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 March 30, 1996 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 April 24, 1996 --------------------- -------------- $.10 par value 6,314,099 shares The Exhibit Index is located on page 11 FRANKLIN ELECTRIC CO., INC. Index PART I. FINANCIAL INFORMATION - --------------------------------- Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 30, 1996 (Unaudited) and December 30, 1995 Condensed Consolidated Statements of Income for the First Quarter ended March 30, 1996 and April 1, 1995 (Unaudited) Condensed Consolidated Statements of Cash Flows for the First Quarter ended March 30, 1996 and April 1, 1995 (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 4. Submission of Matters to a Vote of Security Holders 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) March 30, December 30, 1996 1995 (Unaudited) (Audited) ----------- --------- ASSETS Current assets: Cash and equivalents.................... $ 17,594 $ 32,077 Receivables, less allowances of $1,393 and $1,351, respectively....... 26,100 22,526 Inventories (Note 2).................... 56,830 45,839 Other current assets (including deferred income taxes of $7,690 and $7,823, respectively)............. 8,947 8,879 ------- ------- Total current assets.................. 109,471 109,321 Property, plant and equipment, net (Note 3)............................ 40,275 41,670 Deferred and other assets................. 2,248 2,366 ------- ------- Total assets.............................. $151,994 $153,357 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Short-term borrowings................... $ 190 $ 461 Accounts payable........................ 11,244 15,882 Accrued expenses........................ 22,748 23,228 Income taxes............................ 2,642 1,726 ------- ------- Total current liabilities............. 36,824 41,297 Long-term debt............................ 20,379 20,171 Employee benefit plan obligations......... 6,352 6,069 Other long-term liabilities............... 4,545 4,956 Deferred income taxes..................... 306 307 Shareowners' equity: Common stock (Note 5)................... 631 626 Additional capital...................... 6,309 5,683 Retained earnings....................... 79,743 77,363 Stock subscriptions..................... (1,213) (1,315) Cumulative translation adjustment....... 318 600 Loan to ESOP Trust...................... (2,200) (2,400) ------- ------- Total shareowners' equity............. 83,588 80,557 ------- ------- Total liabilities and shareowners' equity. $151,994 $153,357 ======== ======== See Notes to Condensed Consolidated Financial Statements. FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) First Quarter Ended ------------------- March 30, April 1, 1996 1995 ---- ---- Net sales $ 62,754 $ 59,788 Costs and expenses: Cost of sales........................... 47,844 46,491 Selling and administrative expenses..... 10,229 10,411 Interest expense........................ 320 654 Other income, net....................... (497) (437) ------- ------- 57,896 57,119 Income before income taxes................ 4,858 2,669 Income taxes.............................. 1,850 1,025 ------- ------- Net income................................ $ 3,008 $ 1,644 ======== ======== Per share data: Weighted average common shares.......... 6,661 6,603 ===== ===== Net income available to common shares... $ .45 $ .25 ======== ======== Dividends per common share................ $ .10 $ .08 ======== ======== See Notes to Condensed Consolidated Financial Statements. FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) First Quarter Ended ------------------- March 30, April 1, 1996 1995 ---- ---- Cash flows from operating activities: Net income................................ $ 3,008 $ 1,644 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization........... 2,111 2,364 Deferred income taxes................... 132 185 Gain on disposals of plant and equipment................... (25) (17) Changes in assets and liabilities: Receivables........................... (3,671) (6,631) Inventories........................... (11,407) (11,299) Other current assets.................. (223) (1,865) Accounts payable and other accrued expenses.................... (4,095) (591) Employee benefit plan obligations..... 283 89 Other long-term liabilities........... (206) (682) Other, net............................ 114 127 ------- ------- Net cash flows from operating activities.............. (13,979) (16,676) ------- ------- Cash flows from investing activities: Additions to plant and equipment........ (452) (774) Proceeds from sale of plant and equipment................... - 28 Additions to deferred assets............ (222) (604) ------- ------- Net cash flows from investing activities................ (674) (1,350) ------- ------- Cash flows from financing activities: Additions to long-term debt............. 236 - Repayment of short-term debt............ (259) - Additions to short-term borrowings...... - 3,100 Proceeds from issuance of common stock.. 358 70 Repayment of loan to ESOP Trust......... 200 200 Proceeds from stock subscriptions....... 25 - Dividends paid.......................... (629) (498) ------- ------- Net cash flows from financing activities................ (69) 2,872 ------- ------- Effect of exchange rate changes on cash... 239 (332) ------- ------- Net decrease in cash and equivalents...... (14,483) (15,486) Cash and equivalents at beginning of period..................... 32,077 38,890 ------- ------- Cash and equivalents at end of period........................... $ 17,594 $ 23,404 ======== ======== 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 accruals) considered necessary for a fair presentation have been included. Operating results for the quarter ended March 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 28, 1996. 