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 September 27, 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
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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 6, 1997
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$.10 par value 5,957,833 shares
<PAGE>
FRANKLIN ELECTRIC CO., INC.
Index
PART I. FINANCIAL INFORMATION
- ---------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 27, 1997 (Unaudited)
and December 28, 1996
Condensed Consolidated Statements of
Income for the Third Quarter and Nine
Months ended September 27, 1997 (Unaudited)
and September 28, 1996 (Unaudited)
Condensed Consolidated Statements
of Cash Flows for the Nine Months
ended September 27, 1997 (Unaudited) and
September 28, 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 6. Exhibits and Reports on Form 8-K
Signatures
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) Sept. 27,
1997 December 28,
(Unaudited) 1996
----------- ----
ASSETS
Current assets:
Cash and equivalents.................... $ 8,298 $ 22,968
Marketable securities................... 30,567 31,624
Receivables, less allowances of
$1,490 and $1,435, respectively....... 21,601 25,134
Inventories (Note 2).................... 45,396 42,305
Other current assets (including
deferred income taxes of $7,726
and $7,755, respectively)............. 9,422 9,485
-------- --------
Total current assets.................. 115,284 131,516
Property, plant and equipment,
net (Note 3)............................ 38,789 40,097
Deferred and other assets................. 1,971 1,846
-------- --------
Total assets.............................. $156,044 $173,459
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term borrowings................... $ 18 $ 21
Accounts payable........................ 8,944 14,049
Accrued expenses........................ 25,241 23,636
Income taxes............................ 2,009 4,339
-------- --------
Total current liabilities............. 36,212 42,045
Long-term debt............................ 20,160 20,276
Employee benefit plan obligations......... 7,401 6,904
Other long-term liabilities............... 3,911 4,228
Deferred income taxes..................... 184 183
Shareowners' equity:
Common stock (Note 5)................... 593 638
Additional capital...................... 9,032 7,613
Retained earnings....................... 84,121 95,961
Stock subscriptions..................... (693) (997)
Cumulative translation adjustment....... (2,342) (625)
Loan to ESOP Trust...................... (2,292) (2,524)
Minimum pension liability adjustment,
net of taxes.......................... (243) (243)
-------- --------
Total shareowners' equity............. 88,176 99,823
-------- --------
Total liabilities and shareowners' equity. $156,044 $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)
Third Quarter Ended Nine Months Ended
------------------- -----------------
Sept 27, Sept 28, Sept 27, Sept 28,
1997 1996 1997 1996
---- ---- ---- ----
Net sales.............................. $85,610 $79,380 $225,745 $215,241
Costs and expenses:
Cost of sales........................ 62,021 59,333 165,964 160,985
Selling and administrative expenses.. 13,858 11,431 36,826 32,476
Interest expense..................... 325 318 994 978
Other income, net.................... (263) (374) (1,225) (963)
------- ------- -------- --------
75,941 70,708 202,559 193,476
Income before income taxes............. 9,669 8,672 23,186 21,765
Income taxes........................... 3,546 3,060 8,599 8,064
------- ------- -------- --------
Net income............................. $ 6,123 $ 5,612 $ 14,587 $ 13,701
======= ======= ======== ========
Per share data:
Weighted average common shares....... 6,352 6,684 6,371 6,676
======= ======= ======== ========
Net income per common share.......... $ .96 $ .84 $ 2.29 $ 2.05
======= ======= ======== ========
Dividends per common share........... $ .15 $ .12 $ .42 $ .34
======= ======= ======== ========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) Nine Months Ended
-----------------
Sept 27, Sept 28,
1997 1996
---- ----
Cash flows from operating activities:
Net income.................................. $14,587 $13,701
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization............. 5,781 6,487
Loss (Gain) on disposals of
plant and equipment..................... 285 (53)
Changes in assets and liabilities:
Receivables............................. 4,770 2,374
Inventories............................. (5,051) (3,281)
Other assets............................ (1,199) 454
Accounts payable and other
accrued expenses...................... (4,963) (2,110)
Employee benefit plan obligations....... 675 (1,397)
Other long-term liabilities............. (270) (776)
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Net cash flows from
operating activities................ 14,615 15,399
------- -------
Cash flows from investing activities:
Additions to plant and equipment............ (4,894) (2,220)
Proceeds from sale of
plant and equipment....................... 1,137 209
Purchase of marketable securities........... (33,270) -
Proceeds from maturities of marketable
securities................................ 34,327 -
Other, net.................................. (88) (220)
