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 April 4, 1998
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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 May 14, 1998
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$.10 par value 5,881,409 shares
Page 1 of 11
<PAGE> 2
FRANKLIN ELECTRIC CO., INC.
Index
Page
PART I. FINANCIAL INFORMATION Number
- --------------------------------- ------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of April 4, 1998 (Unaudited)
and January 3, 1998........................... 3
Condensed Consolidated Statements of
Income for the Three Months Ended
April 4, 1998 and March 29, 1997 (Unaudited).. 4
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
April 4, 1998 and March 29, 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
PART II. OTHER INFORMATION
- -----------------------------
Item 4. Submission of Matters to a Vote of
Security Holders............................ 10
Item 6. Exhibits and Reports on Form 8-K.............. 10
Signatures................................................ 11
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) April 4, January 3,
1998 1998
(Unaudited) (Audited)
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ASSETS
Current assets:
Cash and equivalents.................... $ 28,009 $ 23,191
Marketable securities................... 31,731 48,497
Receivables, less allowances of
$1,330 and $1,349, respectively....... 18,318 16,978
Inventories (Note 2).................... 40,253 31,259
Other current assets (including
deferred income taxes of $8,396
and $7,490, respectively)............. 9,407 8,575
-------- --------
Total current assets.................. 127,718 128,500
Property, plant and equipment,
net (Note 3)............................ 32,549 32,357
Deferred and other assets (including
deferred income taxes of $1,010
and $1,001, respectively)............... 2,086 2,253
-------- --------
Total assets.............................. $162,353 $163,110
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 1,018 $ 1,196
Accounts payable........................ 8,006 10,472
Accrued expenses........................ 22,919 24,346
Income taxes............................ 4,264 4,513
-------- --------
Total current liabilities............. 36,207 40,527
Long-term debt............................ 19,149 19,163
Employee benefit plan obligations......... 7,801 7,237
Other long-term liabilities............... 3,328 3,342
Shareowners' equity:
Common stock (Note 5)................... 588 585
Additional capital...................... 12,022 10,295
Retained earnings....................... 88,563 87,508
Stock subscriptions..................... (205) (625)
Loan to ESOP Trust...................... (2,059) (2,292)
Accumulated other comprehensive
loss (Note 7)......................... (3,041) (2,630)
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Total shareowners' equity............. 95,868 92,841
-------- --------
Total liabilities and shareowners' equity. $162,353 $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)
Three Months Ended
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April 4, March 29,
1998 1997
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Net sales................................. $56,014 $64,200
Costs and expenses:
Cost of sales........................... 40,834 47,709
Selling and administrative expenses..... 9,727 11,464
Interest expense........................ 314 345
Other income, net....................... (875) (497)
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50,000 59,021
Income before income taxes................ 6,014 5,179
Income taxes.............................. 2,354 1,984
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Net income................................ $ 3,660 $ 3,195
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Per share data (Note 6):
Net income per common share............. $ .63 $ .53
======= =======
Net income per common share,
assuming dilution.................... $ .58 $ .49
======= =======
Dividends per common share.............. $ .15 $ .12
======= =======
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) Three Months Ended
------------------
April 4, March 29,
1998 1997
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Cash flows from operating activities:
Net income................................ $ 3,660 $ 3,195
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization........... 1,786 1,816
(Gain)/loss on disposals of plant
and equipment......................... (9) 38
Changes in assets and liabilities:
Receivables........................... (1,505) (2,083)
Inventories........................... (9,383) (10,688)
Other assets.......................... (864) 241
Accounts payable and other accrued
expenses............................ (3,946) (6,236)
Employee benefit plan obligations..... 602 777
Other long-term liabilities........... (5) (3)
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Net cash flows from
operating activities.............. (9,664) (12,943)
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Cash flows from investing activities:
Additions to plant and equipment.......... (1,679) (354)
Proceeds from sale of plant and
equipment............................... 10 964
Proceeds from maturities of marketable
securities ............................. 16,766 16,704
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Net cash flows from
investing activities.................. 15,097 17,314
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Cash flows from financing activities:
Repayment of long-term debt............... (7) -
Repayment of line of credit............... (174) -
Proceeds from issuance of common stock.... 1,484 399
Purchase of common stock.................. (1,728) (24,000)
Proceeds from stock subscriptions......... 352 100
Reduction of loan from ESOP Trust......... 233 232
Dividends paid............................ (881) (707)
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Net cash flows from
financing activities.................. (721) (23,976)
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Effect of exchange rate changes on cash..... 106 144
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Net change in cash and equivalents.......... 4,818 (19,461)
Cash and equivalents at
beginning of period....................... 23,191 22,968
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Cash and equivalents at end of period....... $28,009 $ 3,507
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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 three
months ended April 4, 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
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Inventories consist of the following:
(In thousands) April 4, January 3,
1998 1998
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Raw Materials........................ $10,850 $11,119
Work in Process...................... 5,004 5,157
Finished Goods....................... 34,451 24,911
LIFO Reserve......................... (10,052) (9,928)
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Total Inventory...................... $40,253 $31,259
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Note 3: Property, Plant and Equipment
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Property, plant and equipment, at cost, consists of the following:
(In thousands) April 4, January 3,
1998 1998
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Land and Building.................... $20,367 $20,018
Machinery and Equipment.............. 82,989 82,134
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103,356 102,152
Allowance for Depreciation........... 70,807 69,795
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$32,549 $32,357
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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 5,880,409 shares of common stock (10,000,000 shares
authorized, $.10 par value) outstanding as of April 4, 1998.
During the first quarter of 1998, pursuant to the stock repurchase program
authorized by the Company's Board of Directors, the Company repurchased a
total of 17,293 shares for $1.1 million. All repurchased shares were retired.
