Franklin Electric 1st Quarter 2007 form 10-Q
UNITED
STATES
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 March
31, 2007
OR
o 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 incorporation or
organization)
|
|
(I.R.S.
Employer 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.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-Accelerated
Filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
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
|
|
March
31, 2007
|
$.10
par value
|
|
23,139,059
shares
|
FRANKLIN
ELECTRIC CO., INC.
TABLE
OF
CONTENTS
|
|
|
Page
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
Number
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Income for the First Quarter Ended March
31,
2007 and April 1, 2006
|
|
3
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2007 and December 30,
2006
|
|
|
|
|
|
4
|
|
Condensed
Consolidated Statements Of Cash Flows for the First Quarter Ended
March
31, 2007 and April 1, 2006
|
|
5
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
|
6-14
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
15-17
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
17
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
|
17
|
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
|
18
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
18
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
|
18-19
|
|
|
|
|
Item
6.
|
Exhibits
|
|
19
|
|
|
|
|
Signatures
|
|
|
20
|
|
|
|
|
Exhibit
Index
|
|
|
21
|
|
|
|
|
Exhibits
|
|
|
22-25
|
PART
I.
FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
FRANKLIN
ELECTRIC CO., INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
First
Quarter Ended
|
|
|
|
March
31,
|
|
April
1,
|
|
|
|
2007
|
|
2006
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
130,496
|
|
$
|
101,739
|
|
Cost
of sales
|
|
|
91,567
|
|
|
66,310
|
|
Gross
profit
|
|
|
38,929
|
|
|
35,429
|
|
Selling
and administrative expenses
|
|
|
29,455
|
|
|
20,435
|
|
Restructuring
expense
|
|
|
1,238
|
|
|
-
|
|
Operating
income
|
|
|
8,236
|
|
|
14,994
|
|
Interest
expense
|
|
|
(1,212
|
)
|
|
(193
|
)
|
Other
income
|
|
|
298
|
|
|
445
|
|
Foreign
exchange income/(loss)
|
|
|
247
|
|
|
(45
|
)
|
Income
before income taxes
|
|
|
7,569
|
|
|
15,201
|
|
Income
taxes
|
|
|
2,672
|
|
|
5,491
|
|
Income
from continuing operations
|
|
|
4,897
|
|
|
9,710
|
|
|
|
|
|
|
|
|
|
(Loss)
from discontinued operations
|
|
|
-
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,897
|
|
$
|
9,699
|
|
|
|
|
|
|
|
|
|
Income
per share:
|
|
|
|
|
|
|
|
Basic
continuing operations
|
|
$
|
0.21
|
|
$
|
0.43
|
|
Basic
discontinued operations
|
|
|
-
|
|
|
-
|
|
|
|
$
|
0.21
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
Diluted
continuing operations
|
|
$
|
0.21
|
|
$
|
0.42
|
|
Diluted
discontinued operations
|
|
|
-
|
|
|
-
|
|
|
|
$
|
0.21
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
Dividends
per common share
|
|
$
|
0.11
|
|
$
|
0.10
|
|
See
Notes
to Condensed Consolidated Financial Statements.
FRANKLIN
ELECTRIC CO., INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except per share amounts)
|
|
March
31,
|
|
December
30,
|
|
ASSETS
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
34,496
|
|
$
|
33,956
|
|
Receivables,
less allowances of $2,816 and $2,786, respectively
|
|
|
69,412
|
|
|
52,679
|
|
Inventories
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
48,141
|
|
|
39,195
|
|
Work-in-process
|
|
|
15,868
|
|
|
14,414
|
|
Finished
goods
|
|
|
87,598
|
|
|
76,661
|
|
LIFO
reserve
|
|
|
(19,159
|
)
|
|
(18,707
|
)
|
|
|
|
132,448
|
|
|
111,563
|
|
|
|
|
|
|
|
|
|
Other
current assets
|
|
|
5,216
|
|
|
4,678
|
|
Deferred
income taxes
|
|
|
14,211
|
|
|
14,914
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
255,783
|
|
|
217,790
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, at cost:
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
56,297
|
|
|
56,352
|
|
Machinery
and equipment
|
|
|
173,560
|
|
|
169,119
|
|
|
|
|
229,857
|
|
|
225,471
|
|
Less
allowance for depreciation
|
|
|
112,847
|
|
|
109,495
|
|
|
|
|
117,010
|
|
|
115,976
|
|
|
|
|
|
|
|
|
|
Other
assets (including deferred income taxes of $1,723 and $1,269,
respectively)
|
|
|
14,804
|
|
|
14,375
|
|
Intangible
assets
|
|
|
44,638
|
|
|
45,257
|
|
Goodwill
|
|
|
134,294
|
|
|
133,527
|
|
Total
assets
|
|
$
|
566,529
|
|
$
|
526,925
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREOWNERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
25,639
|
|
$
|
30,832
|
|
Accrued
liabilities
|
|
|
35,164
|
|
|
40,166
|
|
Income
taxes
|
|
|
3,092
|
|
|
11,649
|
|
Current
maturities of long-term debt and short-term borrowings
|
|
|
1,314
|
|
|
11,310
|
|
Total
current liabilities
|
|
|
65,209
|
|
|
93,957
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
110,936
|
|
|
51,043
|
|
Deferred
income taxes
|
|
|
4,713
|
|
|
4,597
|
|
Employee
benefit plan obligations
|
|
|
26,216
|
|
|
25,969
|
|
Other
long-term liabilities
|
|
|
5,489
|
|
|
5,528
|
|
|
|
|
|
|
|
|
|
Shareowners'
equity:
|
|
|
|
|
|
|
|
Common
shares (45,000 shares authorized, $.10 par value)
|
|
|
|
|
|
|
|
outstanding
(23,139
and 23,009, respectively)
|
|
|
2,314
|
|
|
2,301
|
|
Additional
capital
|
|
|
99,130
|
|
|
94,356
|
|
Retained
earnings
|
|
|
238,948
|
|
|
236,780
|
|
Loan
to ESOP Trust
|
|
|
-
|
|
|
(200
|
)
|
Accumulated
other comprehensive income
|
|
|
13,574
|
|
|
12,594
|
|
Total
shareowners' equity
|
|
|
353,966
|
|
|
345,831
|
|
Total
liabilities and shareowners' equity
|
|
$
|
566,529
|
|
$
|
526,925
|
|
See
Notes
to Condensed Consolidated Financial Statements.
