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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
____________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 35-0827455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East Spring Street 46714-3798
Bluffton, Indiana (Zip Code)
(Address of principal executive offices)
(219) 824-2900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of each class)
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 (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant at February 23, 1996 was $197,763,668. The stock
price used in the computation was the closing price on that date.
Number of shares of common stock outstanding at February 23, 1996:
6,288,999 shares
----------------
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Shareowners to be held
April 12, 1996 (Part III).
The exhibits filed with this Form 10-K are listed in the exhibit
index located on pages xx-xx.
TABLE OF CONTENTS
Part I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of
Security Holders
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers
of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain
Beneficial Owners and Management
Item 13. Certain Relationships and Related
Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
Signatures
Exhibit Index
PART I
------
ITEM 1. BUSINESS
- -----------------
Franklin Electric Co., Inc. is an Indiana corporation founded in 1944
and incorporated in 1946, and together with its subsidiaries
(hereinafter referred to as the "Company" unless the context requires
otherwise), conducts business in a single business segment: the
design, manufacture and distribution of electric motors, electronic
controls and related equipment.
Products and Markets Served
- ---------------------------
The Company manufactures and distributes electric motors, electronic
controls and related equipment. These motors are sold principally by
a single company sales force in the United States, Canada, Europe,
Australia, South Africa, Mexico and other world markets.
The market for electric motors is highly competitive and includes
both large and small suppliers. The Company's motor sales are to
original equipment manufacturers of pumps, petroleum pumping
equipment, compressors, fans, heating and air conditioning equipment,
swimming pool equipment, medical furniture and business machines.
Motors are also sold in the replacement market through independent
distributors and repair shops.
Goulds Pumps, Inc. accounted for 12.9 percent, 14.1 percent and 17.5
percent of consolidated sales in 1995, 1994 and 1993, respectively.
The Company offers normal and customary trade terms to its customers,
no significant part of which is of an extended nature. Special
inventory requirements are not necessary, and customer merchandise
return rights do not extend beyond normal warranty provisions.
The principal raw materials used in the manufacture of the Company's
products are copper wire, steel in coils and bars, and aluminum
ingot. Major components are capacitors, motor protectors, forgings,
grey iron castings and bearings. Most materials are available from
many sources in the United States and in many world markets. In the
opinion of the Company, no single source of supply is critical to the
Company's business. Availability of fuel and energy is adequate to
satisfy current and projected overall operations unless interrupted
by government direction or allocation.
The Company employed 2,633 persons at the end of 1995.
Financial Information by Geographic Area
- ----------------------------------------
Financial information by geographic area is included within this 10-K
at pages xx-xx.
Research and Development
- ------------------------
The Company spent approximately $4.7 million in 1995, $4.2 million in
1994 and $4.0 million in 1993 on activities related to the
development of new products, on improvements of existing products and
manufacturing methods, and on other applied research and development.
In 1995, two lines of submersible wet winding motors, a new permanent
split capacitor submersible motor design and several products with
variable speed drives and motors were developed. Research continued
on new materials and processes which is expected to result in more
cost effective construction of the Company's high volume products.
The Company owns a number of patents. In aggregate, these patents
are of material importance in the operation of the business; however,
the Company believes that its operations are not dependent on any
single patent or group of patents.
Backlog
- -------
The dollar amount of backlog at the end of 1995 and 1994 was as
follows:
(In thousands)
End of
--------------------
1995 1994
---- ----
Backlog....................... $22,331 $27,619
The backlog is composed of written orders at prices adjustable on a
price-at-the-time-of-shipment basis for products, some of which are
specifically designed for the customer, but most of which are
standard catalog items. Both add-ons and cancellations of catalog
items are made without charge to the customer, but charges are
generally made on any cancellation of a specifically designed
product. All backlog orders are expected to be filled in fiscal
1996.
The Company's sales and earnings are not substantially seasonal in
nature. There is no seasonal pattern to the backlog and the backlog
has not proven to be a significant indicator of future sales.
Environmental Matters
- ---------------------
Compliance with federal, state and local provisions regulating the
discharge of material into the environment, or otherwise relating to
the protection of the environment, is not expected to have any
material adverse effect upon the capital expenditures, earnings or
competitive position of the Company.
ITEM 2. PROPERTIES
- -------------------
The Company maintains its principal executive offices in Bluffton,
Indiana; manufacturing plants are located in the United States and
abroad. Location and approximate square footage for the Company's
principal facilities are described below. All principal properties
are owned or held under operating lease.
The Company's principal properties are as follows:
Acres Approximate
Location of Land Square Feet
-------- ------- -----------
Bluffton, Indiana 35.8 405,660
Siloam Springs, Arkansas 32.6 240,400
Wilburton, Oklahoma 40.0 321,350
Tulsa, Oklahoma 10.3 154,193
Jonesboro, Indiana (1) - 34,570
Wittlich, Rhineland, Germany 6.8 76,365
Thirteen facilities with less
than 30,000 square feet each (2) 5.3 157,338
----- ---------
Total 130.8 1,389,876
===== =========
In the Company's opinion, all plants are modern, nearly all built for
their present use and in good condition.
(1) Leased facility, which expires on April 30, 1998.
(2) Eleven of the facilities are leased with approximately 114,000
square feet.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is defending various claims and legal actions, including
environmental matters, which have arisen in the ordinary course of
business. The Company has attempted, where possible, to assess the
likelihood of an unfavorable outcome to the Company as a result of
these actions. Legal counsel has been retained to assist the Company
in making these determinations, and costs are accrued when an
unfavorable outcome is determined to be probable and a reasonable
estimate can be made.
In the opinion of management of the Company, adequate provision has
been made for any awards or assessments to be incurred in connection
with such matters, and ultimate resolution will not have a material
effect on the Company's consolidated financial position, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during
the fourth quarter of 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The names, ages and all positions and offices held by the executive
officers of the Company are:
In this
Name Age Positions and Offices office since
---- --- --------------------- ------------
William H. Lawson 59 Chairman of the Board and 1985
Chief Executive Officer
John B. Lindsay (1) 53 President 1995
Jess B. Ford (2) 44 Vice President and
Chief Financial Officer 1995
William J. Foreman(3) 59 Vice President 1995
Kirk M. Nevins(4) 52 Vice President, Sales 1995
The term of office of each officer is one year and until his
successor shall have been elected and qualified at the meeting of the
Board of Directors following the Annual Meeting of Stockholders.
(1) In 1995, Mr. Lindsay was elected President of the Company. Mr.
Lindsay served as Vice President from 1986 until 1993 and as
Executive Vice President from 1993 until 1995.
(2) Prior to joining the Company in October 1995, Mr. Ford was
employed by Tokheim Corporation (a manufacturer of petroleum
dispensing marketing systems) from 1992 until 1995 as Vice President-
Finance, Secretary and Chief Financial Officer and prior to 1992 as
Vice President-Corporate Finance and Corporate Controller.
(3) For the five-year period preceding July 1995, Mr. Foreman was
Plant Manager for certain divisions of the Company.
(4) For the five-year period preceding July 1995, Mr. Nevins was
North American Sales Manager of the Company.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- --------------------------------------------------------------
STOCKHOLDER MATTERS
- -------------------
The number of stockholders of record as of February 23, 1996 was
1,261. The Company's stock is traded on NASDAQ National Market:
Symbol FELE.
