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 April 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 BLUFFTON, INDIANA 46714 ----------------- ----- (Address of principal executive offices) (Zip Code) (219) 824-2900 -------------- (Registrant's telephone number, including area code) NOT APPLICABLE -------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. OUTSTANDING AT CLASS OF COMMON STOCK MAY 11, 2000 --------------------- ------------ $.10 par value 5,407,020 shares Page 1 of 3
2 FRANKLIN ELECTRIC CO., INC. Index Page PART I. FINANCIAL INFORMATION Number - --------------------------------- ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of April 1, 2000 (Unaudited) and January 1, 2000 (Unaudited)............... 3 Condensed Consolidated Statements of Income for the Three Months Ended April 1, 2000 (Unaudited) and April 3, 1999 (Unaudited) .................... 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 1, 2000 (Unaudited)and April 3, 1999 (Unaudited) .................... 5 Notes to Condensed Consolidated Financial Statements (Unaudited).............. 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 9-10 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 10 PART II. OTHER INFORMATION - ----------------------------- Item 4. Submission of Matters to a Vote of Security Holders............................ 11 Item 6. Exhibits and Reports on Form 8-K.............. 11-12 Signatures................................................ 13 - ---------
3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) April 1, January 1, 2000 2000 - ---- ---- ASSETS Current assets: Cash and equivalents.................... $ 10,540 $ 27,844 Marketable securities................... - 8,968 Receivables, less allowances of $1,342 and $1,333, respectively....... 21,895 17,995 Inventories (Note 2).................... 50,535 39,717 Other current assets (including deferred income taxes of $7,956 and $7,934, respectively.............. 9,762 9,719 ------- ------- Total current assets.................. 92,732 104,243 Property, plant and equipment, net (Note 3)............................ 57,409 57,047 Deferred and other assets (including deferred income taxes of $1,519 and $1,530, respectively)............... 14,466 14,811 ------- ------- Total assets.............................. $164,607 $176,101 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Current maturities of long-term debt and short-term borrowings........ $ 1,017 $ 1,018 Accounts payable........................ 9,639 20,669 Accrued expenses........................ 21,392 23,558 Income taxes............................ 3,838 2,112 ------- ------- Total current liabilities............. 35,886 47,357 Long-term debt............................ 17,054 17,057 Employee benefit plan obligations......... 12,145 11,892 Other long-term liabilities............... 3,543 3,502 Shareowners' equity: Common stock (Note 5)................... 540 541 Additional capital...................... 18,672 17,695 Retained earnings....................... 83,695 84,242 Loan to ESOP Trust...................... (1,594) (1,827) Accumulated other comprehensive loss (Note 7)......................... (5,334) (4,358) ------- ------- Total shareowners' equity............. 95,979 96,293 ------- ------- Total liabilities and shareowners' equity. $164,607 $176,101 ======== ======== See Notes to Condensed Consolidated Financial Statements.
4 FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) Three Months Ended ------------------ April 1, April 3 2000 1999 - ---- ---- Net sales................................. $66,051 $58,014 Costs and expenses: Cost of sales........................... 48,864 42,576 Selling and administrative expenses..... 10,309 9,759 Interest expense........................ 285 326 Other expense/(income), net............. 316 (166) ------ ------ 59,774 52,495 Income before income taxes................ 6,277 5,519 Income taxes.............................. 2,374 2,042 ------ ------ Net income................................ $ 3,903 $ 3,477 ======= ======= Per share data (Note 6): Net income per common share............. $ .72 $ .63 ======= ======= Net income per common share, assuming dilution..................... $ .69 $ .59 ======= ======= Dividends per common share.............. $ .20 $ .17 ======= ======= See Notes to Condensed Consolidated Financial Statements.