FRANKLIN
ELECTRIC CO., INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In
thousands)
|
|
First
Quarter Ended
|
|
|
|
March
31,
|
|
April
1,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
4,897
|
|
$
|
9,699
|
|
Adjustments
to reconcile net income to net cash flows from operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
4,730
|
|
|
4,075
|
|
Stock-based
compensation
|
|
|
1,363
|
|
|
894
|
|
Deferred
income taxes
|
|
|
365
|
|
|
261
|
|
Gain/loss
on disposals of plant and equipment
|
|
|
20
|
|
|
(5
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Receivables
|
|
|
(17,984
|
)
|
|
(12,053
|
)
|
Inventories
|
|
|
(20,716
|
)
|
|
(9,911
|
)
|
Accounts
payable and other accrued expenses
|
|
|
(10,604
|
)
|
|
(10,648
|
)
|
Accrued
income taxes
|
|
|
(7,415
|
)
|
|
1,318
|
|
Excess
tax from share-based compensation arrangements
|
|
|
(1,158
|
)
|
|
(1,176
|
)
|
Employee
benefit plans
|
|
|
574
|
|
|
(23
|
)
|
Other,
net
|
|
|
(1,150
|
)
|
|
(668
|
)
|
Net
cash flows from operating activities
|
|
|
(47,078
|
)
|
|
(18,237
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
|
(4,584
|
)
|
|
(2,912
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
16
|
|
|
45
|
|
Additions
to other assets
|
|
|
-
|
|
|
(52
|
)
|
Purchases
of securities
|
|
|
-
|
|
|
(63,500
|
)
|
Proceeds
from sale of securities
|
|
|
-
|
|
|
99,488
|
|
Proceeds
from sale of business
|
|
|
1,310
|
|
|
-
|
|
Net
cash flows from investing activities
|
|
|
(3,258
|
)
|
|
33,069
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from long-term debt
|
|
|
50,000
|
|
|
-
|
|
Repayment
of long-term debt
|
|
|
(79
|
)
|
|
(70
|
)
|
Proceeds
from issuance of common stock
|
|
|
2,266
|
|
|
3,036
|
|
Excess
tax from share-based compensation arrangements
|
|
|
1,158
|
|
|
1,176
|
|
Purchases
of common stock
|
|
|
-
|
|
|
(198
|
)
|
Reduction
of loan to ESOP Trust
|
|
|
200
|
|
|
232
|
|
Dividends
paid
|
|
|
(2,536
|
)
|
|
(2,258
|
)
|
Net
cash flows from financing activities
|
|
|
51,009
|
|
|
1,918
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(133
|
)
|
|
492
|
|
Net
change in cash and equivalents
|
|
|
540
|
|
|
17,242
|
|
Cash
and equivalents at beginning of period
|
|
|
33,956
|
|
|
52,136
|
|
Cash
and equivalents at end of period
|
|
$
|
34,496
|
|
$
|
69,378
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
10.4
|
|
$
|
3.7
|
|
Cash
paid for interest
|
|
$
|
1.0
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
Non-cash
items:
|
|
|
|
|
|
|
|
Additions
to property, plant, and equipment, not yet paid
|
|
$
|
0.6
|
|
$
|
0.2
|
|
Payable
to seller of Healy Systems, Inc.
|
|
$
|
0.5
|
|
$
|
-
|
|
See
Notes
to Condensed Consolidated Financial Statements.
FRANKLIN
ELECTRIC CO., INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying condensed consolidated balance sheet as of December 30, 2006,
which
has been derived from audited financial statements, and the unaudited interim
condensed consolidated financial statements as of March 31, 2007, and for the
three months then ended, 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 notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all accounting entries and adjustments (including normal recurring
accruals) considered necessary for a fair presentation of the financial position
and the results of operation for the interim period have been made. Operating
results for the first quarter ended March 31, 2007 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 29, 2007. For further information, including a description of Franklin
Electric's critical accounting policies, refer to the consolidated financial
statements and notes thereto included in Franklin Electric Co., Inc.'s annual
report on Form 10-K for the year ended December 30, 2006.
2.
ACCOUNTING PRONOUNCEMENTS
In
July
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48 “Accounting For Uncertainty in Income Taxes” (“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise’s financial statements in accordance with SFAS No. 109
“Accounting for Income Taxes.” It prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN 48 took effect
for fiscal years beginning after December 15, 2006. The Company adopted FIN
48
in the first quarter of 2007.
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”. SFAS No.
