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
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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
--------------
(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
<PAGE> 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
- ----------
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
====== ====== ======= =======
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
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<PERIOD-END> OCT-03-1998
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0
0
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</TABLE>