Dividends paid and the price range per common share as quoted in THE
WALL STREET JOURNAL for 1995 and 1994 were as follows:
DIVIDENDS PER SHARE PRICE PER SHARE
1995 1994 1995 1994
---- ---- ---- ----
Low High Low High
--- ---- --- ----
1st Quarter... $.08 $.05 $31 - $34 1/2 $31 1/2 - $36 1/2
2nd Quarter... $.10 $.08 $30 - $34 1/2 $24 1/2 - $33 1/2
3rd Quarter... $.10 $.08 $29 1/2 - $32 1/2 $26 1/2 - $33 3/4
4th Quarter... $.10 $.08 $28 1/4 - $33 1/4 $30 1/2 - $35
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
FIVE YEAR FINANCIAL SUMMARY
- ---------------------------------------------------------------------
- ---------------------
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
(In thousands, except per share amounts)
1995 1994
1993 1992 1991
- ---------------------------------------------------------------------
- ---------------------
Operations:
Net Sales............................. $276,440 $241,440
$206,406 $198,618 $184,062
Gross Profit.......................... 65,371 63,134
53,131 50,260 44,889
Income before extraordinary credit
and change in accounting principle.. 15,502 18,709
16,103 13,655 12,965
Interest Expense...................... 2,128 2,172
2,949 2,595 1,628
Income Taxes ..................... 8,777 11,504
5,796 8,882 7,273
Net Income............................ 15,502 18,709
17,096 13,811 13,100
Net Income Available to Common Shares. 15,502 18,556
16,485 12,218 10,188
Depreciation and Amortization......... 8,890 6,961
6,185 4,525 4,201
Capital Expenditures.................. 6,111 7,612
6,359 5,833 4,319
Balance Sheet:
Working Capital....................... 67,150 49,187
43,844 26,319 28,716
Property, Plant and Equipment, Net.... 41,670 41,896
25,591 24,003 23,350
Total Assets.......................... 153,357 151,581
122,703 99,868 101,703
Long-term Debt........................ 20,171 20,000
30,016 22,819 15,540
Shareowners' Equity................... $80,557 $64,865
$50,127 $39,667 $28,679
Other Data:
% Net Income to Sales................. 5.6% 7.8%
8.3% 7.0% 7.1%
% Net Income to Total Assets.......... 10.1% 12.3%
13.9% 13.8% 12.9%
Current Ratio......................... 2.6 1.9 2.2
1.9 2.0
Per Share:
Market Price Range
High.................................. $34.50 $36.50
$37.25 $25.00 $18.50
Low................................... 28.25 24.50
22.00 17.50 9.25
Income before extraordinary credit
and change in accounting principle.. 2.35 2.84
2.37 1.85 1.57
Net Income per Weighted
Average Common Shares ............ 2.35 2.84
2.52 1.88 1.59
Book Value............................ 12.21 9.92
7.65 5.20 3.57
Cash Dividends on Common Stock........ $0.38 $0.29
$0.15 - -
Includes credit for cumulative effect of change in accounting
principle-SFAS No. 109
"Accounting for Income Taxes" of $993 in 1993; extraordinary credit
for tax benefit of
loss carryforward of $156 in 1992 and $135 in 1991.
Fully diluted earnings per share for each year presented was as
follows: 1995; $2.34, 1994; $2.83, 1993; $2.50, 1992; $1.88, 1991;
$1.58.
Includes only one month of results of operations of Oil
Dynamics, Inc., but total
assets and liabilities of Oil Dynamics, Inc. at December 31, 1994.
If the effect of
including Oil Dynamics, Inc. on a fully consolidated basis beginning
November 29, 1994 was
excluded, net income as a percent of total assets would have been
14.7 percent and the
current ratio would have been 2.3. Previously, the Company
maintained an investment in
affiliate account approximately equal to 50 percent of the net assets
of Oil Dynamics,
Inc.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- --------------------------------------------------------------------
AND RESULTS OF OPERATIONS
- -------------------------
RESULTS OF OPERATIONS
- ---------------------
Net sales for 1995 were $276.4 million, a 14 percent increase over
1994. This increase was principally due to the inclusion of Oil
Dynamics, Inc. ("ODI") on a fully consolidated basis for 1995 and, to
a lesser degree, increases in selling prices and unit volume. Net
sales were $241.4 million in 1994, up 17 percent from 1993 net sales
of $206.4 million. The increase in 1994 was predominantly due to
increased unit volume in the North American motor markets.
Net income for 1995 was $15.5 million, or $2.35 per share, compared
to 1994 net income of $18.7 million, or $2.84 per share. This
decrease was principally due to an increase in cost of sales as a
percent of net sales primarily attributable to ODI and the Company's
German subsidiary, a decrease in North American residential
submersible motor unit shipment volume, and foreign currency
transaction losses. Net income for 1993 was $17.1 million, or $2.52
per share. Included in 1993 earnings was an approximate $1.0 million
increase resulting from the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Cost of sales as a percent of net sales for 1995, 1994 and 1993 was
76.4%, 73.9% and 74.3%, respectively. The 1995 increase was due to
increases in fixed manufacturing expenses as a percent of net sales
resulting from the full year inclusion of ODI on a consolidated basis
which was impacted by a decline in unit volume contributing to lower
overhead absorption, as well as increases in expenses supporting the
Company's international operations. The 1994 decrease was due to a
0.9 percent decrease in fixed manufacturing expenses as a percent of
net sales resulting from an increase in sales over the prior year
which was partially offset by a 0.5 percent increase in variable
expenses, principally the cost of key raw materials.
Selling and administrative expenses in 1995 were $40.7 million
compared to $33.3 million in 1994. The increase was primarily due to
the full year inclusion of ODI on a consolidated basis and due to
investments in systems and personnel in support of the Company's
international operations. Selling and administrative expenses were
$31.0 million in 1993. The 1994 increase was primarily due to higher
marketing and selling expenses in support of increased sales volume.
Included in other income, net for 1995, 1994 and 1993 was interest
income of $1.9 million, $1.7 million and $0.8 million, respectively,
primarily derived from the investment of cash balances in short-term
U.S. treasury bills and notes. The 1994 increase was due to higher
average invested balances and higher interest rates. Also included
in other income, net, for 1993 was $0.7 million of expense resulting
from the donation of the Company's Jacksonville, Arkansas, facility
to the city. Interest expense for 1995, 1994 and 1993 was $2.1
million, $2.2 million and $2.9 million, respectively. The 1994
decrease was due to lower average debt levels and interest rates
during the period.
Foreign currency based transactions produced a $0.7 million loss in
1995, a $0.4 million gain in 1994 and a $0.7 million loss in 1993.
The foreign currency transaction loss in 1995 was primarily due to
the movement of the Italian lira relative to the German mark and the
movement of the U.S. dollar relative to the Australian dollar and
Mexican peso. The currency transaction gain in 1994 was primarily
due to the movement of the U.S. dollar relative to the German mark
and the Australian dollar. The currency transaction loss in 1993 was
primarily due to the movement of the U.S. dollar relative to the
German mark and the South African rand.
The provision for income taxes in 1995, 1994 and 1993 was $8.8
million, $11.5 million and $6.8 million, respectively. The effective
tax rate for each year differs from the United States statutory rate
of 35 percent principally due to the effects of state and foreign
income taxes. The effective tax rate for 1993 was also impacted by
the tax benefit resulting from the donation of the Jacksonville,
Arkansas, facility to the city.
Equity in the earnings of affiliate was $0.2 million in 1994 and $4.4
million in 1993. Previously a 50 percent owned joint venture, ODI
became a 97 percent owned, fully consolidated subsidiary effective
November 29, 1994, with the payment by ODI of a cash dividend to the
Company's investment partner and a stock dividend to the Company.
ODI changed its year end in 1994 to conform to the Company's year
end. The change did not materially affect the Company's results of
operations. The decrease in affiliate earnings in 1994 was due to a
substantial decline in sales within Russia by ODI. In 1993, ODI had
exceptionally strong shipments to Russia.
