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 July 1, 2000
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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 _____
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 JULY 26, 2000
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$.10 par value 5,395,920 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 July 1, 2000 (Unaudited)
and January 1, 2000 (Unaudited)............... 3
Condensed Consolidated Statements of
Income for the Second Quarter and First
Half ended July 1, 2000 (Unaudited) and
July 3, 1999 (Unaudited)..................... 4
Condensed Consolidated Statements
Of Cash Flows for the First Half
Ended July 1, 2000 (Unaudited) and
July 3, 1999 (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
Item 3. Quantitative and Qualitative Disclosures
About Market Risk............................. 10
PART II. OTHER INFORMATION
-----------------------------
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
-----------------------------
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) July 1, January 1,
2000 2000
---- ----
ASSETS
Current assets:
Cash and equivalents.................... $ 12,210 $ 27,844
Marketable securities................... 2,915 8,968
Receivables, less allowances of
$1,372 and $1,333, respectively....... 23,139 17,995
Inventories (Note 2).................... 52,751 39,717
Other current assets (including
deferred income taxes of $7,972
and $7,934, respectively)............. 9,798 9,719
-------- --------
Total current assets.................. 100,813 104,243
Property, plant and equipment,
net (Note 3)............................ 58,959 57,047
Deferred and other assets (including
deferred income taxes of $1,522
and $1,530, respectively)............... 14,740 14,811
-------- --------
Total assets.............................. $174,512 $176,101
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 1,017 $ 1,018
Accounts payable........................ 10,348 20,669
Accrued expenses........................ 24,873 23,558
Income taxes............................ 3,470 2,112
-------- --------
Total current liabilities............. 39,708 47,357
Long-term debt............................ 17,046 17,057
Employee benefit plan obligations......... 12,527 11,892
Other long-term liabilities............... 3,612 3,502
Shareowners' equity:
Common stock (Note 5)................... 539 541
Additional capital...................... 18,807 17,695
Retained earnings....................... 89,353 84,242
Loan to ESOP Trust...................... (1,594) (1,827)
Accumulated other comprehensive
loss (Note 7)......................... (5,486) (4,358)
-------- --------
Total shareowners' equity............. 101,619 96,293
-------- --------
Total liabilities and shareowners' equity. $174,512 $176,101
======== ========
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 1, July 3, July 1, July 3,
2000 1999 2000 1999
---- ---- ---- ----
Net sales.............................. $84,875 $74,595 $150,926 $132,609
Costs and expenses:
Cost of sales........................ 61,283 53,071 110,147 95,647
Selling and administrative expenses.. 10,782 10,586 21,091 20,345
Interest expense..................... 286 326 571 652
Other expense/(income), net.......... (9) (513) 307 (679)
------- ------- -------- --------
72,342 63,470 132,116 115,965
Income before income taxes............. 12,533 11,125 18,810 16,644
Income taxes........................... 4,748 4,117 7,122 6,159
------- ------- -------- --------
Net income............................. $ 7,785 $ 7,008 $ 11,688 $ 10,485
======= ======= ======== ========
Per share data (Note 6):
Net income per common share.......... $ 1.44 $ 1.26 $ 2.16 $ 1.89
======= ======= ======== ========
Net income per common share,
assuming dilution.................. $ 1.38 $ 1.19 $ 2.07 $ 1.78
======= ======= ======== ========
Dividends per common share........... $ .22 $ .20 $ .42 $ .37
======= ======= ======== ========
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 1, July 3,
2000 1999
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Cash flows from operating activities:
Net income................................ $11,688 $10,485
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization........... 5,081 3,644
Loss on disposals of plant and
equipment............................. 151 45
Changes in assets and liabilities:
Receivables........................... (5,483) (5,333)
Inventories........................... (13,900) (13,335)
Other assets.......................... (146) 53
Accounts payable and other accrued
expenses............................ (7,092) (1,697)
Employee benefit plan obligations..... 690 1,808
Other long-term liabilities........... 122 (70)
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Net cash flows from
operating activities.............. (8,889) (4,400)
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Cash flows from investing activities:
Additions to plant and equipment.......... (6,570) (4,121)
Proceeds from sale of plant and
equipment............................... 22 2
Additions to deferred assets.............. (1,129) -
Purchase of marketable securities......... (2,915) (8,785)
Proceeds from maturities of marketable
securities ............................. 8,968 27,921
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Net cash flows from
investing activities.................. (1,624) 15,017
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Cash flows from financing activities:
Repayment of long-term debt............... (9) (9)
Borrowing on line of credit............... - 362
Repayment of line of credit............... - (362)
Proceeds from issuance of common stock.... 1,116 522
Purchase of common stock.................. (4,307) (3,350)
Reduction from stock subscriptions........ - (324)
Reduction of loan from ESOP Trust......... 233 232
Dividends paid............................ (2,278) (2,061)
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Net cash flows from
financing activities.................. (5,245) (4,990)
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Effect of exchange rate changes on cash..... 124 34
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Net change in cash and equivalents.......... (15,634) 5,661
Cash and equivalents at beginning of period. 27,844 17,034
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Cash and equivalents at end of period....... $12,210 $22,695
======= =======
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 1, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 30, 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 1, 2000.