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Net cash flows from
investing activities.................... (2,788) (2,231)
------- -------
Cash flows from financing activities:
Additions to long-term debt................. - 195
Repayment of long-term debt................. (78) (80)
Repayment of short-term debt................ - (257)
Purchase of common stock.................... (24,000) -
Proceeds from issuance of common stock...... 893 592
Loan to ESOP Trust.......................... - (324)
Repayment of loan to ESOP Trust............. 232 200
Proceeds from stock subscriptions........... 100 25
Dividends paid.............................. (2,477) (2,148)
------- -------
Net cash flows from
financing activities.................... (25,330) (1,797)
------- -------
Effect of exchange rate changes on cash....... (1,167) 279
------- -------
Net (decrease) increase
in cash and equivalents..................... (14,670) 11,650
Cash and equivalents at
beginning of period......................... 22,968 32,077
------- -------
Cash and equivalents at
end of period............................... $ 8,298 $43,727
======= =======
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
nine months ended September 27, 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) Sept 27, December 28,
1997 1996
---- ----
Raw Materials........................ $17,674 $15,958
Work in Process...................... 5,102 4,942
Finished Goods....................... 34,155 32,528
LIFO Reserve......................... (11,535) (11,123)
------- -------
Total Inventory...................... $45,396 $42,305
======= =======
Note 3: Property, Plant and Equipment
- --------------------------------------
Property, plant and equipment at cost consists of the following:
(In thousands) Sept 27, December 28,
1997 1996
---- ----
Land and Building.................... $ 27,003 $ 28,335
Machinery and Equipment.............. 97,297 95,457
-------- --------
124,300 123,792
Allowance for Depreciation........... (85,511) (83,695)
-------- --------
$ 38,789 $ 40,097
======== ========
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.
<PAGE>
Note 5: Shareowners' Equity
- ----------------------------
The Company had 5,926,264 shares of common stock (10,000,000 shares
authorized, $.10 par value) outstanding as of Sept 27, 1997.
Note 6: Accounting Pronouncements
- ----------------------------------
EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board
(the "FASB") issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" which simplifies the method of computing earnings per
share. Under the new requirements, primary earnings per share will be
replaced with basic earnings per share and the dilutive effect of stock
options will be excluded from the computation. This change in the computation
is estimated to result in an approximately 6 percent higher earnings per share
amount. 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.
REPORTING COMPREHENSIVE INCOME In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements and is effective for fiscal years beginning after
December 15, 1997. The adoption of this Statement is not expected to have a
material impact on the presentation of the Company's financial statements.
SEGMENT DISCLOSURES In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This statement establishes standards for reporting
information about operating segments and for disclosures about products and
services, geographic areas, and major customers. It is effective for fiscal
years beginning after December 15, 1997. The adoption of this Statement is
not expected to have a material impact on the presentation of the Company's
financial statements.
Note 7: Sale of Oil Dynamics, Inc.
- -----------------------------------
On June 24, 1997, the Company announced the signing of a definitive agreement
to sell its wholly-owned subsidiary, Oil Dynamics Inc. (ODI), to Baker Hughes
Incorporated. At the end of the third quarter of 1997, the pending sale was
awaiting the completion of an anti-trust review by the United States Justice
Department. The sale was completed on October 24, 1997, at a selling price of
$31.5 million, subject to post-closing adjustments. The Company estimates
that it will recognize a gain, net of tax effect, of approximately $2 million
from the sale of ODI. However, the final selling price is subject to post
closing adjustments and the total amount of expenses resulting from the sale
of ODI have not been finalized as of this time.
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And
- ------------------------------------------------------------------------
Results Of Operations
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Operations
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Net sales for the third quarter of 1997 were $85.6 million, up 7.8 percent
over 1996 third quarter net sales of $79.4 million. Year-to-date 1997 net
sales were $225.8 million, up 4.9 percent from 1996 year-to-date net sales of
$215.2 million. Both the quarter and year-to-date increase in sales was
primarily from higher volume in the submersible water systems motors and from
increased export sales by Oil Dynamics Inc. (ODI). ODI was a wholly owned
subsidiary of the Company until its sale on October 24, 1997.
