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 September 30, 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 NOVEMBER 13, 2000
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$.10 par value 5,553,567 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 September 30, 2000 (Unaudited)
and January 1, 2000 (Unaudited)............... 3
Condensed Consolidated Statements of
Income for the Third Quarter and Nine Months
Ended September 30, 2000 (Unaudited) and
October 2, 1999 (Unaudited).................. 4
Condensed Consolidated Statements
Of Cash Flows for the Nine Months
Ended September 30, 2000 (Unaudited) and
October 2, 1999 (Unaudited).................. 5
Notes to Condensed Consolidated
Financial Statements (Unaudited).............. 6-9
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations......................... 10-11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk............................. 11
PART II. OTHER INFORMATION
-----------------------------
Item 1. Legal Proceedings............................. 11
Item 2. Changes in Securities and Use of Proceeds..... 12
Item 6. Exhibits and Reports on Form 8-K.............. 12
Signatures................................................ 13
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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) September 30, January 1,
2000 2000
---- ----
ASSETS
Current assets:
Cash and equivalents.................... $ 11,991 $ 27,844
Marketable securities................... - 8,968
Receivables, less allowances of
$1,578 and $1,333, respectively....... 24,500 17,995
Inventories (Note 2).................... 52,523 39,717
Other current assets (including
deferred income taxes of $8,444
and $7,934, respectively)............. 11,485 9,719
-------- --------
Total current assets.................. 100,499 104,243
Property, plant and equipment,
net (Note 3)............................ 61,758 57,047
Deferred and other assets (including
deferred income taxes of $1,905
and $1,530, respectively)............... 13,365 14,811
Goodwill, less accumulated amortization
of $61 (Note 4)......................... 15,721 -
-------- --------
Total assets.............................. $191,343 $176,101
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 1,109 $ 1,018
Accounts payable........................ 15,609 20,669
Accrued expenses........................ 28,018 23,558
Income taxes............................ 904 2,112
-------- --------
Total current liabilities............. 45,640 47,357
Long-term debt............................ 17,042 17,057
Employee benefit plan obligations......... 12,835 11,892
Other long-term liabilities............... 3,648 3,502
Shareowners' equity:
Common stock (Note 7)................... 555 541
Additional capital...................... 29,082 17,695
Retained earnings....................... 90,913 84,242
Loan to ESOP Trust...................... (1,594) (1,827)
Accumulated other comprehensive
loss (Note 9)......................... (6,778) (4,358)
-------- --------
Total shareowners' equity............. 112,178 96,293
-------- --------
Total liabilities and shareowners' equity. $191,343 $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)
Third Qtr. Ended Nine Months Ended
---------------- -----------------
Sept 30, Oct 2, Sept 30, Oct 2,
2000 1999 2000 1999
---- ---- ---- ----
Net sales.............................. $85,173 $81,795 $236,099 $214,404
Costs and expenses:
Cost of sales........................ 64,255 58,734 174,402 154,381
Selling and administrative expenses.. 11,253 10,562 32,344 30,907
Interest expense..................... 284 327 855 979
Other expense/(income), net.......... (210) (422) (584) (1,690)
Foreign exchange loss/(gain)......... 818 (133) 1,499 456
Costs of unsuccessful acquisition
(Note 5)........................... 3,237 - 3,237 -
------- ------- -------- --------
79,637 69,068 211,753 185,033
Income before income taxes............. 5,536 12,727 24,346 29,371
Income taxes........................... 2,094 4,609 9,216 10,768
------- ------- -------- --------
Net income............................. $ 3,442 $ 8,118 $ 15,130 $ 18,603
======= ======= ======== ========
Per share data (Note 8):
Net income per common share.......... $ .63 $ 1.49 $ 2.79 $ 3.37
======= ======= ======== ========
Net income per common share,
assuming dilution.................. $ .61 $ 1.40 $ 2.67 $ 3.17
======= ======= ======== ========
Dividends per common share........... $ .22 $ .20 $ .64 $ .57
======= ======= ======== ========
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) Nine Months Ended
-----------------
Sept 30, Oct 2,
2000 1999
---- ----
Cash flows from operating activities:
Net income................................ $15,130 $18,603
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization........... 7,603 6,017
Loss on disposals of plant
and equipment......................... 161 46
Changes in assets and liabilities:
Receivables........................... (917) (2,719)
Inventories........................... (6,015) (8,432)
Other assets.......................... (2,503) (628)
Accounts payable and other accrued
expenses............................ (3,711) 2,423
Employee benefit plan obligations..... 1,075 2,094
Other long-term liabilities........... 175 27