Inflation has not had a significant effect on the Company's
operations or financial condition.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Cash flows from operations provide the principal source of current
liquidity. Net cash flows provided by operating activities were
$15.5 million, $28.3 million and $25.0 million in 1995, 1994 and
1993, respectively. The 1995 decrease was due primarily to the
decrease in net income, the increase in inventories and the decrease
in accrued expenses. The increase in cash flows provided by
operating activities in 1994 was primarily due to the increase in net
income, the decrease in inventories and increases in both accounts
payable and accrued expenses.
Net cash flows used in investing activities of $6.6 million, $6.3
million and $6.1 million in 1995, 1994 and 1993, respectively,
primarily consisted of additions to plant and equipment.
Net cash flows used in financing activities were $15.5 million and
$21.3 million in 1995 and 1994, respectively. Net cash flows
provided from financing activities were $3.4 million in 1993. The
Company borrowed $3.5 million on a short-term basis to finance
current working capital requirements in 1995, of which $3.1 million
was repaid by year end. The Company also repaid $15.2 million of
short-term borrowings originating in 1994. During 1994, the Company
paid off a $10.0 million note to the estate of Edward J. Schaefer,
redeemed all outstanding shares of Class C preferred stock for $5.8
million and purchased 109,979 shares of common stock for $3.8
million. Of the 109,979 shares repurchased, 17,310 shares were
issued to Company-sponsored benefit plans to satisfy the Company's
obligation to these plans and the remaining shares were retired. In
1993, using the proceeds of a $20.0 million, 6.31 percent loan, the
Company paid off $15.5 million of long-term debt, bearing interest at
9.2 percent and the balance of the proceeds was used for working
capital requirements.
Cash and cash equivalents at the end of 1995 were $32.1 million
compared to $38.9 million at the end of 1994. Working capital
increased $18.0 million in 1995 and the current ratio of the Company
was 2.6 and 1.9 at the end of 1995 and 1994, respectively.
Principal payments on the Company's $20 million of unsecured long-
term debt begin in 1998 and continue until 2008 when a balloon
payment of $10.0 million will fully retire the debt. In January
1996, the Company entered into an unsecured, five-year $40 million
revolving credit agreement (the "Agreement"). The Agreement provides
for various borrowing rate options and includes a facility fee on the
committed amount. Both of the Company's loan agreements contain
certain financial covenants relative to working capital, borrowings,
fixed charge coverage and investments, among other things. The
Company was in compliance with all debt covenants in 1995 and 1994.
At December 30, 1995, the Company had $2.2 million of commitments for
the purchase of machinery and equipment. During 1996, the Company
intends to seek an acquisition candidate that is both compatible with
and can leverage growth off of existing businesses.
Management believes that internally generated funds and existing
credit arrangements provide sufficient liquidity to meet current and
future commitments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ---------------------------------------------------------------------
1995 1994 1993
(In thousands, except per share amounts)
- ---------------------------------------------------------------------
Net sales............................. $276,440 $241,440 $206,406
Cost of sales (including research
and development expenses of
$4,742, $4,244 and $3,976,
respectively)....................... 211,069 178,306 153,275
------- ------- --------
Gross profit.......................... 65,371 63,134 53,131
Selling and administrative expenses... 40,688 33,313 31,029
------- ------- -------
Operating income...................... 24,683 29,821 22,102
Interest expense...................... (2,128) (2,172) (2,949)
Other income, net..................... 2,441 1,955 70
Foreign exchange gain (loss).......... (717) 392 (682)
Equity in earnings of affiliate....... - 217 4,351
------- ------- -------
Income before income taxes and
change in accounting principle...... 24,279 30,213 22,892
Income taxes (Note 5)................. 8,777 11,504 6,789
------- ------- -------
Income before change
in accounting principle............. 15,502 18,709 16,103
Cumulative effect of change in
accounting principle (Note 5)....... - - 993
------- ------- -------
Net income............................ 15,502 18,709 17,096
Dividends on preferred stock.......... - 153 611
------- ------- -------
Net income available to common shares. $ 15,502 $ 18,556 $ 16,485
======== ======== ========
Per share data:
Weighted average common shares........ 6,598 6,537 6,552
======= ======= =======
Income before change in
accounting principle................ $ 2.35 $ 2.84 $ 2.37
Change in accounting principle........ - - .15
------- ------- -------
Net income available to common shares. $ 2.35 $ 2.84 $ 2.52
======== ======== ========
Dividends per common share............ $ .38 $ .29 $ .15
Dividends per preferred share
Class C............................. $ - $ 2.63 $ 10.50
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ---------------------------------------------------------------------
ASSETS
1995 1994
(In thousands)
- --------------------------------------------------------------------
Current assets:
Cash and equivalents........................ $ 32,077 $ 38,890
Receivables (less allowances of $1,351
and $1,271, respectively)................. 22,526 21,864
Inventories:
Raw materials............................. 17,080 17,584
Work-in-process........................... 5,899 5,201
Finished goods............................ 34,614 25,982
LIFO reserve.............................. (11,754) (11,012)
------- -------
45,839 37,755
Other current assets (including deferred
income taxes of $7,823 and
$6,287, respectively)..................... 8,879 7,669
------- -------
Total current assets.................... 109,321 106,178
Property, plant and equipment, at cost:
Land and buildings.......................... 29,173 28,210
Machinery and equipment..................... 92,523 88,169
------- -------
121,696 116,379
Less allowance for depreciation........... 80,026 74,483
------- -------
41,670 41,896
Deferred and other assets..................... 2,366 3,507
------- -------
Total Assets $153,357 $151,581
======== ========
See Notes to Consolidated Financial Statements.
- ---------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
1995 1994
(In thousands)
- --------------------------------------------------------------------
Current liabilities:
Short-term borrowings (Note 6).............. $ 461 $ 15,200
Accounts payable............................ 15,882 12,296
Accrued expenses (Note 4)................... 24,102 26,605
Income taxes (Note 5)....................... 1,726 2,890
------- -------
Total current liabilities................. 42,171 56,991
Long-term debt (Note 6)....................... 20,171 20,000
Employee benefit plan obligations (Note 3).... 6,069 4,903
Other long-term liabilities................... 4,082 3,960
Deferred income taxes (Note 5)................ 307 862
Shareowners' equity (Note 7):
Common shares outstanding
6,254 and 6,199, respectively............. 626 620
Additional capital.......................... 5,683 4,667
Retained earnings........................... 77,363 64,231
Stock subscriptions......................... (1,315) (2,112)
Cumulative translation adjustment........... 600 59
Loan to ESOP Trust (Note 3)................. (2,400) (2,600)
------- -------
Total shareowners' equity................. 80,557 64,865
------- -------
Total Liabilities and Shareowners' Equity $153,357 $151,581
======== ========
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
--------------------------------------------------------------------
1995 1994 1993
(In thousands)
- ---------------------------------------------------------------------
Cash flows from operating activities:
Net income............................... $ 15,502 $ 18,709 $ 17,096
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization.......... 8,890 6,961 6,185
Equity in earnings of affiliate,
less dividends....................... - (217) 144
Deferred income taxes.................. (2,091) (311) (2,128)
Gain on disposals of
plant and equipment.................. (43) (132) (22)
Changes in assets and liabilities:
Receivables.......................... 29 (1,516) (3,927)
Inventories.......................... (7,628) (2,355) 2,442
Other current assets................. 417 (572) 2,501
Accounts payable and other
accrued expenses................... (710) 7,098 2,768
Employee benefit plan obligations.... 1,166 2,122 1,120
Other long-term liabilities.......... (38) (1,534) (1,202)
------- ------- -------
Net cash flows from operating
activities............................. 15,494 28,253 24,977
------- ------- -------
Cash flows from investing activities:
Additions to plant and equipment....... (6,111) (7,612) (6,359)
Proceeds from sale of
plant and equipment.................. 70 278 305
Acquired cash of subsidiary (Note 2)... - 1,020 -
Additions to deferred assets........... (630) - -
Other, net............................. 78 - -
------- ------- -------
Net cash flows from
investing activities................... (6,593) (6,314) (6,054)
------- ------- -------
Cash flows from financing activities:
Borrowing on long-term debt............ - - 20,000
Repayment of long-term debt (Note 6)... - (10,016) (15,515)
Borrowing on line of credit............ 3,549 - 3,000
Repayment of line of credit............ (18,300) (68) (3,000)
Redemption of preferred stock (Note 7). - (5,818) -
Proceeds from issuance of common stock. 530 130 251
Purchase of treasury stock (Note 7).... - (3,757) -
Proceeds from stock subscriptions...... 866 - -
Reduction of loan to ESOP Trust........ 200 200 200
Dividends paid......................... (2,370) (1,942) (1,545)
------- ------- -------
Net cash flows from
financing activities................... (15,525) (21,271) 3,391
------- ------- -------
Effect of exchange rate changes on cash.. (189) (865) 560
------- ------- -------
Net increase (decrease) in cash
and equivalents....................... (6,813) (197) 22,874
Cash and equivalents at
beginning of year..................... 38,890 39,087 16,213
------- ------- -------
Cash and equivalents at end of year..... $ 32,077 $ 38,890 $ 39,087
======== ======== ========
Cash paid during 1995, 1994, and 1993 for interest was $2.4 million,
$2.1 million and $2.8 million, respectively. Also, cash paid during
1995, 1994 and 1993 for income taxes was $12.0 million, $10.0 million
and $7.9 million, respectively.
