UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
---------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
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 46714-3798
BLUFFTON, INDIANA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(219) 824-2900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE NONE
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
(TITLE OF EACH CLASS)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at February 11, 2000 was $304,342,171. The stock price used in the
computation was the last sales price on that date.
Number of shares of common stock outstanding at February 11, 2000:
5,441,020 shares
----------------
Page 1 of 44
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
A portion of the Proxy Statement for the Annual Meeting of Shareholders to be
held on April 14, 2000 (Part III).
The exhibits filed with this Form 10-K are listed in the exhibit index located
on pages 38-39.
<PAGE> 3
TABLE OF CONTENTS
Page
Part I
Item 1. Business........................................ 4-5
Item 2. Properties...................................... 6
Item 3. Legal Proceedings............................... 6
Item 4. Submission of Matters to a Vote of
Security Holders................................ 6
Supplemental Item - Executive
Officers of the Registrant...................... 7
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................. 7
Item 6. Selected Financial Data......................... 8
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations...................................... 9-11
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk .................................... 11
Item 8. Financial Statements and Supplementary Data..... 12-33
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 34
Part III
Item 10. Directors and Executive Officers
of the Registrant............................... 34
Item 11. Executive Compensation.......................... 34
Item 12. Security Ownership of Certain
Beneficial Owners and Management................ 34
Item 13. Certain Relationships and Related
Transactions.................................... 34
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K......................... 35-36
Signatures ................................................ 37
Exhibit Index ................................................ 38-39
<PAGE> 4
PART I
------
ITEM 1. BUSINESS
- -----------------
Franklin Electric Co., Inc. is an Indiana corporation founded in 1944 and
incorporated in 1946, and together with its subsidiaries (hereinafter referred
to as the "Company" unless the context requires otherwise), engages in the
design, manufacture and distribution of electric motors, electronic motor
controls and related equipment.
Description of Business
- -----------------------
The Company's products are sold principally by a single company sales force in
the United States, Canada, Europe, Australia, South Africa, Mexico and other
world markets.
The market for electric motors is highly competitive and includes both large
and small suppliers. The Company's motor sales are primarily to original
equipment manufacturers of pumps, petroleum pumping equipment, compressors,
fans, heating and air conditioning equipment, swimming pool equipment, medical
furniture and business machines. Motors are also sold in the replacement
market through independent distributors and repair shops.
ITT Industries, Inc., a customer of the Company, accounted for 15.3 percent,
14.0 percent and 12.4 percent of the Company's consolidated sales in 1999,
1998, and 1997, respectively.
The Company offers normal and customary trade terms to its customers, no
significant part of which is of an extended nature. Special inventory
requirements are not necessary, and customer merchandise return rights do not
extend beyond normal warranty provisions.
The principal raw materials used in the manufacture of the Company's products
are steel in coils and bars, copper wire, and aluminum ingot. Major
components are capacitors, motor protectors, forgings, gray iron castings and
bearings. Most materials are available from many sources in the United States
and in many world markets. In the opinion of management, no single source of
supply is critical to the Company's business. Availability of fuel and energy
is adequate to satisfy current and projected overall operations unless
interrupted by government direction or allocation.
During 1998, the Company purchased certain operating and intangible assets
from a motor manufacturer. The Company paid $17.5 million in cash at the
acquisition date, and may pay additional contingent consideration according to
terms that expire on December 31, 2001. The amount, if any, of this contingent
consideration is not currently determinable.
The Company employed 2,581 persons at the end of 1999.
Segment and Geographic Information
- ----------------------------------
Segment and geographic information is included within this Form 10-K at page
30-31.
<PAGE> 5
Research and Development
- ------------------------
The Company spent approximately $5.3 million in 1999, $4.7 million in 1998 and
$5.1 million in 1997 on activities related to the development of new products,
on improvements of existing products, manufacturing methods, and on other
applied research and development. Included in 1997 is $0.6 million related to
research and development activities for Oil Dynamics, Inc., a previously
wholly owned subsidiary sold in 1997.
In 1999, development continued on two lines of submersible motors for severe
applications, on further expansion into the European motor market, and on
development of a line of wastewater and explosion-proof motors. Research
continued on new materials and processes designed to achieve higher quality
and more cost effective construction of the Company's high volume products.
The Company owns a number of patents. In aggregate, these patents are of
material importance in the operation of the business; however, the Company
believes that its operations are not dependent on any single patent or group
of patents.
Backlog
- -------
The dollar amount of backlog at the end of 1999 and 1998 was as follows:
(In thousands)
Fiscal Year Ending
------------------
1999 1998
- ---- ----
Backlog....................... $14,636 $12,097
The backlog is composed of written orders at prices adjustable on a price-at-
the-time-of-shipment basis for products, some of which are specifically
designed for the customer, but most of which are standard catalog items. Both
add-ons and cancellations of catalog items are made without charge to the
customer, but charges are generally made on any cancellation of a specifically
designed product. All backlog orders are expected to be filled in fiscal
2000.
The Company's sales and earnings are not substantially seasonal in nature.
There is no seasonal pattern to the backlog and the backlog has not proven to
be a significant indicator of future sales.
Environmental Matters
- ---------------------
Compliance with federal, state and local provisions regulating the discharge
of material into the environment, or otherwise relating to the protection of
the environment, is not expected to have any material adverse effect upon the
financial position, capital expenditures, earnings or competitive position of
the Company.
<PAGE> 6
ITEM 2. PROPERTIES
- -------------------
The Company maintains its principal executive offices in Bluffton, Indiana;
manufacturing plants are located in the United States and abroad. Location
and approximate square footage for the Company's principal facilities are
described below. All principal properties are owned or held under operating
leases.
The Company's principal properties are as follows:
Acres Approximate
Location of Land Square Feet
-------- ------- -----------
Bluffton, Indiana 35.8 405,660
Siloam Springs, Arkansas 32.6 240,400
Wilburton, Oklahoma 30.0 324,940
Jonesboro, Indiana (1) - 34,570
Grant County, Indiana 9.0 24,100
Wittlich, Rhineland, Germany 6.9 76,516
Ten facilities with less
than 30,000 square feet each (2) 4.0 139,472
----- ---------
Total 118.3 1,245,658
===== =========
In the Company's opinion, its facilities are suitable for their intended use
and are in good condition.
(1) Leased facility, which expires on April 30, 2001.
(2) Nine of the facilities are leased and in the aggregate have approximately
116,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is defending various claims and legal actions, including
environmental matters, which have arisen in the ordinary course of
business. The Company has attempted, where possible, to assess the
likelihood of an unfavorable outcome to the Company as a result of these
actions. Legal counsel has been retained to assist the Company in making
these determinations, and costs are accrued, as required under applicable
accounting rules, when an unfavorable outcome is determined to be probable and
a reasonable estimate can be made. As a result, the Company had an accrual
balance of approximately $1.2 million and $1.3 million at January 1, 2000 and
January 2, 1999, respectively, to provide for such actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
None
<PAGE> 7
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The names, ages and all positions and offices held by the executive officers
of the Company are:
In this
Name Age Positions and Offices office since
---- --- --------------------- ------------
William H. Lawson 63 Chairman of the Board and 1985
Chief Executive Officer
John B. Lindsay 57 President 1995
Jess B. Ford 48 Senior Vice President 1999
Peter C. Maske 49 Senior Vice President, 1999
Operations
William J. Foreman 63 Vice President 1995
Donald R. Hobbs 58 Vice President, Submersible 1996
Motor Marketing
Thomas A. Miller 50 Vice President, Submersible 1998
Motor Engineering
Kirk M. Nevins 56 Vice President, Sales 1995
Gregg C. Sengstack 41 Vice President and
Chief Financial Officer 1999
Each officer is elected for a term of one year or until his successor is
elected and qualified.
With the exception of Mr. Ford, each executive officer was employed by the
Company during the preceding five years as an officer or in a management
position. Prior to joining the Company in October 1995, Mr. Ford was employed
by Tokheim Corporation (a manufacturer of petroleum dispensing marketing
systems) from 1992 until 1995 as Vice President-Finance, Secretary and Chief
Financial Officer.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
The number of shareowners of record as of February 11, 2000 was 1,180. The
Company's stock is traded on NASDAQ National Market: Symbol FELE.
