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
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 |
|
46714-3798 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(260)
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.
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. o
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2)
The
aggregate market value of the registrant’s common stock held by non-affiliates
of the registrant at July 3, 2004 (the last business day of the registrant’s
most recently completed second quarter) was $804,461,906. The stock price used
in this computation was the last sales price on that date.
22,041,332
shares
Page 1 of
70
A portion
of the Proxy Statement for the Annual Meeting of Shareholders to be held on
April 29, 2005 (Part III).
TABLE
OF CONTENTS |
Part
I |
|
Page |
|
|
|
Item
1. |
Business |
4-5 |
Item
2. |
Properties |
6 |
Item
3. |
Legal
Proceedings |
6-7 |
Item
4. |
Submission
of Matters to a Vote of Security Holders |
7 |
|
|
7 |
|
|
|
Part
II |
|
|
|
|
|
Item
5. |
Market
for Registrant's Common Equity, Related Stockholder Matters, and Issuer
Repurchases of Equity Securities |
8 |
Item
6. |
Selected
Financial Data |
9 |
Item
7. |
Management's
Discussion and Analysis of Financial Condition and Results of
Operations |
10-15 |
Item
7A. |
Quantitative
and Qualitative Disclosures About Market Risk |
15 |
Item
8. |
Financial
Statements and Supplementary Data |
16-36 |
Item
9. |
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure |
37 |
Item
9A. |
Controls
and Procedures |
37 |
Item
9B. |
Other
Information |
37 |
|
|
|
Part
III |
|
|
|
|
|
Item
10. |
|
38 |
Item
11. |
Executive
Compensation |
38 |
Item
12. |
Security
Ownership of Certain Beneficial Owners and Management, and Related
Stockholder Matters |
38 |
Item
13. |
Certain
Relationships and Related Transactions |
38 |
Item
14. |
Principal
Accountant Fees and Services |
38 |
|
|
|
Part
IV |
|
|
|
|
|
Item
15. |
Exhibits
and Financial Statement Schedules |
39 |
Signatures |
|
40 |
Exhibit
Index |
|
41-42 |
PART
I
ITEM
1. BUSINESS
Franklin
Electric Co., Inc. is an Indiana corporation founded in 1944 and incorporated in
1946 that, together with its subsidiaries, conducts business in a single
reportable segment: the design, manufacture and distribution of groundwater and
fuel pumping systems, electronic controls and related parts and equipment.
Except where the content otherwise requires, “Franklin Electric” or the
“Company” shall refer to Franklin Electric Co., Inc. and its consolidated
subsidiaries.
Description
of Business
Franklin
Electric is a global leader in the production and marketing of groundwater and
fuel pumping systems and is a technical leader in submersible motors, drives,
controls, and monitoring devices. The Company is the world’s largest
manufacturer of submersible water and fueling systems motors, a manufacturer of
underground fueling systems hardware and flexible piping systems and a leader in
engineered industrial motor products. The Company acquired pump products for
water system applications via the acquisition of certain assets of JBD, Inc.,
(the former Jacuzzi brand pump company), during 2004.
Franklin
Electric’s motors and pumps are used principally in submersible applications for
pumping fresh water, fuel, wastewater and other liquids in a variety of
applications including residential, industrial, agriculture, fueling, off-shore
drilling, and mining. The Company also manufactures industrial electric motors
which are used in a wide variety of applications including gasoline dispensers,
paint handling equipment, electric hoists, explosion-proof vapor exhaust fans,
vacuum pumping systems, food preparation equipment, as well as commercial and
industrial water, fuel and other liquid pumping systems. Franklin Electric also
manufactures electronic drives and controls for the motors which control
functionality and provide protection from various hazards, such as electric
surges, over-heating or dry wells and tanks. Along with the fueling motor and
pump applications, the Company supplies a variety of products to the petroleum
equipment industry included with the submersible pumping systems, such as
flexible piping, electronic tank monitoring equipment, fittings, and vapor
recovery systems.
The
Company’s products are sold in the United States, Europe, South Africa,
Australia, Mexico, Japan, China and other world markets. The Company’s products
are sold through the Company’s sales force, independent distributors and repair
shops.
The
market for the Company’s products is highly competitive and includes both large
and small suppliers. The Company’s submersible water, fueling and industrial
motor products and related equipment are sold to original equipment
manufacturers of pumps and specialty water systems distributors as well as
industrial equipment distributors, major oil and utility companies.
ITT
Industries, Inc. and its various subsidiaries and affiliates, accounted for 19.2
percent, 18.0 percent and 18.2 percent of the Company’s consolidated sales in
2004, 2003, and 2002, respectively. Pentair Corporation and its various
subsidiaries and affiliates, accounted for 20.7 percent of the Company’s
consolidated sales in 2004. Sta-Rite Industries, Inc., formerly a subsidiary of
Wisconsin Energy Corporation, accounted for 13.6 percent and 11.5 percent of the
Company’s consolidated sales in 2003 and 2002, respectively. Sta-Rite
Industries, Inc. was acquired by Pentair Corporation during 2004 and its sales
have been included with Pentair’s sales for 2004.
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
steel in coils and bars, stainless steel, copper wire, and aluminum ingot. Major
components are capacitors, motor protectors, forgings, gray iron castings and
bearings. Most of these raw materials are available from many sources in the
United States and world markets. In the opinion of management, 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 approximately 2,600 persons at the end of
2004.
Segment
and Geographic Information
Segment
and geographic information is included within this Form 10-K on pages
32-33.
Research
and Development
The
Company spent approximately $5.4 million in 2004, $6.0 million in 2003, and $6.0
million in 2002 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 2004,
the Company began production in Europe of a newly designed six-inch
water systems motor, continued development of a more corrosion resistant
four-inch
submersible motor, expanded the line of variable speed constant pressure motor
systems for residential applications, developed a new three phase control panel
for submersible electric motors and began testing an integrated fuel management
system for the petroleum equipment industry. The Company continued development
of and expanded the HydroDuty™ motor products which are based on its submersible
electric motor technology for use primarily
in food processing
applications where electric motors must withstand repeated wash-downs for
sanitation and other reasons. Research continued on new materials and processes
designed to achieve higher quality and more cost-effective construction of the
Company’s high volume products.
The
Company owns a number of patents, trademarks and licenses. 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 2004 and 2003 was as
follows:
|
|
(In
millions) |
|
|
|
2004 |
|
2003 |
|
Backlog |
|
$ |
19.3 |
|
$ |
14.1 |
|
The
backlog is composed of written orders at prices adjustable on a
price-at-the-time-of-shipment basis for products, primarily standard catalog
items. All backlog orders are expected to be filled in fiscal 2005. The
Company's sales in the first quarter are generally less than the sales of other
quarters due to generally lower construction activity during that period in the
northern hemisphere. Beyond that, there is no seasonal pattern to the backlog
and the backlog has not proven to be a significant indicator of future
sales.