Non-cash transactions:
- ----------------------
During the first quarter of 1995, the Company issued 20,000 common
shares valued at $0.6 million under the 1988 Executive Stock Purchase
Plan.
During the first quarter of 1994, the Company issued 17,310 common
shares valued at $0.6 million to Company-sponsored benefit plans.
During the second quarter of 1994, the Company issued 48,000 common
shares valued at $1.3 million under the 1988 Incentive Stock Award
Plan.
During the fourth quarter of 1994, previously 50 percent owned joint
venture, Oil Dynamics, Inc., became a 97 percent owned consolidated
subsidiary (see Note 2).
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ---------------------------------------------------------------------
- ----------------------------------------------------------
(In thousands, except share amounts)
Common Cumulative
Cumulative Loan to
Shares Preferred Common
Additional Retained Stock Treasury Translation ESOP
Outstanding Stock Stock
Capital Earnings Subscrip. Stock Adjustment Trust
----------- ----- ----- ---
- ---- -------- -------- ----- ---------- -----
Balance year end 1992 6,187,713 $5,818 $619
$2,805 $35,070 $(1,541) $ - $(104) $(3,000)
--------- ------ ---- --
- ---- ------- ------- ----- ----- -------
Net income
17,096
Dividends on preferred stock
(611)
Dividends on common stock
(934)
Common stock issued 42,955 4
247
Reduction of stock subscriptions
639
Currency translation adjustment
(363)
Loan payment from ESOP
200
Reclass to current liabilities
(Note 7) (5,818)
--------- ------ ---- --
- ---- ------- ----- ----- ----- --------
Balance year end 1993 6,230,668 $ - $623
$3,052 $50,621 $(902) $ - $(467) $(2,800)
--------- ------ ---- --
- ---- ------- ----- ----- ----- -------
Net income
18,709
Dividends on preferred stock
(153)
Dividends on common stock
(1,789)
Common stock issued 61,450 6
1,575
Increase in stock subscriptions
(1,210)
Currency translation adjustment
526
Loan payment from ESOP
200
Treasury stock purchases (109,979)
(3,757)
Treasury stock issued 17,310
40 591
Treasury stock retired (9)
(3,157) 3,166
--------- ------ ---- --
- ---- ------- ------- ------ ----- -------
Balance year end 1994 6,199,449 $ - $620
$4,667 $64,231 $(2,112) $ - $59 $(2,600)
--------- ------ ---- --
- ---- ------- ------- ------ ----- -------
Net income
15,502
Dividends on common stock
(2,370)
Common stock issued 54,553 6
1,084 (530)
Proceeds from stock subscriptions
866
Stock subscription amortization
and adjustment
(68) 461
Currency translation adjustment
541
Loan payment from ESOP
200
--------- ------ ---- --
- ---- ------- ------- ------ ----- -------
Balance year end 1995 6,254,002 $ - $626
$5,683 $77,363 $(1,315) $ - $600 $(2,400)
========= ====== ====
====== ======= ======= ====== ===== =======
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
- ---------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year--The Company's fiscal year ends on the Saturday nearest
December 31. The financial statements and accompanying notes are as
of and for the years ended December 30, 1995 (52 weeks), December 31,
1994 (52 weeks) and January 1, 1994 (52 weeks) and are referred to as
1995, 1994 and 1993, respectively.
Principles of Consolidation--The consolidated financial statements
include the accounts of the Company and all majority-owned
subsidiaries. The accounts of certain foreign subsidiaries are
included in the consolidated financial statements on their fiscal
years ended November 30. Beginning November 29, 1994, the results of
operations of Oil Dynamics, Inc. were included on a fully
consolidated basis (see Note 2).
Cash Equivalents--Cash equivalents consist of highly liquid
investments which are readily convertible to cash, present
insignificant risk of changes in value due to interest rate
fluctuations and generally have original maturities of three months
or less.
Fair Value of Financial Instruments--The carrying amounts for cash
and equivalents, long-term debt and short-term debt approximate fair
value. The fair value of long-term debt is estimated based on
current borrowing rates for similar issues. The Company's off-
balance sheet instruments are not significant.
Inventories--Inventories are stated at the lower of cost or market.
The majority of the cost of domestic inventories is determined using
the last-in, first-out (LIFO) method; all remaining inventory costs
are determined using the first-in, first-out (FIFO) method.
Inventories stated on the LIFO method approximated 64 percent and 69
percent of total inventories in 1995 and 1994, respectively.
Property, Plant and Equipment--Property, plant and equipment are
stated at cost. Depreciation of plant and equipment is provided
principally on a straight line basis over the estimated useful lives
of 5 to 50 years for land improvements and buildings, 2 to 10 years
for machinery, equipment, furniture, and fixtures and 3 to 5 years
for automobiles and trucks. Accelerated methods are used for income
tax purposes.
Earnings Per Common Share--Primary and fully diluted earnings per
common share are computed based upon earnings applicable to common
shares, divided by the sum of the average number of common shares
outstanding during the period plus dilutive common stock equivalents.
Separate presentation of primary and fully diluted earnings per
common share has not been made because the difference is immaterial.
Translation of Foreign Currencies--All assets and liabilities of
foreign subsidiaries whose functional currency is other than the U.S.
dollar are translated at year-end exchange rates. All revenue and
expense accounts are translated at average rates in effect during the
period.
Use of Estimates--Management's best estimates of certain amounts are
required in preparation of the consolidated financial statements in
accordance with Generally Accepted Accounting Principles.
Reclassifications--Certain prior year amounts have been reclassified
to conform to the current year presentation.
2. INVESTMENT IN AFFILIATE
Summarized below is selected 1994 and 1993 financial information for
the Company's investment in its previously unconsolidated affiliate,
Oil Dynamics, Inc.("ODI"). Beginning November 29, 1994, ODI was
included in the Company's financial statements on a fully
consolidated basis.
(In thousands)
- ------------------------------------------------------------------
Balance Sheet
-------------
1994
----
Current assets................... $21,902
Non-current assets............... 12,590
Current liabilities.............. 8,713
Non-current liabilities.......... 1,765
Income Statement
----------------
1994 1993
---- ----
Net sales................ $44,043 $71,672
Gross profit............. 10,735 25,408
Net income............... 773 8,770
On November 29, 1994, control of the previously 50 percent owned ODI
was effectively transferred to Franklin Electric Co., Inc. The
change in control resulted from receipt of a stock dividend (in lieu
of a cash dividend received by the investment partner) which
increased the Company's ownership interest to approximately 97
percent. The change in control has been accounted for under the
purchase method.