Dividends paid and the price range per common share as quoted in The Wall
Street Journal for 1999 and 1998 were as follows:
DIVIDENDS PER SHARE PRICE PER SHARE
1999 1998 1999 1998
---- ---- ---- ----
Low High Low High
--- ---- --- ----
1st Quarter... $.17 $.15 $59 $70 3/4 $57 3/4 $72 1/2
2nd Quarter... $.20 $.17 $59 1/2 $67 $63 $72 1/2
3rd Quarter... $.20 $.17 $64 1/8 $74 7/8 $60 3/4 $67 3/4
4th Quarter... $.20 $.17 $65 3/8 $73 7/8 $40 $68 1/4
<PAGE> 8
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
<TABLE>
<CAPTION>
FIVE YEAR FINANCIAL SUMMARY
- --------------------------------------------------------------------------------------------
FRANKLIN ELECTRIC CO., INC.
(In thousands, except per share amounts)
1999 1998 1997 1996 1995
<F1>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net sales............................. $293,236 $272,533 $303,298 $300,689 $276,440
Gross profit.......................... 84,171 79,955 85,533 79,214 65,471
Gain on sale of subsidiary............ - - 3,500 - -
Interest expense...................... 1,317 1,364 1,435 1,308 2,128
Income taxes ......................... 15,591 15,237 15,004 11,827 8,777
Net income............................ 26,805 24,784 25,505 21,510 15,502
Net income available to common shares. 26,805 24,784 25,505 21,510 15,502
Depreciation and amortization......... 7,460 6,687 7,628 8,389 8,890
Capital expenditures.................. 13,691 24,601 8,598 6,235 6,111
Balance sheet:
Working capital....................... 56,886 61,878 87,973 89,471 69,267
Property, plant and equipment, net.... 57,047 51,461 32,357 40,097 41,670
Total assets.......................... 176,101 167,590 163,110 172,959 153,357
Long-term debt........................ 17,057 18,089 19,163 20,276 20,171
Shareowners' equity................... $ 96,293 $ 91,597 $ 92,841 $ 99,823 $ 80,557
Other data:
% Net income to sales................. 9.1% 9.1% 8.4% 7.2% 5.6%
% Net income to total average assets.. 15.6% 15.0% 15.2% 13.2% 10.2%
Current ratio......................... 2.2 2.4 3.2 3.2 2.7
Number of common shares outstanding... 5,413 5,574 5,847 6,371 6,254
Per share:
Market price range
High.................................. $ 74.875 $ 72.50 $ 64.25 $ 45.25 $ 34.50
Low................................... 59.00 40.00 41.25 30.75 28.25
Net income per weighted-average
common share........................ 4.87 4.32 4.33 3.43 2.51
Net income per weighted-average
common share, assuming dilution..... 4.60 4.02 4.01 3.22 2.35
Book value............................ 16.54 14.84 14.58 14.95 12.21
Cash dividends on common stock........ $ 0.77 $ 0.66 $ 0.57 $ 0.46 $ 0.38
- --------------------------------------------------------------------------------------------
<FN>
<F1> Includes ten months of the results of operations of Oil Dynamics, Inc.
until its sale on October 24, 1997.
</FN>
Certain prior year amounts have been reclassified to conform to the current
year presentation.
</TABLE>
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
RESULTS OF OPERATIONS
- ------------------
Net sales for 1999 were $293.2 million, a 7.6 percent increase from 1998 net
sales of $272.5 million. The increased sales resulted primarily from higher
volume of submersible water systems motors. This increase was partially
offset by lower sales of fractional horsepower motors, gasoline systems
product lines and the effects of the strengthening U.S. dollar relative to the
South African rand. In 1997 net sales were $303.3 million which included the
sales of Oil Dynamics, Inc. (ODI), a previously wholly-owned subsidiary that
was sold in October 1997. Net sales in 1998 compared to 1997, excluding ODI,
increased 1.4 percent. Net sales for the Company's ongoing operations
increased due to higher sales volume of submersible water systems motors and
changes in the mix of products sold, offset in part by foreign currency
transaction losses due to the strengthening U.S. dollar relative to the German
mark and South African rand.
Net income for 1999 was $26.8 million, or $4.60 per diluted share, compared to
1998 net income of $24.8 million, or $4.02 per diluted share. Net income for
1997 was $25.5 million, or $4.01 per diluted share. Net income for 1997
includes the after-tax gain on the sale of ODI of $2.3 million or $.36 per
diluted share.
Cost of sales as a percent of net sales for 1999, 1998 and 1997 was 71.3
percent, 70.7 percent and 71.8 percent, respectively. Cost of sales as a
percent of sales increased in 1999 primarily as a result of higher employee
compensation, increased LIFO inventory quantities, and other project costs
needed to support the increased sales volume. The improvements in 1998 were
primarily the result of selling ODI and productivity improvements. 1997 cost
of sales included ODI.
Selling and administrative expenses as a percent of net sales for 1999, 1998
and 1997 was 14.3 percent, 15.4 percent and 16.2 percent, respectively. The
improvements in 1999 were primarily due to lower costs associated with
employee stock awards and systems expenses. The improvement in 1998 was
primarily the result of selling ODI and lower medical costs.
Included in other income, net for 1999, 1998 and 1997 was interest income of
$1.9 million, $3.6 million, and $2.4 million, respectively, primarily derived
from the investment of cash balances in short-term U.S. treasury and agency
securities. Interest expense for 1999, 1998 and 1997 was $1.3 million, $1.4
million, and $1.4 million, respectively. Foreign currency based transactions
produced a loss for 1999, 1998 and 1997 of $0.7 million, $0.1 million and $1.0
million, respectively. The foreign currency transaction loss in 1999 was
primarily due to the strengthening dollar relative to the German mark and
South African rand. The foreign currency transaction loss in 1998 was
primarily due to the movement of the U.S. dollar relative to the Mexican peso.
The foreign currency transaction loss in 1997 was primarily due to the impact
of the strengthening dollar on intercompany transactions denominated in German
marks and South African rands.
The provision for income taxes in 1999, 1998 and 1997 was $15.6 million, $15.2
million, and $15.0 million, respectively. The effective tax rate for each
year differs from the United States statutory rate of 35 percent,
<PAGE> 10
principally due to the effects of state and foreign income taxes, net of
federal tax benefits.
Inflation has not had a significant effect on the Company's operations or
financial condition.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Cash flows from operations provide the principal source of current liquidity.
Net cash flows provided by operating activities were $36.1 million, $31.0
million, and $22.0 million in 1999, 1998 and 1997, respectively. The
increases in 1999 and 1998 were primarily related to increases in accounts
payable and accrued employee benefit plan obligations. The decrease in 1997
was primarily related to increases in receivables and inventories at ODI from
the beginning of the year to the date of the sale of ODI.
Net cash flows used in investing activities were $0.1 million in 1999 and
$11.4 million in 1998. Net cash flows provided by investing activities were
$9.6 million in 1997. The primary use of cash in 1999 was for additions to
plant and equipment. The primary uses of cash in 1998 were for the purchase of
certain operating and intangible assets from a motor manufacturer for $17.5
million and additions to plant and equipment. The primary source of cash in
1997 was $34.4 million of proceeds from the sale of ODI offset in part by an
increase in purchases of marketable securities and an increase in additions to
plant and equipment.
Net cash flows used in financing activities were $26.0 million, $26.1 million,
and $31.8 million in 1999, 1998 and 1997, respectively, primarily related to
the repurchase of the Company's common stock and the payment of dividends.
During 1999, 1998 and 1997, the Company repurchased 288,000, 406,000 and
615,000 shares of its common stock for $20.1 million, $26.0 million and $30.6
million, respectively. The Company paid $4.2 million, $3.8 million and $3.4
million in dividends on the Company's common stock in 1999, 1998 and 1997,
respectively. The Company has authority under its Board-approved stock
repurchase program to purchase an additional 192,000 shares of its common
stock.
Cash, cash equivalents and marketable securities at the end of 1999 were $36.8
million compared to $45.0 million at the end of 1998. Working capital
decreased $5.0 million in 1999 and the current ratio of the Company was 2.2
and 2.4 at the end of 1999 and 1998, respectively.
Principal payments on the Company's $20.0 million of unsecured long-term debt
began in 1998 and will continue until 2008 when a balloon payment of $10.0
million will fully retire the debt. In January 1996, the Company entered into
an unsecured, five-year $40.0 million revolving credit agreement (the
"Agreement"). The Agreement, which was amended and restated on December 30,
1997, and extended for one year to 2002, provides for various borrowing rate
options and includes a facility fee on the committed amount. Both of the
Company's loan agreements contain certain financial covenants with respect to
borrowings, fixed charge coverage, working capital, loans or advances, and
investments. The Company was in compliance with all debt covenants in 1999 and
1998.
At January 1, 2000, the Company had $4.8 million of commitments for the
purchase of machinery and equipment.