Environmental
Matters
The
Company believes that it is in compliance with all applicable federal, state and
local laws concerning the discharge of material into the environment, or
otherwise relating to the protection of the environment. The Company has not
experienced any material costs in connection with environmental compliance, and
does not believe that such compliance will have any material adverse effect upon
the financial position, capital expenditures, earnings or competitive position
of the Company.
Available
Information
The
Company’s website address is http://www.franklin-electric.com. The Company makes
available free of charge on or through its website; its annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments to those reports, as soon as reasonably practicable after such
material is electronically filed with or furnished to the Securities and
Exchange Commission.
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
leases.
The
Company's principal properties are as follows:
Location |
Acres
of Land |
Approximate
Square Feet |
|
|
|
Berzo
Demo, Italy (1) |
- |
23,000 |
Bluffton,
Indiana |
35.8 |
406,000 |
Brno,
Czech Republic |
2.3 |
79,000 |
Gas
City (Grant County), Indiana |
9.0 |
24,000 |
Linares,
Mexico |
10.0 |
150,000 |
Little
Rock, Arkansas (1) |
- |
252,000 |
Madison,
Wisconsin (1) |
- |
92,000 |
Motta
di Livenza, Italy (2) |
5.0 |
39,000 |
Muskegon,
Michigan (2) |
11.5 |
112,000 |
Saco,
Maine (1) |
- |
17,000 |
Siloam
Springs, Arkansas |
32.6 |
240,000 |
Suzhou,
China |
4.9 |
51,000 |
Wilburton,
Oklahoma |
30.0 |
327,000 |
Wittlich,
Rhineland, Germany |
6.9 |
102,000 |
Ten
facilities, each with less than 25,000 square feet (3) |
1.7 |
75,000 |
|
|
|
Total |
149.7 |
1,989,000 |
|
|
|
In the
Company’s opinion, its facilities are suitable for their intended use, adequate
for the Company’s business needs and in good condition.
(1)
Leased facility.
(2) In
conjunction with the global manufacturing re-alignment program these facilities
have been converted from manufacturing to warehousing and may be sold or leased
in the future.
(3) Nine
of the facilities are leased and in the aggregate have approximately 54,000
square feet.
ITEM
3. LEGAL PROCEEDINGS
In
July-August 2004, Franklin informed its original equipment manufacturer (“OEM”)
submersible motor customers that it intended to change its pricing and warranty
programs for submersible motors, controls, accessories and parts. On August 27,
2004, Franklin issued a press release announcing that it intended to begin
selling its submersible motor products directly to water systems distributors in
North America, in addition to its existing OEM customers.
In
response to these announcements, on August 27, 2004, ITT Water Technology, Inc.
(“ITT”) filed suit against Franklin in the U.S. District Court for the Eastern
District of Texas. ITT filed an amended complaint in the same court on October
25, 2004. ITT’s amended complaint alleged that, for 4-inch submersible motors,
the announced changes to Franklin’s pricing and warranty programs and the
changes to its submersible motor distribution strategy breached contracts
between ITT and Franklin and violated state and federal unfair competition and
antitrust laws. In addition, the ITT suit alleged that certain Franklin motor
product line acquisitions over the seven-year period ending in 1998 violated
Section 7 of the Clayton Act. ITT also asserted certain common law claims. The
ITT suit sought damages and injunctive relief. On December 27, 2004 the Company
issued a press release announcing that the suit had been settled. Under terms of
the settlement agreement, Franklin agreed, for the period through December 31,
2006, to continue supplying 4-inch submersible motors to ITT. The settlement
agreement contains no limitation on the sale of any other Franklin products to
distributors, including assembled pump motor units sold through its newly
acquired Franklin Pump Systems business unit. The ITT lawsuit has been dismissed
with prejudice in accordance with the terms of the Settlement
Agreement.
The
Company is also defending various other claims and legal actions, including
environmental matters, which have arisen in the ordinary course of business. In
the opinion of management, based on current knowledge of the facts and after
discussion with counsel, these claims and legal actions can be successfully
defended or resolved without a material adverse effect on the Company’s
financial position, results of operations or cash flows
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
The
names, ages and all positions and offices held by the executive officers of the
Company are:
Name |
Age |
Positions
and Offices |
In
This Office Since |
|
|
|
|
R.
Scott Trumbull |
56 |
Chairman
of the Board and Chief Executive Officer |
2003 |
Jess
B. Ford |
53 |
Senior
Vice President |
1999 |
Peter
C. Maske |
54 |
Senior
Vice President and President of Europa |
1999 |
Gregg
C. Sengstack |
46 |
Senior
Vice President, Chief Financial Officer, and Secretary |
1999 |
Donald
R. Hobbs |
63 |
Vice
President, Submersible Motor Marketing |
1996 |
Thomas
A. Miller |
55 |
Vice
President, Electronic Technology |
1998 |
Kirk
M. Nevins |
61 |
Vice
President, Sales |
1995 |
Robert
J. Stone |
40 |
Vice
President, Submersible Engineering, Sales and Marketing |
2003 |
Daniel
J. Crose |
56 |
Vice
President, North American Submersible Operations |
2003 |
Gary
D. Ward |
49 |
Vice
President, Human Resources |
2004 |
All
executive officers are elected annually by the Board of Directors at the Board
meeting held in conjunction with the annual statutory meeting of shareowners.
Thereafter they are elected for one-year terms or until their successors have
been elected. All executive officers have been in executive or management
positions of Franklin Electric for the last five years with the exception of R.
Scott Trumbull and Daniel J. Crose. R Scott Trumbull has been a Director of
Franklin for the last five years and was Executive Vice President and Chief
Financial Officer of Owens-Illinois, Inc. prior to joining Franklin Electric as
Chairman of the Board and Chief Executive Officer in 2003. Daniel J. Crose was
Senior Vice President of Operations at Hamilton Beach/Proctor Silex, Inc. prior
to joining Franklin Electric in 2001.
PART
II
ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER REPURCHASES OF EQUITY SECURITIES
The
number of shareowners of record as of January 28, 2005 was 966. The
Company's stock is traded on Nasdaq National Market: Symbol FELE.
