SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 3, 2004
-------------
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)
(260) 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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 26, 2004
- ----------------------- --------------
$.10 PAR VALUE 10,969,816 SHARES
Page 1 of 24
2
FRANKLIN ELECTRIC CO., INC.
Table of Contents
Page
PART I. FINANCIAL INFORMATION Number
- --------------------------------- ------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
as of April 3, 2004
and January 3, 2004............................. 3
Condensed Consolidated Statements of
Income for the Three Months
Ended April 3, 2004 and
March 29, 2003.................................. 4
Condensed Consolidated Statements
Of Cash Flows for the Three Months
Ended April 3, 2004 and
March 29, 2003.................................. 5
Notes to Condensed Consolidated
Financial Statements............................ 6-11
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations...........................11-14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk............................... 14
Item 4. Controls and Procedures......................... 14
PART II. OTHER INFORMATION
- -----------------------------
Item 2. Changes in Securities, Use of Proceeds and
Issuer Repurchases of Equity Securities ......... 15
Item 6. Exhibits and Reports on Form 8-K................15-16
Signatures.................................................. 17
- ----------
Exhibit Index............................................... 18
- -------------
Exhibits....................................................19-24
- --------
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) April 3, January 3,
2004 2004
---- ----
ASSETS
Current assets:
Cash and equivalents.................... $ 12,665 $ 29,962
Receivables, less allowances of
$1,915 and $1,949, respectively....... 33,023 29,194
Inventories............................. 66,985 54,653
Other current assets (including
deferred income taxes of $9,666
and $9,672, respectively)............. 14,401 14,232
-------- --------
Total current assets.................. 127,074 128,041
Property, plant and equipment,
Net..................................... 83,225 83,916
Deferred and other assets................. 16,792 13,828
Goodwill.................................. 55,557 56,186
-------- --------
Total assets.............................. $282,648 $281,971
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 1,377 $ 1,392
Accounts payable........................ 15,640 15,958
Accrued expenses........................ 27,091 28,051
Income taxes............................ 885 -
-------- --------
Total current liabilities............. 44,993 45,401
Long-term debt............................ 14,538 14,960
Deferred Income Taxes .................... 4,354 4,354
Employee benefit plan obligations......... 18,038 18,697
Other long-term liabilities............... 5,619 5,621
Shareowners' equity:
Common stock............................ 1,095 1,091
Additional capital...................... 50,015 46,917
Retained earnings....................... 140,436 139,057
Loan to ESOP Trust...................... (665) (897)
Accumulated other comprehensive
loss................................. 4,225 6,770
-------- --------
Total shareowners' equity............. 195,106 192,938
-------- --------
Total liabilities and shareowners' equity. $282,648 $281,971
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
First Quarter Ended
-------------------
April 3, March 29,
2004 2003
---- ----
Net sales.............................. $80,207 $69,778
Cost of sales.......................... 56,587 50,103
------- -------
Gross Profit........................... 23,620 19,675
Selling and administrative expenses.... 14,978 13,877
Restructuring expense.................. 565 -
------- -------
Operating Income....................... 8,077 5,798
Interest expense....................... (106) (337)
Other income, net...................... 18 286
Foreign exchange gain (loss)........... (50) 451
------- -------
Income before income taxes............. 7,939 6,198
Income taxes........................... 2,818 2,170
------- -------
Net income............................. $ 5,121 $ 4,028
======= =======
Per share data:
Net income per common share.......... $ 0.47 $ 0.37
======= =======
Net income per common share,
assuming dilution.................. $ 0.45 $ 0.36
======= =======
Dividends per common share........... $ 0.14 $ 0.13
======= =======
See Notes to Condensed Consolidated Financial Statements.