157 gives guidance for measuring assets and liabilities using fair value. Fair
value is a market-based measurement, not an entity-specific measurement, and
sets out a fair value hierarchy with the highest priority being quoted prices
in
active markets. The fair value measurements are disclosed by level within that
hierarchy. While SFAS No. 157 does not add any new fair value measurements,
it
does change current practice. This
statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, although earlier application is
encouraged. The Company is currently evaluating the impact of adopting
SFAS No. 157 on its financial statements, but does not believe the adoption
of this standard will have a material impact on the Company’s results of
operations, financial position, or statement of cash flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities
to choose to measure many financial instruments and certain other items at
fair
value that are not currently required to be measured at fair value. SFAS No.
159
is effective for fiscal years beginning after November 15, 2007, with early
adoption permitted provided the entity also elects to apply the provisions
of
SFAS No. 157. The Company is currently evaluating the impact of adopting
SFAS No. 159 on its financial statements.
3.
INVESTMENTS
As
of
March 31, 2007 and April 1, 2006, the Company held no investments in financial
securities.
The
Company holds a 35 percent equity interest, in Pioneer Pump, Inc., which is
accounted for using the equity method and included in “Other assets” on the face
of the balance sheet. The carrying amount of the investment is adjusted for
the
Company’s proportionate share of earnings, losses, and dividends. The carrying
value of the investment was $6.2 million, and $5.5 million for the first quarter
ended March 31, 2007 and April 1, 2006, respectively. The Company’s
proportionate share of Pioneer Pump, Inc. earnings, included in “Other income”
in the Company’s results of operations, was $0.1 million, for the first quarter
ended March 31, 2007.
4.
GOODWILL AND OTHER INTANGIBLE ASSETS
The
carrying amounts of the Company’s intangible assets, which is included in “Other
assets” is as follows:
(In
millions)
|
|
March
31, 2007
|
|
December
30, 2006
|
|
|
|
Gross
Carrying Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying Amount
|
|
Accumulated
Amortization
|
|
Amortized
intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
6.3
|
|
|
($2.9
|
)
|
$
|
6.3
|
|
|
($2.8
|
)
|
Supply
agreements
|
|
|
7.2
|
|
|
(4.5
|
)
|
|
7.2
|
|
|
(4.3
|
)
|
Technology
|
|
|
3.8
|
|
|
(0.4
|
)
|
|
3.8
|
|
|
(0.3
|
)
|
Customer
relationships
|
|
|
26.8
|
|
|
(1.1
|
)
|
|
26.8
|
|
|
(0.8
|
)
|
Other
|
|
|
1.8
|
|
|
(1.7
|
)
|
|
1.7
|
|
|
(1.6
|
)
|
Total
|
|
|
45.9
|
|
|
(10.6
|
)
|
|
45.8
|
|
|
(9.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
names
|
|
|
9.3
|
|
|
-
|
|
|
9.3
|
|
|
-
|
|
Total
intangibles
|
|
$
|
55.2
|
|
|
($10.6
|
)
|
$
|
55.1
|
|
|
($9.8
|
)
|
Amortization
expense related to intangible assets for the first quarter ended March 31,
2007
and April 1, 2006, was $0.7 million and $0.4 million, respectively.
During
the first fiscal quarter, there has been no change in the projected amortization
expense for each of the five succeeding years as reported in the Company’s
annual report on Form 10-K for the year ended December 30, 2006.
The
changes in the carrying amount of goodwill for the first quarter ended March
31,
2007, are as follows:
(In
millions)
|
|
|
|
|
|
|
|
Balance
as of December 31, 2006
|
|
$
|
133.5
|
|
Increase
in goodwill acquired during the period
|
|
|
0.5
|
|
Foreign
currency translation
|
|
|
0.3
|
|
Balance
as of March 31, 2007
|
|
$
|
134.3
|
|
5.
EMPLOYEE BENEFIT PLANS
Defined
Benefit Plants - As of March 31, 2007, the Company maintained three domestic
pension plans and one German pension plan. The Company uses a December 31
measurement date for its plans. In 2006, the Company adopted SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans.”
The
following table sets forth aggregated net periodic benefit cost for quarters
ended March 31, 2007 and April 1, 2006:
(In
millions)
|
|
|
|
Pension
Benefits
|
|
Other
Benefits
|
|
|
|
March
31,
|
|
April
1,
|
|
March
31,
|
|
April
1,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1.2
|
|
$
|
1.1
|
|
$
|
0.1
|
|
$
|
0.1
|
|
Interest
cost
|
|
|
2.5
|
|
|
2.2
|
|
|
0.2
|
|
|
0.2
|
|
Expected
return on assets
|
|
|
(3.1
|
)
|
|
(2.8
|
)
|
|
-
|
|
|
-
|
|
Prior
service cost
|
|
|
0.4
|
|
|
0.4
|
|
|
-
|
|
|
0.1
|
|
Loss/(Gain)
|
|
|
.
-
|
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
Total
net periodic benefit cost
|
|
$
|
1.0
|
|
$
|
1.0
|
|
$
|
0.4
|
|
$
|
0.5
|
|
As
of
March 31, 2007 the Company made contributions to the plans of $0.9
million.
6.
INCOME
TAXES
The
effective tax rate on income before income taxes in 2007 and 2006 varies from
the United States statutory rate of 35 percent primarily 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.
7.
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
The
Company adopted the provisions of FASB Interpretation No. 48 (“FIN 48”),
“Accounting for Uncertainty in Income Taxes”, in the first quarter 2007. The
implementation of FIN 48 did not have a significant impact on the Company’s
financial position or results of operations.