Note 2: Inventories
--------------------
Inventories consist of the following:
(In thousands) July 1, January 1,
2000 2000
---- ----
Raw Materials........................ $17,394 $15,749
Work in Process...................... 6,203 6,101
Finished Goods....................... 39,874 28,239
LIFO Reserve......................... (10,720) (10,372)
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Total Inventory...................... $52,751 $39,717
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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) July 1, January 1,
2000 2000
---- ----
Land and Building.................... $ 22,570 $ 22,145
Machinery and Equipment.............. 117,432 113,452
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140,002 135,597
Allowance for Depreciation........... 81,043 78,550
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$ 58,959 $ 57,047
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<PAGE> 7
Note 4: Tax Rates
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The effective tax rate on income before income taxes in 2000 and 1999 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
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The Company had 5,394,820 shares of common stock (10,000,000 shares
authorized, $.10 par value) outstanding as of July 1, 2000.
During the second quarter of 2000, pursuant to the stock repurchase program
authorized by the Company's Board of Directors, the Company repurchased a
total of 14,400 shares for $0.9 million. All repurchased shares were retired.
Note 6: Earnings Per Share
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Following is the computation of basic and diluted earnings per share:
(In thousands, except Second Qtr. Ended First Half Ended
----------------- ----------------
per share amounts) July 1, July 3, July 1, July 3,
2000 1999 2000 1999
---- ---- ---- ----
Numerator:
Net Income..................... $7,785 $7,008 $11,688 $10,485
====== ====== ======= =======
Denominator:
Basic
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Weighted average common
shares....................... 5,403 5,560 5,413 5,557
Diluted
-------
Effect of dilutive securities:
Employee and director
incentive stock options
and awards................. 231 326 233 344
------ ------ ------- -------
Adjusted weighted average
common shares................ 5,634 5,886 5,646 5,901
====== ====== ======= =======
Basic earnings per share......... $ 1.44 $ 1.26 $ 2.16 $ 1.89
====== ====== ======= =======
Diluted earnings per share....... $ 1.38 $ 1.19 $ 2.07 $ 1.78
====== ====== ======= =======
<PAGE> 8
Note 7: Other Comprehensive Income
-----------------------------------
Comprehensive income is as follows:
(In thousands) Second Qtr. Ended First Half Ended
----------------- ----------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
---- ---- ---- ----
Net income......................... $7,785 $7,008 $11,688 $10,485
Other comprehensive loss:
Foreign currency translation
adjustments..................... (152) (456) (1,128) (1,711)
------ ------ ------- -------
Comprehensive income, net of tax... $7,633 $6,552 $10,560 $ 8,774
====== ====== ======= =======
Accumulated other comprehensive loss consists of the following:
(In thousands) July 1, January 1,
2000 2000
---- ----
Cumulative translation adjustment........... $(5,191) $(4,063)
Minimum pension liability adjustment,
net of tax................................ (295) (295)
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$(5,486) $(4,358)
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Note 8: Accounting Pronouncements
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Accounting for Derivative Instruments and Hedging Activities: SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued in
June 1998 and, as amended by SFAS No. 137, is effective in the first quarter
of the Company's fiscal year ending December 29, 2001. SFAS No. 133
establishes a new model for accounting for derivatives in the balance sheet as
either assets or liabilities and measures them at fair value. Certain
disclosures concerning the designation and assessment of hedging relationships
are also required. The adoption of SFAS No. 133 is not expected to have a
material impact on the Company's financial position or its results of
operations.