Equity in the earnings of ODI is included in the results of
operations using the equity method of accounting for the thirteen
months ended November 28, 1994. Beginning November 29, 1994, the
results of operations and financial position of ODI have been
included on a fully consolidated basis. In 1994, the fiscal year end
of ODI was changed to conform with the Company's fiscal year end.
This change did not materially affect the Company's financial
statements.
Summarized below are the unaudited pro forma consolidated results of
operations of the Company and ODI as though control of Oil Dynamics,
Inc. had been transferred to the Company as of the beginning of 1993.
These results include certain pro forma adjustments, primarily
increased interest expense, and are not necessarily indicative of the
results that would have been obtained had the Company controlled ODI
during the respective periods.
(In thousands)
- -----------------------------------------------------------------
1994 1993
---- ----
Net sales............................... $285,483 $278,078
Income before change
in accounting principle............... 18,967 18,734
Net income.............................. 18,967 19,727
Per share data:
Income before change
in accounting principle............. $ 2.88 $ 2.77
Net income............................ $ 2.88 $ 2.92
3. EMPLOYEE BENEFIT PLANS
The Company's domestic operations maintain four separate pension
plans covering substantially all of its U.S. employees. A non-
contributory defined benefit pension plan covering substantially all
U.S. employees provides benefits based upon years of credited
service. A contributory defined benefit pension plan covering
substantially all U.S. salaried employees provides benefits based
upon the highest average thirty-six (36) consecutive monthly earnings
before retirement. A non-contributory defined benefit pension plan
covering certain management employees provides benefits in excess of
those provided under other plans. A non-contributory defined benefit
pension plan covering substantially all other employees of the
Company not covered under other plans provides benefits based upon a
percentage of monthly earnings for each year of credited service.
The Company's funding policy is to make the minimum annual
contribution required by applicable regulations.
Net domestic pension cost for 1995, 1994 and 1993 was as follows:
(In thousands)
- --------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Service cost.................... $ 1,846 $ 1,726 $ 1,478
Interest on projected
benefit obligation............ 4,952 4,310 4,131
Actual return on plan assets.... (13,082) 1,356 (5,641)
Net amortization and deferral... 7,559 (6,367) 829
------ ------ ------
Net domestic pension cost....... $ 1,275 $ 1,025 $ 797
======= ======= =======
The following table sets forth the funded status of the Company's
domestic plans and accrued pension costs reflected in the Company's
balance sheet at year end. The Company's international subsidiaries'
pension liabilities have been excluded from the following
presentation because the amounts are immaterial.
(In thousands)
- ---------------------------------------------------------------------
ABO Exceeds Assets Assets Exceed ABO
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
Actuarial Present Value of
Benefit Obligations:
Vested employees............. $41,886 $38,201 $19,662 $14,737
Nonvested employees.......... 2,071 1,893 802 549
------ ------ ------ ------
Accumulated benefit
obligation ("ABO")......... 43,957 40,094 20,464 15,286
Additional amount related to
projected benefit
or pay increases............. 386 1,159 4,853 3,207
------ ------ ------ ------
Projected benefit obligation... 44,343 41,253 25,317 18,493
Fair value of plan assets,
primarily common stocks and
bonds, including $16,500
and $16,950 of the Company's
common stock in 1995 and
1994, respectively........... 41,013 38,565 29,871 22,816
------ ------ ------ ------
Funded status.................. (3,330) (2,688) 4,554 4,323
Unrecognized net gain.......... (4,037) (3,663) (4,000) (3,599)
Unrecognized net obligation
(asset) at date of initial
application of SFAS No. 87... 273 349 (558) (669)
Unrecognized prior service
cost......................... 2,556 2,091 (221) (246)
Adjustment required to
recognize minimum liability.. (134) (34) - -
------ ------ ------ ------
Accrued pension liability...... $(4,672) $(3,945) $ (225) $ (191)
======= ======= ======= =======
Actuarial Assumptions:
1995 1994 1993
---- ---- ----
Discount rate.................. 7.50% 8.0-8.25% 7.25%
Rate of increase in future
compensation................. 0-5.0% 0-5.0% 0-5.5%
Expected long-term rate of
return on plan assets........ 8.25-9.0% 8.25-9.0% 9.0%
Prior to January 1, 1995, the Company maintained a 401(k) Directed
Investment Salary Plan ("DISP") covering substantially all employees
and a Savings Plan ("Savings Plan") covering substantially all hourly
employees at its Bluffton facility. Effective January 1, 1995, the
Company merged the Savings Plan into the DISP.
The Company adopted an Employee Stock Ownership Plan ("ESOP") in 1987
for the Company's domestic salaried employees. In January 1992, the
ESOP and the Company's 401(k) plans were integrated and expanded in
1993 to include substantially all of the Company's domestic employees
excluding hourly employees at its Bluffton and Jonesboro, Indiana,
locations.
In July 1992, the ESOP Trustee acquired additional shares of Company
common stock on the open market using the proceeds of a $3.0 million
loan from the Company. Under the terms of the fifteen-year, variable
rate loan (6.31 percent at December 30, 1995), principal plus
interest is payable in equal annual installments. The shares of
stock purchased with the loan proceeds are collateral for the loan
and are considered outstanding for purposes of calculating earnings
per share.
At December 30, 1995, 76,568 shares were allocated to the accounts of
participants, 10,420 shares were committed to be released and
allocated to the accounts of participants for service rendered during
1995, and 89,471 shares were held by the ESOP Trust in suspense.
The Company contributes a portion of its 401(k) matching contribution
as well as an additional annual contribution, both subject to the
Company's annual financial results, to the ESOP Trust. The ESOP
Trustee uses a portion of the Company's contributions to make
principal and interest payments on the loan. As loan payments are
made, shares of common stock are released as collateral and are
allocated to participants' accounts. The balance of the Company's
contributions in cash or common stock is made to the 401(k) and ESOP
Trusts, and allocated to participants' accounts to satisfy the
balance of the Company's 401(k) matching contribution. Prior to the
merger of the Company's 401(k) plans, the matching contribution to
the Savings Plan was approximately $0.2 million in 1994 and 1993.
The following table sets forth the interest expense and Company
contributions to the ESOP (dividends on the Company's common stock
held by the ESOP are not used for debt service):
(In thousands)
- -------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Interest expense incurred by the Plan
on ESOP debt............................. $ 155 $ 167 $ 131
Company contributions to integrated ESOP... 1,292 992 792
Effective January 3, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 ("SFAS No. 106"), "Employers' Accounting
for Postretirement Benefits Other Than Pensions". SFAS No. 106
requires recognition, during employees' service with the Company, of
the cost of their retiree health and life insurance benefits. The
Company's postretirement plan covers substantially all domestic
employees with the exception of employees hired after 1991. The
Company effectively capped its cost for those benefits through plan
amendments made in 1992. These amendments froze Company
contributions for health and life insurance benefits at 1991 levels
for current and future beneficiaries with actuarially reduced
benefits for employees who retire before age 65.
In accordance with SFAS No. 106, the Company has elected to recognize
this change in accounting over a twenty-year period. The accumulated
postretirement benefit obligation was $9.8 million at January 3,
1993.
