FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-362
FRANKLIN ELECTRIC CO., INC.
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(Exact name of registrant as specified in its charter)
Indiana 35-0827455
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East Spring Street
Bluffton, Indiana 46714
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(Address of principal executive offices) (Zip Code)
(219) 824-2900
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
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 July 23, 1997
--------------------- ----------------
$.10 par value 5,911,364 shares
<PAGE>
FRANKLIN ELECTRIC CO., INC.
Index
PART I. FINANCIAL INFORMATION
- ---------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 28, 1997 (Unaudited)
and December 28, 1996
Condensed Consolidated Statements of
Income for the Second Quarter and First
Half ended June 28, 1997 (Unaudited) and
June 29, 1996 (Unaudited)
Condensed Consolidated Statements
of Cash Flows for the First Half
ended June 28, 1997 (Unaudited) and
June 29, 1996 (Unaudited)
Notes to Condensed Consolidated
Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
- -----------------------------
Item 4. Submission of Matters to a Vote of
Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) June 28,
1997 December 28,
(Unaudited) 1996
----------- ----
ASSETS
Current assets:
Cash and equivalents.................... $ 13,381 $ 22,968
Marketable securities................... 6,874 31,624
Receivables, less allowances of
$1,508 and $1,435, respectively....... 26,735 25,134
Inventories (Note 2).................... 53,993 42,305
Other current assets (including
deferred income taxes of $7,742
and $7,755, respectively)............. 9,140 9,485
-------- --------
Total current assets.................. 110,123 131,516
Property, plant and equipment,
net (Note 3)............................ 38,165 40,097
Deferred and other assets................. 2,319 1,846
-------- --------
Total assets.............................. $150,607 $173,459
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term borrowings................... $ 19 $ 21
Accounts payable........................ 9,395 14,049
Accrued expenses........................ 23,797 23,636
Income taxes............................ 1,687 4,339
-------- --------
Total current liabilities............. 34,898 42,045
Long-term debt............................ 20,175 20,276
Employee benefit plan obligations......... 8,288 6,904
Other long-term liabilities............... 4,090 4,228
Deferred income taxes..................... 183 183
Shareowners' equity:
Common stock (Note 5)................... 590 638
Additional capital...................... 8,367 7,613
Retained earnings....................... 78,884 95,961
Stock subscriptions..................... (760) (997)
Cumulative translation adjustment....... (1,574) (625)
Loan to ESOP Trust...................... (2,291) (2,524)
Minimum pension liability adjustment,
net of taxes.......................... (243) (243)
-------- --------
Total shareowners' equity............. 82,973 99,823
-------- --------
Total liabilities and shareowners' equity. $150,607 $173,459
======== ========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Second Qtr Ended First Half Ended
---------------- ----------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
---- ---- ---- ----
Net sales.............................. $75,935 $73,107 $140,135 $135,861
Costs and expenses:
Cost of sales........................ 56,234 53,858 103,943 101,652
Selling and administrative expenses.. 11,504 10,791 22,968 21,045
Interest expense..................... 324 340 669 660
Other income, net.................... (465) (117) (962) (589)
------- ------- ------- -------
67,597 64,872 126,618 122,768
Income before income taxes............. 8,338 8,235 13,517 13,093
Income taxes........................... 3,069 3,154 5,053 5,004
------- ------- ------- -------
Net income............................. $ 5,269 $ 5,081 $ 8,464 $ 8,089
======= ======= ======== ========
Per share data:
Weighted average common shares....... 6,291 6,674 6,380 6,667
======= ======= ======== ========
Net income per common share.......... $ .84 $ .76 $ 1.33 $ 1.21
======= ======= ======== ========
Dividends per common share........... $ .15 $ .12 $ .27 $ .22
======= ======= ======== ========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) First Half Ended
----------------
June 28, June 29,
1997 1996
---- ----
Cash flows from operating activities:
Net income.................................. $ 8,464 $ 8,089
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization............. 3,753 4,272
Loss (Gain) on disposals of plant
and equipment........................... 41 (34)
Changes in assets and liabilities:
Receivables............................. (2,047) (3,503)
Inventories............................. (12,736) (12,056)
Other assets............................ (956) 103
Accounts payable and other
accrued expenses...................... (6,204) (4,147)
Employee benefit plan obligations....... 1,500 570
Other long-term liabilities............. (109) (384)
------- -------
Net cash flows from
operating activities............... (8,294) (7,090)
------- -------
Cash flows from investing activities:
Additions to plant and equipment.......... (2,273) (1,100)
Proceeds from sale of
plant and equipment..................... 966 41
Purchase of marketable securities......... (6,846) -
Proceeds from maturities of marketable
securities.............................. 31,596 -
Other, net................................ 31 (246)
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Net cash flows from
investing activities.................. 23,474 (1,305)
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Cash flows from financing activities:
Additions to long-term debt............... - 166
Repayment of long-term debt............... (76) (10)
Repayment of short-term debt.............. - (197)
Purchase of common stock.................. (24,000) -
Proceeds from issuance of common stock.... 526 468
Loan to ESOP Trust........................ - (324)
Repayment of loan to ESOP Trust........... 232 200
Proceeds from stock subscriptions......... 100 25
Dividends paid............................ (1,591) (1,388)
------- -------
Net cash flows from
financing activities.................. (24,809) (1,060)
------- -------
Effect of exchange rate changes on cash..... 42 353
------- -------
Net decrease in cash and equivalents........ (9,587) (9,102)
Cash and equivalents at
beginning of period....................... 22,968 32,077
------- -------
Cash and equivalents at
end of period............................. $13,381 $22,975
======= =======
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
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 quarter and
first half ended June 28, 1997 are not necessarily indicative of the results
that may be expected for the year ending January 3, 1998. 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 December 28, 1996.
