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 July 3, 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
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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
----------------- -----
(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 July 29, 1999
--------------------- -------------
$.10 par value 5,577,520 shares
Page 1 of 12
<PAGE> 2
FRANKLIN ELECTRIC CO., INC.
Index
Page
PART I. FINANCIAL INFORMATION Number
- --------------------------------- ------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of July 3, 1999 (Unaudited)
and January 2, 1999 (Unaudited)............... 3
Condensed Consolidated Statements of
Income for the Second Quarter and First
Half ended July 3, 1999 (Unaudited) and
July 4, 1998 (Unaudited)...................... 4
Condensed Consolidated Statements
Of Cash Flows for the First Half
Ended July 3, 1999 (Unaudited) and
July 4, 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) July 3, January 2,
1999 1999
---- ----
ASSETS
Current assets:
Cash and equivalents.................... $ 22,695 $ 17,034
Marketable securities................... 8,785 27,921
Receivables, less allowances of
$1,109 and $1,107, respectively....... 20,377 16,037
Inventories (Note 2).................... 47,030 35,330
Other current assets (including
deferred income taxes of $8,761
and $8,774, respectively)............. 10,046 9,961
-------- --------
Total current assets.................. 108,933 106,283
Property, plant and equipment,
net (Note 3)............................ 51,738 51,461
Deferred and other assets (including
deferred income taxes of $1,293
and $1,362, respectively)............... 9,355 9,846
-------- --------
Total assets.............................. $170,026 $167,590
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 3,372 $ 3,716
Accounts payable........................ 10,197 13,556
Accrued expenses........................ 24,418 24,539
Income taxes............................ 3,527 2,594
-------- --------
Total current liabilities............. 41,514 44,405
Long-term debt............................ 18,069 18,089
Employee benefit plan obligations......... 11,818 10,167
Other long-term liabilities............... 3,233 3,332
Shareowners' equity:
Common stock (Note 5)................... 555 557
Additional capital...................... 14,402 14,105
Retained earnings....................... 86,851 81,872
Loan to ESOP Trust...................... (1,827) (2,059)
Accumulated other comprehensive
loss (Note 7)......................... (4,589) (2,878)
-------- --------
Total shareowners' equity................. 95,392 91,597
-------- --------
Total liabilities and shareowners' equity. $170,026 $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)
Second Qtr. Ended First Half Ended
----------------- ----------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
Net sales.............................. $74,595 $67,907 $132,609 $123,921
Costs and expenses:
Cost of sales........................ 53,071 47,484 95,647 88,318
Selling and administrative expenses.. 10,586 11,197 20,345 20,924
Interest expense..................... 326 321 652 635
Other income, net.................... (513) (889) (679) (1,764)
------- ------- ------- -------
63,470 58,113 115,965 108,113
Income before income taxes............. 11,125 9,794 16,644 15,808
Income taxes........................... 4,117 3,799 6,159 6,153
------- ------- -------- --------
Net income............................. $ 7,008 $ 5,995 $ 10,485 $ 9,655
======= ======= ======== ========
Per share data (Note 6):
Net income per common share.......... $ 1.26 $ 1.02 $ 1.89 $ 1.65
======= ======= ======== ========
Net income per common share,
assuming dilution.................. $ 1.19 $ .95 $ 1.78 $ 1.53
======= ======= ======== ========
Dividends per common share........... $ .20 $ .17 $ .37 $ .32
======= ======= ======== ========
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) First Half Ended
----------------
July 3, July 4,
1999 1998
---- ----
Cash flows from operating activities:
Net income................................ $10,485 $ 9,655
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization........... 3,644 3,385
(Gain)/loss on disposals of plant
and equipment......................... 45 (39)
Changes in assets and liabilities:
Receivables........................... (4,905) (2,030)
Inventories........................... (13,335) (13,029)
Other assets.......................... 53 (979)
Accounts payable and other accrued
expenses............................ (2,125) (5,122)
Employee benefit plan obligations..... 1,808 1,206
Other long-term liabilities........... (70) (128)
------- -------
Net cash flows from
operating activities.............. (4,400) (7,081)
------- -------
Cash flows from investing activities:
Additions to plant and equipment.......... (4,121) (3,534)
Proceeds from sale of plant and
equipment............................... 2 51
Purchase of marketable securities......... (8,785) -
Proceeds from maturities of marketable
securities ............................. 27,921 22,513
------- -------
Net cash flows from
investing activities.................. 15,017 19,030
------- -------
Cash flows from financing activities:
Repayment of long-term debt............... (9) (58)
Borrowing on line of credit............... 362 2,496
Repayment of line of credit............... (362) (172)
Proceeds from issuance of common stock.... 522 2,072
Purchase of common stock.................. (3,350) (3,772)
Proceeds/(reduction) from stock
subscriptions........................... (324) 352
Reduction of loan from ESOP Trust......... 232 233
Dividends paid............................ (2,061) (1,880)
------- -------
Net cash flows from
financing activities.................. (4,990) (729)
------- -------
Effect of exchange rate changes on cash..... 34 (324)
------- -------
Net change in cash and equivalents.......... 5,661 10,896
Cash and equivalents at beginning of period. 17,034 23,191
------- -------
Cash and equivalents at end of period....... $22,695 $34,087
======= =======
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 first half
ended July 3, 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) July 3, January 2,
1999 1999
---- ----
Raw Materials........................ $12,492 $12,080
Work in Process...................... 5,284 5,281
Finished Goods....................... 38,948 27,439
LIFO Reserve......................... (9,694) (9,470)
------- -------
Total Inventory...................... $47,030 $35,330
======= =======
Note 3: Property, Plant and Equipment
- --------------------------------------
Property, plant and equipment, at cost, consists of the following:
(In thousands) July 3, January 2,
1999 1999
---- ----
Land and Building.................... $ 21,762 $ 21,889
Machinery and Equipment.............. 106,559 104,317
-------- --------
128,321 126,206
Allowance for Depreciation........... 76,583 74,745
-------- --------
$ 51,738 $ 51,461
======== ========
<PAGE> 7
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.