5
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) First Quarter Ended
-------------------
April 3, March 29,
2004 2003
---- ----
Cash flows from operating activities:
Net income................................ $ 5,121 $ 4,028
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization......... 3,878 3,329
Loss on disposals of plant
and equipment....................... 7 363
Changes in assets and liabilities:
Receivables......................... (3,988) 1,023
Inventories......................... (12,987) (13,620)
Accounts payable and other accrued
expenses.......................... 1,089 (3,962)
Employee benefit plan obligations... (4,264) (3,666)
Other, net.......................... (146) 16
------- -------
Net cash flows from operating activities.. (11,290) (12,489)
------- -------
Cash flows from investing activities:
Additions to plant and equipment.......... (3,956) (1,988)
Proceeds from sale of plant and equipment. - 214
Additions to deferred assets.............. (1) (250)
------- -------
Net cash flows from investing activities.. (3,957) (2,024)
------- -------
Cash flows from financing activities:
Borrowing on long-term debt............... - 5,466
Repayment of long-term debt (347) (109)
Borrowing on line of credit and
short-term borrowings................... - 3,000
Repayment of line of credit
and short-term borrowings............... - (6)
Proceeds from issuance of common stock.... 2,187 377
Purchases of common stock................. (2,208) (8,394)
Reduction of loan to ESOP Trust........... 232 233
Dividends paid............................ (1,538) (1,396)
------- -------
Net cash flows from financing activities.. (1,674) (829)
------- -------
Effect of exchange rate changes on cash..... (376) 361
------- -------
Net change in cash and equivalents.......... (17,297) (14,981)
Cash and equivalents at beginning of period. 29,962 20,133
------- -------
Cash and equivalents at end of period....... $12,665 $ 5,152
======= =======
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
accounting entries and adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the financial position and the
results of operation for the interim period have been included. Prior year
amounts are reclassified when necessary to conform to current year
presentation. Operating results for the first quarter ended April 3, 2004 are
not necessarily indicative of the results that may be expected for the fiscal
year ending January 1, 2005. For further information, including a description
of Franklin Electric's critical accounting policies, 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 3, 2004.
Note 2: Inventories
- --------------------
Inventories consist of the following:
(In thousands) April 3, January 3,
2004 2004
---- ----
Raw Materials........................ $18,394 $17,733
Work in Process...................... 6,880 6,636
Finished Goods....................... 52,551 40,686
LIFO Reserve......................... (10,840) (10,402)
------- -------
Total Inventory...................... $66,985 $54,653
======= =======
Note 3: Property, Plant and Equipment
- --------------------------------------
Property, plant and equipment, at cost, consists of the following:
(In thousands) April 3, January 3,
2004 2004
---- ----
Land and Building.................... $ 45,735 $ 44,577
Machinery and Equipment.............. 147,845 147,368
-------- --------
193,580 191,945
Allowance for Depreciation........... (110,355) (108,029)
-------- --------
$ 83,225 $ 83,916
======== ========
7
Note 4: Goodwill and Other Intangible Assets
- ---------------------------------------------
Statement of Financial Accounting Standards Nos. 141 and 142,
"Business Combinations" and "Goodwill and Other Intangible Assets",
respectively, were published in June 2001. SFAS No. 141 requires the purchase
method of accounting for business combinations, and SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. The Company adopted the provisions of SFAS Nos. 141 and 142
effective December 30, 2001. During the fourth quarter of 2003, the Company
performed its annual impairment testing required by SFAS No. 142. No
impairment loss was required to be recognized.
Information regarding the Company's other intangible assets which are included
in deferred and other assets, and goodwill follows:
April 3, January 3,
(In millions) 2004 2004
Amortized intangibles
Patents............................. $ 3.5 $ 3.5
Supply agreements................... 10.0 10.2
Other............................... 1.6 1.6
Accumulated amortization............ (7.2) (6.8)
----- -----
Total............................. $ 7.9 $ 8.5
Goodwill.............................. $55.6 $56.2
Amortization expense related to intangible assets for the quarter ended April
3, 2004 and March 29, 2003, $0.5 and $0.4 million respectively.
Note 5: Employee Benefits
- --------------------------
The following table sets forth aggregated net domestic periodic benefit cost:
(In thousands)
Pension Benefits Other Benefits
April 3, March 29, April 3, March 29,
2004 2003 2004 2003
---- ---- ---- ----
Service cost.... $ 954 $ 855 $ 85 $ 78
Interest cost... 1,921 1,898 190 205
Expected return
on assets...... (2,665) (2,640) - -
Amortization of
unrecognized:
obligation/
(asset)...... - - 125 122
Prior service
cost......... 350 366 - -
Loss/(Gain)... - (52) 44 41
------ ------ ------ ------
Net periodic
benefit cost... $ 560 $ 427 $ 444 $ 446
Settlement cost. 56 60 - -
------ ------ ------ ------
Total benefit cost $ 616 $ 487 $ 444 $ 446
====== ====== ====== ======
8
The Company previously disclosed in its financial statements for the year
ended January 3, 2004, that it expected to contribute $2,459 in 2004. As of
April 3, 2004 the Company has contributed $5,342 which includes a $4,000
voluntary contribution to one of its defined benefit plans. The Company
estimates additional contributions of $1,117 during the remainder of 2004.