As
of the
beginning of fiscal year 2007, the Company had unrecognized tax benefits of
$1.4
million, including accrued interest and penalties. There has been no significant
change in the unrecognized tax benefits during the first quarter ending March
31, 2007. If recognized, the effective tax rate would be affected by the
unrecognized tax benefits.
The
Company recognizes interest and penalties related to unrecognized tax benefits
as interest and operating expenses, respectively. The Company has accrued about
$0.2 million for interest and penalties as of March 31, 2007. Interest and
penalties recorded during the quarter ended March 31, 2007 were not considered
significant.
The
Company is subject to periodic audits by domestic and foreign tax authorities.
Currently, the Company is undergoing routine periodic audits in both domestic
and foreign tax jurisdictions. It is reasonably possible that the amounts of
unrecognized tax benefits could change in the next 12 months as a result of
the
audits. Based on the current audits in process, the payment of taxes as a result
of audit settlements could be from $0.1 to $0.2 million.
For
the
majority of tax jurisdictions, the Company is no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations by tax authorities for
years before 2003.
8.
DEBT
On
September 9, 2004, the Company entered into an unsecured, 60-month, $80.0
million revolving credit agreement. This agreement was amended and restated
on
December 14, 2006 to be an unsecured, 60-month $120.0 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 earnings
before interest, taxes, depreciation, and amortization (“EBITDA”). The Agreement
contains certain financial covenants with respect to borrowings, interest
coverage, loans or advances and investments. The Company had outstanding
borrowings of $100.0 million under the Agreement at March 31, 2007. The Company
also has certain overdraft facilities at its foreign subsidiaries, of which
none
were outstanding at March 31, 2007.
Long-term
debt consisted of:
(In
millions)
|
|
|
|
March
31,
|
|
December
30,
|
|
|
|
2007
|
|
2006
|
|
Insurance
Company - 6.31 percent, principal payments of $1.0 million due in
annual
installments, with a balloon payment of $10.0 in 2008 ($1.9 denominated
in
JPY at 3/31/07)
|
|
$
|
11.2
|
|
$
|
11.3
|
|
Capital
Leases
|
|
|
1.1
|
|
|
1.1
|
|
Credit
Agreement - the average interest rate for the first quarter 2007
was 5.6%
based on the London Interbank Offered Rates (LIBOR) plus an interest
spread.
|
|
|
100.0
|
|
|
50.0
|
|
|
|
|
112.3
|
|
|
62.4
|
|
Less
Current Maturities
|
|
|
(1.3
|
)
|
|
(11.3
|
)
|
|
|
$
|
111.0
|
|
$
|
51.1
|
|
The
following debt payments are expected to be paid:
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2007
|
|
2008
|
|
2009
|
|
More
than 5 years
|
|
Debt
|
|
$
|
111.2
|
|
$
|
1.0
|
|
$
|
10.2
|
|
$
|
-
|
|
$
|
100.0
|
|
Capital
leases
|
|
|
1.1
|
|
|
0.3
|
|
|
.0.4
|
|
|
.
0.4
|
|
|
-
|
|
|
|
$
|
112.3
|
|
$
|
1.3
|
|
$
|
10.6
|
|
$
|
0.4
|
|
$
|
100.0
|
|
9.
EARNINGS PER SHARE
Following
is the computation of basic and diluted earnings per share:
(In
millions, except per share amounts)
|
|
First
Quarter Ended
|
|
|
|
March
31,
|
|
April
1,
|
|
|
|
2007
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
4.9
|
|
$
|
9.7
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
-
|
|
Net
income
|
|
$
|
4.9
|
|
$
|
9.7
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
Weighted
average common shares
|
|
|
23.1
|
|
|
22.6
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
and director incentive stock options and awards
|
|
|
0.4
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
Adjusted
weighted average common shares
|
|
|
23.5
|
|
|
23.1
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
Basic
from continuing operations
|
|
$
|
0.21
|
|
$
|
0.43
|
|
Basic
from discontinuing operations
|
|
|
-
|
|
|
-
|
|
Total
basic earnings per share
|
|
$
|
0.21
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
Diluted
from continuing operations
|
|
$
|
0.21
|
|
$
|
0.42
|
|
Diluted
from discontinuing operations
|
|
|
-
|
|
|
-
|
|
Total
diluted earnings per share
|
|
$
|
0.21
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
Anti-dilutive
stock options
|
|
|
0.20
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
Anti-dilutive
stock options price range - low
|
|
$
|
44.51
|
|
$
|
40.93
|
|
Anti-dilutive
stock options price range - high
|
|
$
|
48.87
|
|
$
|
45.90
|
|
|
|
|
|
|
|
|
|
10.
OTHER
COMPREHENSIVE INCOME
Comprehensive
income is as follows:
(In
millions)
|
|
First
Quarter Ended
|
|
|
|
March
31,
|
|
April
1,
|
|
|
|
2007
|
|
2006
|
|
Net
income
|
|
$
|
4.9
|
|
$
|
9.7
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
0.4
|
|
|
2.0
|
|
Pension
liability adjustment
|
|
|
0.6
|
|
|
-
|
|
Comprehensive
income, net of tax
|
|
$
|
5.9
|
|
$
|
11.7
|
|
Accumulated
other comprehensive income consists of the following:
(In
millions)
|
|
March
31,
|
|
December
30,
|
|
|
|
2007
|
|
2006
|
|
Cumulative
foreign currency translation adjustments
|
|
$
|
15.0
|
|
$
|
14.6
|
|
Pension
liability adjustment, net of tax
|
|
|
(1.4
|
)
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
13.6
|
|
$
|
12.6
|
|
11.