<PAGE> 11
During 2000, the Company intends to continue to seek acquisition candidates
that are compatible with its existing businesses and that provide leveraged
growth potential.
Management believes that internally generated funds and existing credit
arrangements provide sufficient liquidity to meet current commitments.
OTHER
- -----
Year 2000
- --------
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 causing computer applications to fail or
to create erroneous results. The Company recognized this as a potential risk
and implemented a plan to address the Year 2000 issue. In performing the plan
throughout 1998 and 1999, the Company identified, tested and corrected
potential Year 2000 problems, assessed potential impacts from outside parties,
and developed contingency plans for business interruptions after the date
rollover. The costs involved in performing this internally managed plan were
not significant to the Company's financial position or results of operations
in 1998 and 1999.
Since the date rollover on January 1, 2000, the Company has not experienced
any material adverse impacts due to the Year 2000 issue. While the primary
risk to the Company with respect to the Year 2000 issue continues to be the
inability of external parties to provide goods and services in a timely and
accurate manner, to date, the Company is not aware of any such disruption. As
a result, the Company does not expect any remaining Year 2000 risks to have a
material adverse impact to the Company.
"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 Exhibit 99 of this Form
10-K. These risks and uncertainties may cause actual results to differ
materially from those indicated by the forward looking statements. Any forward
looking statements included in this Form 10-K are based upon information
presently available, and the Company assesses its obligation to update any
forward-looking information.
ITEM 7A. 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 the $9.0 million of marketable U.S.
treasury and agency securities owned by the Company at January 1, 2000, and is
mitigated by the short-term, generally less than 6 months, nature of these
investments.
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- -----------------------------------------------------------------------------
1999 1998 1997
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------
Net sales............................. $293,236 $272,533 $303,298
Cost of sales (including research
and development expenses of $5,251,
$4,700 and $5,058, respectively).... 209,065 192,578 217,765
-------- -------- --------
Gross profit.......................... 84,171 79,955 85,533
Selling and administrative expenses... 41,898 42,027 49,194
-------- -------- --------
Operating income...................... 42,273 37,928 36,339
Interest expense...................... (1,317) (1,364 ) (1,435)
Gain on sale of subsidiary (Note 2)... - - 3,500
Other income, net..................... 2,185 3,572 3,137
Foreign exchange loss................. (745) (115) (1,032)
-------- -------- --------
Income before income taxes............ 42,396 40,021 40,509
Income taxes (Note 5)................. 15,591 15,237 15,004
-------- -------- --------
Net income............................ $ 26,805 $ 24,784 $ 25,505
======== ======== ========
Per share data (Note 8):
Net income per common share......... $ 4.87 $ 4.32 $ 4.33
======== ======== ========
Net income per common share,
assuming dilution................. $ 4.60 $ 4.02 $ 4.01
======== ======== ========
Dividends per common share.......... $ .77 $ .66 $ .57
======== ======== ========
See Notes to Consolidated Financial Statements
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ----------------------------------------------------------------------------
ASSETS
1999 1998
(In thousands)
- ----------------------------------------------------------------------------
Current assets:
Cash and equivalents........................ $ 27,844 $ 17,034
Marketable securities....................... 8,968 27,921
Receivables (less allowances of $1,333
and $1,107, respectively)................. 17,995 16,037
Inventories:
Raw materials............................. 15,749 12,080
Work-in-process........................... 6,101 5,281
Finished goods............................ 28,239 27,439
LIFO reserve.............................. (10,372) (9,470)
-------- -------
39,717 35,330
Other current assets (including deferred
income taxes of $7,934 and $8,774,
respectively, Note 5)..................... 9,719 9,961
-------- --------
Total current assets.................... 104,243 106,283
Property, plant and equipment, at cost:
Land and buildings.......................... 22,145 21,889
Machinery and equipment..................... 113,452 104,317
-------- --------
135,597 126,206
Less allowance for depreciation........... 78,550 74,745
-------- --------
57,047 51,461
Deferred and other assets (including deferred
income taxes of $1,530 and $1,362,
respectively, Note 5)...................... 14,811 9,846
-------- --------
Total Assets.................................. $176,101 $167,590
======== ========
See Notes to Consolidated Financial Statements
<PAGE> 14
- ---------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
1999 1998
(In thousands)
- ---------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt and
short-term borrowings (Note 6)............ $ 1,018 $ 3,716
Accounts payable............................ 20,669 13,556
Accrued expenses (Note 4)................... 23,558 24,539
Income taxes (Note 5)....................... 2,112 2,594
-------- --------
Total current liabilities................. 47,357 44,405
Long-term debt (Note 6)....................... 17,057 18,089
Employee benefit plan obligations (Note 3).... 11,892 10,167
Other long-term liabilities................... 3,502 3,332
Shareowners' equity (Note 7):
Common shares outstanding
5,413 and 5,574, respectively............. 541 557
Additional capital.......................... 17,695 14,105
Retained earnings........................... 84,242 81,872
Loan to ESOP Trust (Note 3)................. (1,827) (2,059)
Accumulated other comprehensive loss........ (4,358) (2,878)
-------- --------
Total shareowners' equity................ 96,293 91,597
-------- --------
Total Liabilities and Shareowners' Equity..... $176,101 $167,590
======== ========
See Notes to Consolidated Financial Statements
<PAGE> 15
CONSOLIDATED STATEMENTS OF CASH FLOWS
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- -----------------------------------------------------------------------------
1999 1998 1997
(In thousands)
- -----------------------------------------------------------------------------
Cash flows from operating activities:
Net income.................................$26,805 $24,784 $25,505
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization............ 7,460 6,687 7,628
Gain on sale of subsidiary (Note 2)...... - - (3,500)
Deferred income taxes.................... 672 (1,645 ) (919)
(Gain)/Loss on disposals of plant
and equipment.......................... 110 (41) 273
Changes in assets and liabilities:
Receivables............................ (2,560) 753 (2,290)
Inventories............................ (6,137) (4,142 ) (3,069)
Other assets........................... (648) (25 ) (1,882)
Accounts payable and other
accrued expenses..................... 7,689 2,216 11
Employee benefit plan obligations...... 2,506 2,176 1,093
Other long-term liabilities............ 203 247 (846)
------- ------- -------
Net cash flows from operating activities..... 36,100 31,010 22,004
------- ------- -------
Cash flows from investing activities:
Additions to plant and equipment...........(13,691) (24,601 ) (8,598)
Proceeds from sale of plant and equipment.. 68 61 1,163
Proceeds from sale of subsidiary (Note 2).. - - 34,402
Transferred cash of subsidiary............... - - (535)
Additions to deferred assets............... (5,412) (7,395) -
Purchases of marketable securities.........(27,692) (48,608 ) (64,521)
Proceeds from maturities of marketable
securities............................... 46,645 69,184 47,648
------- ------- -------
Net cash flows from investing activities..... (82) (11,359 ) 9,559
------- ------- -------
Cash flows from financing activities:
Repayment of long-term debt (Note 6)....... (1,019) (1,079) (79)
Borrowing on line of credit................ 362 2,678 186
Repayment of line of credit................ (2,794) (271) -
Proceeds from issuance of common stock..... 1,899 1,778 1,781
Purchases of common stock (Note 7).........(20,124) (25,995 ) (30,649)
Proceeds/(Reductions) from stock
subscriptions............................ (324) 352 100
Reduction of loan to ESOP Trust............ 232 233 232
Dividends paid............................. (4,239) (3,811 ) (3,371)
------- ------- -------
Net cash flows from financing activities.....(26,007) (26,115 ) (31,800)
------- ------- -------
Effect of exchange rate changes on cash...... 799 307 460
------- ------- -------
Net change in cash and equivalents........... 10,810 (6,157) 223
Cash and equivalents at beginning of year.... 17,034 23,191 22,968
------- ------- -------
Cash and equivalents at end of year..........$27,844 $17,034 $23,191
======= ======= =======
<PAGE> 16
Cash paid during 1999, 1998, and 1997 for interest was $1.4 million for each
year, respectively. Also, cash paid during 1999, 1998 and 1997 for income
taxes was $15.4 million, $18.8 million and $15.2 million, respectively.
See Notes to Consolidated Financial Statements.