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 was signed into law. The Act expands Medicare,
primarily by adding a prescription drug benefit for Medicare-eligible retirees
starting in 2006. The Act provides employers currently sponsoring prescription
drug programs for Medicare-eligible retirees with a range of options for
complying with the new government-sponsored program to potentially reduce
program cost. The impact of the Act on the Company's accumulated pension
benefit obligation and net periodic postretirement benefit cost has not been
included. Pursuant to guidance from the FASB under FSP FAS 106-1, the Company
has chosen to defer recognition of the potential effects of the Act.
Note 6: Tax Rates
- ------------------
The effective tax rate on income before income taxes in 2004 and 2003 varies
from the United States statutory rate of 35 percent due to the foreign income
exclusion and R & D credits and to the effects of state and foreign income
taxes net of federal tax benefits.
Note 7: Shareowners' Equity
- ----------------------------
The Company had 10,954,272 shares of common stock (25,000,000 shares
authorized, $.10 par value) outstanding as of April 3, 2004.
During the first quarter of 2004, pursuant to the stock repurchase program
authorized by the Company's Board of Directors, the Company repurchased a
total of 36,600 shares for $2.2 million. All repurchased shares were retired.
9
Note 8: Earnings Per Share
- ---------------------------
Following is the computation of basic and diluted earnings per share:
(In thousands, except Three Months Ended
------------------
per share amounts) April 3, March 29,
2004 2003
---- ----
Numerator:
Net Income.......................... $ 5,121 $ 4,028
======= =======
Denominator:
Basic
-----
Weighted average common
shares............................ 10,952 10,764
Diluted
-------
Effect of dilutive securities:
Employee and director
stock options and awards........ 463 466
------- -------
Adjusted weighted average
common shares..................... 11,415 11,230
======= =======
Basic earnings per share.............. $ 0.47 $ 0.37
======= =======
Diluted earnings per share............ $ 0.45 $ 0.36
======= =======
Note 9: Other Comprehensive Income
- -----------------------------------
Comprehensive income is as follows:
(In thousands) Three Months Ended
------------------
April 3, March 29,
2004 2003
---- ----
Net income.............................. $5,121 $4,028
Other comprehensive gain (loss):
Foreign currency translation
adjustments.......................... (2,545) 1,128
------ ------
Comprehensive income, net of tax........ $2,576 $5,156
====== ======
Accumulated other comprehensive gain consists of the following:
(In thousands) April 3, January 3,
2004 2004
---- ----
Cumulative translation adjustment........... $6,187 $8,732
Minimum pension liability adjustment,
net of tax................................ (1,962) (1,962)
------ ------
$4,225 $6,770
====== ======
10
Note 10: Warranty
- ------------------
The Company provides warranties on most of its products. The warranty terms
vary but are generally two years from date of manufacture or one year from
date of installation. Provisions for estimated expenses related to product
warranty are made at the time products are sold or when specific warranty
issues are identified. These estimates are established using historical
information about the nature, frequency, and average cost of warranty claims.
The Company actively studies trends of warranty claims and takes action to
improve product quality and minimize warranty claims. The Company believes
that the warranty reserve is appropriate; however, actual claims incurred
could differ from the original estimates, requiring adjustments to the
reserve.
Below is a table that shows the activity in the warranty accrual accounts:
(In thousands) Three Months Ended
------------------
April 3, March 29,
2004 2003
---- ----
Beginning Balance................................ $5,447 $5,308
Accruals related to product warranties........... 1,126 912
Reductions for payments made..................... (1,076) (1,010)
------ ------
Ending Balance................................... $5,497 $5,210
====== ======
Note 11: Stock-Based Compensation
- ----------------------------------
The Company accounts for stock-based employee compensation plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees." No stock-based employee compensation cost is
reflected in net income (loss), as all options granted under those plans had
an exercise price equal to the market value of the stock at date of grant. As
permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," and
amended by SFAS No. 148, "Accounting for Stock-based Compensation - Transition
and Disclosure, an amendment of FASB Statement No. 123," the Company follows
the disclosure requirements of SFAS No. 123. The following table illustrates
the effect on net income (loss) and earnings (loss) per share if the Company
had applied the fair value recognition provisions of SFAS No. 123:
(In thousands, except Three Months Ended
------------------
per share amounts) April 3, March 29,
2004 2003
---- ----
Net income .......................................... $5,121 $4,028
Deduct: Stock-based employee compensation
cost, net of income tax............................. (403) (442)
------ ------
Pro forma net income ................................ $4,718 $3,586
====== ======
11
Earnings per share:
Basic - as reported.................................. $ .47 $ .37
Basic - pro forma.................................... $ .43 $ .33
Diluted - as reported................................ $ .45 $ .36
Diluted - pro forma.................................. $ .41 $ .32
Note 12: Restructuring
- -----------------------
The Company incurred $0.6 million of expenses during the first quarter of 2004
(included in "Restructuring Expense" on the income statement) related to its
global manufacturing realignment program. The costs in the first quarter
related primarily to severance and related employee expenses associated with
the closing of two of the Company's manufacturing locations. The Company will
incur additional severance expenses throughout 2004 as well as costs to
transfer equipment, train employees and other related expenses during 2004 and
2005. The operations performed in the closed facilities will be relocated to
other Company facilities and consolidated. The global manufacturing
realignment program is estimated to cost in total $10.0 million and is
expected to be substantially complete by the end of 2005.