CONTINGENCIES AND COMMITMENTS
At
March
31, 2007, the Company had $4.3 million of commitments primarily for the purchase
of machinery and equipment, and building expansions.
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, as recorded in “Accrued
liabilities” in the Company’s balance sheet:
(In
millions)
|
|
First
Quarter Ended
|
|
|
|
March
31,
|
|
April
1,
|
|
|
|
2007
|
|
2006
|
|
Beginning
balance
|
|
$
|
10.0
|
|
$
|
7.0
|
|
Accruals
related to product warranties
|
|
|
1.6
|
|
|
1.8
|
|
Reductions
for payments made
|
|
|
(2.0
|
)
|
|
(1.6
|
)
|
Ending
balance
|
|
$
|
9.6
|
|
$
|
7.2
|
|
12.
STOCK-BASED COMPENSATION
Prior
to
January 1, 2006, the Company accounted for stock-based employee compensation
plans under the recognition and measurement provisions of APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations, as
permitted by SFAS No. 123, “Accounting for Stock-Based Compensation.” Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of
SFAS No. 123(R), “Share-Based Payment,” using the modified
prospective-transition method
The
total
stock-based compensation recognized in the first quarter ended March 31, 2007
and April 1, 2006 is $1.4 million and $0.9 million, respectively.
The
Company has authorized the grant of options to purchase common stock and award
shares of common stock of the Company to employees and non-employee directors
of
the Company and its subsidiaries under two stock plans. The plans and the
original number of authorized shares available for grants are as
follows:
|
Authorized
Shares
|
Franklin
Electric Co., Inc. Stock Option Plan
|
3,600,000
|
Franklin
Electric Co., Inc. Stock Plan - options
|
1,150,000
|
Franklin
Electric Co., Inc. Stock Plan - stock awards
|
150,000
|
During
2005, all remaining authorized shares available for grant under the Franklin
Electric Co., Inc. Stock Option Plan were awarded. On April 29, 2005, the
Franklin Electric Co., Inc. Stock Plan (the “Stock Plan”) was approved by the
Company’s shareholders. Under the Stock Plan, employees and non-employee
directors may be granted stock options or stock awards. The Company currently
issues new shares from its common stock outstanding balance to satisfy share
option exercises and stock awards.
Stock
Option Grants:
Under
each of the above plans, the exercise price of each option equals the market
price of the Company’s common stock on the date of grant and the options expire
ten years after the date of the grant. Generally, options granted to nonemployee
directors vest 33 percent a year and become fully vested and exercisable after
three years. Options granted to employees vest at 20 or 25 percent a year and
become fully vested and exercisable after five years or four years,
respectively. Subject to the terms of the plans, in general, the aggregate
option price and any applicable tax withholdings may be satisfied in cash or
its
equivalent, or by the plan participant’s delivery of shares of the Company’s
common stock owned more than six months, having a fair market value at the
time
of exercise equal to the aggregate option price and/or the applicable tax
withholdings.
The
fair
value of each option award, is estimated on the date of grant using the
Black-Scholes option valuation model with a single approach and amortized using
a straight-line attribution method over the option’s vesting period. Options
granted to retirement eligible employees are immediately expensed. The Company
uses historical data to estimate the expected volatility of its stock; the
weighted average expected life; the period of time options granted are expected
to be outstanding; and its dividend yield. The risk-free rates for periods
within the contractual life of the option are based on the U.S. Treasury yield
curve in effect at the time of the grant.
The
assumptions used for the Black-Scholes model to determine the fair value of
options granted during the first quarter ended March 31, 2007 are as
follows:
Risk-free
interest rate
|
|
|
4.74-4.78
|
%
|
Dividend
yield
|
|
|
.65-.67
|
%
|
Weighted-average
dividend yield
|
|
|
.653
|
%
|
Volatility
factor
|
|
|
.3529-.3701
|
|
Weighted-average
volatility
|
|
|
.3554
|
|
Expected
term
|
|
|
5.3-6.2
years
|
|
Forfeiture
rate
|
|
|
4.18
|
%
|
A
summary
of the Company’s stock option plans activity and related information, for the
first quarter ended March 31, 2007 follows:
(shares
in thousands)
Stock
Options
|
|
Shares
|
|
Weighted-Average
Exercise
Price
|
|
Weighted-Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
(000’s)
|
|
Outstanding
at beginning of 2007
|
|
|
1,398
|
|
$
|
26.65
|
|
|
|
|
|
|
|
Granted
|
|
|
131
|
|
|
48.87
|
|
|
|
|
|
|
|
Exercised
|
|
|
(110
|
)
|
|
20.60
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5
|
)
|
|
33.32
|
|
|
|
|
|
|
|
Outstanding
at the end of the first quarter ended March 31, 2007
|
|
|
1,414
|
|
$
|
29.15
|
|
|
5.90
|
|
$
|
24,839
|
|
Expected
to vest after applying the forfeiture rate
|
|
|
1,369
|
|
$
|
28.84
|
|
|
5.83
|
|
$
|
24,453
|
|
Vested
and exercisable at end of the period
|
|
|
911
|
|
$
|
24.06
|
|
|
4.77
|
|
$
|
20,446
|
|
There
were 131,000 options granted during the first quarter. The total intrinsic
value
of options exercised during the first quarter of 2007 was $3.2 million. There
were no share-based liabilities paid during the first quarter 2007.