Net postretirement benefit cost for 1995, 1994 and 1993 was as
follows:
(In thousands)
- -------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Service cost............................... $ 219 $ 246 $ 119
Interest cost.............................. 837 806 831
Amortization of transition obligation...... 489 489 489
Net amortization and deferral.............. 7 83 -
----- ----- -----
Net postretirement benefit cost............ $1,552 $1,624 $1,439
====== ====== ======
The following table sets forth the funded status of the Company's
postretirement benefit plans and accrued postretirement benefit cost
reflected in the Company's balance sheet at year end:
(In thousands)
- -------------------------------------------------------------------
1995 1994
---- ----
Accumulated Postretirement Benefit Obligation
Retirees................................ $ (7,939) $ (7,824)
Active employees........................ (3,318) (2,889)
------- -------
(11,257) (10,713)
Unrecognized net obligation at date
of adoption of SFAS No. 106........... 8,312 8,801
Unrecognized net loss................... 1,773 1,145
------ -------
Accrued postretirement benefit cost..... $ (1,172) $ (767)
======== ========
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.50, 8.25 and 7.25 percent in 1995, 1994 and
1993, respectively.
4. ACCRUED EXPENSES
Accrued expenses consisted of:
(In thousands)
- --------------------------------------------------------------------
1995 1994
---- ----
Salaries, wages and commissions....... $ 6,188 $ 7,465
Product warranty costs................ 4,745 4,671
Insurance............................. 4,755 5,010
Other................................. 8,414 9,459
------ ------
$24,102 $26,605
======= =======
5. INCOME TAXES
Income before income taxes consisted of:
(In thousands)
- ---------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Domestic.................... $ 23,647 $ 28,202 $ 20,751
Foreign..................... 632 2,011 2,141
------- ------- -------
$ 24,279 $ 30,213 $ 22,892
======== ======== ========
- ---------------------------------------------------------------------
The income tax provision consisted of:
(In thousands)
- ---------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Currently payable:
Federal................... $ 8,714 $ 7,966 $ 6,524
Foreign................... 113 1,277 829
State..................... 2,041 2,572 1,564
Deferred:
Federal................... (2,293) 169 (1,736)
Foreign................... 343 (408) 72
State..................... (141) (72) (464)
------- ------- -------
$ 8,777 $ 11,504 $ 6,789
======== ======== ========
- ---------------------------------------------------------------------
Significant components of the Company's deferred tax assets and
liabilities follow:
(In thousands)
- ---------------------------------------------------------------------
1995 1994
---- ----
Deferred tax assets:
Accrued expenses and reserves.............. $ 5,223 $ 3,425
Compensation and employee benefits......... 4,516 3,835
Foreign tax credits........................ 385 1,600
Other items................................ 744 1,177
------ ------
Gross deferred tax assets................ 10,868 10,037
Valuation allowance........................ - (1,200)
------ ------
Net deferred tax assets.................... 10,868 8,837
Deferred tax liabilities:
Accelerated depreciation on fixed assets... 3,330 3,400
Other items................................ 22 12
------ ------
Gross deferred tax liabilities........... 3,352 3,412
------ ------
Net deferred tax assets...................... 7,516 5,425
Net current deferred tax assets.............. 7,823 6,287
------ ------
Net non-current deferred tax liabilities..... $ 307 $ 862
======= =======
- ---------------------------------------------------------------------
The differences between the statutory and effective tax rates were as
follows:
- ---------------------------------------------------------------------
1995 1994 1993
---- ---- ----
U.S. Federal statutory rate...... 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit................ 5.1 5.4 4.1
Effect of higher foreign
tax rates...................... 1.0 .5 .8
Benefit of contributed property.. - - (2.8)
Utilization of foreign
tax credits.................... (5.2) (3.9) -
Other items...................... .3 1.4 (.5)
---- ---- ----
36.2% 38.4% 36.6%
===== ===== =====
- ---------------------------------------------------------------------
The Company adopted SFAS No. 109, "Accounting for Income Taxes,"
effective January 3, 1993, resulting in a cumulative adjustment of
$1.0 million, which did not have a material effect on the Company's
1993 income tax provision.
Accumulated undistributed earnings of foreign subsidiaries expected
to be permanently invested approximated $4.9 million at December 30,
1995. The Company does not anticipate incurring any tax should these
earnings be repatriated in the future.
6. DEBT
Short-term debt consisted of:
(In thousands)
- ------------------------------------------------------------------
1995 1994
---- ----
Bank--6.72%(variable based
on LIBOR), due in 1995................ $ - $ 9,800
Bank--7.47%(variable based
on LIBOR), due in 1995................ - 5,400
Bank--other............................. 452 -
------ -------
$ 452 $15,200
======= =======
Long-term debt consisted of:
(In thousands)
- ------------------------------------------------------------------
1995 1994
---- ----
Insurance Company--6.31%, principal
payments of $1.0 million due in
annual installments, starting in
1998 with a balloon payment of
$10,000 in 2008....................... $20,000 $20,000
Bank--other............................. 180 -
------ ------
20,180 20,000
Less current maturities................. 9 -
------ ------
$20,171 $20,000
======= =======
Both the Company's short-term borrowings and long-term debt are
unsecured. The Company's long-term debt agreement provides for
certain financial covenants relative to working capital, additional
borrowings, loans or advances and investments. The Company was in
compliance with all financial covenants in 1995 and 1994.
On January 5, 1996, the Company entered into an unsecured, five-year
$40 million revolving credit agreement (the "Agreement"). The
Agreement provides for various borrowing rate options including
interest rates based on the London Interbank Offered Rates ("LIBOR")
plus interest spreads keyed to the Company's ratio of debt to
consolidated tangible net worth. The Agreement contains certain
financial covenants with respect to borrowings, fixed charge
coverage, working capital, loans or advances, and investments.
7. SHAREOWNERS' EQUITY
The Company had 6,254,002 shares of common stock (10,000,000 shares
authorized, $.10 par value) outstanding at the end of 1995. On
January 26, 1994, the Company purchased 109,979 common shares for
$3.8 million under the terms of a stock redemption agreement entered
into in 1988 with Edward J. Schaefer, co-founder of the Company.
Under the terms of the agreement, the Company had the right, but not
the obligation, to purchase any and all shares that the estate
elected to sell. Of the 109,979 shares repurchased, 17,310 were re-
issued to Company-sponsored employee benefit plans and the remaining
shares were retired.
During the first quarter of 1994, the Company redeemed all
outstanding shares of Class C Cumulative Preferred Stock for its
stated value of $5.8 million.
The Company has three stock option plans which provide for issuance
of qualified or non-qualified shares of common stock. The stock
option activity for all plans during 1995, 1994 and 1993 was as
follows:
Shares
Under
Option Price Range
- ---------------------------------------------------------------------
Outstanding, January 2, 1993....... 510,279 $ 3.38 to $23.75
Options granted.................... 56,000 $24.50 to $29.25
Options exercised.................. (53,184) $ 4.39 to $10.13
--------
Outstanding, January 1, 1994....... 513,095 $ 3.38 to $29.25
Options granted.................... 254,000 $26.50 to $32.50
Options exercised.................. (13,450) $ 4.39 to $ 8.63
--------
Outstanding, December 31, 1994..... 753,645 $ 3.38 to $32.50
Options granted.................... 192,000 $31.00 to $33.25
Options exercised.................. (34,553) $ 8.63 to $26.50
Options expired.................... (50,000) $29.25
--------
Outstanding, December 30, 1995..... 861,092 $ 3.38 to $33.25
========
Options exercisable:
January 1, 1994.................. 403,695
December 31, 1994................ 479,645
December 30, 1995................ 521,892
Shares reserved for future options:
January 1, 1994.................. 351,060
December 31, 1994................ 97,060
December 30, 1995................ 15,060
- ---------------------------------------------------------------------
The Company has two additional stock plans: the 1988 Executive Stock
Purchase Plan (the "Purchase Plan") and the 1988 Incentive Stock
Award Plan (the "Award Plan"). During 1995, 20,000 shares were
issued under the Purchase Plan and 512,800 shares are reserved for
future grants. During 1994, 48,000 shares were issued under the
Award Plan and 671,936 shares are reserved for future grants.