<PAGE> 17
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts)
Accumulated
Common Loan to Other
Shares Common Additional Retained Stock ESOP Comprehensive Comprehensive
Outstanding Stock Capital Earnings Subscrip. Trust Income (Loss) Income
----------- ----- ------- -------- -------- ----- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance year end 1996.............. 6,371,029 $638 $ 7,613 $95,961 $ (997) $(2,524) $ (868)
Net income......................... 25,505 $25,505
Currency translation adjustment... (1,769) (1,769)
Pension liability adjustment...... 7 7
-------
Comprehensive income, net of tax. $23,743
=======
Dividends on common stock.......... (3,371)
Common stock issued................ 91,404 9 1,772
Common stock repurchased........... (615,600) (62) (30,587)
Proceeds from stock subscriptions.. 100
Stock subscription amortization
and adjustment................... 910 272
Loan payment from ESOP............. 232
--------- ---- ------- ------- ------- ------- -------
Balance year end 1997.............. 5,846,833 585 10,295 87,508 (625) (2,292) (2,630)
--------- ---- ------- ------- ------- ------- -------
Net income......................... 24,784 $24,784
Currency translation adjustment... 180 180
Pension liability adjustment...... (428) (428)
-------
Comprehensive income, net of tax. $24,536
=======
Dividends on common stock.......... (3,811)
Common stock issued................ 132,895 13 2,420 (614)
Common stock repurchased........... (406,008) (41) (25,995)
Proceeds from stock subscriptions.. 352
Stock subscription amortization
and adjustment................... 1,390 273
Loan payment from ESOP............. 233
--------- ---- ------- ------- ------- ------- -------
Balance year end 1998.............. 5,573,720 557 14,105 81,872 - (2,059) (2,878)
--------- ---- ------- ------- ------- ------- -------
Net income......................... 26,805 $26,805
Currency translation adjustment... (1,849) (1,849)
Pension liability adjustment...... 369 369
-------
Comprehensive income, net of tax. $25,325
=======
Dividends on common stock.......... (4,239)
Common stock issued................ 129,200 13 1,886
Common stock repurchased........... (288,000) (29) (20,095)
Retirement of incentive stock...... (1,500) (101)
Stock subscription amortization
and adjustment................... 1,704
Loan payment from ESOP............. 232
--------- ---- ------- ------- ------- ------- -------
Balance year end 1999.............. 5,413,420 $541 $17,695 $84,242 $ - $(1,827) $(4,358)
========= ==== ======= ======= ======= ======= =======
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR--The Company's fiscal year ends on the Saturday nearest December
31. The financial statements and accompanying notes are as of and for the
years ended January 1, 2000 (52 weeks), January 2, 1999 (52 weeks) and January
3, 1998 (53 weeks) and are referred to as 1999, 1998 and 1997, respectively.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of the Company and its subsidiaries.
REVENUE RECOGNITION--Sales are recognized when the Company's products are
shipped.
CASH EQUIVALENTS--Cash equivalents consist of highly liquid investments which
are readily convertible to cash, present insignificant risk of changes in
value due to interest rate fluctuations and generally have original or
purchased maturities of three months or less.
MARKETABLE SECURITIES--Marketable securities consist of short-term U.S.
treasury and agency securities with maturities of greater than 3 months at the
date of purchase. All securities are categorized as held-to-maturity and are
stated at amortized cost. Due to the nature of these securities, the
difference between the amortized cost and fair value is immaterial.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts for cash and
equivalents, long-term debt and short-term debt approximate fair value. The
fair value of long-term debt is estimated based on current borrowing rates for
similar issues. The Company's off-balance sheet instruments are not
significant.
INVENTORIES--Inventories are stated at the lower of cost or market. The
majority of the cost of domestic inventories is determined using the last-in,
first-out (LIFO) method; all remaining inventory costs are determined using
the first-in, first-out (FIFO) method. Inventories stated on the LIFO method
approximated 57 percent and 55 percent of total inventories in 1999 and 1998,
respectively.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Depreciation of plant and equipment is provided principally on a
straight line basis over the estimated useful lives of 5 to 50 years for land
improvements and buildings, 2 to 10 years for machinery, equipment, furniture,
and fixtures and 3 to 5 years for automobiles and trucks. Accelerated methods
are used for income tax purposes. The Company reviews its property and
equipment for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable.
STOCK-BASED COMPENSATION--Management of the Company has elected to adopt the
disclosure-only provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation". Employee stock-
based compensation will continue to be accounted for under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, no compensation expense is recognized in the financial statements
<PAGE> 19
as the exercise price of the Company's stock options equals the market price
of the underlying stock on the dates of the grants.
EARNINGS PER COMMON SHARE--Basic and diluted earnings per share are computed
and disclosed under SFAS No. 128, "Earnings Per Share". Diluted earnings per
share is computed based upon earnings applicable to common shares divided by
the weighted-average number of common shares outstanding during the period
adjusted for the effect of other dilutive securities.
COMPREHENSIVE INCOME--In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income". This statement
establishes standards for reporting and display of comprehensive income and
its components. The Company adopted SFAS No. 130 in the first quarter of 1998
and has elected to display comprehensive income and its components in its
consolidated statements of shareowners' equity.
TRANSLATION OF FOREIGN CURRENCIES--All assets and liabilities of foreign
subsidiaries whose functional currency is other than the U.S. dollar are
translated at year-end exchange rates. All revenue and expense accounts are
translated at average rates in effect during the period.
USE OF ESTIMATES--Management's best estimates of certain amounts are required
in preparation of the consolidated financial statements in accordance with
generally accepted accounting principles, and actual results could differ from
those estimates.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform to the current year presentation.
<PAGE> 20
2. SALE OF SUBSIDIARY
On October 24, 1997, the Company sold Oil Dynamics, Inc. (ODI), previously a
wholly owned subsidiary, to Baker Hughes Incorporated (BHI), an unrelated
entity. The operations of ODI represented substantially all of the Company's
oil well pumping systems product line.
The Company received $34.4 million in cash proceeds from BHI in exchange for
the common stock of ODI. The net assets of ODI at October 24, 1997, were
$27.9 million and the Company incurred $3.0 million in related expenses
resulting in an after tax gain on the sale of $2.3 million. The Company's
1997 results of operations include ODI's ten month net sales of $34.4 million
and net loss of $1.0 million.
The following unaudited pro forma consolidated statement of income has been
prepared to show the Company's results of operations after eliminating the
gain on the sale of ODI and the historical results of ODI for each period
presented. This unaudited pro forma information is not necessarily
representative of the results which would have been obtained for the
respective periods.
(In thousands, except per share amounts)
- ------------------------------------------------------------------------------
1997
----
Net sales.............................. $268,912
Costs and expenses..................... 230,430
--------
Income before income taxes............. 38,482
Income taxes........................... 14,304
--------
Net income............................. $ 24,178
========
Per share data:
Net income per common share.......... $ 4.10
========
Net income per common share,
assuming dilution.................. $ 3.80
========
- ------------------------------------------------------------------------------
<PAGE> 21
3. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS - As of January 1, 2000, the Company's domestic
operations maintain three separate pension plans. The Company previously
maintained a fourth pension plan covering substantially all employees of ODI
prior to its sale on October 24, 1997.
The Company's other postretirement benefit plans provide health and life
insurance benefits to domestic employees hired prior to 1992. The Company
effectively capped its cost for those benefits through plan amendments made in
1992, freezing Company contributions for insurance benefits at 1991 levels for
current and future beneficiaries with actuarially reduced benefits for
employees who retire before age 65.