The components and use of the restructuring reserve is summarized below:
(In millions)
Severance
Benefits: Other:
Balance January 3, 2004 $0.0 $0.0
Restructuring Expense 0.4 0.2
Costs Incurred (0.0) (0.1)
Balance April 3, 2004 $0.4 $0.1
Item 2. Management's Discussion And Analysis Of Financial Condition And
- ------------------------------------------------------------------------
Results Of Operations
- ---------------------
Overview
- --------
Sales and earnings for the first quarter of 2004 were up from the same quarter
of 2003. The increase in sales is attributable to the impact of foreign
exchange rate changes and an improvement in sales of submersible motors for
water well and fueling applications and related products, and international
product sales. Prior year first quarter sales of small submersible motors for
water well applications were down due to weather conditions and an announced
price increase effective in 2003. Earnings improved in the first quarter of
2004 primarily due to the increased sales. Increased earnings were partially
offset by increased commodity prices and expenses associated with the
Company's global manufacturing realignment program. This program when
substantially complete by the third quarter of 2005, will result in the
transfer of a significant amount of production to lower cost regions of the
world as well as a consolidation of certain manufacturing operations. The
12
Company projects it will incur approximately $10 million of pre-tax
restructuring expenses as this program is implemented between the first
quarter of 2004 and the fourth quarter of 2005. These one-time expenses
primarily include: severance, relocation, training and the movement of
equipment. These expenses will be identified quarterly during the
implementation period and reflected as "Restructuring Expenses" in our income
statement. Included in the results for the first quarter of 2004 are
restructuring expenses of $0.6 million pre-tax ($0.4 million after tax).
Results of Operations
- ---------------------
Net sales for the first quarter of 2004 were $80.2 million, an increase of
$10.4 million or 15 percent from 2003 first quarter net sales of $69.8
million. Foreign currencies, particularly the euro, strengthened relative to
the U.S. dollar compared to the first quarter of 2003. The impact of the
changes in exchange rates was a $3.7 million increase in the Company's
reported 2004 sales. Excluding the impact of changes in foreign currencies,
net sales increased $6.7 million or 10 percent. The sales increase of $6.7
million relates primarily to increased sales of small and large submersible
motor products to North American customers of about $4.4 million and higher
demand by European customers of about $1.2 million (when comparing both
quarters at the current year exchange rate). During the first quarter of 2003
sales were lower in the North American residential water well market as wet
conditions prevailed over much of the East Coast and due to a 2003 price
increase announced prior to the 2002 year end. Sales of large submersible
motors have increased primarily due to increased demand from agricultural
applications. Sales of fueling systems motors and related products increased
about $2.0 million during the first quarter of 2004 from the first quarter of
2003. Fueling systems motors and related products have increased primarily
due to increased demand from service station equipment suppliers for
submersible motors and monitoring equipment.
Cost of sales as a percent of net sales for the first quarter of 2004 was 70.6
percent, down from the first quarter of 2003 of 71.8 percent. Cost of sales as
a percent of net sales decreased primarily as a result of the increased sales.
The decrease in costs of sales as a percent of net sales during the first
quarter of 2004 was partially offset by increased costs for certain
commodities, about 1 percent of 2004 net sales, used in the manufacture of the
electric motors primarily steel and copper.