All share
and per share data included in this Form 10-K reflect the Company’s two-for-one
stock split effected in the form of a 100 percent stock distribution made on
June 15, 2004. Dividends paid and the price range per common share as quoted by
the Nasdaq National Market for 2004 and 2003 were as follows:
DIVIDENDS
PER SHARE |
|
PRICE
PER SHARE |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Low |
|
High |
|
Low |
|
High |
|
1st
Quarter |
|
$ |
.07 |
|
$ |
.065 |
|
$ |
29.005 |
|
$ |
34.160 |
|
$ |
23.500 |
|
$ |
29.070 |
|
2nd
Quarter |
|
$ |
.08 |
|
$ |
.07 |
|
$ |
29.060 |
|
$ |
40.250 |
|
$ |
22.995 |
|
$ |
29.975 |
|
3rd
Quarter |
|
$ |
.08 |
|
$ |
.07 |
|
$ |
35.000 |
|
$ |
43.000 |
|
$ |
25.715 |
|
$ |
32.000 |
|
4th
Quarter |
|
$ |
.08 |
|
$ |
.07 |
|
$ |
36.080 |
|
$ |
43.480 |
|
$ |
27.670 |
|
$ |
32.800 |
|
The
Company did not repurchase any shares of its stock in the fourth quarter of
2004. The maximum number of shares that may yet be purchased under the Company’s
repurchase program is 827,412.
ITEM
6. SELECTED FINANCIAL DATA
The
following selected financial data should be read in conjunction with our
consolidated financial statements. The information set forth below is not
necessarily indicative of future operations.
FIVE YEAR
FINANCIAL SUMMARY
FRANKLIN
ELECTRIC CO., INC. |
|
(In
thousands, except per share amounts) |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
|
|
(a) |
|
|
|
(b) |
|
|
|
(c) |
|
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales |
|
$ |
404,305 |
|
$ |
359,502 |
|
$ |
354,872 |
|
$ |
322,908 |
|
$ |
325,731 |
|
Gross
profit |
|
|
130,185 |
|
|
111,001
|
|
|
104,498 |
|
|
92,871 |
|
|
85,186 |
|
Interest
expense |
|
|
488 |
|
|
1,107 |
|
|
1,317 |
|
|
1,193 |
|
|
1,111 |
|
Income
taxes |
|
|
20,951 |
|
|
16,847 |
|
|
18,273 |
|
|
16,235 |
|
|
13,683 |
|
Net
Income |
|
|
38,083 |
|
|
34,480 |
|
|
32,204 |
|
|
27,150 |
|
|
22,226 |
|
Depreciation
and amortization |
|
|
15,143 |
|
|
13,748 |
|
|
12,878 |
|
|
12,660 |
|
|
10,839 |
|
Capital
expenditures |
|
|
21,110 |
|
|
15,261 |
|
|
15,568 |
|
|
6,709 |
|
|
14,108 |
|
Balance
sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital (d) |
|
|
111,697 |
|
|
82,640 |
|
|
62,762 |
|
|
69,158 |
|
|
54,897 |
|
Property,
plant and equipment, net |
|
|
95,924 |
|
|
83,916 |
|
|
76,033 |
|
|
58,839 |
|
|
64,604 |
|
Total
assets |
|
|
333,473 |
|
|
281,971 |
|
|
258,583 |
|
|
195,643 |
|
|
197,179 |
|
Long-term
debt |
|
|
13,752 |
|
|
14,960 |
|
|
25,946 |
|
|
14,465 |
|
|
15,874 |
|
Shareowners’
equity |
|
$ |
234,333 |
|
$ |
192,938 |
|
$ |
153,138 |
|
$ |
123,269 |
|
$ |
115,998 |
|
Other
data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Net income to sales |
|
|
9.4 |
% |
|
9.6 |
% |
|
9.1 |
% |
|
8.4 |
% |
|
6.8 |
% |
%
Net income to total average assets |
|
|
12.4 |
% |
|
12.8 |
% |
|
14.2 |
% |
|
13.8 |
% |
|
11.9 |
% |
Current
ratio (e) |
|
|
3.1 |
|
|
2.8 |
|
|
2.2 |
|
|
2.7 |
|
|
2.2 |
|
Number
of common shares outstanding |
|
|
22,041 |
|
|
21,828 |
|
|
21,648 |
|
|
21,336 |
|
|
22,016 |
|
Per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
price range |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
43.48 |
|
$ |
32.80 |
|
$ |
30.27 |
|
$ |
21.32 |
|
$ |
18.25 |
|
Low |
|
|
29.01 |
|
|
23.00 |
|
|
19.95 |
|
|
16.00 |
|
|
13.06 |
|
Net
income per weighted-average common share |
|
|
1.73 |
|
|
1.59 |
|
|
1.48 |
|
|
1.25 |
|
|
1.02 |
|
Net
income per weighted-average common share, assuming dilution
|
|
|
1.65 |
|
|
1.52 |
|
|
1.42 |
|
|
1.19 |
|
|
.98 |
|
Book
value (f) |
|
|
10.17 |
|
|
8.53 |
|
|
6.74 |
|
|
5.42 |
|
|
5.10 |
|
Cash
dividends on common stock |
|
$ |
0.31 |
|
$ |
0.27 |
|
$ |
0.26 |
|
$ |
0.24 |
|
$ |
0.22 |
|
(a)
Includes the results of operations of the Company’s wholly-owned subsidiary,
Franklin Pump Systems, since the acquisition of certain assets of JBD, Inc. on
October 2, 2004.
(d)
Working capital = Current assets minus Current liabilities
(e)
Current ratio = Current assets divided by Current liabilities
(f) Book
value = Shareowners equity divided by Weighted average common shares assuming
full dilution
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Sales and
earnings for 2004 were up from 2003. The increase in sales was primarily due to
volume increases across North American and International markets for water
systems and fueling systems products. Sales improvements were also attributable
to the impact of foreign exchange rate changes and the acquisition of certain
assets of JBD, Inc. (the former Jacuzzi Brand pump company). However, some of
the strength in sales in North America water systems came from our original
equipment manufacturer customers buying ahead of an announced price increase.
The price increase was necessitated by increases in the cost of our raw
materials, particularly steel and copper. Earnings improved in 2004 primarily
due to the increased sales. Increased earnings were partially offset by
increased commodity prices and costs associated with the Company’s global
manufacturing realignment program. Included in the results for 2004 are
restructuring expenses of $5.5 million pre-tax.
RESULTS
OF OPERATIONS
Net sales
for 2004 were $404.3 million, an increase of $44.8 million or 12 percent
compared to 2003 sales of $359.5 million. Foreign currencies, particularly the
euro, strengthened relative to the U.S. dollar during 2004. The impact of this
change in exchange rates was a $10.2 million or 3 percent increase in the
Company’s reported 2004 sales. Excluding the impact of changes in foreign
currencies, net sales increased $34.6 million or about 9 percent. The sales
volume increase for water related products by primarily customers in the North
American market accounted for about $12.4 million or 3 percent, of the 2004. The
sales increase by European customers was about $5.4 million for 2004 (when
comparing both years at the current year exchange rate). The sales volume
increase relates primarily to increased sales of small submersible motor
products worldwide, including electronic drives and controls to North American
customers. Price increases, which were necessary due to significant increased
costs for certain commodities used in the manufacture of the electric motors,
primarily steel and copper, were $10.9 million for 2004 or 3 percent of the 2004
increase in sales revenue. Sales
related to the acquisition of the assets of JBD, Inc. were $5.7 million.