5 FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended ------------------ April 1, April 3, 2000 1999 - ---- ---- Cash flows from operating activities: Net income................................ $ 3,903 $ 3,477 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization........... 2,514 1,731 Loss on disposals of plant and equipment............................. 42 - Changes in assets and liabilities: Receivables........................... (4,249) (3,618) Inventories........................... (11,579) (10,872) Other assets.......................... (61) (117) Accounts payable and other accrued expenses............................ (11,033) (2,371) Employee benefit plan obligations..... 307 (36) Other long-term liabilities........... 52 915 ------ ------ Net cash flows from operating activities.............. (20,104) (10,891) ------ ------ Cash flows from investing activities: Additions to plant and equipment.......... (2,932) (2,529) Proceeds from sale of plant and equipment............................... 22 - Additions to deferred assets.............. (353) - Proceeds from maturities of marketable securities ............................. 8,968 27,921 ------ ------ Net cash flows from investing activities.................. 5,705 25,392 ------ ------ Cash flows from financing activities: Borrowing on line of credit............... - 366 Repayment of line of credit............... - (174) Proceeds from issuance of common stock.... 981 401 Purchase of common stock.................. (3,367) (1,043) Reduction of stock subscriptions.......... - (324) Reduction of loan from ESOP Trust......... 233 232 Dividends paid............................ (1,088) (948) ------ ------ Net cash flows from financing activities.................. (3,241) (1,490) ------ ------ Effect of exchange rate changes on cash..... 336 173 ------ ------ Net change in cash and equivalents.......... (17,304) 13,184 Cash and equivalents at beginning of period....................... 27,844 17,034 ------ ------ Cash and equivalents at end of period....... $10,540 $30,218 ======= ======= See Notes to Condensed Consolidated Financial Statements.
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 three months ended April 1, 2000 are not necessarily indicative of the results that may be expected for the year ending December 30, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in Franklin Electric Co., Inc.'s annual report on Form 10-K for the year ended January 1, 2000. Note 2: Inventories - -------------------- Inventories consist of the following: (In thousands) April 1, January 1, 2000 2000 ---- ---- Raw Materials........................ $ 15,829 $ 15,749 Work in Process...................... 6,242 6,101 Finished Goods....................... 38,952 28,239 LIFO Reserve......................... (10,488) (10,372) ------- ------- Total Inventory...................... $ 50,535 $ 39,717 ======== ======== Note 3: Property, Plant and Equipment - -------------------------------------- Property, plant and equipment, at cost, consists of the following: (In thousands) April 1, January 1, 2000 2000 - ---- ---- Land and Buildings................... $ 22,627 $ 22,145 Machinery and Equipment.............. 114,246 113,452 ------- ------- 136,873 135,597 Allowance for Depreciation........... 79,464 78,550 ------- ------- $ 57,409 $ 57,047 ======== ========
7 Note 4: Tax Rates - ------------------ The effective tax rate on income before income taxes in 2000 and 1999 varies from the United States statutory rate of 35 percent principally due to the effect of state and foreign income taxes. Note 5: Shareowners' Equity - ---------------------------- The Company had 5,403,720 shares of common stock (25,000,000 shares authorized, $.10 par value) outstanding as of April 1, 2000. During the first quarter of 2000, pursuant to the stock repurchase program authorized by the Company's Board of Directors, the Company repurchased a total of 41,300 shares for $2.7 million. All repurchased shares were retired. During the first quarter of 2000, under terms of a Company stock option plan, a participant remitted 10,000 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 $0.7 million, and the shares remitted to the Company were subsequently retired. Note 6: Earnings Per Share - --------------------------- Following is the computation of basic and diluted earnings per share: (In thousands, Three Months Ended ------------------ except per share amounts) April 1, April 3, 2000 1999 - ---- ---- Numerator: Net Income.......................... $3,903 $3,477 ====== ====== Denominator: Basic Weighted average common shares..... 5,424 5,553 Diluted Effect of dilutive securities: Employee and director incentive stock options and awards........ 234 362 ----- ----- Adjusted weighted average common shares.......................... 5,658 5,915 ====== ====== Basic earnings per share.............. $ .72 $ .63 ====== ====== Diluted earnings per share............ $ .69 $ .59 ====== ======
8 Note 7: Other Comprehensive Income - ----------------------------------- Comprehensive income is as follows: (In thousands) Three Months Ended ------------------ April 1, April 3, 2000 1999 - ---- ---- Net income.................................. $ 3,903 $ 3,477 Other comprehensive loss: Foreign currency translation adjustments.. (976) (1,255) ------ ------ Comprehensive income, net of tax............ $ 2,927 $ 2,222 ======= ======= Accumulated other comprehensive loss consists of the following: (In thousands) April 1, January 1, 2000 2000 - ---- ---- Cumulative translation adjustment........... $(5,039) $(4,063) Minimum pension liability adjustment, net of tax................................ (295) (295) ------ ------ $(5,334) $(4,358) ======= ======= Note 8: 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, is effective in the first quarter of the Company's fiscal year ending December 29, 2001. SFAS No. 133 establishes a new model for accounting for derivatives in the balance sheet as either assets or liabilities and measures them at fair value. Certain disclosures concerning the designation and assessment of hedging relationships are also required. The adoption of SFAS No. 133 is not expected to have a material impact on the Company's financial position or its results of operations.