<PAGE> 22
The following table sets forth aggregated information related to the Company's
domestic pension benefits and other postretirement benefits, including changes
in the benefit obligations, changes in plan assets, funded status, amounts
recognized in the Consolidated Balance Sheets, and actuarial assumptions:
(In thousands)
- ------------------------------------------------------------------------------
Pension Benefits Other Benefits
1999 1998 1999 1998
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation, b/o/y......$ 92,298 $ 81,068 $ 12,640 $ 12,181
Service cost................... 3,003 2,509 335 258
Interest cost.................. 6,258 5,868 813 840
Plan amendments................ 1,460 601 - -
Actuarial (gain)/loss.......... (7,281) 6,734 (742) 551
Employee contributions......... 349 324 - -
Benefits paid.................. (4,888) (4,806) (1,183) (1,190)
-------- -------- -------- --------
Benefit obligation, e/o/y...... $ 91,199 $ 92,298 $ 11,863 $ 12,640
======== ======== ======== ========
Change in plan assets:
Fair value of assets, b/o/y....$110,218 $100,827 $ - $ -
Actual return on plan assets... 6,663 13,623 - -
Company contributions.......... - 250 1,183 1,190
Employee contributions......... 349 324 - -
Benefits paid.................. (4,888) (4,806) (1,183) (1,190)
-------- -------- -------- --------
Fair value of assets, e/o/y....$112,342 $110,218 $ - $ -
======== ======== ======== ========
Reconciliation of funded status:
Funded status.................. $ 21,143 $ 17,920 $(11,863 ) $(12,640)
Unrecognized net (gain)/loss... (34,712) (29,038) 2,121 3,070
Unrecognized transition
obligation/(asset)............ (112) (155) 6,356 6,845
Unrecognized prior service
cost.......................... 6,736 6,172 - -
-------- -------- -------- --------
Net amount recognized..........$ (6,945) $ (5,101) $ (3,386) $ (2,725)
======== ======== ======== ========
Amounts recognized in the
Consolidated Balance Sheets:
Accrued benefit liability......$ (7,442) $ (6,204) $ (3,386) $ (2,725)
Intangible asset............... 8 16 - -
Deferred tax asset............. 194 423 - -
Accumulated other comprehensive
loss.......................... 295 664 - -
-------- -------- -------- --------
Net amount recognized..........$ (6,945) $ (5,101) $ (3,386) $ (2,725)
======== ======== ======== ========
Actuarial assumptions:
Discount rate.................. 7.50% 6.75% 7.50% 6.75%
Rate of increase in future
compensation................. 0-5.00% 0-5.00% 5.00% 5.00%
Expected long-term rate of
return on plan assets........ 9.25% 9.25% - -
- ----------------------------------------------------------------------------
<PAGE> 23
The following table sets forth aggregated net domestic periodic benefit cost
for 1999, 1998, and 1997:
(In thousands)
- ------------------------------------------------------------------------------
Pension Benefits Other Benefits
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Service cost.... $3,003 $2,509 $2,506 $ 335 $ 258 $ 235
Interest cost... 6,258 5,868 5,716 813 840 858
Expected return
on assets...... (8,272) (7,224) (6,658) - - -
Amortization of
unrecognized:
Obligation/
(asset)...... (43) (43) (43) 489 489 489
Prior service
cost......... 896 769 719 - - -
Loss/(Gain)... 3 (118) (60) 200 162 136
------ ------ ------ ------ ------ ------
Net periodic
benefit cost... $1,845 $1,761 $2,180 $1,837 $1,749 $1,718
====== ====== ====== ====== ====== ======
- ------------------------------------------------------------------------------
The plan assets of the pension plans consist primarily of common stocks and
bonds, including $21,303 and $25,212 of the Company's common stock in 1999 and
1998, respectively. In 1999 and 1998, the Company purchased 70,000 and
125,000 shares of its common stock from the pension plans for $5.0 million and
$8.2 million, respectively.
One of the Company's three pension plans covers certain management employees.
The Company does not fund this plan, and its assets were zero in 1999 and
1998. The plan's projected benefit obligation and accumulated benefit
obligation were $2,992 and $2,109, respectively at January 1, 2000, and $2,491
and $2,159, respectively at January 2, 1999.
The Company's German subsidiary, which does not report pension information
under the Employee Retirement Income Security Act of 1974, calculates the
pension liability based on local requirements. The long-term pension
liability for the German subsidiary was $1,064 at January 1, 2000 and $1,238
at January 2, 1999. The difference between calculating the pension liability
under local requirements versus SFAS No. 87 requirements is immaterial.
Pension liabilities for other foreign subsidiaries are not significant.
DEFINED CONTRIBUTION PLANS - The Company maintains an integrated 401(k) and
Employee Stock Ownership Plan (ESOP).
In 1996 and 1992, the ESOP Trustee acquired shares of Company common stock on
the open market using the proceeds of a ten-year, $0.3 million loan and a
fifteen-year, $3.0 million loan, respectively, from the Company. Under the
terms of the variable rate loan (6.31 percent at January 1, 2000), principal
plus interest is payable in equal annual installments. The shares of stock
purchased with the loan proceeds are collateral for the loan and are
considered outstanding for purposes of calculating earnings per share.
<PAGE> 24
The Company contributes a portion of its 401(k) matching contribution as well
as an additional annual contribution, both subject to the Company's annual
financial results, to the ESOP Trust. The ESOP Trustee uses a portion of the
Company's contributions to make principal and interest payments on the loan.
As loan payments are made, shares of common stock are released as collateral
and are allocated to participants' accounts. The balance of the Company's
contributions in cash or common stock is made to the 401(k) and ESOP Trusts,
and allocated to participants' accounts to satisfy the balance of the
Company's 401(k) matching contribution.
At January 1, 2000, 108,995 shares were allocated to the accounts of
participants, 9,033 shares were committed to be released and allocated to the
accounts of participants for service rendered during 1999, and 57,422 shares
were held by the ESOP Trust in suspense.
The following table sets forth the interest expense and Company contributions
to the integrated ESOP and 401(k) Plan.
(In thousands)
- ------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Interest expense incurred by the plan
on ESOP debt............................. $ 118 $ 133 $ 148
Company contributions to integrated plan... 1,004 986 1,200
- ------------------------------------------------------------------------------
4. ACCRUED EXPENSES
Accrued expenses consisted of:
(In thousands)
- ------------------------------------------------------------------------------
1999 1998
- ---- ----
Salaries, wages and commissions....... $ 7,818 $ 7,518
Product warranty costs................ 4,402 4,382
Insurance............................. 5,522 5,426
Employee benefits..................... 1,919 1,890
Other................................. 3,897 5,323
------- -------
$23,558 $24,539
======= =======
- ------------------------------------------------------------------------------
5. INCOME TAXES
Income before income taxes consisted of:
(In thousands)
- ------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Domestic.................... $35,104 $33,900 $34,269
Foreign..................... 7,292 6,121 6,240
------- ------- -------
$42,396 $40,021 $40,509
======= ======= =======
- -----------------------------------------------------------------------------
<PAGE> 25
The income tax provision consisted of:
(In thousands)
- -----------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Currently payable:
Federal................... $10,198 $12,095 $10,606
Foreign................... 2,954 2,432 2,397
State..................... 1,767 2,355 2,920
Deferred:
Federal................... 472 (1,512) (757)
Foreign................... 31 72 58
State..................... 169 (205) (220)
------- ------- -------
$15,591 $15,237 $15,004
======= ======= =======
- -----------------------------------------------------------------------------
Significant components of the Company's deferred tax assets and liabilities
were as follows:
(In thousands)
- -----------------------------------------------------------------------------
1999 1998
- ---- ----
Deferred tax assets:
Accrued expenses and reserves.............. $ 6,515 $ 6,945
Compensation and employee benefits......... 6,221 6,491
Other items................................ 1,201 364
------- -------
Total deferred tax assets................ 13,937 13,800
------- -------
Deferred tax liabilities:
Accelerated depreciation on fixed assets... 4,183 3,437
Other items................................ 290 227
------- -------
Total deferred tax liabilities........... 4,473 3,664
------- -------
Net deferred tax assets...................... $ 9,464 $10,136
======= =======
- ----------------------------------------------------------------------------
The portions of current and non-current deferred tax assets and liabilities
were as follows:
(In thousands)
- ----------------------------------------------------------------------------
1999 1998
---- ----
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Current........ $ 7,934 $ - $ 8,774 $ -
Non-current.... 6,003 4,473 5,026 3,664
------- ------- ------- -------
$13,937 $ 4,473 $13,800 $ 3,664
======= ======= ======= =======
<PAGE> 26
There was no valuation allowance for deferred tax assets required in 1999 or
1998.
The differences between the statutory and effective tax rates were as follows:
- ------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
U.S. Federal statutory rate...... 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit................ 3.3 3.8 4.3
Effect of higher (lower) foreign
tax rates...................... (1.1) 0.5 0.6
Earnings of foreign sales
corporation ................... (1.1) (1.4) (1.4)
Utilization of foreign
tax credits.................... - - (1.5)
Other items...................... 0.7 0.2 -
----- ----- -----
36.8% 38.1% 37.0%
===== ===== =====
- ------------------------------------------------------------------------------
Accumulated undistributed earnings of foreign subsidiaries expected to be
permanently invested approximated $0.6 million at January 1, 2000. The
Company does not anticipate incurring any tax should these earnings be
repatriated in the future.
