FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 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 35-0826-7455 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 East Spring Street 46714 Bluffton, Indiana (Zip Code) (Address of principal executive offices) (219) 824-2900 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class of Common Stock November 6, 1995 --------------------- ---------------- $.10 par value 6,252,002 shares FRANKLIN ELECTRIC CO., INC. Index PART I. FINANCIAL INFORMATION - --------------------------------- Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1995 (Unaudited) and December 31, 1994 Condensed Consolidated Statements of Income for the Third Quarter and Three Quarters ended September 30, 1995 and October 1, 1994 (Unaudited) Condensed Consolidated Statements of Cash Flows for the Three Quarters ended September 30, 1995 and October 1, 1994 (Unaudited) Notes to Condensed Consolidated Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION - ----------------------------- Item 6. Exhibits and Reports on Form 8-K Signatures - ---------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) September 30, December 31, 1995 1994 (Unaudited) (Audited) ----------- --------- ASSETS Current assets: Cash and equivalents.................... $ 27,684 $ 38,890 Receivables (less allowances of $1,395 and $1,271, respectively)...... 21,100 21,864 Inventories (Note 2).................... 47,957 37,755 Other current assets (including deferred income taxes of $8,673 and $6,287, respectively)............. 9,915 7,669 ------- ------- Total current assets.................. 106,656 106,178 Property, plant and equipment, at cost (Note 3)........................ 41,400 41,896 Deferred and other assets................. 2,622 3,507 ------- ------- Total assets.............................. $150,678 $151,581 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Short-term borrowings (Note 5).......... $ 9,800 $ 15,200 Accounts payable........................ 9,471 12,296 Accrued expenses........................ 27,413 27,372 Income taxes............................ 459 2,890 ------- ------- Total current liabilities............. 47,143 57,758 Long-term debt............................ 20,000 20,000 Other long-term liabilities............... 7,891 8,096 Deferred income taxes..................... 850 862 Shareowners' equity: Common stock (Note 6)................... 624 620 Additional capital...................... 5,577 4,667 Retained earnings....................... 71,973 64,231 Stock subscriptions..................... (1,512) (2,112) Cumulative translation adjustments...... 532 59 Loan to ESOP Trust...................... (2,400) (2,600) ------- ------- Total shareowners' equity............. 74,794 64,865 ------- ------- Total liabilities and shareowners' equity. $150,678 $151,581 ======== ======== See Notes to Condensed Consolidated Financial Statements. FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Third Qtr Ended Three Qtrs Ended --------------- ---------------- (In thousands, except per share amounts) Sept 30, Oct 1, Sept 30, Oct 1, 1995 1994 1995 1994 ---- ---- ---- - ---- Net sales $66,188 $60,013 $202,418 $175,135 Costs and expenses: Cost of sales....................... 51,234 44,945 156,595 130,277 Selling and administrative expenses. 9,871 7,740 30,277 23,951 Interest expense.................... 526 365 1,697 1,545 Other income, net................... (500) (573) (1,216) (1,582) ------ ------ ------- -- - ----- 61,131 52,477 187,353 154,191 Equity in earnings of affiliate....... - (138) - 532 ------ ------ -------- -- - ----- Income before income taxes............ 5,057 7,398 15,065 21,476 Income taxes.......................... 1,756 2,849 5,578 8,016 ------ ------ ------- -- - ----- Net income............................ 3,301 4,549 9,487 13,460 Dividends on preferred stock.......... - - - 153 ------ ------ ------- -- - ----- Net income available to common shares and common share equivalents........ $ 3,301 $ 4,549 $ 9,487 $ 13,307 ======= ======= ======== ======== Per share data: Weighted average common shares...... 6,590 6,557 6,596 6,523 ===== ===== ===== ===== Net income available to common shares..................... $ .50 $ .69 $ 1.44 $ 2.04 ======= ======= ======== ======== Dividends per common share............ $ .10 $ .08 $ .28 $ .21 Dividends per preferred share......... $ - $ - $ - $ 2.63 See Notes to Condensed Consolidated Financial Statements. FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Qtrs Ended ---------------- Sept 30, Oct 1, 1995 1994 ---- ---- Cash flows from operating activities: Net income................................ $ 9,487 $ 13,460 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization........... 7,000 5,275 Equity in earnings of affiliate......... - (532) Deferred income taxes................... (12) - Gain on disposals of plant and equipment................... (33) (249) Changes in assets and liabilities: Receivables............................. 