Sales of
fueling systems motors and related products increased about $3.1 million during
2004 compared to 2003. Sales of fueling systems motors and related products have
increased primarily due to increased demand from service station equipment
suppliers for submersible motors and monitoring equipment.
Net sales
for 2003 were $359.5 million, a 1 percent increase from 2002 net sales of $354.9
million. Foreign currencies, particularly the euro and the Rand, strengthened
relative to the U.S. dollar during 2003. The impact of the changes in exchange
rates was a $15.9 million increase in the Company’s reported 2003 sales. Net
sales also increased due to full year sales related to the INCON acquisition in
mid-2002, an increase of $4.7 million. Excluding the impact of changes in
foreign currencies and the full year impact of the 2002 acquisition, net sales
decreased $16.0 million or 5%. The sales decrease of $16.0 million relates
primarily to decreased demand for submersible water products to North American
customers of about $8.5 million and lower demand by European customers of about
$8.8 million (when comparing both years at the current year exchange
rate).
Cost of
sales as a percent of net sales for 2004, 2003 and 2002 was 67.8 percent, 69.1
percent and 70.6 percent, respectively. Cost of sales as a percent of net sales
decreased in 2004 from 2003 primarily as a result of increased sales volume
leveraging fixed costs and improving the profit margin. Gross profit was further
improved by increases in selling prices. Cost increases for certain commodities,
used in the manufacture of the electric motors primarily steel and copper, were
$9.3 million for 2004. Cost of sales as a percent of net sales decreased in 2003
from 2002 primarily as a result of improved productivity which lowered labor and
overhead costs by about 0.7 percent of net sales, changes in product mix from
small motors used primarily in residential water-well applications, to larger
motors used primarily in agricultural applications and fueling systems products
which decreased labor and overhead costs by about 0.5 percent and quality
improvements which reduced warranty costs by about 0.4 percent of net
sales.
Selling
and administrative (“SG&A”) expense as a percent of net sales for 2004, 2003
and 2002 was 16.0 percent, 16.5 percent and 15.4 percent, respectively. SG&A
costs increased about $5.5 million in 2004 over 2003 partially due to the effect
of changes in the foreign exchange rate of $1.0 million. The Company further
incurred expenses of about $1.0 million related to the announced change in
distribution channels. The Company also has incurred additional SG&A costs
related to the continued growth of new electronic products related to
submersible motors; higher commissions related to the increased sales; general
insurance cost increases; and costs of internal control compliance procedures
associated with the Sarbanes-Oxley Act. The increase of SG&A expenses in
2003 over 2002 was primarily due to the effect of changes in the foreign
exchange rate, $1.4 million, and costs incurred for tax planning activities,
$1.2 million. The Company also recognized full year SG&A costs related to
the INCON acquisition, a $1.1 million year over year increase, and has incurred
additional SG&A costs for its new plant in Mexico and the launch of new
electronic products related to submersible motors.
Restructuring
expenses of $5.5 million pre-tax were incurred during 2004. The expenses during
2004 (included in “Restructuring Expense” on the income statement) related to
the global manufacturing realignment program. The costs were primarily for
severance, training, equipment transfers, travel, and employee relocations. The
Company has completed the consolidation of FE Petro, EBW and APT operations into
a new state-of-the-art manufacturing and distribution facility in Madison,
Wisconsin. The ramp-up of our Linares, Mexico motor manufacturing facility
continues on schedule and on budget. The consolidation of our Motta di Livenza,
Italy factory into our existing Wittlich, Germany and expanding Brno, Czech
Republic factories has been completed. The Company will incur additional
expenses related to the realignment program throughout 2005, such as costs to
transfer equipment and other related expenses. The global manufacturing
realignment program is estimated to cost in total $10.0 million from its
inception in 2003 and is expected to be substantially complete by the end of
2005.
Interest
expense for 2004, 2003 and 2002 was $0.5 million, $1.1 million and $1.3 million,
respectively. Interest expense decreased in 2004 and 2003 due primarily to lower
outstanding debt.
Included
in other income for 2004, 2003 and 2002 was interest income of $0.5 million,
$0.4 million and $0.5 million, respectively, primarily derived from the
investment of cash balances in short-term U.S. treasury and agency
securities.
Foreign
currency-based transactions produced a loss for 2004 of $0.5 million. The
foreign currency-based transaction loss in 2004 was due primarily to the euro
rate changes relative to other currencies in Europe. A gain was realized for
2003 and 2002 of $0.3 million and $1.4 million, respectively. The foreign
currency-based transaction gain was due primarily to the strengthening euro
relative to the U.S. dollar during most of 2003 and 2002.
The
provision for income taxes in 2004, 2003 and 2002 was $21.0 million, $16.8
million and $18.3 million, respectively. The effective tax rates were 35.5, 32.8
and 36.2 percent for 2004, 2003 and 2002, respectively. The lower rate of 32.8
percent for 2003 was down from the 2004 and the 2002 rates as a result of prior
years’ tax credits realized in 2003. The tax credits resulted from tax planning
activities performed in 2002 and 2003 in the areas of foreign income exclusion
and R&D credits. The effective tax rate differs from the United States
statutory rate of 35 percent, due to the foreign income exclusion and R&D
credits and due to the effects of state and foreign income taxes, net of federal
tax benefits.
Net
income for 2004 was $38.1 million, or $1.65 per diluted share, compared to 2003
net income of $34.5 million, or $1.52 per diluted share. Net income for 2002 was
$32.2 million, or $1.42 per diluted share. All share and per share data reflects
the Company’s two-for-one stock split effected in the form of a 100 percent
stock distribution made on June 15, 2004.
CAPITAL
RESOURCES AND LIQUIDITY
Cash
flows from operations provide the principal source of current liquidity. Net
cash flows provided by operating activities were $57.5 million, $47.0 million
and $54.6 million in 2004, 2003 and 2002, respectively. The primary source of
cash from operations was earnings. Significant uses of operating cash flow in
2004 and 2003 were related to increases in inventory, $1.2 and $2.1 million,
respectively and payments to employee benefit plans, $4.0 million both years.
Net cash
flows used in investing activities were $30.4 million,
$15.5 million and $57.2 million in 2004, 2003 and 2002, respectively. The
primary uses of cash for investing activities in 2004 were additions to property
plant and equipment. Other uses of cash in 2004 were for the acquisition of
certain assets of JBD, Inc. for $9.3 million. The primary uses of cash in 2003
were additions to property plant and equipment. The primary uses of cash in 2002
were for the acquisitions of Coverco and INCON. The Company paid an aggregate of
$30.3 million for these two acquisitions, net of cash acquired.
