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
<PAGE> 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
- - ----------
<PAGE> 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.
<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 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.
<PAGE> 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.
<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 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.
<PAGE> 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
====== ====== ======= =======
<PAGE> 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)
======= =======
<PAGE> 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.
<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 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
<PAGE> 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.
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 7604
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<RECEIVABLES> 19632
<ALLOWANCES> 1169
<INVENTORY> 42331
<CURRENT-ASSETS> 106721
<PP&E> 132505
<DEPRECIATION> 78756
<TOTAL-ASSETS> 169334
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<BONDS> 0
0
0
<COMMON> 544
<OTHER-SE> 89238
<TOTAL-LIABILITY-AND-EQUITY> 169334
<SALES> 214404
<TOTAL-REVENUES> 215638
<CGS> 154381
<TOTAL-COSTS> 186267
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 979
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</TABLE>