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 30, 1995. Note 2: Inventories - -------------------- Inventories consist of the following: (In thousands) March 30, December 30, 1996 1995 ---- ---- Raw Materials........................ $ 17,169 $ 17,080 Work in Process...................... 6,066 5,899 Finished Goods....................... 45,510 34,614 LIFO Reserve......................... (11,915) (11,754) ------- ------- Total Inventory...................... $ 56,830 $ 45,839 ======== ======== Note 3: Property, Plant and Equipment - -------------------------------------- Property, plant and equipment at cost consists of the following: (In thousands) March 30, December 30, 1996 1995 ---- ---- Land and Building.................... $ 29,173 $ 29,173 Machinery and Equipment.............. 92,683 92,523 ------- ------- 121,856 121,696 Allowance for Depreciation........... 81,581 80,026 ------- ------- $ 40,275 $ 41,670 ======== ======== Note 4: Tax Rates - ------------------ The effective tax rate on income before income taxes in 1996 and 1995 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 6,313,899 shares of common stock (10,000,000 shares authorized, $.10 par value) outstanding as of March 30, 1996. Item 2. Management's Discussion And Analysis Of Financial Condition - -------------------------------------------------------------------- And Results Of Operations - -------------------------- Operations - ---------- Net sales for the first quarter of 1996 were $62.8 million, a 5 percent increase over 1995 first quarter net sales of $59.8 million. The increase in net sales was due to increases in both average selling prices and unit volume. Net income for the first quarter of 1996 was $3.0 million, or $.45 per share, compared to net income of $1.6 million, or $.25 per share for the same period a year ago. The increase in net income is primarily attributable to improvements in the Company's European operations. Cost of sales as a percent of net sales for the first quarter of 1996 was 76.2 percent compared to 77.8 percent for the same period in 1995. The decrease is principally attributable to decreases in both fixed and variable manufacturing expenses at the Company's European operations. Interest expense was $.3 million for the first quarter of 1996 compared to $.7 million for the same period a year ago. The decrease is due to lower short-term borrowings in the first quarter of this year. Included in other income, net, for the first quarter of 1996 was $.4 million of interest income and $.1 million of foreign currency transaction losses. Interest income was $.5 million and foreign currency transaction losses were $.2 million for the same period a year ago. Interest income was attributable to amounts invested principally in short-term US treasury bills and notes. Capital Resources and Liquidity - ------------------------------- Cash decreased $14.5 million during the first quarter of 1996 principally due to cash used in operating activities of $14.0 million. Changes in working capital items accounted for most of the cash used. Inventories increased $11.0 million due to a typical seasonal build up. Working capital increased $4.6 million and the current ratio was 3.0 at the end of the first quarter of 1996 versus 2.6 at the end of the first quarter of 1995. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ The Annual Meeting of Shareholders of the Company was held on April 12, 1996 for the following purposes: 1) To elect three directors for terms expiring at the 1999 Annual Meeting of Shareholders; 2) To ratify the appointment of Deloitte & Touche LLP as independent auditors for the 1996 fiscal year; 3) To approve the 1996 Employee Stock Option Plan; and 4) To approve the 1996 Nonemployee Director Stock Option Plan. The results were: 1) Nominees for Director For Withhold Authority --------------------- --- ------------------ John B. Lindsay 5,707,909 10,357 Juris Vikmanis 5,707,183 11,083 Howard B. Witt 5,708,547 9,719 Delivered For Against Abstain Non-Votes --- ------- ------- --------- 2) Ratification of Deloitte & Touche LLP 5,708,860 6,275 3,131 - 3) Approval of 1996 Employee Stock Option Plan 4,677,490 142,659 33,247 864,870 4) Approval of 1996 Nonemployee Director Stock Option Plan 3,943,549 291,610 675,833 807,274 Total shares represented at the Annual Meeting in person or by proxy were 5,718,266 of a total of 6,288,999 shares outstanding. This represented 91 percent of Company common stock and constituted a quorum. Total broker non-votes were 467,568 shares. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits (11) Computations of Earnings per Share (b) Reports on Form 8-K There were no reports on Form 8-K filed for the first quarter ended March 30, 1996. 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 By WILLIAM H. LAWSON --------------------- -------------------------------- William H. Lawson, Chairman and Chief Executive Officer Date 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) First Quarter Ended ------------------- March 30, April 1, 1996 1995 ---- ---- Net income available to common shares and common share equivalents....................... $3,008 $1,644 ====== ====== Common shares outstanding beginning of period..................... 6,254 6,199 Weighted average of common shares issued during the period.............................. 35 15 Dilutive effect of options outstanding during the period.............................. 372 389 ----- ----- Weighted average of common shares outstanding during the period.............................. 6,661 6,603 ===== ===== Net income per weighted average common share.................... $.45 $.25 ==== ====