A
summary
of the Company’s nonvested shares activity and related information, for the
first quarter ended March 31, 2007 follows:
(shares
in thousands)
Nonvested
Shares
|
Shares
|
Weighted-Average
Exercise
Price
|
Nonvested
at beginning of period
|
556
|
$33.95
|
Granted
|
131
|
48.87
|
Vested
|
(179)
|
32.48
|
Forfeited
|
(6)
|
33.32
|
Nonvested
at end of period
|
502
|
$38.37
|
As
of
March 31, 2007, there was $4.8 million of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
Plans. That cost is expected to be recognized over a weighted-average period
of
2.11 years.
Stock
Awards:
Under
the
Stock Plan, nonemployee directors and employees may be granted stock awards
or
grants of restricted shares of the Company’s common stock, vesting subject to
the employees’ performance of certain goals. The Stock Plan is an amendment and
restatement of the Franklin Electric Co., Inc. Key Employee Performance
Incentive Stock Plan (the “Incentive Plan”), established in 2000. Prior to April
29, 2005, 16,300 shares had been awarded under the Incentive Plan and an
additional 150,000 shares were authorized for stock awards under the Stock
Plan.
The
stock
awards are granted at the market value on the date of grant and the restricted
stock awards cliff vest over either 4 or 5 years and the attainment of certain
performance goals. Dividends are paid to the recipient prior to vesting. Stock
awards granted to retirement eligible employees were immediately expensed in
2006 and 2007.
A
summary
of the Company’s restricted stock award activity and related information, for
the first quarter ended March 31, 2007 follows:
(shares
in thousands)
Nonvested
Shares
|
Shares
|
Weighted-Average
Grant
Date
Fair Value
|
Nonvested
at beginning of period
|
40
|
$43.39
|
Awarded
|
23
|
48.87
|
Nonvested
at end of period
|
63
|
$45.42
|
There
were no shares vested or forfeited during the first quarter ended March 31,
2007.
As
of
March 31, 2007, there was $1.9 million of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
Plan. That cost is expected to be recognized over a weighted-average period
of
3.2 years.
13.
RESTRUCTURING
During
the first quarter of 2007, the Company initiated Phase 2 of its Global
Manufacturing Realignment Program (the “Realignment Program”). Phase 2 of the
Realignment Program includes the expansion of recently established facilities
in
lower-cost regions and the further shifting of production out of higher cost
manufacturing facilities. Phase 2 also includes the process of consolidating
certain Fueling Systems product manufacturing into its Madison, Wisconsin
facility.
Restructuring
expenses, primarily manufacturing equipment relocation and production
re-alignment, for the first quarter of 2007 were approximately $1.2 million
(pre-tax). The Company estimates that full-year 2007 restructuring expenses
will
be approximately $6 million (pre-tax ) and will include severance and other
employee related expenses, as well as manufacturing equipment relocation. As
of
March 31, 2007, there were no restructuring reserves in the Company’s
consolidated balance sheet.
14.
SUBSEQUENT EVENT
The
Company amended and restated an uncommitted shelf agreement with Prudential
Capital in the amount of $175 million in the second quarter. Under the
shelf agreement the Company has issued notes for $110 million in the second
quarter at a fixed rate of 5.79 percent with a 10-year average life, and which
includes financial covenants similar to the Company’s other borrowing
agreements. Proceeds of the facility will be used to further reduce short
term variable rate borrowings, fund future acquisitions and purchase Company
stock. The company intends to issue an additional $40 million of notes in the
third quarter, also with a rate of 5.79 percent and similar terms.
ITEM
2. MANAGEMENT’S DISCUSSTION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Q1
2007 VS Q1 2006
OVERVIEW
Sales
for
first quarter 2007 were up from first quarter 2006. The increase in sales was
primarily related to sales from the Company’s two acquisitions. First quarter
sales excluding acquisitions declined about 7 percent from the same period
a
year ago. Earnings declined in first quarter 2007 primarily due to the
significant decline in Water Systems small submersible motor product sales
volume and resulted in a product mix change. The contribution margin of small
submersible motors is more than other Water Systems products resulting in a
further decline of earnings due to the mix change. The Company also had
increased fixed costs in connection with selling, general and administrative
spending resulting from the Company’s strategy of selling to a more diversified
customer base by marketing its Water Systems products directly to distributors.
RESULTS
OF OPERATIONS
Net
sales
for first quarter 2007 were $130.5 million, an increase of $28.8 million or
28
percent compared to first quarter 2006 sales of $101.7 million. Incremental
sales related to acquisitions for 2007 were $36.0 million or 35 percent of
sales. The majority of the sales growth from acquisitions resulted from sales
by
Little Giant Pump Company.
Global
Water Systems sales for first quarter 2007 increased by 20 percent from the
same
period a year ago. However, excluding the Little Giant acquisition, global
Water
Systems sales decreased by 12 percent versus first quarter 2006. Sales of North
American 4-inch submersible motor units declined primarily due to the
liquidation of stockpiled 4-inch submersible motors by several large integrated
pump OEMs, fewer sales to these OEMs, and weak overall North American water
systems industry demand due to lower new housing construction and harsh weather
conditions in key regions. In addition, sales volume for first quarter 2007
was
down in comparison to 2006 because of a seasonality shift in the Company’s
business. The Company now sells primarily to distributors whose sales are
associated more with general construction activity which is more concentrated
in
the second and third quarters of the year. Acquisition and volume changes were
the primary factors in Water Systems sales changes in the first quarter. Changes
in selling price increased net sales by about 4 percent and foreign exchange
rate changes increased net sales by about 1 percent.