6. DEBT
Short-term borrowings consisted of:
(In thousands)
- -----------------------------------------------------------------------------
1999 1998
- ---- ----
Bank................................... $ - $2,697
====== ======
- -----------------------------------------------------------------------------
Long-term debt consisted of:
(In thousands)
- -----------------------------------------------------------------------------
1999 1998
- ---- ----
Insurance Company--6.31%, principal
payments of $1.0 million due in
annual installments, with a balloon
payment of $10,000 in 2008............ $18,000 $19,000
Bank.................................... 75 108
------- -------
18,075 19,108
Less current maturities................. (1,018) (1,019)
------- -------
$17,057 $18,089
======= =======
- -----------------------------------------------------------------------------
<PAGE> 27
Both the Company's short-term borrowings and long-term debt are unsecured. The
Company's long-term debt agreement provides for certain financial covenants
relative to working capital, additional borrowings, loans or advances and
investments. The Company was in compliance with all debt covenants in 1999
and 1998.
On January 5, 1996, the Company entered into an unsecured, five-year $40.0
million revolving credit agreement (the "Agreement"). The Agreement, which
includes a facility fee of one-tenth of one percent on the committed amount,
was amended and restated (the "Amended Agreement") on December 30, 1997. The
Amended Agreement provides for various borrowing rate options including
interest rates based on the London Interbank Offered Rates (LIBOR) plus
interest spreads keyed to the Company's ratio of debt to earnings before
interest, taxes, depreciation, and amortization (EBITDA). The Amended
Agreement contains certain financial covenants with respect to borrowings,
fixed charge coverage, working capital, loans or advances, and investments.
7. SHAREOWNERS' EQUITY
The Company had 5,413,000 shares of common stock (25,000,000 shares
authorized, $.10 par value) outstanding at the end of 1999.
During 1999 and 1998, pursuant to stock repurchase programs authorized by the
Company's Board of Directors, the Company repurchased a total of 288,000
shares for $20.1 million and 406,000 shares for $26.0 million, respectively.
Of these shares, 130,000 were repurchased from an officer of the Company in
1999. All repurchased shares were retired.
During 1998, under terms of a Company stock option plan, a participant
remitted 9,851 shares of Company common stock as consideration for stock
issued upon the exercise of stock options. The total exercise price of the
respective stock options was $0.6 million, and the shares remitted to the
Company were subsequently retired.
Stock subscriptions are principally deferred costs recognized in connection
with the issuance of loans to officers under the 1988 Executive Stock Purchase
Plan (1988 Purchase Plan). Under the 1988 Purchase Plan, executives of the
Company are awarded the right to purchase shares of its common stock through a
Company loan at the closing price on the day prior to the date of purchase. In
1998 the Company extended the 1988 Purchase Plan ten additional years, and at
January 1, 2000, 512,800 shares are available for future awards.
<PAGE> 28
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Numerator:
Net Income.......................... $26,805 $24,784 $25,505
======= ======= =======
Denominator:
Basic
Weighted-average common shares..... 5,502 5,733 5,895
Diluted
Effect of dilutive securities:
Employee and director incentive
stock options and awards........ 321 437 471
------- ------- -------
Adjusted weighted-average common
shares.......................... 5,823 6,170 6,366
======= ======= =======
Basic earnings per share.............. $ 4.87 $ 4.32 $ 4.33
======= ======= =======
Diluted earnings per share............ $ 4.60 $ 4.02 $ 4.01
======= ======= =======
- ----------------------------------------------------------------------------
9. STOCK-BASED COMPENSATION
The Company has authorized the grant of options to purchase common stock of
the Company to employees and non-employee directors of the Company and its
subsidiaries under five fixed stock option plans. The plans and the original
number of authorized shares available for grants are as follows:
- -----------------------------------------------------------------------------
Shares
------
1981 Incentive Stock Option Plan (1981 Plan) 555,000
1986 Non-Qualified Stock Option Plan (1986 Plan) 555,000
1996 Employee Stock Option Plan (1996 Plan) 600,000
1990 Non-Employee Director Stock Option Plan (1990 Director Plan) 60,000
1996 Non-Employee Director Stock Option Plan (1996 Director Plan) 90,000
- -----------------------------------------------------------------------------
Under each of the above plans, the exercise price of each option equals the
market price of the Company's common stock on the date of grant and the
options expire ten years after the date of the grant. Generally, options
granted under the 1981 Plan, the 1986 Plan, and the 1996 Plan vest 20 percent
a year and become fully vested and exercisable after five years. Options
granted under the 1990 and 1996 Director Plans vest 33 percent a year and
become fully vested and exercisable after three years.
<PAGE> 29
A summary of the Company's fixed stock option plans activity and related
information for 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Weighted-Average Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------- ------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 642,617 $30.09 762,296 $25.73 850,125 $23.51
Granted 84,000 70.31 43,500 66.27 18,000 46.47
Exercised (129,200) 14.70 (142,746) 16.50 (104,829) 7.96
Forfeited (7,500) 60.94 (20,433) 39.55 (1,000) 26.50
------- ------- -------
Outstanding at
end of year 589,917 $38.79 642,617 $30.09 762,296 $25.73
======= ======= =======
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The following summarizes information about fixed stock options outstanding
at January 1, 2000:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 1/01/00 Contractual Life Exercise Price at 1/01/00 Exercise Price
- --------------- ----------- ---------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$ 8.63 to 30.99 209,600 3.92 years $24.70 209,600 $24.70
31.00 to 59.24 260,317 6.11 36.02 215,617 34.55
59.25 to 74.88 120,000 9.08 69.43 9,600 65.81
------- -------
$ 8.63 to 74.88 589,917 5.94 $38.79 434,817 $30.49
======= =======
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
For pro forma information regarding net income and earnings per share, the
fair value for the options awarded in 1999, 1998 and 1997 for all fixed stock
option plans was estimated as of the date of the grant using a Black-Scholes
option valuation model. The following table sets forth the weighted average
assumptions for 1999, 1998 and 1997, respectively.
- ------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Risk-free interest rate............ 5.76% 5.49% 6.51%
Dividend yield..................... 1.20% 1.20% 1.20%
Volatility factor.................. .223 .230 .236
Weighted-average expected life..... 6 years 6 years 6 years
- ------------------------------------------------------------------------------
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting period. Therefore, in the year of
adoption and subsequently affected years, the effects of applying SFAS No. 123
for providing pro forma net income and earnings per share are not likely to be
representative of the effects on reported income in future years. The
Company's pro forma information follows:
(In thousands, except per share amounts)
- ------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Reported net income................. $26,805 $24,784 $25,505
Pro forma net income................ $26,156 $24,312 $25,037
Reported net income available
per common share.................. $4.87 $4.32 $4.33
Pro forma net income available
per common share.................. $4.75 $4.24 $4.25
Reported net income available per
common share, assuming dilution... $4.60 $4.02 $4.01
Pro forma net income available per
common share, assuming dilution... $4.49 $3.94 $3.93
- ------------------------------------------------------------------------------
The Black-Scholes option valuation model used by the Company was developed for
use in estimating the fair value of fully tradable options which have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including
the expected stock price volatility. It is management's opinion that the
Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, the existing models
do not necessarily provide a reliable single measure of the fair value of its
stock options.
10. SEGMENT AND GEOGRAPHIC INFORMATION
Based on the management approach established by SFAS No. 131, "Disclosure
About Segments of an Enterprise and Related Information", the Company's
business consists of two operating segments that offer different products: the
motor segment and the electronic controls segment.
<PAGE> 31
The motor segment designs, manufactures and sells motors and related parts and
equipment for use in water systems, gasoline and diesel fuel pumping systems,
wastewater handling systems and in a wide variety of industrial products. The
electronic controls segment designs and manufactures electronic controls for
the principal purpose of being a supplier to the motor segment.
Under SFAS No. 131's quantitative threshold and aggregation criteria, the
Company's two operating segments have been combined into a single reportable
segment. As a result, there are no significant differences between reportable
segment financial information and the Company's consolidated results.
The Company's products are primarily sold to original equipment manufacturers
in the United States, Canada, Europe, Australia, South Africa, Mexico and
other world markets. Net sales attributed to customers located in the United
States were $207.7 million, $192.8 million, and $191.2 million in 1999, 1998
and 1997, respectively. Net sales attributed to foreign customers were $85.5
million, $79.7 million, and $77.7 million in 1999, 1998 and 1997,
respectively, of which no single country was significant. Long-lived assets
located in the United States totaled $47.5 million, $43.4 million, and $26.9
million in 1999, 1998 and 1997, respectively. Long-lived assets in foreign
countries totaled $9.5 million, $8.1 million, and $5.5 million in 1999, 1998
and 1997, respectively, of which no single country was significant. ODI's net
sales and long-lived assets are excluded from enterprise-wide geographic
information.
One customer accounted for 15.3 percent, 14.0 percent, and 12.4 percent of the
Company's consolidated sales in 1999, 1998 and 1997, respectively.