Stock subscriptions are principally deferred costs recognized in
connection with the issuance of common stock under the Award Plan and
loans to officers under the Purchase Plan.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation", effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees
and encourages, but does not require, recognition of expense in
accordance with the "fair value" provisions of the Statement.
Management of the Company intends to continue accounting for stock-
based compensation arrangements under the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and, accordingly, SFAS No. 123 will not have a material
effect on the Company's financial statements. The Company will adopt
the disclosure requirements of SFAS No. 123 as required in 1996.
8. SEGMENT AND GEOGRAPHIC INFORMATION
The Company's single business segment is the design, manufacture and
sale of electric motors, electronic controls and related equipment.
These products are sold to original equipment manufacturers in the
United States, Canada, Europe, Australia, South Africa, Mexico and
other world markets.
Manufacturing plants are located in the United States, Germany, Czech
Republic, Italy and South Africa.
GEOGRAPHICAL AREAS (In thousands)
- --------------------------------------------------------------------
1995 1994 1993
---- ---- ----
NET SALES
North America.............. $225,958 $200,216 $170,325
Foreign.................... 50,482 41,224 36,081
------- ------- -------
$276,440 $241,440 $206,406
======== ======== ========
OPERATING MARGIN
North America.............. $ 38,885 $ 43,030 $ 33,763
Foreign.................... 2,148 3,342 2,988
Equity in earnings of
affiliate................ - 217 4,351
Interest expense........... (2,128) (2,172) (2,949)
Interest income............ 1,866 1,678 823
Corporate expenses......... (16,492) (15,882) (16,084)
------- ------- -------
Income before taxes........ $ 24,279 $ 30,213 $ 22,892
======== ======== ========
IDENTIFIABLE ASSETS
North America.............. $ 84,013 $ 82,247 $ 43,420
Foreign.................... 29,697 24,188 18,159
Investment in affiliate.... - - 11,642
Corporate ................. 39,647 45,146 49,482
------- ------ -------
$153,357 $151,581 $122,703
======== ======== ========
The Company has no single geographic area within its foreign
operations whose revenues or assets exceed 10 percent of such amounts
on a consolidated basis. The Company had $32.7 million, $23.2
million and $16.7 million of export sales (from domestic sources) in
1995, 1994 and 1993, respectively, to various geographic areas, of
which no single geographic area was significant.
One customer accounted for 12.9%, 14.1% and 17.5% of the consolidated
sales in 1995, 1994 and 1993, respectively.
9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited quarterly financial information for the years 1995 and 1994
is as follows:
(In thousands, except per share amounts)
- --------------------------------------------------------------------
Net Income
Per Weighted
Net Gross Net Average
Sales Profit Income(a) Common Share
- --------------------------------------------------------------------
1995
1st Quarter $ 59,788 $ 13,297 $ 1,644 $ .25
2nd Quarter 76,442 17,573 4,542 .69
3rd Quarter 66,188 14,954 3,301 .50
4th Quarter 74,022 19,547 6,015 .91
------- ------- ------- -----
$276,440 $ 65,371 $ 15,502 $ 2.35
======== ======== ======== ======
- --------------------------------------------------------------------
1994
1st Quarter $ 50,350 $ 12,503 $ 3,108 $ .48
2nd Quarter 64,772 17,287 5,650 .87
3rd Quarter 60,013 15,068 4,549 .69
4th Quarter 66,305 18,276 5,249 .80
------- ------- ------- -----
$241,440 $ 63,134 $ 18,556 $ 2.84
======== ======== ======== ======
- --------------------------------------------------------------------
(a) Represents net income available to common shares.
10. CONTINGENT LIABILITIES AND COMMITMENTS
The Company is defending various claims and legal actions, including
environmental matters, which have arisen in the ordinary course of
business. The Company has attempted, where possible, to assess the
likelihood of an unfavorable outcome to the Company as a result of
these actions. Legal counsel has been retained to assist the Company
in making these determinations, and costs are accrued when an
unfavorable outcome is determined to be probable and a reasonable
estimate can be made.
In the opinion of management of the Company, adequate provision has
been made for any awards or assessments to be incurred in connection
with such matters and ultimate resolution will not have a material
effect on the Company's consolidated financial position and results
of operations or cash flows.
Total rent expense charged to operations for operating leases
including contingent rentals was $2.0 million, $1.3 million and $1.2
million for 1995, 1994 and 1993, respectively. The future minimum
rental payments for noncancellable operating leases as of December
30, 1995, are as follows: 1996, $.8 million; 1997, $.5 million and
1998, $.2 million. Rental commitments subsequent to 1998 are not
material.
INDEPENDENT AUDITORS' REPORT
To the Shareowners and Directors,
Franklin Electric Co., Inc.
We have audited the accompanying consolidated balance sheets of
Franklin Electric Co., Inc. and consolidated subsidiaries as of
December 30, 1995 and December 31, 1994 and the related consolidated
statements of income, shareowners' equity and cash flows for each of
the three years in the period ended December 30, 1995. Our audits
also included the financial statement schedule listed in the index at
Item 14. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Franklin
Electric Co., Inc. and consolidated subsidiaries as of December 30,
1995 and December 31, 1994, and the results of their operations and
their cash flows for each of the three years in the period ended
December 30, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Notes 3 and 5 to the consolidated financial
statements, the Company changed its method of accounting for
Postretirement Benefits Other Than Pensions and its method of
accounting for Income Taxes effective January 3, 1993 to conform with
Statements of Financial Accounting Standards (SFAS) No. 106 and SFAS
No. 109, respectively.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois
January 31, 1996
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON
- ------------------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
- -----------------------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information concerning directors required by this Item 10 is set
forth in the Company's Proxy Statement for the Annual Meeting of
Shareowners (to be held April 12, 1996), under the headings of
"ELECTION OF DIRECTORS" and "INFORMATION CONCERNING NOMINEES AND
DIRECTORS," and is incorporated herein by reference.
The information concerning executive officers required by this Item
10 is contained in Part I of this Form 10-K under the heading of
"EXECUTIVE OFFICERS OF THE REGISTRANT."
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by Item 11 is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareowners (to be held
April 12, 1996), under the headings of "INFORMATION ABOUT THE BOARD
AND ITS COMMITTEES," "SUMMARY COMPENSATION TABLE," "OPTION GRANTS IN
1995 FISCAL YEAR" AND "1995 FISCAL YEAR-END OPTION VALUES,"
"COMPENSATION PURSUANT TO PLANS" and "AGREEMENTS," and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- -------------------------------------------------------------
MANAGEMENT
- ----------
The information required by Item 12 is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareowners (to be held
April 12, 1996), under the heading of "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT," and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by Item 13 is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareowners (to be held
April 12, 1996), under the heading of "AGREEMENTS," and is
incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
- ---------------------------------------------------------------------
8-K
- ---
Form 10-K
Annual Report
(page)
-------------
(a) 1. Financial Statements - Franklin Electric
----------------------------------------
Independent Auditors' Report
Consolidated Statements of Income for the
three years ended December 30, 1995
Consolidated Balance Sheets, as of
December 30, 1995 and December 31, 1994
Consolidated Statements of Cash Flows
for the three years ended December 30, 1995
Consolidated Statements of Shareowners' Equity
for the three years ended December 30, 1995
Notes to Consolidated Financial Statements
(including quarterly financial data)
2. Financial Statement Schedules - Franklin Electric
-------------------------------------------------
II Valuation and Qualifying Accounts
Schedules other than those listed above are omitted for
the reason that they are not required or are not
applicable, or the required information is disclosed
elsewhere in the financial statements and related notes.