Selling and administrative ("SG&A") expenses at $15.0 million for the first
quarter of 2004 were up $1.1 million or 8% from the first quarter of 2003 of
$13.9 million. The increase of SG&A expenses in the first quarter of 2004 from
the same period for 2003 was primarily due to the effect of changes in the
foreign exchange rate, $0.4 million. The Company also has incurred additional
SG&A costs for the launch of new electronic products related to submersible
motors, approximately $0.2 million, higher commissions related to the
increased sales, approximately $0.2 million and costs of compliance procedures
associated with the Sarbanes-Oxley Act.
Interest expense for the first quarter of 2004 of $0.1 million is $0.2 million
less than the prior year due primarily to lower outstanding debt.
Foreign currency-based transactions produced a loss for the first quarter of
2004 of $0.1 million compared to a gain of $0.5 million for the prior year.
The foreign currency-based transaction loss was due primarily to the slight
weakening of the euro relative to the U.S. dollar during the first quarter of
13
2004. The gain for the first quarter of 2003 was due primarily to the
strengthening euro relative to the U.S. dollar.
The provision for income taxes for the first quarter of 2004 is $2.8 million.
The effective tax rate for the first quarter of 2004 was 35.5 percent an
increase from the full year 2003 rate of 32.8 percent. The lower rate for 2003
was primarily the result of prior years' tax credits realized in 2003. The tax
credits resulted from tax planning activities performed in 2002 and 2003 in
the areas of foreign income exclusion and R&D credits. The effective tax rate
differs from the United States statutory rate of 35 percent, due to the
foreign income exclusion and R&D credits and to the effects of state and
foreign income taxes, net of federal tax benefits.
Net income for the first quarter of 2004 was $5.1 million, or $0.45 per
diluted share, compared to the first quarter of 2003 net income of $4.0
million, or $0.36 per diluted share.
Capital Resources and Liquidity
- -------------------------------
Operating activities consumed approximately $11.3 million of cash during the
first quarter of 2004 compared to cash consumed during the first quarter of
2003 of $12.5 million. The operating cash flow used in the first quarter of
2004 is primarily related to a seasonal increase in inventory, about $13.0
million and voluntary payments to employee benefit plans, $4.0 million. These
are comparable to prior year operating activities. Inventories increased
primarily in finished goods as the Company's sales are generally lower during
the first quarter of the year.
The primary uses of cash for investing activities for the first quarters of
2004 and 2003 were additions to property, plant and equipment of $4.0 million
and $2.0 million, respectively. Additions during the first quarter of 2004
were primarily related to the building additions included in the global
manufacturing realignment program.
Net cash flows used in financing activities during the first quarters of 2004
and 2003 were $1.7 million and $0.8 million, respectively. The principal uses
of cash during 2004 were for purchases of Company common stock under the
Company's repurchase program and the payment of dividends.
Cash and equivalents at the end of the first quarters of 2004 and 2003 were
$12.7 million and $5.2 million, respectively.
Critical Accounting Policies and Estimates
- ------------------------------------------
Management's discussion and analysis of its financial condition and results of
operations are based upon the Company's condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
the related disclosure of contingent assets and liabilities. On an on-going
basis, management evaluates its estimates, including those related to revenue
recognition allowance for doubtful accounts, accounts receivable, inventories,
recoverability of long-lived assets, intangible assets, income taxes, warranty
obligations, pensions and other employee benefit plan obligations, and
14
contingencies. Management bases its estimates on historical experience and on
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
"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 described in detail in Exhibit 99 to
the Company's Annual Report on Form 10-K for the fiscal year ended January 3,
2004. 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 limited to variable rate interest
borrowings under the Company's revolving credit agreement and an interest rate
swap.
Item 4. Controls and Procedures
- --------------------------------
As of the end of the period covered by this report (the "Evaluation Date"),
the Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and the Company's Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, the Company's Chief Executive Officer and the Company's Chief
Financial Officer concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company and its subsidiaries required to
be included in the Company's periodic SEC filings.
During the last fiscal quarter there have been no significant changes in the
Company's internal controls or in other factors which could significantly
affect internal controls.
15
PART II. OTHER INFORMATION
Item 2(e). Issuer Repurchases of Equity Securities
Total Number Maximum Number
Total of Shares of Shares
Number Average Purchased as that May Yet be
Of Shares Price Paid Part of Publicly Purchased Under
Purchased per Share Announced Plan the Plan
Period
Jan 4, 2004/
Feb 7, 2004 - $ - - 465,106
Feb 8, 2004/
Mar 6, 2004 25,000 60.152 25,000 440,106
Mar 7, 2004/
Apr 3, 2004 11,600 60.716 11,600 428,506
------ ------
Total 36,600 36,600
====== ======
On February 16, 2001, the Company's Board of Directors unanimously approved a
resolution to repurchase 1,000,000 shares. The plan was announced in the
Company's 10-Q for the third quarter ending September 29, 2001. There is no
expiration date for the plan.