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited quarterly financial information for 1999 and 1998 is as follows:
(In thousands, except per share amounts)
- ------------------------------------------------------------------------------
Basic Diluted
Net Gross Net Earnings Earnings
Sales Profit Income Per Share Per Share
----- ------ ------ --------- ---------
1999
- ----
1st Quarter..... $ 58,014 $15,438 $ 3,477 $ .63 $ .59
2nd Quarter..... 74,595 21,524 7,008 1.26 1.19
3rd Quarter..... 81,795 23,061 8,118 1.49 1.40
4th Quarter..... 78,832 24,148 8,202 1.51 1.44
-------- ------- -------
$293,236 $84,171 $26,805 $4.87 $4.60
======== ======= =======
1998
- ----
1st Quarter..... $ 56,014 $15,180 $ 3,660 $ .63 $ .58
2nd Quarter..... 67,907 20,423 5,995 1.02 .95
3rd Quarter..... 75,230 21,603 7,007 1.22 1.14
4th Quarter..... 73,382 22,749 8,122 1.47 1.37
-------- ------- -------
$272,533 $79,955 $24,784 $4.32 $4.02
======== ======= =======
- ------------------------------------------------------------------------------
<PAGE> 32
12. CONTINGENCIES AND COMMITMENTS
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, as required under applicable
accounting rules, when an unfavorable outcome is determined to be probable and
a reasonable estimate can be made. As a result, the Company has an accrual
balance of approximately $1.2 million and $1.3 million at January 1, 2000 and
January 2, 1999, respectively, to provide for such actions.
Total rent expense charged to operations for operating leases including
contingent rentals was $1.8 million, $1.9 million, and $2.3 million for 1999,
1998 and 1997, respectively. The future minimum rental payments for
noncancellable operating leases as of January 1, 2000, are as follows: 2000,
$1.2 million; 2001, $0.8 million and 2002, $0.6 million. Rental commitments
subsequent to 2002 are not material.
During 1998, the Company purchased certain operating and intangible assets
from a motor manufacturer. The Company paid $17.5 million in cash at the
acquisition date, and may pay additional contingent consideration according to
terms that expire on December 31, 2001. The amount, if any, of this contingent
consideration is not currently determinable.
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Shareowners and Directors, Franklin Electric Co., Inc.:
We have audited the accompanying consolidated balance sheets of Franklin
Electric Co., Inc. and consolidated subsidiaries as of January 1, 2000 and
January 2, 1999 and the related consolidated statements of income,
shareowners' equity and cash flows for each of the three years in the period
ended January 1, 2000. Our audits also included the financial statement
schedule listed in the index at Item 14. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Franklin Electric Co., Inc. and
consolidated subsidiaries as of January 1, 2000 and January 2, 1999, and the
results of their operations and their cash flows for each of the three years
in the period ended January 1, 2000, in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois
January 28, 2000
<PAGE> 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information concerning directors required by this Item 10 is set forth in
the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 14, 2000, under the headings of "ELECTION OF DIRECTORS" and
"INFORMATION CONCERNING NOMINEES AND DIRECTORS," and is incorporated herein by
reference.
The information concerning executive officers required by this Item 10 is
contained in Part I of this Form 10-K under the heading of "EXECUTIVE OFFICERS
OF THE REGISTRANT."
The information concerning Item 405 disclosures of delinquent Form 3,4 or 5
filers required by this Item 10 is set forth in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 14, 2000, under the
heading of "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE," and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by Item 11 is set forth in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 14, 2000,
under the headings of "INFORMATION ABOUT THE BOARD AND ITS COMMITTEES,"
"COMPENSATION COMMITTEE REPORT," "SUMMARY COMPENSATION TABLE," "OPTION GRANTS
IN 1999 FISCAL YEAR," "1999 FISCAL YEAR-END OPTION VALUES," "COMPENSATION
PURSUANT TO PLANS" and "AGREEMENTS," and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by Item 12 is set forth in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 14, 2000,
under the heading of "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT," and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by Item 13 is set forth in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 14, 2000,
under the headings of "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" and "AGREEMENTS," and is incorporated herein by reference.
<PAGE> 35
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
Form 10-K
Annual Report
(page)
-------------
(a) 1. Financial Statements - Franklin Electric
----------------------------------------
Independent Auditors' Report........................ 33
Consolidated Statements of Income for the
three years ended January 1, 2000................. 12
Consolidated Balance Sheets, as of
January 1, 2000 and January 2, 1999............... 13-14
Consolidated Statements of Cash Flows
for the three years ended January 1, 2000......... 15-16
Consolidated Statements of Shareowners' Equity
for the three years ended January 1, 2000......... 17
Notes to Consolidated Financial Statements
(including quarterly financial data).............. 18-32
2. Financial Statement Schedules - Franklin Electric
-------------------------------------------------
II Valuation and Qualifying Accounts................ 36
Schedules other than those listed above are omitted for
the reason that they are not required or are not
applicable, or the required information is disclosed
elsewhere in the financial statements and related notes.
3. Exhibits
--------
See the Exhibit Index located on pages 38-39.
Management Contract or Compensatory Plan or
Arrangement is denoted by an asterisk (*).
(b) Reports on Form 8-K filed during the fourth quarter
ended January 1, 2000:
During the fourth quarter ended January 1, 2000, a Form 8-K was
filed by the Company dated October 15, 1999, to report under Items
5 and 7 the Board of Directors' adoption of a New Rights Agreement.
(c) See the Exhibit Index located on pages 38-39.
(d) Individual financial statements and all other schedules
of the Registrant are omitted as they are not required.
<PAGE> 36
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years 1999, 1998 and 1997
(In thousands)
--------------
Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
- ----------- --------- -------- ---------- ---------
Allowance for doubtful accounts:
1999 $1,107 $267 $ 41 (B) $1,333
====== ==== ==== ======
1998 $1,349 $271 $513 (B) $1,107
====== ==== ==== ======
1997 $1,435 $248 $334 (A) $1,349
====== ==== ==== ======
NOTES:
- ------
(A) Uncollectible accounts written off, net of recoveries, and the
elimination of Oil Dynamics Inc.
(B) Uncollectible accounts written off, net of recoveries.
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Franklin Electric Co., Inc.
/s/ WILLIAM H. LAWSON
-------------------------
William H. Lawson
Chairman of the Board and
(Date) February 11, 2000 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ WILLIAM H. LAWSON Chairman of the Board and
- ------------------------------------- Chief Executive Officer
William H. Lawson February 11, 2000 (Principal Executive
Officer)
/s/ JOHN B. LINDSAY
- ------------------------------------- President and Director
John B. Lindsay February 11, 2000
/s/ GREGG C. SENGSTACK Vice President and Chief
- ------------------------------------- Financial Officer (Principal
Gregg C. Sengstack February 11, 2000 Financial and Accounting
Officer)
/s/ JEROME D. BRADY
- ------------------------------------- Director
Jerome D. Brady February 11, 2000
/s/ ROBERT H. LITTLE
- ------------------------------------- Director
Robert H. Little February 11, 2000
/s/ PATRICIA SCHAEFER
- ------------------------------------- Director
Patricia Schaefer February 11, 2000
/s/ DONALD J. SCHNEIDER
- ------------------------------------- Director
Donald J. Schneider February 11, 2000
/s/ R.SCOTT TRUMBULL
- ------------------------------------- Director
R. Scott Trumbull February 11, 2000
/s/ JURIS VIKMANIS
- ------------------------------------- Director
Juris Vikmanis February 11, 2000
/s/ HOWARD B. WITT
- ------------------------------------- Director
Howard B. Witt February 11, 2000
<PAGE> 38
FRANKLIN ELECTRIC CO., INC.