Note 5: Shareowners' Equity
- ----------------------------
The Company had 5,550,520 shares of common stock (25,000,000 shares
authorized, $.10 par value) outstanding as of July 3, 1999.
During the second quarter of 1999, pursuant to the stock repurchase program
authorized by the Company's Board of Directors, the Company repurchased a
total of 36,400 shares for $2.3 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 Second Qtr. Ended First Half Ended
per share amounts) ----------------- ----------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
Net Income..................... $7,008 $5,995 $10,485 $ 9,655
====== ====== ======= =======
Denominator:
Basic
-----
Weighted average common
shares....................... 5,560 5,851 5,557 5,835
Diluted
-------
Effect of dilutive securities:
Employee and director
incentive stock options
and awards................. 326 463 344 476
------ ------ ------- -------
Adjusted weighted average
common shares................ 5,886 6,314 5,901 6,311
====== ====== ======= =======
Basic earnings per share......... $ 1.26 $ 1.02 $ 1.89 $ 1.65
====== ====== ======= =======
Diluted earnings per share....... $ 1.19 $ .95 $ 1.78 $ 1.53
====== ====== ======= =======
<PAGE> 8
Note 7: Other Comprehensive Income
- -----------------------------------
Comprehensive income is as follows:
(In thousands) Second Qtr. Ended First Half Ended
----------------- ----------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
Net income......................... $7,008 $5,995 $10,485 $ 9,655
Other comprehensive loss:
Foreign currency translation
adjustments..................... (456) 153 (1,711) (258)
------ ------ ------- -------
Comprehensive income, net of tax... $6,552 $6,148 $ 8,774 $ 9,397
====== ====== ======= =======
Accumulated other comprehensive loss consists of the following:
(In thousands) July 3, January 2,
1999 1999
---- ----
Cumulative translation adjustment........... $(3,925) $(2,214)
Minimum pension liability adjustment,
net of tax................................ (664) (664)
------- -------
$(4,589) $(2,878)
======= =======
<PAGE> 9
Item 2. Management's Discussion And Analysis Of Financial Condition And
- ------------------------------------------------------------------------
Results Of Operations
- ---------------------
Operations
- ----------
Net sales for the second quarter of 1999 were $74.6 million, a 9.9 percent
increase from 1998 second quarter net sales of $67.9 million. Year to date
1999 net sales were $132.6 million, up 7.0 percent from year to date 1998 net
sales of $123.9 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 second quarter of 1999 was
71.1 percent, an increase from 69.9 percent for the same period in 1998. Cost
of sales as a percent of net sales for the year to date 1999 was 72.1 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 costs
associated with new product development and other projects.
Net income for the second quarter of 1999 was $7.0 million, or $1.19 per
diluted share, a 16.7 percent increase compared to net income of $6.0 million,
or $.95 per diluted share, for the same period in 1998. Year to date 1999 net
income was $10.5 million, or $1.78 per diluted share, an 8.2 percent increase
compared to year to date 1998 net income of $9.7 million, or $1.53 per diluted
share.
Selling and administrative expenses as a percent of net sales for the second
quarter of 1999 was 14.2 percent compared to 16.5 percent for the same period
in 1998. Selling and administrative expenses as a percent of net sales for
the year to date 1999 was 15.3 percent compared to 16.9 percent for the year
to date 1998. The 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 second quarter of 1999 was $.4 million
of interest income and $.3 of foreign currency losses compared to $.8 million
of interest income and $.1 of foreign currency gains for the second quarter of
1998. Included in other income, net for the year to date 1999 was $.9 million
of interest income and $.6 million of foreign currency losses compared to $1.8
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 $13.5 million
during the first half of 1999. The principal use of cash for operating
activities was the typical seasonal increase in inventories. Working capital
increased $5.5 million during the first half of 1999 and the current ratio was
2.6 and 2.4 at July 3, 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 COST 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.
<PAGE> 11
"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.
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 second quarter of 1999, the Company repurchased, in the open market
and through private transactions, a total of 36,400 shares of its Common Stock
for $2.3 million. All repurchased shares were retired.
On July 23, 1999, the Company purchased 130,000 shares of Common Stock in a
privately negotiated transaction at a purchase price of $71.50 per share. All
repurchased shares were retired. The Company has remaining authority to
purchase an additional 296,000 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
None.
<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 July 30, 1999 By /s/ William H. Lawson
--------------------- ------------------------------
William H. Lawson, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date July 30, 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 JULY 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY
REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<S> <C>
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<PERIOD-END> JUL-03-1999
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<RECEIVABLES> 21486
<ALLOWANCES> 1109
<INVENTORY> 47030
<CURRENT-ASSETS> 108933
<PP&E> 128321
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<TOTAL-ASSETS> 170026
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<BONDS> 0
0
0
<COMMON> 555
<OTHER-SE> 94837
<TOTAL-LIABILITY-AND-EQUITY> 170026
<SALES> 132609
<TOTAL-REVENUES> 133288
<CGS> 95647
<TOTAL-COSTS> 116644
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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</TABLE>