Global
Fueling Systems sales for first quarter 2007 increased by 64 percent over the
same period a year ago primarily due to the acquisition of Healy Systems.
Excluding the Healy acquisition, first quarter Fueling System sales increased
by
15 percent over last year. The volume growth across product lines in place
in
both years was about 11 percent, led by continued penetration of the fuel
management electronics platform. Changes in selling price increased net sales
by
about 3 percent.
Cost
of
sales as a percent of net sales for first quarters 2007 and 2006 was 70.2
percent and 65.2 percent, respectively. Correspondingly, the gross margin
declined from about 35 percent to 30 percent. Approximately 55 percent of the
gross margin decline in first quarter 2007 compared to 2006 was primarily
attributable to the reduction of North American market sales volume of 4-inch
submersible motors; North American Water Systems market price promotions
accounted for approximately 20 percent of the margin decline; and, the balance
was attributable to the mix effect of including Little Giant sales with lower
gross margins. Material and component costs increased in first quarter 2007
from
the same period in 2006 and were mostly offset by increased sales prices.
Selling
and administrative (“SG&A”) expense as a percent of net sales for 2007 and
2006 was 22.6 percent and 20.1 percent, respectively. SG&A expense spending
increased by $9.0 million in first quarter 2007 compared to first quarter last
year. Selling and marketing expenses for Water Systems in North America
increased $1.1 million due to the Company’s strategy of selling to a more
diversified customer base. The acquisitions of Little Giant and Healy added
approximately $7.0 million of selling, general and administrative expenses
including expenses for additional professional fees and information systems
costs. Fueling Systems selling, general and administrative expenses increased
$0.3 million for first quarter 2007 compared to the same period in the prior
year and stock-based compensation expenses increased $0.5 million.
During
the first quarter of 2007, the Company initiated Phase 2 of its Global
Manufacturing Realignment Program. Phase 2 of the Realignment Program includes
the expansion of recently established facilities in lower-cost regions and
the
further shifting of production out of higher cost manufacturing facilities.
Submersible motor manufacturing capacity at the new Linares, Mexico facility
has
been expanded with a corresponding downsizing of motor capacity at the Siloam
Springs, Arkansas facility. During the second quarter of 2007, a manufacturing
personnel reduction of 200 will be implemented at the Siloam Springs facility.
The Company is also in the process of consolidating certain Fueling Systems
product manufacturing into its Madison, Wisconsin facility. Restructuring
expenses for the first quarter of 2007 were approximately $1.2 million
(pre-tax), and reduced first quarter EPS by approximately $0.03 per share.
Full-year 2007 restructuring expenses are estimated at $6 million (pre-tax)
and
will include severance and other employee related expenses, as well as,
manufacturing equipment relocation costs.
Interest
expense for first quarter 2007 and 2006 was $1.2 million and $0.2 million,
respectively. Interest expense increased in 2007 due primarily to debt increases
associated with the acquisitions of Little Giant Pump Company and Healy Systems,
as well as, increased working capital for inventory and accounts receivable.
Included
in “Other income” for first quarter 2007 and 2006 was interest income of $0.3
million and $0.6 million, respectively, primarily derived from the investment
of
cash balances in short-term U.S. treasury and agency securities. Also, included
in other income for first quarter 2007 was income from equity investments of
$0.1 million.
Foreign
currency-based transactions produced a gain for first quarter 2007 of about
$0.2
million primarily due to euro rate changes relative to the U.S. dollar.
Foreign currency-based transactions were neutral in first quarter
2006.
The
provision for income taxes in 2007 and 2006 was $2.7 million and $5.5 million,
respectively. The effective tax rates were 35.3 and 36.1 percent for 2007 and
2006, respectively. The effective tax rate differs from the United States
statutory rate of 35 percent, generally due to foreign income exclusion and
R&D credits and due to the effects of state and foreign income taxes, net of
federal tax benefits.
Net
income for first quarter 2007 was $4.9 million, or $0.21 per diluted share,
compared to first quarter 2006 net income of $9.7 million or $0.42 per diluted
share.
CAPITAL
RESOURCES AND LIQUIDITY
Operating
activities consumed approximately $47.1 million of cash during first quarter
2007 compared to cash consumed during first quarter 2006 of $18.2 million.
The
operating cash flows used in first quarter 2007 were primarily related to
increases in receivables and inventory. The increase in receivables is due
to
the higher sales and increasing days of sales outstanding due to a more
diversified customer base and sale terms, about
$18.0 million. The increase in inventory, about $20.7 million, was primarily
in
finished goods due to seasonal inventory buildup. The operating cash flow used
in first quarter 2006 was also primarily in accounts receivable and inventory
for the same reasons as the current first quarter. Cash outflows for accounts
payable and other accrued expenses for both 2007 and 2006 were primarily
attributable to the timing of payments made to vendors, increased inventories
and payments for employee benefits. In first quarter 2007 income tax payments
exceeded accruals for income taxes during the quarter due to lower earnings.
Net
cash
flows used in investing activities were $3.3 million in first quarter 2007,
primarily for the purchase of property, plant and equipment, net of additional
proceeds from divestiture of EMPD in 2006. In first quarter 2006, the Company
generated cash of $36.0 million from short-term investment securities sold,
net
of short-term investment securities purchased. In first quarter 2006, the
Company also purchased property, plant and equipment of approximately $2.9
million.