EXHIBIT INDEX TO THE ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
Exhibit
Number Description
- ------- -----------
3.1 Amended and Restated Articles of Incorporation of
Franklin Electric Co., Inc. (incorporated herein by
reference to the Company's Form 10-Q for the quarter
ended April 3, 1999)
3.2 By-Laws of Franklin Electric Co., Inc. as amended
to date, (incorporated herein by reference to the
Company's Form 10-Q for the quarter ended April 3,
1999)
10.1 Rights Agreement dated as of October 15, 1999
between Franklin Electric Co., Inc. and Illinois
Stock Transfer Company (incorporated herein by
reference to the Company's registration
statement on Form 8-A dated October 15, 1999)
10.2 Rights Agreement dated as of February 11, 1991
between Franklin Electric Co., Inc. and Lincoln
National Bank & Trust Co. of Fort Wayne (incorporated
herein by reference to the Company's registration
statement on Form 8-A dated February 26, 1991)
10.3 Amended 1988 Executive Stock Purchase Plan
(incorporated herein by reference to the Company's
1998 Proxy Statement for the Annual Meeting held on
April 17, 1998, and included as Exhibit A to the Proxy
Statement)*
10.4 Amended 1981 Incentive Stock Option Plan
(incorporated herein by reference to the
Company's 1988 Proxy Statement for the Annual
Meeting held on April 15, 1988, and included as
Exhibit B to the Proxy Statement)*
10.5 Amended 1986 Stock Option Plan (incorporated
herein by reference to the Company's 1988 Proxy
Statement for the Annual Meeting held on April
15, 1988, and included as Exhibit C to the Proxy
Statement)*
10.6 1990 Franklin Electric Non-Employee Director Stock
Option Plan (incorporated herein by reference to
the Company's 1991 Proxy Statement for the Annual
Meeting on April 19, 1991)*
<PAGE> 39
10.7 1996 Franklin Electric Co., Inc., Employee Stock Option
Plan (incorporated herein by reference to the Company's
1996 Proxy Statement for the Annual Meeting held on
April 12, 1996, and included as Exhibit A to the Proxy
Statement)*
10.8 1996 Franklin Electric Co., Inc., Non-Employee Director
Stock Option Plan (incorporated herein by reference to the
Company's 1996 Proxy Statement for the Annual Meeting held
on April 12, 1996, and included as Exhibit B to the Proxy
Statement)*
10.9 Employment Agreement dated December 5, 1986 between
the Company and William H. Lawson (incorporated herein
by reference to Exhibit 10.7 of the Company's Form
10-K for the fiscal year ended December 28, 1991)*
10.10 Employment Agreement dated October 23, 1995 between
the Company and Jess B. Ford (incorporated herein by
reference to Exhibit 10.7 of the Company's Form 10-K for
the fiscal year ended December 30, 1995)*
10.11 Amended and Restated Credit Agreement dated as of
December 30, 1997 between the Company and various
commercial banks (incorporated herein by reference to
Exhibit 10.8 of the Company's Form 10-K for the fiscal
year ended January 3, 1998)
21 Subsidiaries of the Registrant............................ 40
23 Independent Auditors' Consent............................. 41
27 Financial Data Schedule................................... 42
99 Additional Exhibits....................................... 43-44
* Management contract or compensatory plan or arrangement
<PAGE> 40
EXHIBIT 21
----------
FRANKLIN ELECTRIC CO., INC.
SUBSIDIARIES OF THE REGISTRANT
____________
Percent of
State or country voting
of incorporation stock owned
---------------- -----------
Subsidiaries consolidated:
FE Petro, Inc. Indiana 100
Franklin Electric Subsidiaries, Inc.
[inactive] Indiana 100
Franklin Electric International, Inc. Delaware 100
Franklin Electric B.V. Netherlands 100
Franklin Electric Europa, GmbH Germany 100
Franklin Electric spol s.r.o. Czech Republic 100
Franklin Electric S.r.l. Italy 100
Franklin Electric (Australia) Pty. Ltd. Australia 100
Franklin Electric (South Africa)
Pty. Limited South Africa 100
Franklin Electric Foreign Sales
Corporation U.S. Virgin Islands 100
Motores Franklin S.A. de C.V. Mexico 100
Franklin Electric (Suzhou) Co., Ltd. China 100
<PAGE> 41
EXHIBIT 23
----------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Franklin Electric Co., Inc. on Form S-8 (file numbers 33-35958, 33-35960, 33-
35962, 33-38200, 333-01957, 333-01959 and 333-93121) of our report dated
January 28, 2000 appearing in this Annual Report on Form 10-K of Franklin
Electric Co., Inc. for the year ended January 1, 2000.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois
February 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FORM 10-K FOR THE PERIOD ENDED JANUARY 1, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-01-2000 JAN-02-1999 JAN-03-1998
<PERIOD-END> JAN-01-2000 JAN-02-1999 JAN-03-1998
<CASH> 27,844 17,034 23,191
<SECURITIES> 8,968 27,921 48,497
<RECEIVABLES> 19,328 17,144 18,327
<ALLOWANCES> 1,333 1,107 1,349
<INVENTORY> 39,717 35,330 31,259
<CURRENT-ASSETS> 104,243 106,283 128,500
<PP&E> 135,597 126,206 102,152
<DEPRECIATION> 78,550 74,745 69,795
<TOTAL-ASSETS> 176,101 167,590 163,110
<CURRENT-LIABILITIES> 47,357 44,405 40,527
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 541 557 585
<OTHER-SE> 95,752 91,040 92,256
<TOTAL-LIABILITY-AND-EQUITY> 176,101 167,590 163,110
<SALES> 293,236 272,533 303,298
<TOTAL-REVENUES> 295,421 276,105 309,935
<CGS> 209,065 192,578 217,765
<TOTAL-COSTS> 253,025 236,084 269,426
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,317 1,364 1,435
<INCOME-PRETAX> 42,396 40,021 40,509
<INCOME-TAX> 15,591 15,237 15,004
<INCOME-CONTINUING> 26,805 24,784 25,505
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 26,805 24,784 25,505
<EPS-BASIC> 4.87 4.32 4.33
<EPS-DILUTED> 4.60 4.02 4.01
</TABLE>
<PAGE> 43
EXHIBIT 99
----------
ADDITIONAL EXHIBITS
Forward Looking Statements
- --------------------------
Written and oral statements provided by the Company from time to time may
contain certain forward looking information, as that term is defined by the
Private Securities Litigation Reform Act of 1995 (the "Act") and in releases
made by the Securities and Exchange Commission ("SEC"). The cautionary
statements which follow are being made pursuant to the provisions of the Act
and with the intention of obtaining the benefits of the "safe harbor"
provisions of the Act. While the Company believes that the assumptions
underlying such forward looking statements are reasonable based on present
conditions, forward looking statements made by the Company involve risks and
uncertainties and are not guarantees of future performance. Actual results may
differ materially from those in the Company's written or oral forward looking
statements as a result of various factors, including but not limited to, the
following:
A significant decline in sales with the Company's largest customer, who
represents over 10% of consolidated sales, or other significant customers.
Continued or increased competitive pressure to reduce selling prices of
products or increase financial incentives to customers.
A prolonged disruption of scheduled deliveries from suppliers when
alternative sources of supply are not available to satisfy the Company's
requirements for raw material and components.
Delays in the Company's ability to pass along significant increases in
the cost of raw material, components, other materials and/or services.
The amount of and rate of growth in selling, general and administrative
expenses, and occurrences which could affect the Company's ability to reduce
or limit the increase in such expenses.
The costs and other effects of legal and administrative cases and
proceedings (whether civil or criminal), settlements and investigations,
claims, developments or assertions by or against the Company relating to
intellectual property rights and licenses, and adoption of new or changes in
accounting policies and practices.
Difficulties or delays in the development, production, testing and
marketing of products, including, but not limited to, a failure to ship new
products when anticipated, failure of customers to accept these products when
planned, any defects in products or a failure of manufacturing economies to
develop when planned.
Circumstances impacting the Company's ability to fund and accomplish
technological innovation, improve processes, and attract and retain capable
staff in order to deal with increasing volume and complexity in its products.
Occurrences affecting the slope or speed of decline of the life cycle of
the Company's products, or affecting the Company's ability to reduce product
and other costs, and to increase productivity.
<PAGE> 44
The impact of unusual items resulting from the Company's ongoing
evaluation of its business strategies, acquisitions or divestitures, asset
valuations and organizational structures.
The effects of and changes in, trade, monetary and fiscal policies, laws
and regulations and other activities of governments, agencies and similar
organizations, including but not limited to trade restrictions or
prohibitions, inflation, monetary fluctuations, import and other charges or
taxes, foreign exchange rates, nationalizations and unstable governments.
The future health of the U.S. and international economies and other
economic factors that directly or indirectly affect the demand for the
Company's products.
Labor strikes or work stoppages by employees of the Company, its
customers, suppliers, or freight contractors or other providers.
Environmental factors such as fires, floods, or other natural disasters
and weather conditions which could impact the company's ability to produce
products or the demand for its products.
The inability of parties external to the Company to provide goods and
services in a timely, accurate manner as a result of Year 2000 processing
problems.
Increased competition due to industry consolidation or new entrants into
the Company's existing markets.
The introduction of alternative products or governmental and regulatory
activities that favor alternative methods of serving the same function as the
Company's products.
All forward-looking statements included herein are based upon information
presently available, and the Company assumes no obligation to update any
forward-looking statements.