Cost of sales as a percent of net sales for the third quarter of 1997 was 72.4
percent, a decrease from 74.7 percent for the same period in 1996. For the
nine-month periods, cost of sales as a percent of net sales for 1997 was 73.5
percent compared to 74.8 percent for the same period in 1996. The decreases
for both the quarter and year-to-date periods were the result of lower
manufacturing costs.
Net income for the third quarter of 1997 was $6.1 million, or $.96 per share,
an increase of 9.1 percent compared to the third quarter of 1996 net income of
$5.6 million, or $0.84 per share. Year-to-date 1997 net income was $14.6
million, or $2.29 per share, an increase of 6.5 percent compared to year-to-
date 1996 net income of $13.7 million, or $2.05 per share.
Selling and administrative expenses as a percent of net sales for the third
quarter of 1997 was 16.2 percent compared to 14.4 percent for the same period
in 1996. This was primarily attributed to commissions on the higher sales
levels, employee medical costs, and to incentive compensation plans that
derive the compensation amount from the price of the Company's stock. Selling
and administrative expenses as a percent of net sales for the year-to-date
1997 was 16.3 percent, an increase from 15.1 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, employee medical costs, and employee compensation.
Included in other income, net for the third quarter of 1997 was $.5 million of
interest income and $.2 million of foreign currency transaction losses
compared to $0.5 million of interest income and $.2 million of foreign
currency transaction gains for the same period in 1996. Included in other
income, net for the year-to-date 1997 and 1996 was $1.3 million of interest
income and $.8 and $.2 million, respectively, of foreign currency transaction
losses. Interest income was attributable to amounts invested principally in
short-term US treasury bills and notes.
Capital Resources and Liquidity
- -------------------------------
Cash and marketable securities decreased $15.7 million during the first nine
months 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. Working capital decreased $10.4 million
during the first nine months of 1997, and the current ratio of the Company was
3.2 and 3.1 at September 27, 1997, and December 28, 1996, respectively.
Subsequent to quarter end, the sale of ODI to Baker Hughes was completed at a
selling price of $31.5 million subject to post-closing adjustments.
<PAGE>
PART II. OTHER INFORMATION
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 during the third
quarter ended September 27, 1997.
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 6, 1997 By William H. Lawson
--------------------- --------------------------------
William H. Lawson, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date November 6, 1997 By Jess B. Ford
--------------------- --------------------------------
Jess B. Ford, Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Exhibit Index
(11) Computation of Earnings per Share
EXHIBIT 11
FRANKLIN ELECTRIC CO., INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except per share amounts)
Third Quarter Ended Nine Months Ended
------------------- -----------------
Sept 27, Sept 28, Sept 27, Sept 28,
1997 1996 1997 1996
---- ---- ---- ----
Net income available to
common shares and common
share equivalents.................. $6,123 $5,612 $14,587 $13,701
====== ====== ======= =======
Common shares outstanding
beginning of period................ 5,903 6,327 6,371 6,254
Weighted average of common
shares issued during
the period......................... 12 6 29 61
Weighted average of common
shares repurchased during
the period......................... - - (443) -
Dilutive effect of options
outstanding during
the period......................... 437 351 414 361
------ ------ ------- -------
Weighted average of common
shares outstanding during
the period......................... 6,352 6,684 6,371 6,676
====== ====== ======= =======
Net income per weighted
average common share............... $ .96 $ .84 $ 2.29 $ 2.05
====== ====== ======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FORM 10-Q FOR THE PERIOD ENDED SEPTEBER 27, 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> SEP-27-1997
<CASH> 8,298
<SECURITIES> 30,567
<RECEIVABLES> 23,091
<ALLOWANCES> 1,490
<INVENTORY> 45,396
<CURRENT-ASSETS> 115,284
<PP&E> 124,300
<DEPRECIATION> 85,511
<TOTAL-ASSETS> 156,044
<CURRENT-LIABILITIES> 36,212
<BONDS> 0
0
0
<COMMON> 593
<OTHER-SE> 87,583
<TOTAL-LIABILITY-AND-EQUITY> 156,044
<SALES> 85,610
<TOTAL-REVENUES> 85,873
<CGS> 62,021
<TOTAL-COSTS> 76,204
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 325
<INCOME-PRETAX> 9,669
<INCOME-TAX> 3,546
<INCOME-CONTINUING> 6,123
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,123
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.96
</TABLE>