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Net cash flows from
operating activities.............. 10,998 17,431
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Cash flows from investing activities:
Additions to plant and equipment.......... (10,460) (7,992)
Proceeds from sale of plant and
equipment............................... 47 54
Additions to deferred assets.............. (1,677) -
Purchase of marketable securities......... (2,915) (27,692)
Cash paid for acquisition................. (17,687) -
Proceeds from maturities of marketable
securities ............................. 11,883 27,921
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Net cash flows from
investing activities.................. (20,809) (7,709)
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Cash flows from financing activities:
Repayment of long-term debt............... (21) (9)
Borrowing on line of credit............... - 362
Repayment of line of credit............... - (362)
Proceeds from issuance of common stock.... 1,408 1,763
Purchase of common stock.................. (5,003) (17,908)
Reduction of stock subscriptions.......... - (324)
Reduction of loan from ESOP Trust......... 233 232
Dividends paid............................ (3,464) (3,151)
------ ------
Net cash flows from
financing activities.................. (6,847) (19,397)
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Effect of exchange rate changes on cash..... 805 246
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Net change in cash and equivalents.......... (15,853) (9,429)
Cash and equivalents at beginning of period. 27,844 17,034
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Cash and equivalents at end of period....... $11,991 $ 7,605
======= =======
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 6
FRANKLIN ELECTRIC CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Condensed Consolidated Financial Statements
----------------------------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the nine months
ended September 30, 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) Sept 30, January 1,
2000 2000
---- ----
Raw Materials........................ $20,950 $15,749
Work in Process...................... 6,477 6,101
Finished Goods....................... 36,321 28,239
LIFO Reserve......................... (11,225) (10,372)
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Total Inventory...................... $52,523 $39,717
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Note 3: Property, Plant and Equipment
--------------------------------------
Property, plant and equipment, at cost, consists of the following:
(In thousands) Sept 30, January 1,
2000 2000
---- ----
Land and Building.................... $ 25,321 $ 22,145
Machinery and Equipment.............. 118,212 113,452
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143,533 135,597
Allowance for Depreciation........... 81,775 78,550
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$ 61,758 $ 57,047
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<PAGE> 7
Note 4: Acquisition
--------------------
On August 31, 2000, the Company acquired all of the outstanding shares of
capital stock of EBW, Inc. and Advanced Polymer Technology, Inc. ("EBW" and
"APT"), manufacturers of equipment for use in gasoline and diesel fuel pumping
systems. The Company paid to the selling shareholders of EBW and APT $20.3
million at the closing date, consisting of $10.3 million in cash and the
issuance of $10.0 million of the Company's common stock (154,247 shares). The
Company also assumed $7.5 million of EBW and APT's credit obligations, of
which $7.4 million was paid to the creditors by the Company on the closing
date. In aggregate, the acquisition was recorded at a total purchase price of
$27.9 million, including acquisition costs, at the closing date. The Company
may pay additional consideration contingent on the future earnings performance
of EBW and APT through December 31, 2003.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the net assets
acquired based on the estimated fair values. The fair value of the net assets
acquired was estimated to be $12.1 million at the closing date, however, the
fair value of the net assets acquired will continue to be evaluated by the
Company over the next year. The excess of purchase price over the fair value
of the net assets acquired ($15.8 million at the August 31, 2000 closing date)
has been recorded as goodwill which is being amortized on a straight-line
basis over 20 years. Any additional future payments made to the selling
shareholders of EBW and APT upon the resolution of the earnings contingency
will be recorded as additional goodwill and amortized over the remainder of
the initial 20 year period.
Note 5: Legal Proceedings
--------------------------
On August 30, 2000, the Federal District Court in Madison, Wisconsin issued an
injunction prohibiting the Company's proposed acquisition of the petroleum
submersible turbine pump business of Marley Pump Company, a division of United
Dominion Industries. The Court found that the proposed acquisition would
violate the Federal antitrust laws. The Company recorded a one-time $3.2
million ($2.0 million after-tax) charge to earnings to recognize the costs of
this unsuccessful acquisition effort.