Net cash
flows used in financing activities were $7.1 million and $24.0 million in 2004
and 2003, respectively. Financing activities in 2002 generated $0.5 million cash
flow. The Company paid $6.8 million, $5.9 million and $5.5 million in dividends
on the Company’s common stock in 2004, 2003 and 2002, respectively. Another
principal use of cash was purchases of Company common stock under the Company’s
repurchase program. During 2004, 2003 and 2002, the Company repurchased, or
received as consideration for stock options exercised, 124,112 shares of its
common stock for $3.8 million, 567,126 for $14.8 million and 446,998 for $10.5
million, respectively. The primary use of cash in 2003 was the repayment of long
term debt, $19.9 million.
Cash and
cash equivalents at the end of 2004 were $50.6 million compared to $30.0 million
at the end of 2003, and $20.1 million at the end of 2002. Working capital
increased $29.1 million in 2004 and the current ratio of the Company was 3.1 for
2004 compared to a current ratio of 2.8 and 2.2 at the end of 2003 and 2002,
respectively.
Principal
payments of $1.0 million per year on the Company’s $20.0 million of unsecured
long-term debt began in 1998 and will continue until 2008 when a balloon payment
of $10.0 million will fully retire the debt. In September 2004, the Company
entered into an unsecured, 60-month $80.0 million revolving credit agreement
(the “Agreement”). The Agreement includes a facility fee of one-tenth of one
percent on the committed amount. The Company had no outstanding borrowings under
the Agreement at January 1, 2005. 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 2004, 2003 and 2002.
Management
believes that internally generated funds and existing credit arrangements
provide sufficient liquidity to meet current commitments.
AGGREGATE
CONTRACTUAL OBLIGATIONS
Most of
the Company’s contractual obligations to make payments to third parties are debt
obligations. In addition, the Company has certain contractual obligations for
future lease payments, as well as, purchase obligations. The payment schedule
for these contractual obligations is as follows:
(In
millions) |
|
|
|
|
|
Less
Than |
|
|
|
|
|
More
Than |
|
|
|
Total |
|
1
Year |
|
2-3
Years |
|
4-5
Years |
|
5
Years |
|
Debt |
|
$ |
13.3 |
|
$ |
1.0 |
|
$ |
2.0 |
|
$ |
10.3 |
|
$ |
- |
|
Capital
leases |
|
|
1.8 |
|
|
0.3 |
|
|
0.6 |
|
|
0.9 |
|
|
- |
|
Operating
leases |
|
|
10.5 |
|
|
3.0 |
|
|
3.0 |
|
|
1.9 |
|
|
2.6 |
|
Purchase
Obligations |
|
|
2.5 |
|
|
2.5 |
|
|
- |
|
|
- |
|
|
- |
|
|
|
$ |
28.1 |
|
$ |
6.8 |
|
$ |
5.6 |
|
$ |
13.1 |
|
$ |
2.6 |
|
Note: The
Company also has pension and other post-retirement benefit obligations not
included in the above table which will result in future payments.
ACCOUNTING
PRONOUNCEMENTS
In
November 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs”,
an amendment of ARB No. 43, Chapter 4. The amendments made by SFAS No. 151
clarify that abnormal amounts of idle facility expense, freight, handling costs
and wasted materials (spoilage) should be recognized as current-period charges
and require the allocation of fixed production overheads to inventory based on
the normal capacity of the production facilities. The pronouncement is effective
for inventory costs incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred during fiscal
years beginning after November 23, 2004. The Company currently recognizes, as
period costs, any abnormal amounts of idle facility expense, freight, handling
costs and wasted materials and allocates fixed production overhead to inventory
based on the normal capacity of the production facilities. The adoption of this
pronouncement will not have a significant impact on the Company’s results of
operations or financial position. The Company will adopt this pronouncement for
fiscal 2005.
On
December 16, 2004, the FASB issued SFAS No. 123(R) “Share-Based Payment”, that
requires compensation costs related to share-based payment transactions
recognized in the financial statements. With minor exceptions, the amounts of
compensation costs will be measured based on the grant-date fair value of the
equity or liability instruments issued, over the period that the employee
provides service in exchange for the award. In addition liability awards will be
re-measured each reporting period. This pronouncement is effective as of the
first interim or annual reporting period that begins after June 15, 2005. The
impact on the Company’s results of operations or financial position as of the
adoption of this pronouncement is not expected to be materially different from
the pro-forma results included in note 1: Stock-Based Compensation.
On
December 21, 2004, the FASB issued “Application
of FASB Statement No. 109, Accounting
for Income Taxes, to the
Tax Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004”, a FASB
Staff Position (FSP) that provides guidance on the application of SFAS No. 109
to the tax deduction on qualified production activities provided by the American
Jobs Creation Act of 2004. FSP FAS 109-1 states that the qualified production
activities deduction should be accounted for as a special deduction in
accordance with SFAS No. 109, whereby the deduction is contingent upon the
future performance of specific activities, including wage levels. The FASB also
concluded that the special deductions should be considered with measuring
deferred taxes and assessing a valuation allowance. The impact on the Company’s
results of operations or financial position of FSP FAS 109-1 has not yet been
determined.
On
December 21, 2004, the FASB issued “Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004”, a FSP
that provides accounting and disclosure guidance for the foreign earnings
repatriation provision within the American Jobs Creation Act of 2004. The Act
provides special, one-time dividends received deduction on the repatriation of
certain foreign earnings to a U.S. taxpayer. FSP FAS 109-2 states that a company
is allowed time beyond the financial reporting period of enactment to evaluate
the effect of the Act on its plan for reinvestment or repatriation of foreign
earnings, as it applies to the application of SFAS No. 109. The decision process
to build the plan may occur in stages, as an enterprise may separately evaluate
the provisions of the Act. The Company has not begun the evaluation process of
the effects of the repatriation provision.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management’s
discussion and analysis of its financial condition and results of operations are
based upon the Company’s consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. On an on going basis, management evaluates
its estimates, including those related to revenue recognition, allowance for
doubtful accounts, accounts receivable, inventories, recoverability of
long-lived assets, intangible assets, income taxes, warranty obligations,
pensions and other employee benefit plan obligations, and contingencies.
Management bases its estimates on historical experience and on other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
Revenue
Recognition:
Products
are shipped utilizing common carriers direct to customers or, for consignment
products, to customer specified warehouse locations. Sales are recognized when
the Company’s products are shipped direct or transferred from a warehouse
location to the customer, at which time transfer of ownership and risk of loss
pass to the customer. The Company reduces sales revenues for discounts based on
past experience. Differences may result in the amount of discounts if actual
experience differs significantly from management estimates; such differences
have not historically been material.