1,097 1,187 Inventories............................. (9,970) (3,210) Other current assets.................... (2,217) (114) Accounts payable and other current liabilities................... (5,584) 4,820 Other long-term liabilities............. (205) 789 ------- ------- Net cash flows from operating activities................ (437) 21,426 ------- ------- Cash flows from investing activities: Additions to plant and equipment........ (4,399) (3,708) Proceeds from sale of plant and equipment................... 31 293 Additions to deferred assets............ (636) - ------- ------- Net cash flows from investing activities................ (5,004) (3,415) ------- ------- Cash flows from financing activities: Repayment of short-term borrowings...... (8,500) (69) Proceeds from short-term borrowings..... 3,100 - Repayment of long-term debt............. - (10,084) Redemption of preferred stock........... - (5,818) Proceeds from issuance of common stock.. 249 109 Proceeds from stock subscriptions....... 866 - Purchases of common stock............... - (3,757) Repayment of loan to ESOP Trust......... 200 200 Dividends (preferred and common stock) paid........................... (1,745) (1,424) ------- ------- Net cash flows from financing activities................ (5,830) (20,843) ------- ------- Effect of exchange rate changes on cash... 65 (298) ------- ------- Net decrease in cash and equivalents...... (11,206) (3,130) Cash and equivalents at beginning of period..................... 38,890 39,087 ------- ------- Cash and equivalents at end of period........................... $ 27,684 $ 35,957 ======== ======== See Notes to Condensed Consolidated Financial Statements. 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 adjustments) considered necessary for a fair presentation have been included. Operating results for the quarter and three quarters ended September 30, 1995 are not necessarily indicative of the results that may be expected for the year ended December 30, 1995. 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 December 31, 1994. Note 2: Inventories - -------------------- Inventories consist of the following: (In thousands) September 30, December 31, 1995 1994 ---- ---- Raw Materials........................ $ 19,095 $ 17,584 Work in Process...................... 5,476 5,201 Finished Goods....................... 35,507 25,982 LIFO Reserve......................... (12,121) (11,012) ------- ------- Total Inventory...................... $ 47,957 $ 37,755 ======== ======== Note 3: Property, Plant and Equipment - -------------------------------------- Property, plant and equipment at cost consists of the following: (In thousands) September 30, December 31, 1995 1994 ---- ---- Land and Buildings................... $ 28,754 $ 28,210 Machinery and Equipment.............. 91,190 88,169 ------- ------- 119,944 116,379 Allowance for Depreciation........... 78,544 74,483 ------- ------- $ 41,400 $ 41,896 ======== ======== Note 4: Tax Rates - ------------------ The effective tax rate on income before income taxes in 1995 and 1994 varies from the United States statutory rate of 35 percent principally due to the effect of state and foreign income taxes. Note 5: Short-Term Borrowings - ------------------------------ During the first quarter of 1995, the Company borrowed an additional $3.1 million on a short-term basis to finance current working capital requirements. On May 12, 1995, the Company repaid $8.5 million of short-term borrowings on a line of credit, bearing interest at LIBOR plus 1.5 percent, that would have been due November 27, 1995. Note 6: Shareowners' Equity - ---------------------------- During the first quarter of 1995, the Company issued 20,000 common shares valued at $640,000 under the 1988 Executive Stock Purchase Plan. The Company had 6,242,002 shares of common stock (10,000,000 shares authorized, $.10 par value) outstanding as of September 30, 1995. Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations - --------------------------------------------------------------------- - ------------------------- Operations - ---------- Net sales for the third quarter of 1995 were $66.2 million, a 10 percent increase over 1994 third quarter net sales of $60.0 million. Year to date 1995 net sales were $202.4 million, a 16 percent increase over comparable period 1994 net sales of $175.1 million. The increase in net sales was due to both the inclusion of Oil Dynamics, Inc. ("ODI") on a fully consolidated basis for 1995 and increases in unit volume. Previously, Oil Dynamics, Inc. was a fifty percent owned equity investee accounted for as an unconsolidated affiliate. Net income for the third quarter of 1995 was $3.3 million, or $.50 per share, compared to net income of $4.5 million, or $.69 per share for the same period in 1994. Year to date 1995 net income was $9.5 million, or $1.44 per