) Oct 2, January 2, 1999 1999 ---- ---- Cumulative translation adjustment........... $(3,249) $(2,214) Minimum pension liability adjustment, net of tax................................ (664) (664) ------- ------- $(3,913) $(2,878) ======= ======= 9 Item 2. Management's Discussion And Analysis Of Financial Condition And - - ------------------------------------------------------------------------ Results Of Operations - - --------------------- Operations - - ---------- Net sales for the third quarter of 1999 were $81.8 million, an 8.8 percent increase from 1998 third quarter net sales of $75.2 million. Year to date 1999 net sales were $214.4 million, up 7.6 percent from year to date 1998 net sales of $199.2 million. The improvements are primarily a result of higher volume in the submersible water systems motors and changes in the mix of products sold. Cost of sales as a percent of net sales for the third quarter of 1999 was 71.8 percent, an increase from 71.3 percent for the same period in 1998. Cost of sales as a percent of net sales for the year to date 1999 was 72.0 percent, an increase from 71.3 percent for the same period in 1998. 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, depreciation, and other project costs needed to support the increased sales volume. Net income for the third quarter of 1999 was $8.1 million, or $1.40 per diluted share, a 15.7 percent increase compared to net income of $7.0 million, or $1.14 per diluted share, for the same period in 1998. Year to date 1999 net income was $18.6 million, or $3.17 per diluted share, an 11.4 percent increase compared to year to date 1998 net income of $16.7 million, or $2.67 per diluted share. Selling and administrative expenses as a percent of net sales for the third quarter of 1999 was 12.9 percent compared to 14.2 percent for the same period in 1998. The third quarter decrease was a direct result of controlling selling and administrative expenses while increasing net sales. Selling and administrative expenses as a percent of net sales for the year to date 1999 was 14.4 percent compared to 15.9 percent for the year to date 1998. The year to date improvements were primarily due to lower costs associated with employee stock awards, employee insurance and systems expenses. This decrease was partially offset by higher marketing and selling expenses in support of increased sales volume. Included in other income, net for the third quarter of 1999 was $.5 million of interest income and $.1 of foreign currency gains compared to $.9 million of interest income and $.1 of foreign currency losses for the third quarter of 1998. Included in other income, net for the year to date 1999 was $1.3 million of interest income and $.5 million of foreign currency losses compared to $2.7 million of interest income and $.1 million of foreign currency losses 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 - - ------------------------------- Cash, cash equivalents and marketable securities decreased $9.7 million during the first nine months of 1999. The principal use of cash was for the repurchase of the Company's common stock. Working capital decreased $1.1 million during the first nine months of 1999 and the current ratio was 2.3 and 2.4 at October 2, 1999, and January 2, 1999, respectively. 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 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. 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 - - ----------------------------------------------------------------------------- 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 11 actual results to differ materially from those indicated by the forward looking statements. Item 5. Other Information - - -------------------------- In October 1998, the Board of Directors of Franklin Electric Co., Inc. (the "Company") authorized the repurchase of up to 500,000 shares of the Company's Common Stock in open market or privately negotiated transactions at such times and such prices as determined by the Company. During the third quarter of 1999, the Company repurchased, in the open market and through private transactions, a total of 203,300 shares of its Common Stock for $14.6 million. All repurchased shares were retired. The Company has remaining authority to purchase an additional 222,800 shares under its stock repurchase program. Item 6. Exhibits and Reports on Form 8-K - - ----------------------------------------- (a) Exhibits (Filed with this quarterly report) None. (b) Reports on Form 8-K A Form 8-K was filed by the Company dated September 9, 1999, to report the Company's repurchase of 70,000 shares of its common stock. (c) Reports on Form 8-K A Form 8-K was filed by the Company dated October 15, 1999, to report the Board of Directors' adoption of a New Rights Agreement. 12 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 9, 1999 By /s/ William H. Lawson ------------------------- ---------------------- William H. Lawson, Chairman and Chief Executive Officer (Principal Executive Officer) Date November 9, 1999 By /s/ Gregg C. Sengstack ------------------------- ----------------------- Gregg C. Sengstack, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 5 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q FOR THE PERIOD ENDED OCTOBER 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JAN-01-2000 OCT-02-1999 7604 27692 19632 1169 42331 106721 132505 78756 169334 45986 0 0 0 544 89238 169334 214404 215638 154381 186267 0 0 979 29371 10768 18603 0 0 0 18603 3.37 3.17
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