Accounts
Receivable:
Accounts
receivable is comprised of balances due from customers net of estimated
allowances for uncollectible accounts. In determining allowances, historical
trends are evaluated and economic conditions and specific customer issues are
reviewed to arrive at appropriate allowances. Allowance levels change as
customer-specific circumstances and the other analysis areas noted above change.
Differences may result in the amount for allowances if actual experience differs
significantly from management estimates; such differences have not historically
been material.
Inventory
Valuation:
The
Company uses certain estimates and judgments to value inventory. Inventory is
recorded at the lower of cost or market. The Company reviews its inventories for
excess or obsolete products or components. Based on an analysis of historical
usage and management’s evaluation of estimated future demand, market conditions
and alternative uses for possible excess or obsolete parts, reserves are
recorded or changed. Significant fluctuations in demand or changes in market
conditions could impact management’s estimates of necessary reserves. Excess and
obsolete inventory is periodically disposed through sale to third parties,
scrapping or other means, and the reserves are appropriately reduced.
Differences may result in the amount for reserves if actual experience differs
significantly from management estimates; such differences have not historically
been material.
Goodwill
and other intangible assets:
Under the
requirements of SFAS No. 142, “Goodwill and other Intangible Assets”, goodwill
is no longer amortized; however it is tested for impairment annually or more
frequently whenever events or change in circumstances indicate that the asset
may be impaired. The Company performs impairment reviews for its reporting unit
using future cash flows based on management’s judgments and assumptions. An
asset’s value is impaired if our estimate of the aggregate future cash flows,
undiscounted and without interest charges, to be generated are less than the
carrying amount of the reporting unit including goodwill. Such cash flows
consider factors such as expected future operating income and historical trends,
as well as the effects of demand and competition. To the extent impairment has
occurred, the loss will be measured as the excess of the carrying amount of the
reporting unit including goodwill over the fair value. Such estimates require
the use of judgment and numerous subjective assumptions, which, if actual
experience varies, could result in material differences in the requirements for
impairment charges.
Income
taxes:
Under the
requirements of SFAS No. 109, “Accounting for Income Taxes”, we record deferred
tax assets and liabilities for the future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Management judgment is required in determining the Company’s provision
for income taxes, deferred tax assets and liabilities, which, if actual
experience varies, could result in material adjustments to deferred tax assets
and liabilities.
Warranty
obligations:
Warranty
terms are generally two years from date of manufacture or one year from date of
installation. Warranty liability is recorded when revenue is recognized and is
based on actual historical return rates from the most recent warranty periods.
While the Company’s warranty costs have historically been within its calculated
estimates, it is possible that future warranty costs could exceed those
estimates.
Pension
and employee benefit obligations:
With the
assistance of actuaries and investment advisors the Company selects the discount
rate to be used to determine pension and post-retirement plan liabilities based
on a review of Moody’s Aa bond ratings and U.S Treasury rates. A change in the
discount rate selected by the Company of 25 basis points would result in a
change of about $0.1 million of employee benefit expense. The Company consults
with actuaries, asset allocation consultants and investment advisors to
determine the expected long term rate of return on plan assets based on
historical and projected rates of return on the types of assets in which the
plans have invested. A change in the long term rate of return selected by the
Company of 25 basis points would result in a change of about $0.3 million of
employee benefit expense. See Note 3.
FACTORS
THAT MAY AFFECT FUTURE RESULTS
Any
forward-looking statements contained herein involve risks and uncertainties,
including, but not limited to, general economic and currency conditions, various
conditions specific to the Company’s business and industry, market demand,
competitive factors, changes in distribution channels, supply constraints,
technology factors, litigation, government and regulatory actions, the Company’s
accounting policies, future trends, and other risks, all as described in Exhibit
99.1 of this Form 10-K. These risks and uncertainties may cause actual results
to differ materially from those indicated by the forward-looking statements. Any
forward-looking statements included in this Form 10-K are based upon information
presently available. The Company does not assume any obligation to update any
forward-looking information.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
Company is subject to market risk associated with changes in foreign currency
exchange rates and interest rates. Foreign currency exchange rate risk is
mitigated through several means: maintenance of local production facilities in
the markets served, invoicing of customers in the same currency as the source of
the products, prompt settlement of intercompany balances utilizing a global
netting system and limited use of foreign currency denominated debt. Interest
rate exposure is limited to variable rate interest borrowings under the
Company’s revolving credit agreement and an interest rate swap. Additional
information regarding the use of an interest rate swap is included in Note 7 to
the consolidated financial statements.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands, except per share amounts) |
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
Net
sales |
|
$ |
404,305 |
|
$ |
359,502 |
|
$ |
354,872 |
|
Cost
of sales |
|
|
274,120 |
|
|
248,501 |
|
|
250,374 |
|
Gross
profit |
|
|
130,185 |
|
|
111,001 |
|
|
104,498 |
|
Selling
and administrative expenses |
|
|
64,867 |
|
|
59,365 |
|
|
54,637 |
|
Restructure
expense |
|
|
5,536 |
|
|
- |
|
|
- |
|
Operating
income |
|
|
59,782 |
|
|
51,636 |
|
|
49,861 |
|
Interest
expense |
|
|
(488 |
) |
|
(1,107 |
) |
|
(1,317 |
) |
Other
income |
|
|
219 |
|
|
532 |
|
|
567 |
|
Foreign
exchange income (loss) |
|
|
(479 |
) |
|
266 |
|
|
1,366 |
|
Income
before income taxes |
|
|
59,034 |
|
|
51,327 |
|
|
50,477 |
|
Income
taxes |
|
|
20,951 |
|
|
16,847 |
|
|
18,273 |
|
Net
income |
|
$ |
38,083 |
|
$ |
34,480 |
|
$ |
32,204 |
|
|
|
|
|
|
|
|
|
|
|
|
Per
share data : |
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share |
|
$ |
1.73
|
|
$ |
1.59 |
|
$ |
1.48 |
|
Diluted
earnings per share |
|
$ |
1.65 |
|
$ |
1.52 |
|
$ |
1.42 |
|
Dividends
per common share |
|
$ |
.31 |
|
$ |
.27 |
|
$ |
.26 |
|
See Notes
to Consolidated Financial Statements.