share, compared to 1994 net income of $13.5 million, or $2.04 per share. The decrease in net income for both the quarter and year to date periods was principally due to an increase in cost of sales as a percent of net sales primarily at ODI and the Company's German subsidiary and foreign currency transaction losses. Cost of sales as a percent of net sales for the third quarter of 1995 was 77.4 percent compared to 74.9 percent for the same period in 1994. On a year to date basis, cost of sales as a percent of net sales for 1995 was 77.4 percent compared to 74.4 percent for the corresponding 1994 period. The increase in both the quarter and year to date periods was principally due to increases in fixed manufacturing expenses as a percent of net sales due to the inclusion of Oil Dynamics, Inc. and increases in planned expenses in support of international operations. Selling and administrative expenses in the third quarter of 1995 were $9.9 million compared to $7.7 million for the same period in 1994. On a year to date basis, 1995 selling and administrative expenses were $30.3 million compared to $24.0 million for the prior year period. The increase was principally due to the inclusion of Oil Dynamics, Inc. on a fully consolidated basis and due to investments in systems and people in support of international operations. Included in other income for the third quarter was $472,000 of interest income and $88,000 of foreign currency transaction losses for 1995 compared to $426,000 of interest income and $80,000 of foreign currency transaction gains for the same period a year ago. Other income for the year to date period included $1.3 million of interest income and $542,000 of foreign currency losses for 1995 compared to $1.1 million of interest income and $199,000 of foreign currency transaction gains for the same period a year ago. The increase in foreign currency transaction losses was primarily due to the fluctuation of the Italian Lira against the German Mark and the fluctuation of the U.S. Dollar against the Australian and Mexican currencies. Interest income was attributable to amounts invested principally in short-term U.S. treasury bills and notes. Equity in the previously unconsolidated earnings of ODI was a loss of $138,000 in the 1994 third quarter and income of $532,000 for the 1994 year to date period. Capital Resources and Liquidity - ------------------------------- Cash flow from operations for the 1995 year to date period decreased $21 million from the comparable 1994 period due primarily to increases in inventory, reductions in current liabilities and lower net earnings. Inventories increased principally due to a decrease in North American submersible motor shipments compared to plan as the industry continued to consume accumulated inventory. Cash at the end of the third quarter of 1995 was $27.7 million compared to $38.9 million at the end of 1994. Working capital increased $11.1 million and the current ratio of the Company was 2.3 at the end of the third quarter of 1995 and 1.8 at the end of 1994. During the first quarter of 1995, the Company borrowed an additional $3.1 million on a short-term basis to finance current working capital requirements. During the second quarter of 1995, the Company repaid $8.5 million of short-term borrowings on a line of credit. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits (11) Computation of Earnings per Share (b) Reports on Form 8-K There were no reports on Form 8-K filed for the third quarter ended September 30, 1995. 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, 1995 By WILLIAM H. LAWSON --------------------- -------------------------------- William H. Lawson, Chairman and Chief Executive Officer Date November 13, 1995 By JESS B. FORD --------------------- -------------------------------- Jess B. Ford, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Exhibit Index (11) Computation of Earnings per Share EXHIBIT 11 FRANKLIN ELECTRIC CO., INC. COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE (In thousands, except per share amounts) Third Qtr Ended Three Qtrs Ended --------------- ---------------- Sept 30, Oct 1, Sept 30, Oct 1, 1995 1994 1995 1994 ---- ---- ---- ---- Net income available to common shares and common share equivalents........... $ 3,301 $ 4,549 $ 9,487 $13,307 ======= ======= ======= ======= Common shares outstanding beginning of period......... 6,240 6,195 6,199 6,231 Weighted average of common shares issued during the period.................. 1 2 29 44 Weighted average of common shares purchased during the period.................. - - - (100) Dilutive effect of options outstanding during the period.................. 349 360 368 348 ----- ----- ----- ----- Weighted average of common shares outstanding during the period.................. 6,590 6,557 6,596 6,523 ===== ===== ===== ===== Net income per weighted average common share........ $.50 $.69 $1.44 $2.04 ==== ==== ===== =====