Note 6: 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 7: Shareowners' Equity
----------------------------
The Company had 5,549,667 shares of common stock (25,000,000 shares
authorized, $.10 par value) outstanding as of September 30, 2000.
During the third quarter of 2000, pursuant to the stock repurchase program
authorized by the Company's Board of Directors, the Company repurchased a
total of 10,700 shares for $.7 million. All repurchased shares were retired.
<PAGE> 8
Note 8: Earnings Per Share
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Following is the computation of basic and diluted earnings per share:
(In thousands, except Third Qtr. Ended Nine Months Ended
per share amounts) ---------------- -----------------
Sept 30, Oct 2, Sept 30, Oct 2,
2000 1999 2000 1999
---- ---- ---- ----
Numerator:
Net Income..................... $3,442 $8,118 $15,130 $18,603
====== ====== ======= =======
Denominator:
Basic
-----
Weighted average common
shares....................... 5,448 5,466 5,425 5,525
Diluted
-------
Effect of dilutive securities:
Employee and director
incentive stock options
and awards................. 218 330 232 340
------ ------ ------- -------
Adjusted weighted average
common shares................ 5,666 5,796 5,657 5,865
====== ====== ======= =======
Basic earnings per share......... $ .63 $ 1.49 $ 2.79 $ 3.37
====== ====== ======= =======
Diluted earnings per share....... $ .61 $ 1.40 $ 2.67 $ 3.17
====== ====== ======= =======
<PAGE> 9
Note 9: Other Comprehensive Income
-----------------------------------
Comprehensive income is as follows:
(In thousands) Third Qtr. Ended Nine Months Ended
---------------- -----------------
Sept 30, Oct 2, Sept 30, Oct 2,
2000 1999 2000 1999
---- ---- ---- ----
Net income......................... $3,442 $8,118 $15,130 $18,603
Other comprehensive loss:
Foreign currency translation
adjustments..................... (1,292) 676 (2,420) (1,035)
------ ------ ------- -------
Comprehensive income, net of tax... $2,150 $8,794 $12,710 $17,568
====== ====== ======= =======
Accumulated other comprehensive loss consists of the following:
(In thousands) Sept 30, January 1,
2000 2000
---- ----
Cumulative translation adjustment........... $(6,483) $(4,063)
Minimum pension liability adjustment,
net of tax................................ (295) (295)
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$(6,778) $(4,358)
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Note 10: Accounting Pronouncements
-----------------------------------
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 and SFAS No. 138, will be 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 on the
balance sheet as either assets or liabilities, measures them at fair value,
and requires that changes in fair value be recognized currently in income
unless specific hedge accounting criteria are met. 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 11: 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 when an unfavorable outcome is
determined to be probable and a reasonable estimate can be made.
<PAGE> 10
Item 2. Management's Discussion And Analysis Of Financial Condition And
------------------------------------------------------------------------
Results Of Operations
---------------------
Operations
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Net sales for the third quarter of 2000 were $85.2 million, a 4.2 percent
increase from 1999 third quarter net sales of $81.8 million. Year to date
2000 net sales were $236.1 million, up 10.1 percent from year to date 1999 net
sales of $214.4 million. The increase in third quarter sales was principally
due to the inclusion of EBW and APT on a fully consolidated basis beginning
September 1, 2000. The increase in year to date sales resulted primarily from
a higher volume of sales of submersible water systems and fractional
horsepower motors. A portion of the growth is from supply agreements entered
into in December 1998 and from the acquisition of EBW and APT on August 31,
2000. The increases were partially offset by lower sales of submersible
petroleum motor systems.
Cost of sales as a percent of net sales for the third quarter of 2000 was 75.4
percent, an increase from 71.8 percent for the same period in 1999. Cost of
sales as a percent of net sales for the year to date 2000 was 73.9 percent, an
increase from 72.0 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, material costs in key
commodities, depreciation and other project costs. In addition, significant
unplanned expenses were incurred in moving the Company's large submersible
motor product line from Bluffton, Indiana to Wilburton, Oklahoma in the third
quarter.