Item 6. Exhibits and Reports on Form 8-K
Form 10-Q
Quarterly Report
(page)
----------------
(a) 1. Financial Statements - Franklin Electric
----------------------------------------
Condensed Consolidated Balance Sheets as of
April 3, 2004 and January 3, 2004................. 3
Condensed Consolidated Statements of Income
for the three months ended April 3, 2004
and March 29, 2003................................ 4
Condensed Consolidated Statements of Cash Flows
for the three months ended April 3, 2004
and March 29, 2003................................ 5
Notes to Condensed Consolidated Financial
Statements........................................ 6-11
2. Exhibits
--------
See the Exhibit Index located on page 18.
16
(b) Reports on Form 8-K filed during the first quarter
ended April 3, 2004:
A Current Report on Form 8-K was filed with the SEC by the
Company on January 13, 2004, pursuant to Item 5, to report the
consolidation of the submersible turbine pump operations of FE
Petro, Inc. and the service station hardware and flexible piping
operations of EBW, Inc. and Advanced Polymer Technology, Inc.
A Current Report on Form 8-K was filed with the SEC by the
Company on January 30, 2004, pursuant to Item 7 and Item 12, to
report its fiscal year 2003 earnings.
17
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 3, 2004 By /s/ R. Scott Trumbull
----------------------- ----------------------
R. Scott Trumbull, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date May 3, 2004 By /s/ Gregg C. Sengstack
----------------------- -----------------------
Gregg C. Sengstack, Senior Vice
President, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)
18
FRANKLIN ELECTRIC CO., INC.
EXHIBIT INDEX TO THE QUARTERLY REPORT ON FORM 10-Q
FOR THE FIRST QUARTER ENDED APRIL 3, 2004
Exhibit
Number Description
- ------ -----------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1 Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
32.2 Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
19
EXHIBIT 31.1
------------
CERTIFICATIONS
--------------
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
----------------------------------------
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------------------
I, R. Scott Trumbull, Chairman and Chief Executive Officer of Franklin
Electric Co., Inc., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Franklin Electric
Co., Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Quarterly Report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
nown to us by others within those entities, particularly during
the period in which this Quarterly Report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of end of the period covered by this Quarterly
Report based on such evaluation; and
c. disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's
board of directors or persons performing similar functions:
20
a. All significant deficiencies and material weaknesses in the
design operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 3, 2004
------------------------
/s/ R. Scott Trumbull
------------------------
R. Scott Trumbull
Chairman and Chief Executive Officer
Franklin Electric Co., Inc.
21
EXHIBIT 31.2
------------
CERTIFICATION OF CHIEF FINANCIAL OFFICER
----------------------------------------
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------------------
I, Gregg C. Sengstack, Senior Vice President, Chief Financial Officer
and Secretary of Franklin Electric Co., Inc., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Franklin Electric
Co., Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Quarterly Report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this Quarterly Report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of end of the period covered by this Quarterly
Report based on such evaluation; and
c. disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's
board of directors or persons performing similar functions:
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
22
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 3, 2004
-------------------------
/s/ Gregg C. Sengstack
-------------------------
Gregg C. Sengstack
Senior Vice President, Chief Financial Officer and Secretary
Franklin Electric Co., Inc.
23
EXHIBIT 32.1
------------
CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS
---------------------------------------------------------------------------
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
-----------------------------------------------------------------
In connection with the Quarterly Report of Franklin Electric Co., Inc.
(the "Company") on Form 10-Q for the period ending April 3, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
R. Scott Trumbull, Chairman and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: May 3, 2004
------------------------
/s/ R. Scott Trumbull
------------------------
R. Scott Trumbull
Chairman and Chief Executive Officer
Franklin Electric Co., Inc.
24
EXHIBIT 32.2
------------
CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS
---------------------------------------------------------------------------
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
-----------------------------------------------------------------
In connection with the Quarterly Report of Franklin Electric Co., Inc.
(the "Company") on Form 10-Q for the period ending April 3, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Gregg C. Sengstack, Senior Vice President, Chief Financial Officer and
Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: May 3, 2004
------------------------
/s/ Gregg C. Sengstack
------------------------
Gregg C. Sengstack
Senior Vice President, Chief Financial Officer and Secretary
Franklin Electric Co., Inc.
5