CONSOLIDATED
BALANCE SHEETS
ASSETS |
|
|
|
|
|
|
|
2004 |
|
2003 |
|
(In
thousands) |
|
|
|
|
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
Cash
and equivalents |
|
$ |
50,604 |
|
$ |
29,962 |
|
Receivables
(less allowances of $2,281 and $1,949, respectively) |
|
|
39,312 |
|
|
29,194 |
|
Inventories:
|
|
|
|
|
|
|
|
Raw
materials |
|
|
25,346 |
|
|
17,733 |
|
Work-in-process |
|
|
7,939 |
|
|
6,636 |
|
Finished
goods |
|
|
44,912 |
|
|
40,686 |
|
LIFO
reserve |
|
|
(15,755 |
) |
|
(10,402 |
) |
|
|
|
62,442 |
|
|
54,653 |
|
|
|
|
|
|
|
|
|
Other
current assets (including deferred income taxes of $10,391 and $9,672,
respectively) |
|
|
13,784 |
|
|
14,232 |
|
Total
current assets |
|
|
166,142 |
|
|
128,041 |
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, at cost: |
|
|
|
|
|
|
|
Land
and buildings |
|
|
52,809 |
|
|
44,577 |
|
Machinery
and equipment |
|
|
163,968 |
|
|
147,368 |
|
|
|
|
216,777 |
|
|
191,945 |
|
Less
allowance for depreciation |
|
|
120,853 |
|
|
108,029 |
|
|
|
|
95,924 |
|
|
83,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
and other assets |
|
|
14,010 |
|
|
13,828 |
|
Goodwill |
|
|
57,397 |
|
|
56,186 |
|
Total
Assets |
|
$ |
333,473 |
|
$ |
281,971 |
|
See Notes
to Consolidated Financial Statements.
LIABILITIES
AND SHAREOWNERS' EQUITY |
|
|
|
2004 |
|
2003 |
|
(In
thousands) |
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
Current
maturities of long-term debt and short-term borrowings |
|
$ |
1,304 |
|
$ |
1,392 |
|
Accounts
payable |
|
|
16,594 |
|
|
15,958 |
|
Accrued
expenses |
|
|
33,354 |
|
|
28,051 |
|
Income
taxes |
|
|
3,193 |
|
|
- |
|
Total
current liabilities |
|
|
54,445 |
|
|
45,401 |
|
Long-term
debt |
|
|
13,752 |
|
|
14,960 |
|
Deferred
income taxes |
|
|
6,304 |
|
|
4,354 |
|
|
|
|
|
|
|
|
|
Employee
benefit plan obligations |
|
|
18,801 |
|
|
18,697 |
|
|
|
|
|
|
|
|
|
Other
long-term liabilities |
|
|
5,838 |
|
|
5,621 |
|
|
|
|
|
|
|
|
|
Shareowners'
equity: |
|
|
|
|
|
|
|
Common
shares (45,000 shares authorized, $.10 par value) |
|
|
|
|
|
|
|
outstanding
(22,041
and 21,828, respectively) |
|
|
2,204 |
|
|
2,182 |
|
Additional
capital |
|
|
52,743 |
|
|
45,826 |
|
Retained
earnings |
|
|
166,557 |
|
|
139,057 |
|
Loan
to ESOP trust |
|
|
(665 |
) |
|
(897 |
) |
Accumulated
other comprehensive income |
|
|
13,494 |
|
|
6,770 |
|
Total
shareowners' equity |
|
|
234,333 |
|
|
192,938 |
|
Total
liabilities and shareowners' equity |
|
$ |
333,473 |
|
$ |
281,971 |
|
See Notes
to Consolidated Financial Statements.CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
2004 |
|
2003 |
|
2002
|
|
(In
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities: |
|
|
|
|
|
|
|
Net
income |
|
$ |
38,083 |
|
$ |
34,480 |
|
$ |
32,204 |
|
Adjustments
to reconcile net income to net cash flows from operating
activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
15,143 |
|
|
13,748 |
|
|
12,878 |
|
Deferred
income taxes |
|
|
1,219 |
|
|
3,117 |
|
|
664 |
|
Loss
on disposals of plant and equipment |
|
|
187 |
|
|
489 |
|
|
428 |
|
Changes
in assets and liabilities, excluding the effects of
acquisitions: |
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
(1,243 |
) |
|
4,875 |
|
|
3,125 |
|
Inventories |
|
|
(1,167 |
) |
|
(2,140 |
) |
|
7,434 |
|
Accounts
payable and other accrued expenses |
|
|
7,305 |
|
|
(4,439 |
) |
|
(315 |
) |
Employee
benefit plan obligations |
|
|
(3,491 |
) |
|
(2,584 |
) |
|
1,128
|
|
Other,
net |
|
|
1,471 |
|
|
(582 |
) |
|
(2,923 |
) |
Net
cash flows from operating activities |
|
|
57,507 |
|
|
46,964 |
|
|
54,623 |
|
Cash
flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Additions
to plant and equipment |
|
|
(21,110 |
) |
|
(15,261 |
) |
|
(15,568 |
) |
Proceeds
from sale of plant and equipment |
|
|
29 |
|
|
241 |
|
|
20 |
|
Additions
to deferred assets |
|
|
(10 |
) |
|
(434 |
) |
|
(14,312 |
) |
Cash
paid for acquisitions, net of cash acquired |
|
|
(9,307 |
) |
|
- |
|
|
(30,344 |
) |
Proceeds
from maturities of marketable securities |
|
|
- |
|
|
- |
|
|
2,999 |
|
Net
cash flows from investing activities |
|
|
(30,398 |
) |
|
(15,454 |
) |
|
(57,205 |
) |
Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Borrowing
of long-term debt |
|
|
- |
|
|
6,648 |
|
|
8,575 |
|
Repayment
of long-term debt |
|
|
(1,553 |
) |
|
(19,853 |
) |
|
(1,408 |
) |
Borrowing
on line of credit and short-term borrowings |
|
|
- |
|
|
11,000 |
|
|
3,000 |
|
Repayment
of line of credit and short-term borrowings |
|
|
- |
|
|
(11,024 |
) |
|
(3,017 |
) |
Proceeds
from issuance of common stock |
|
|
4,110 |
|
|
4,750 |
|
|
2,320 |
|
Purchases
of common stock |
|
|
(3,091 |
) |
|
(9,782 |
) |
|
(3,662 |
) |
Reduction
of loan to ESOP Trust |
|
|
232 |
|
|
233 |
|
|
232
|
|
Dividends
paid |
|
|
(6,815 |
) |
|
(5,946 |
) |
|
(5,505 |
) |
Net
cash flows from financing activities |
|
|
(7,117 |
) |
|
(23,974 |
) |
|
535 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash |
|
|
650 |
|
|
2,293 |
|
|
1,430
|
|
Net
change in cash and equivalents |
|
|
20,642 |
|
|
9,829 |
|
|
(617 |
) |
Cash
and equivalents at beginning of year |
|
|
29,962 |
|
|
20,133 |
|
|
20,750 |
|
Cash
and equivalents at end of year |
|
$ |
50,604 |
|
$ |
29,962 |
|
$ |
20,133 |
|
Cash paid
during 2004, 2003, and 2002 for interest was $0.6 million, $1.2 million and $1.3
million, respectively. Also, cash paid during 2004, 2003 and 2002 for income
taxes was $19.0 million, $13.8 million and $16.6 million,
respectively.