3. Exhibits
--------
See the Exhibit Index located on pages xx-xx.
Management Contract or Compensatory Plan or
Arrangement is denoted by an asterisk (*).
(b) Reports on Form 8-K filed during the fourth quarter
ended December 30, 1995: None
(c) See the Exhibit Index located on pages xx-xx.
(d) Individual financial statements and all other schedules
of the Registrant are omitted as they are not required.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
Franklin Electric Co., Inc.
WILLIAM H. LAWSON
---------------------------
William H. Lawson
Chairman of the Board
(Date) February 9, 1996 and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
WILLIAM H. LAWSON
- ------------------------------------- Chairman of the Board, Chief
William H. Lawson February 9, 1996 Executive Officer, and
Director
JESS B. FORD
- ------------------------------------- Vice President and Chief
Jess B. Ford February 9, 1996 Financial Officer (Principal
Financial and Accounting
Officer)
WILLIAM W. KEEFER
- -------------------------------------
William W. Keefer February 9, 1996 Director
ROBERT H. LITTLE
- -------------------------------------
Robert H. Little February 9, 1996 Director
PATRICIA SCHAEFER
- -------------------------------------
Patricia Schaefer February 9, 1996 Director
DONALD J. SCHNEIDER
- -------------------------------------
Donald J. Schneider February 9, 1996 Director
GERARD E. VENEMAN
- -------------------------------------
Gerard E. Veneman February 9, 1996 Director
JURIS VIKMANIS
- -------------------------------------
Juris Vikmanis February 9, 1996 Director
HOWARD B. WITT
- -------------------------------------
Howard B. Witt February 9, 1996 Director
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years 1995, 1994 and 1993
(In thousands)
--------------
Additions
Balance at charged to
Balance
beginning costs and
at end
Description of period expenses
Deductions of period
----------- --------- -------- ------
- ---- ---------
Allowance for doubtful accounts:
1995 $1,271 $ 190 $
110 $1,351
====== ======
====== ======
1994 $1,269 $ 201 $
199 $1,271
====== ======
====== ======
1993 $1,175 $ 122 $
28 $1,269
====== ======
====== ======
NOTES:
Uncollectible accounts written off, net of recoveries.
FRANKLIN ELECTRIC CO., INC.
EXHIBIT INDEX FOR THE FISCAL YEAR
ENDED DECEMBER 30, 1995
Sequentially
Numbered
Item Description Pages
- ---- ----------- -----
3(i) Restated Articles of Incorporation of Franklin
Electric Co., Inc. (incorporated herein by
reference to Exhibit 3 of the Company's Form 10-K
for the fiscal year ended December 30, 1989)
Articles of Amendment of the Restated Articles of
Incorporation of Franklin Electric Co., Inc.
effective February 26, 1991 (incorporated herein
by reference to the Company's current report on
Form 8-K dated February 26, 1991)
3(ii) By-Laws of Franklin Electric Co., Inc. as amended,
effective July 15, 1994 (incorporated herein by
reference to the Company's Form 10-K for the fiscal
year ended December 31, 1994)
4 Rights Agreement dated as of February 11, 1991
between Franklin Electric Co., Inc. and Lincoln
National Bank & Trust Co. of Fort Wayne (incorporated
herein by reference to the Company's registration
statement on Form 8-A dated February 26, 1991)
10.1 Stock Redemption Agreement dated October 28,
1988, as amended on December 12, 1988, between
the Company and Edward J. Schaefer (incorporated
herein by reference to Exhibit 10.1 of the
Company's Form 10-K for the fiscal year ended
December 31, 1988)
10.2 1988 Executive Stock Purchase Plan (incorporated
herein by reference to the Company's 1988 Proxy
Statement for the Annual Meeting held on April
15, 1988, and included as Exhibit E to the Proxy
Statement)*
10.3 1988 Stock Incentive Award Plan (incorporated
herein by reference to the Company's 1988 Proxy
Statement for the Annual Meeting held on April
15, 1988, and included as Exhibit D to the Proxy
Statement)*
10.4 Amended 1981 Incentive Stock Option Plan
(incorporated herein by reference to the
Company's 1988 Proxy Statement for the Annual
Meeting held on April 15, 1988, and included as
Exhibit B to the Proxy Statement)*
10.5 Amended 1986 Stock Option Plan (incorporated
herein by reference to the Company's 1988 Proxy
Statement for the Annual Meeting held on April
15, 1988, and included as Exhibit C to the Proxy
Statement)*
10.6 Franklin Electric Nonemployee Director Stock
Option Plan (incorporated herein by reference to
the Company's 1991 Proxy Statement for the Annual
Meeting on April 19, 1991)*
10.7 Employment Agreement dated October 23, 1995 between
the Company and Jess B. Ford*
10.8 Employment Agreement dated December 5, 1986 between
the Company and William H. Lawson (incorporated herein
by reference to Exhibit 10.7 of the Company's Form
10-K for the fiscal year ended December 28, 1991)*
10.9 Credit Agreement dated as of January 5, 1996 between
the Company and various commercial banks
11 Primary Earnings per Share and Fully Diluted
Earnings per Share
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
* Management contract or compensatory plan or arrangement
EXHIBIT 11
----------
FRANKLIN ELECTRIC CO., INC.
PRIMARY EARNINGS PER SHARE AND FULLY DILUTED EARNINGS PER SHARE
____________
(In thousands, except per share amounts)
Year Ended
-------------------------------------
December 30, December 31, January 1,
1995 1994 1994
--------- --------- --------
Net income available
to common shares and
common share equivalents $15,502 $18,556 $16,485
======= ======= =======
Shares outstanding,
beginning of period 6,199 6,231 6,188
Weighted average of options
issued during the period - 19 3
Dilutive effect of options
outstanding during the
period 364 337 333
Weighted average of common
shares issued during
the period 35 53 28
Weighted average common
shares repurchased during
the period - (103) -
------- ------- -------
Weighted average primary
shares outstanding during
the period 6,598 6,537 6,552
Additional dilutive effect
of options outstanding
during the period 16 27 33
------- ------- -------
Weighted average fully
diluted shares outstanding
during the period 6,614 6,564 6,585
===== ===== =====
Earnings per share
Primary $2.35 $2.84 $2.52
===== ===== =====
Fully diluted $2.34 $2.83 $2.50
===== ===== =====
EXHIBIT 21
----------
FRANKLIN ELECTRIC CO., INC.
SUBSIDIARIES OF THE REGISTRANT
____________
Percent of
State or country voting
of incorporation stock owned
---------------- -----------
Subsidiaries consolidated:
FE Petro, Inc. Indiana 100
Oil Dynamics, Inc. Oklahoma 97
Franklin Electric Subsidiaries, Inc.
[inactive] Indiana 100
Franklin Electric International, Inc. Delaware 100
Franklin Electric AG Switzerland 100
Franklin Electric B.V. Netherlands 100
Franklin Electric Europa, GmbH Germany 100
Franklin Electric spol s.r.o. Czech Republic 100
Franklin Electric S.r.l. Italy 100
Franklin Electric (Australia) Pty. Ltd. Australia 100
Franklin Electric (South Africa)
Pty. Limited South Africa 100
Franklin Electric of Canada, Limited
[inactive] Canada 100
Franklin Electric Foreign Sales
Corporation U.S. Virgin Islands 100
Motores Franklin S.A. de C.V. Mexico 100
EXHIBIT 23
-----------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statements of Franklin Electric Co., Inc. on Form S-8 (file numbers
33-35958, 33-35960, 33-35962 and 33-38200) of our report dated
January 31, 1996 appearing in the Annual Report on Form 10-K of
Franklin Electric Co., Inc. for the year ended December 30, 1995.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois
March 6, 1996