Note 9: Contingencies and Commitments
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The Company is defending various claims and legal actions which have arisen in
the ordinary course of business. The Company has attempted, where possible,
to assess the likelihood of an unfavorable outcome as a result of these
actions. Legal counsel has been retained to assist the Company in making
these determinations, and costs are accrued when an unfavorable outcome is
determined to be probable and a reasonable estimate can be made
<PAGE> 9
Item 2. Management's Discussion And Analysis Of Financial Condition And
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Results Of Operations
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Operations
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Net sales for the second quarter of 2000 were $84.9 million, a 13.8 percent
increase from 1999 second quarter net sales of $74.6 million. Year to date
2000 net sales were $150.9 million, up 13.8 percent from year to date 1999 net
sales of $132.6 million. The increased sales resulted primarily from higher
volume of submersible water systems motors and fractional horsepower motors. A
portion of the growth is from supply agreements entered into in December 1998.
The increases were partially offset by lower sales of submersible petroleum
motor systems.
Cost of sales as a percent of net sales for the second quarter of 2000 was
72.2 percent, an increase from 71.1 percent for the same period in 1999. Cost
of sales as a percent of net sales for the year to date 2000 was 73.0 percent,
an increase from 72.1 percent for the same period in 1999. 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, energy costs and material costs
in key commodities. The increased employee compensation was partially offset
by productivity improvements.
Selling and administrative expenses as a percent of net sales for the second
quarter of 2000 was 12.7 percent compared to 14.2 percent for the same period
in 1999. Selling and administrative expenses as a percent of net sales for
the year to date 2000 was 14.0 percent compared to 15.3 percent for the year
to date 1999. The decrease is primarily due to modest increases in fixed
expenses while sales increased at a higher rate.
Included in other income, net for the second quarter of 2000 was $.2 million
of interest income and $.1 million of foreign currency losses compared to $.4
million of interest income and $.3 million of foreign currency losses for the
second quarter of 1999. Included in other income, net for the year to date
2000 was $.6 million of interest income and $.7 million of foreign currency
losses compared to $.9 million of interest income and $.6 million of foreign
currency losses for the same period in 1999. Interest income was attributable
to amounts invested principally in short-term US treasury and agency
securities.
Net income for the second quarter of 2000 was $7.8 million, or $1.38 per
diluted share, an 11.4 percent increase compared to net income of $7.0
million, or $1.19 per diluted share, for the same period in 1999. Year to
date 2000 net income was $11.7 million, or $2.07 per diluted share, an 11.4
percent increase compared to year to date 1999 net income of $10.5 million, or
$1.78 per diluted share.
Capital Resources and Liquidity
-------------------------------
Cash, cash equivalents and marketable securities decreased $21.7 million
during the first half of 2000. The principal use of cash for operating
activities was the typical seasonal increase in inventories. Working capital
increased $4.2 million during the first half of 2000 and the current ratio was
2.5 and 2.2 at July 1, 2000, and January 1, 2000, respectively.
<PAGE> 10
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
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1995
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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 3. Quantitative and Qualitative Disclosures about Market Risk
-------------------------------------------------------------------
The Company is subject to market risk associated with changes in foreign
currency exchange rates and interest rates. Foreign currency exchange rate
risk is mitigated through several means: maintenance of local production
facilities in the markets served, invoicing of customers in the same currency
as the source of the products, prompt settlement of intercompany balances
utilizing a global netting system and limited use of foreign currency
denominated debt. The Company does not use derivative contracts. Interest
rate exposure is principally limited to any marketable U.S. treasury and
agency securities owned by the Company ($2.9 at July 1, 2000), and is
mitigated by the short-term, generally less than 6 months, nature of these
investments.
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> 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.
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Registrant
Date July 27, 2000 By /s/ William H. Lawson
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William H. Lawson, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date July 27, 2000 By /s/ Gregg C. Sengstack
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Gregg C. Sengstack, Vice
President and Chief Financial
Officer (Principal Financial
and Accounting Officer)
5