9 Item 2. Management's Discussion And Analysis Of Financial Condition And - ------------------------------------------------------------------------ Results Of Operations - --------------------- Operations - ---------- Net sales for the first quarter of 2000 were $66.1 million, a 14.0 percent increase from 1999 first quarter net sales of $58.0 million. The increased sales resulted primarily from higher volume of submersible water systems motors and increased sales of fractional horsepower motors. A portion of the growth is from supply agreements entered into in December 1998. The increases were partially offset by lower sales of submersible petroleum motor systems. Net income for the first quarter of 2000 was $3.9 million, or $.69 per diluted share, compared to net income of $3.5 million, or $.59 per diluted share, for the same period a year ago. Cost of sales as a percentage of net sales for the first quarter of 2000 was 74.0 percent compared to 73.4 percent for the same period in 1999. The increase is primarily a result of higher material costs in key commodities. Selling and administrative expenses as a percent of net sales for the first quarter of 2000 was 15.6 percent compared to 16.8 percent for the same period in 1999. The decrease is primarily due to modest increases in fixed expenses while sales increased at a higher rate. Interest expense was $0.3 million for both the first quarter of 2000 and 1999. Included in other income, net, for the first quarter of 2000 was $0.4 million of interest income and $0.6 million of foreign currency losses. The increase in the foreign currency transaction loss in 2000 was primarily due to the strengthening dollar relative to the German mark. Interest income was $0.5 million and foreign currency losses were $0.3 million for the same period in 1999. Interest income was attributable to amounts invested principally in short-term US treasury and agency securities. Capital Resources and Liquidity - ------------------------------- Cash, cash equivalents and marketable securities decreased $26.3 million during the first quarter of 2000. The principal use of cash for operating activities was the typical seasonal increase in inventories and changes in accounts payable. Working capital did not change during the first quarter of 2000. The current ratio was 2.6 and 2.2 at April 1, 2000, and January 1, 2000, respectively. "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,
10 future trends, and other risks which are detailed in the Company's Securities and Exchange Commission filings. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward looking statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk - ------------------------------------------------------------------- The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates. Foreign currency exchange rate risk is mitigated through several means: maintenance of local production facilities in the markets served, invoicing of customers in the same currency as the source of the products, prompt settlement of intercompany balances utilizing a global netting system and limited use of foreign currency denominated debt. The Company does not use derivative contracts. Interest rate exposure is principally limited to any marketable U.S. treasury and agency securities owned by the Company ($0.0 at April 1, 2000), and is mitigated by the short-term, generally less than 6 months, nature of these investments.
11 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ The 2000 Annual Meeting of Shareholders of the Company was held on April 14, 2000 for the following purposes: 1) To elect three directors for terms expiring at the 2003 Annual Meeting of Shareholders; 2) To approve the Amended and Restated 1996 Nonemployee Director Stock Option Plan; 3) To approve the Key Employee Performance Incentive Stock Plan; and 4) To ratify the appointment of Deloitte & Touche LLP as independent auditors for the 2000 fiscal year. The results were: 1) Nominees for Director For Withhold Authority --------------------- --- ------------------ Jerome D. Brady 4,932,689 8,851 Robert H. Little 4,932,897 8,643 Patricia Schaefer 4,932,738 8,802 For Against Abstain --- ------- ------- 2) Amended and Restated 1996 Nonemployee Director Stock Option Plan 3,453,075 820,095 36,585 3) Key Employee Performance Incentive Stock Plan 3,376,086 897,602 36,015 4) Ratification of Deloitte & Touche LLP 4,918,919 3,150 10,410 Total shares represented at the Annual Meeting in person or by proxy were 4,941,540 of a total of 5,430,420 shares outstanding. This represented 91 percent of Company common stock and constituted a quorum. Total broker non- votes related to the approval of the Amended and Restated 1996 Director Stock Option Plan, Key Employee Performance Incentive Stock Plan and the ratification of Deloitte & Touche LLP were 631,785, 631,837 and 9,061 shares, respectively. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits (Filed with this quarterly report) 10(i) Franklin Electric Co., Inc. Amended and Restated 1996 Nonemployee Director Stock Option Plan. 10(ii) Franklin Electric Co., Inc. Key Employee Performance Incentive Stock Plan. 10(iii) Franklin Electric Co., Inc. Nonemployee Directors' Deferred Compensation Plan.
12 (b) Reports on Form 8-K None.
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 May 11, 2000 By /s/ William H. Lawson ---------------------- -------------------------- William H. Lawson, Chairman and Chief Executive Officer (Principal Executive Officer) Date May 11, 2000 By /s/ Gregg C. Sengstack ---------------------- -------------------------- Gregg C. Sengstack, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 5