Note 6: Earnings Per Share
- ---------------------------
Following is the computation of basic and diluted earnings per share:
(In thousands, Three Months Ended
except per share amounts) ------------------
April 4, March 29,
1998 1997
---- ----
Numerator:
Net Income.......................... $3,660 $3,195
====== ======
Denominator:
Basic
Weighted average common shares..... 5,818 6,010
Diluted
Effect of dilutive securities:
Employee and director incentive
stock options and awards........ 491 458
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Adjusted weighted average common
shares.......................... 6,309 6,468
====== ======
Basic earnings per share.............. $ .63 $ .53
====== ======
Diluted earnings per share............ $ .58 $ .49
====== ======
<PAGE> 8
Note 7: Other Comprehensive Income
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The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" in the first quarter of 1998. Comprehensive
income for the three months ended April 4, 1998 and March 29, 1997 is as
follows:
(In thousands) Three Months Ended
------------------
April 4, March 29,
1998 1997
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Net income.................................. $ 3,660 $ 3,195
Other comprehensive loss:
Foreign currency translation adjustments.. (411) (740)
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Comprehensive income, net of tax............ $ 3,249 $ 2,455
======= =======
Accumulated other comprehensive loss consists of the following:
(In thousands) April 4, January 3,
1998 1998
---- ----
Cumulative translation adjustment........... $(2,805) $(2,394)
Minimum pension liability adjustment,
net of tax................................ (236) (236)
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$(3,041) $(2,630)
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Note 8: Accounting Pronouncements
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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.
<PAGE> 9
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 first quarter of 1998 were $56.0 million, a 12.7 percent
decrease from 1997 first quarter net sales of $64.2 million. Prior year net
sales included the sales of Oil Dynamics Inc. (ODI). ODI was a previously
wholly owned subsidiary that was sold in October 1997. Net sales for the
Company's ongoing operations increased due to higher volume in the submersible
water systems motors and changes in the mix of products sold. Net income for
the first quarter of 1998 was $3.7 million, or $.58 per diluted share,
compared to net income of $3.2 million, or $.49 per diluted share, for the
same period a year ago. Since the beginning of 1997, the Company has
repurchased approximately 632,000 of its outstanding common shares. Cost of
sales as a percentage of net sales for the first quarter of 1998 was 72.9
percent compared to 74.3 percent for the same period in 1997. The improvement
is primarily a result of selling ODI and productivity improvements.
Selling and administrative expenses as a percent of net sales for the first
quarter of 1998 was 17.4 percent compared to 17.9 percent for the same period
in 1997. Interest expense was $0.3 million for both the first quarter of 1998
and 1997. Included in other income, net, for the first quarter of 1998 was
$1.0 million of interest income and $0.1 million of foreign currency losses.
Interest income was $0.5 million and foreign currency losses were $0.5 million
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 $11.9 million
during the first quarter of 1998. The principal use of cash for operating
activities was the typical seasonal increase in inventories. Working capital
increased $3.5 million during the first quarter of 1998 and the current ratio
was 3.5 and 3.1 at the end of the first quarter of 1998 and 1997,
respectively.
<PAGE> 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The 1998 Annual Meeting of Shareholders of the Company was held on April 17,
1998 for the following purposes: 1) To elect two directors for terms expiring
at the 2001 Annual Meeting of Shareholders; 2) To approve an amendment to the
Franklin Electric Co., Inc. Amended 1988 Executive Stock Purchase Plan; 3) To
approve an amendment to the Restated Certificate of Incorporation to increase
the number of shares of authorized common stock; and 4) To ratify the
appointment of Deloitte & Touche LLP as independent auditors for the 1998
fiscal year.
The results were:
1) Nominees for Director For Withhold Authority
--------------------- --- ------------------
William H. Lawson 5,513,275 68,206
Donald J. Schneider 5,513,265 68,216
For Against Abstain
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2) Amendment to the
Amended 1988 Executive
Stock Purchase Plan 4,871,618 115,914 17,116
3) Amendment to increase the
number of shares of
authorized common stock 5,175,339 400,376 5,766
4) Ratification of
Deloitte & Touche LLP 5,574,032 4,615 2,834
Total shares represented at the Annual Meeting in person or by proxy were
5,581,481 of a total of 5,870,960 shares outstanding. This represented 95.1
percent of Company common stock and constituted a quorum. Total broker non-
votes related to the proposal to amend the Amended 1988 Executive Stock
Purchase Plan were 576,833 shares.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<PAGE> 11
SIGNATURES
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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 May 14, 1998 By /s/ William H. Lawson
------------------------- ----------------------------------
William H. Lawson, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date May 14, 1998 By /s/ Jess B. Ford
------------------------- ----------------------------------
Jess B. Ford, Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FORM 10-Q FOR THE PERIOD ENDED APRIL 4, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 28,009
<SECURITIES> 31,731
<RECEIVABLES> 19,648
<ALLOWANCES> 1,330
<INVENTORY> 40,253
<CURRENT-ASSETS> 127,718
<PP&E> 103,356
<DEPRECIATION> 70,807
<TOTAL-ASSETS> 162,353
<CURRENT-LIABILITIES> 36,207
<BONDS> 0
0
0
<COMMON> 588
<OTHER-SE> 95,280
<TOTAL-LIABILITY-AND-EQUITY> 162,353
<SALES> 56,014
<TOTAL-REVENUES> 56,889
<CGS> 40,834
<TOTAL-COSTS> 50,875
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 314
<INCOME-PRETAX> 6,014
<INCOME-TAX> 2,354
<INCOME-CONTINUING> 3,660
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,660
<EPS-PRIMARY> .63
<EPS-DILUTED> .58
</TABLE>