Cash
flows from financing activities in first quarter 2007 were $51.0 million
primarily from long-term debt. Net cash flows from financing activities were
$1.9 million in first quarter 2006, primarily from common stock proceeds. The
Company paid $2.5 million and $2.3 million in dividends on the Company’s common
stock in first quarter 2007 and 2006, respectively.
Cash
and
cash equivalents at the end of first quarter 2007 were $34.5 million compared
to
$34.0 million at the end of fiscal year 2006. Working capital increased $66.7
million in first quarter 2007 from year end 2006. The Company’s working capital
increased in first quarter 2007 as the Company increased accounts receivable
and
inventory as noted above.
In
September 2004, the Company entered into an unsecured, 60-month $80.0 million,
amended and restated on December 14, 2006 to $120.0 million revolving credit
agreement (the “Agreement”). The Company had outstanding borrowings of $100.0
million under the Agreement at March 31, 2007. The Company also has certain
overdraft facilities at its foreign subsidiaries, of which none were outstanding
at March 31, 2007. The Company is subject to certain financial covenants with
respect to borrowings, interest coverage, working capital, loans or advances,
and investments. The Company was in compliance with all debt covenants at all
times in first quarter 2007 and 2006.
At
March
31, 2007, the Company had $4.3 million of commitments primarily for the purchase
of machinery and equipment, and building expansions. Management believes that
internally generated funds and existing credit arrangements provide sufficient
liquidity to meet these current commitments. The Company amended and restated
an
uncommitted shelf agreement with Prudential Capital in the amount of $175
million in the second quarter. Under the shelf agreement the Company has
issued notes for $110 million in the second quarter at a fixed rate of 5.79
percent with a 10-year average life, and which includes financial covenants
similar to the Company’s other borrowing agreements. Proceeds of the
facility will be used to further reduce short term variable rate borrowings,
fund future acquisitions and purchase Company stock. The company intends to
issue an additional $40 million of notes in the third quarter, also with a
rate
of 5.79 percent and similar terms.
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 inter-company 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 were
effective in bringing to their attention on a timely basis material information
relating to the Company to be included in the Company’s periodic filings under
the Exchange Act.
There
have been no changes in the Company’s internal control over financial reporting
identified in connection with the evaluation required by Rules 13a-15 and 15d-15
under the Exchange Act during the first fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II. OTHER INFORMATION
ITEM
1A. RISK FACTORS
There
were no material changes to the risk factors set forth in part 1, Item 1A,
in
the Company’s annual report on Form 10-K for the fiscal year ended December 30,
2006. Additional risks and uncertainties, not presently known to the Company
or
currently deemed immaterial, could negatively impact the Company’s results of
operations or financial condition in the future.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c)
Issuer Purchases of Equity Securities
There
is
no fixed expiration date for the plan. The Company did not repurchase any shares
of its stock in the first quarter of 2007. On April 5, 2007, the Company’s Board
of Directors increased the Company’s stock repurchase authority to permit the
repurchase of up to 2,300,000 shares of the Company’s common stock.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The
2007
Annual Meeting of Shareholders of the Company was held on April 27, 2007 to:
1)
elect two directors for terms expiring at the 2010 Annual Meeting of
Shareholders; 2) approve an amendment to the Company’s Restated Articles of
Incorporation to increase the number of shares of authorized common stock;
and
3) ratify the appointment of Deloitte & Touche LLP as the Company’s
independent registered public accounting firm for the 2007 fiscal year. Proxies
for the meeting were solicited pursuant to Section 14(a) of the Securities
Exchange Act of 1934, and there was no solicitation in opposition to the Boards
nominees for director.
All
of
the matters submitted to a vote of shareholders were approved, as shown by
the
following voting results:
1)
Elect two directors for terms expiring at the 2010 Annual Meeting
of
Shareholders.
|
|
|
|
Nominees
for Director
|
For
|
Withhold
Authority
|
Thomas
L. Young
|
20,108,404
|
1,232,369
|
R.
Scott Trumbull
|
21,232,318
|
108,455
|
|
2)
Approve an amendment to the Company’s Restated Articles of Incorporation
to increase the number of shares
|
of
authorized Common Stock by 20,000,000, from 45,000,000 to
65,000,000.
|
|
|
|
|
For
|
Against
|
Abstain
|
Broker
Non-Vote
|
19,117,220
|
2,103,371
|
20,178
|
100,004
|
|
3)
Ratification of Deloitte & Touche LLP as the Company’s independent
registered public accounting firm for the 2007 fiscal year.
|
|
For
|
Against
|
Abstain
|
21,200,858
|
121,554
|
18,361
|
|
Total
shares represented at the Annual Meeting in person or by proxy were 21,340,773
of a total of 23,111,339 shares outstanding as of the February 23, 2007 record
date. This represented 92.3 percent of Company common stock and constituted
a
quorum.
ITEM
6. EXHIBITS
See
the
Exhibit Index located on page 21.
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
8, 2007
|
|
By
|
/s/
R. Scott Trumbull
|
|
|
|
R.
Scott Trumbull, Chairman and Chief Executive Officer (Principal Executive
Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
May
8, 2007
|
|
By
|
/s/
Thomas J. Strupp
|
|
|
|
Thomas
J. Strupp, Vice President and Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer)
|
FRANKLIN
ELECTRIC CO., INC.
EXHIBIT
INDEX TO THE QUARTERLY REPORT ON FORM 10-Q
FOR
THE
FIRST QUARTER ENDED MARCH 31, 2007
|
|
Number
|
Description
|
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
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
|
|
|