Note 2: Inventories
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Inventories consist of the following:
(In thousands) June 28, December 28,
1997 1996
---- ----
Raw Materials......................... $18,046 $15,958
Work in Process....................... 5,212 4,942
Finished Goods........................ 42,238 32,528
LIFO Reserve.......................... (11,503) (11,123)
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Total Inventory....................... $53,993 $42,305
======= =======
Note 3: Property, Plant and Equipment
- --------------------------------------
Property, plant and equipment at cost consists of the following:
(In thousands) June 28, December 28,
1997 1996
---- ----
Land and Building..................... $ 27,220 $ 28,335
Machinery and Equipment............... 95,853 95,457
-------- --------
123,073 123,792
Allowance for Depreciation............ 84,908 83,695
-------- --------
$ 38,165 $ 40,097
======== ========
<PAGE>
Note 4: Tax Rates
- ------------------
The effective tax rate on income before income taxes in 1997 and 1996 varies
from the United States statutory rate of 35 percent principally due to the
effect of state and foreign income taxes.
Note 5: Shareowners' Equity
- ----------------------------
The Company had 5,903,364 shares of common stock (10,000,000 shares
authorized, $.10 par value) outstanding as of June 28, 1997.
Note 6: Earnings Per Share
- ---------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" which simplifies
the method for computing earnings per share. Under the new requirements,
primary earnings per share will be replaced with basic earnings per share. The
statement, which will not impact the results of operations, financial position
or cash flows of the company, is effective for financial statements issued for
periods ending after December 15, 1997 and will be adopted by the Company in
the fourth quarter of 1997.
Note 7: Other
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On June 24, 1997, the Company announced the signing of a definitive agreement
to sell its subsidiary, Oil Dynamics, Inc., to Baker Hughes Incorporated. The
pending sale, which is subject to regulatory approval and certain other
conditions, is anticipated to close in the third quarter of 1997.
Note 8: Subsequent Event
- -------------------------
On July 14, 1997, the Company's Board of Directors authorized the repurchase
of up to 500,000 shares of its common stock. The Company completed a
previously authorized repurchase of 500,000 shares earlier this year.
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And
- ------------------------------------------------------------------------
Results Of Operations
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Operations
- ----------
Net sales for the second quarter of 1997 were $75.9 million, up 4 percent over
1996 second quarter net sales of $73.1 million. Although domestic submersible
motor sales were flat due to delays in pump installations as a result of
inclement weather, the Company's German subsidiary experienced increased sales
volume through market share and new products. Year to date 1997 net sales
were $140.1 million, up 3 percent from year to date 1996 net sales of $135.9
million. Strong export sales from the first quarter of 1997 contributed to
the increase in year to date sales.
Cost of sales as a percent of net sales for the second quarter of 1997 was
74.1 percent, an increase from 73.7 percent for the same period in 1996. This
increase was caused by higher employee and fixed manufacturing and engineering
costs. Cost of sales as a percent of net sales for the year to date 1997 was
74.2 percent compared to 74.8 percent for the same period in 1996.
Net income for the second quarter of 1997 was $5.3 million, or $.84 per share,
an increase of 4 percent compared to the second quarter of 1996 net income of
$5.1 million, or $.76 per share. Year to date 1997 net income was $8.5
million, or $1.33 per share, an increase of 5 percent compared to year to date
1996 net income of $8.1 million, or $1.21 per share.