Selling and administrative expenses as a percent of net sales for the third
quarter of 2000 was 13.2 percent compared to 12.9 percent for the same period
in 1999. Selling and administrative expenses as a percent of net sales for
the year to date 2000 was 13.7 percent compared to 14.4 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 third quarter of 2000 was $.3 million of
interest income compared to $.5 million of interest income for the third
quarter of 1999. Included in other income, net for the year to date 2000 was
$.9 million of interest income compared to $1.3 million of interest income for
the same period in 1999. Interest income was attributable to amounts invested
principally in short-term U.S. treasury and agency securities.
During the third quarter of 2000, the Company recorded a one-time $3.2 million
($2.0 million after-tax) charge to earnings to recognize the costs of the
unsuccessful acquisition of the fuel pumping systems business of the Marley
Pump Company, a division of United Dominion Industries.
The foreign currency based transactions for the third quarter of 2000 produced
a loss of $.8 million compared to a $.1 million gain for the same period of
1999. Year to date 2000 foreign currency based transactions produced a loss
of $1.5 million compared to a $.5 million loss for the same period of 1999.
The increase in the foreign currency transaction losses for both the third
quarter and year to date 2000 compared to the same periods of 1999 was due
primarily to the strong dollar and/or the weak Euro.
<PAGE> 11
Net income for the third quarter of 2000 was $3.4 million, or $.61 per diluted
share, a 58.0 percent decrease compared to net income of $8.1 million, or
$1.40 per diluted share, for the same period in 1999. Year to date 2000 net
income was $15.1 million, or $2.67 per diluted share, an 18.8 percent decrease
compared to year to date 1999 net income of $18.6 million, or $3.17 per
diluted share.
Capital Resources and Liquidity
-------------------------------
Cash, cash equivalents and marketable securities decreased $24.8 million
during the first nine months of 2000. The principal use of cash was for the
acquisition of EBW and APT. Working capital decreased $2.0 million during the
first nine months of 2000 and the current ratio was 2.2 at both September 30,
2000, and January 1, 2000.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
-----------------------------------------------------------------------------
1995
----
Any forward-looking statements contained herein involve risks and
uncertainties, including, but not limited to, general economic and currency
conditions, various conditions specific to the Company's business and
industry, market demand, competitive factors, supply constraints, technology
factors, government and regulatory actions, the Company's accounting policies,
future trends, and other risks which are detailed in the Company's Securities
and Exchange Commission filings. These risks and uncertainties may cause
actual results to differ materially from those indicated by the forward-
looking statements.
Item 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. Interest rate exposure is principally limited to any
marketable U.S. treasury and agency securities owned by the Company and is
mitigated by the short-term, generally less than 6 months, nature of these
investments.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
On August 30, 2000, the Federal District Court in Madison, Wisconsin issued an
injunction prohibiting the Company's proposed acquisition of the petroleum
submersible turbine pump business of Marley Pump Company, a division of United
Dominion Industries. The Court found that the proposed acquisition would
violate the Federal antitrust laws. The Company recorded a one-time $3.2
million ($2.0 million after-tax) charge to earnings to recognize the costs of
this unsuccessful acquisition effort.
<PAGE> 12
Item 2. Changes in Securities and Use of Proceeds
--------------------------------------------------
In connection with its acquisition of all of the outstanding shares of capital
stock of EBW and APT, on August 31, 2000 the Company issued $10.0 million
(154,247 shares) of its common stock, par value $.10 per share, to the selling
shareholders of EBW and APT as part of the consideration for the EBW and APT
stock. The issued shares were exempt from registration under Section 4(2) of
the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits (Filed with this quarterly report)
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the SEC by the Company
on September 13, 2000 to report the August 31, 2000 acquisition of
all of the outstanding shares of capital stock of EBW, Inc. and
Advanced Polymer Technology, Inc.
<PAGE> 13
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report to be signed on its behalf by
the undersigned thereunto duly authorized.
FRANKLIN ELECTRIC CO., INC.
---------------------------
Registrant
Date November 13, 2000 By /s/ William H. Lawson
----------------- ---------------------
William H. Lawson, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date November 13, 2000 By /s/ Gregg C. Sengstack
----------------- ----------------------
Gregg C. Sengstack, Vice
President and Chief Financial
Officer (Principal Financial
and Accounting Officer)
5