Selling and administrative expenses as a percent of net sales for the second
quarter of 1997 was 15.1 percent compared to 14.8 percent for the same period
in 1996. Selling and administrative expenses as a percent of net sales for
the year to date 1997 was 16.4 percent, an increase from 15.5 percent for the
same period of last year. The increase in year to date selling and
administrative expenses was primarily a result of higher commissions paid due
to the increase in export sales.
Included in other income, net for the second quarter of 1997 and 1996 was $.3
million of interest income and $.1 and $.3 million, respectively, of foreign
currency losses. Included in other income, net for the year to date 1997 was
$.8 million of interest income and $.6 million of foreign currency losses
compared to $.7 million of interest income and $.3 million of foreign currency
losses for the same period in 1996. Interest income was attributable to
amounts invested principally in short-term US treasury bills and notes.
Capital Resources and Liquidity
- -------------------------------
Cash, cash equivalents, and marketable securities decreased $34.3 million
during the first half of 1997. The decrease was principally due to the
repurchase of 500,000 shares of the Company's common stock on January 29,
1997, at an aggregate purchase price of $24.0 million and due to cash used in
operating activities of $8.3 million. Changes in working capital items
accounted for most of the cash used in operating activities. The increase in
inventory was primarily due to a typical seasonal build up and lower than
expected sales because of inclement weather conditions over much of the
Company's principal markets. Working capital decreased $14.2 million during
the first half of 1997, and the current ratio of the Company was 3.2 and 3.1
at June 28, 1997, and December 28, 1996, respectively.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Annual Meeting of Shareholders of the Company was held on April 11, 1997
for the following purposes: 1) To elect three directors for terms expiring at
the 2000 Annual Meeting of Shareholders; 2) To ratify the appointment of
Deloitte & Touche LLP as independent auditors for the 1997 fiscal year.
The results were:
1) Nominees for Director For Withhold Authority
--------------------- --- ------------------
Robert H. Little 5,472,851 6,317
Patricia Schaefer 5,472,736 6,432
Gerard E. Veneman 5,464,475 14,693
For Against Abstain
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2) Ratification of
Deloitte & Touche LLP 5,474,508 1,932 2,728
Total shares represented at the Annual Meeting in person or by proxy were
5,479,168 of a total of 5,890,929 shares outstanding. This represented 93
percent of Company common stock and constituted a quorum. Total broker non-
votes were 306,038 shares.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
(11) Computations of Earnings per Share
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the second
quarter ended June 28, 1997.
<PAGE>
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 July 23, 1997 By William H. Lawson
--------------------- --------------------------------
William H. Lawson, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date July 23, 1997 By Jess B. Ford
--------------------- --------------------------------
Jess B. Ford, Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
Exhibit Index
(11) Computation of Earnings per Share
<PAGE>
EXHIBIT 11
FRANKLIN ELECTRIC CO., INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except per share amounts)
Second Qtr Ended First Half Ended
---------------- ----------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
---- ---- ---- ----
Net income available to
common shares and common
share equivalents.................. $5,269 $5,081 $8,464 $8,089
====== ====== ====== ======
Common shares outstanding
beginning of period................ 5,893 6,314 6,371 6,254
Weighted average of common
shares issued during
the period......................... 4 9 21 52
Weighted average of common
shares repurchased during
the period......................... - - (414) -
Dilutive effect of options
outstanding during
the period......................... 394 351 402 361
------ ------ ------ ------
Weighted average of common
shares outstanding during
the period......................... 6,291 6,674 6,380 6,667
====== ====== ====== ======
Net income per weighted
average common share............... $ .84 $ .76 $ 1.33 $ 1.21
====== ====== ====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-Q FOR THE PERIOD ENDED JUNE 28, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JUN-28-1997
<CASH> 13,381
<SECURITIES> 6,874
<RECEIVABLES> 28,243
<ALLOWANCES> 1,508
<INVENTORY> 53,993
<CURRENT-ASSETS> 110,123
<PP&E> 123,073
<DEPRECIATION> 84,908
<TOTAL-ASSETS> 150,607
<CURRENT-LIABILITIES> 34,898
<BONDS> 0
0
0
<COMMON> 590
<OTHER-SE> 82,383
<TOTAL-LIABILITY-AND-EQUITY> 150,607
<SALES> 75,935
<TOTAL-REVENUES> 76,400
<CGS> 56,234
<TOTAL-COSTS> 68,062
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 324
<INCOME-PRETAX> 8,338
<INCOME-TAX> 3,069
<INCOME-CONTINUING> 5,269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,269
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.83
</TABLE>