See Notes
to Consolidated Financial Statements.
CONSOLIDATED
STATEMENTS OF SHAREOWNERS’ EQUITY
(In
thousands, except share amounts) |
|
|
|
Common
Shares
Outstanding |
|
Common
Stock |
|
Additional
Capital |
|
Retained
Earnings |
|
Loan
to ESOP Trust |
|
Accumulated
Other Comprehensive Income (Loss) |
|
Comprehensive
Income |
|
Balance
year end 2001 |
|
|
21,337,068 |
|
$ |
2,134 |
|
$ |
22,281 |
|
$ |
109,103 |
|
$ |
(1,362 |
) |
|
(8,887 |
) |
|
|
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
32,204 |
|
|
|
|
|
|
|
$ |
32,204 |
|
Currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,858 |
|
|
5,858 |
|
Pension
liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,172 |
) |
|
(3,172 |
) |
Comprehensive
income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
34,890 |
|
Dividends
on common stock |
|
|
|
|
|
|
|
|
|
|
|
(5,505 |
) |
|
|
|
|
|
|
|
|
|
Common
stock issued |
|
|
757,000 |
|
|
76 |
|
|
5,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock repurchased or received for stock options exercised |
|
|
(446,998 |
) |
|
(46 |
) |
|
23 |
|
|
(10,494 |
) |
|
|
|
|
|
|
|
|
|
Tax
benefit of stock options exercised |
|
|
|
|
|
|
|
|
4,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
payment from ESOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
Balance
year end 2002 |
|
|
21,647,070 |
|
|
2,164 |
|
|
32,997 |
|
|
125,308 |
|
|
(1,130 |
) |
|
(6,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
34,480 |
|
|
|
|
|
|
|
$ |
34,480 |
|
Currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,983 |
|
|
10,983 |
|
Pension
liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,988 |
|
|
1,988 |
|
Comprehensive
income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
47,451 |
|
Dividends
on common stock |
|
|
|
|
|
|
|
|
|
|
|
(5,946 |
) |
|
|
|
|
|
|
|
|
|
Common
stock issued |
|
|
748,000 |
|
|
74 |
|
|
7,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock repurchased or received for stock options exercised |
|
|
(567,126 |
) |
|
(56 |
) |
|
28 |
|
|
(14,785 |
) |
|
|
|
|
|
|
|
|
|
Tax
benefit of stock options exercised |
|
|
|
|
|
|
|
|
5,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
payment from ESOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233 |
|
|
|
|
|
|
|
Balance
year end 2003 |
|
|
21,827,944 |
|
|
2,182 |
|
|
45,826 |
|
|
139,057
|
|
|
(897 |
) |
|
6,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
38,083 |
|
|
|
|
|
|
|
$ |
38,083 |
|
Currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,935 |
|
|
6,935 |
|
Pension
liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(211 |
) |
|
(211 |
) |
Comprehensive
income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,807 |
|
Dividends
on common stock |
|
|
|
|
|
|
|
|
|
|
|
(6,815 |
) |
|
|
|
|
|
|
|
|
|
Common
stock issued |
|
|
337,500 |
|
|
35 |
|
|
4,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock repurchased or received for stock options exercised |
|
|
(124,112 |
) |
|
(13 |
) |
|
|
|
|
(3,768 |
) |
|
|
|
|
|
|
|
|
|
Tax
benefit of stock options exercised |
|
|
|
|
|
|
|
|
2,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
payment from ESOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
Balance
year end 2004 |
|
|
22,041,332 |
|
$ |
2,204 |
|
$ |
52,743 |
|
$ |
166,557 |
|
$ |
(665 |
) |
$ |
13,494 |
|
|
|
|
See Notes
to Consolidated Financial Statements.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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 January 1,
2005 (52 weeks), January 3, 2004 (53 weeks) and December 28, 2002 (52 weeks) and
are referred to as 2004, 2003 and 2002, respectively.
Principles
of Consolidation--The
consolidated financial statements include the accounts of the Company and its
subsidiaries.
Revenue
Recognition--Products
are shipped utilizing common carriers direct to customers or, for consignment
products, to customer specified warehouse locations. Sales are recognized when
the Company’s products are shipped direct or transferred from a warehouse
location to the customer, at which time transfer of ownership and risk of loss
pass to the customer.
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 have original or purchased maturities of three months or
less.
Research
and Development Expenses--The
Company’s research and development activities are charged to expense in the
period incurred.
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 and current exchange rates for
foreign currency denominated amounts. The Company’s off-balance sheet
instruments consist of operating leases which are not significant (see Note
13).
Accounts
Receivable--Accounts
receivable are stated at estimated net realizable value. Accounts receivable
comprise balances due from customers net of estimated allowances for
uncollectible accounts. In determining collectibility, historical trends are
evaluated and specific customer issues are reviewed to arrive at appropriate
allowances.
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 33.1
percent and 42.8
percent of total inventories in 2004 and 2003, respectively. The Company reviews
its inventories for excess or obsolete products or components. Based on an
analysis of historical usage and management’s evaluation of estimated future
demand, market conditions and alternative uses for possible excess or obsolete
parts, reserves are recorded or changed.
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. Accelerated methods are used for income tax
purposes. The Company reviews its property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable.
Goodwill
and Other Intangible Assets--The
Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” in 2002.
Under SFAS No. 142, goodwill is not amortized; however, it must be tested for
impairment at least annually. Amortization continues to be recorded for other
intangible assets with definite lives. The goodwill is subject to adjustment in
the event that it becomes impaired.
Stock-Based
Compensation--The
Company accounts for its stock-based compensation plans under the intrinsic
value method in accordance with the recognition and measurement principles of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related Interpretations. No stock-based compensation cost is
reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant.
For pro
forma information regarding net income and earnings per share, the fair value
for the options awarded in 2004, 2003 and 2002 for all fixed stock option plans
was estimated as of the date of the grant using a Black-Scholes option valuation
model. The following table sets forth the weighted-average assumptions for 2004,
2003 and 2002, respectively.
|
|
2004 |
|
2003 |
|
2002 |
|
Risk-free
interest rate |
|
|
3.60 |
% |
|
3.34 |
% |
|
4.23 |
% |
Dividend
yield |
|
|
.63 |
% |
|
.88 |
% |
|
1.10 |
% |
Volatility
factor |
|
|
.181 |
|
|
.211 |
|
|
.207 |
|
Weighted-average
expected life |
|
|
6
years |
|
|
6
years |
|
|
6
years |
|
For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized over the option’s vesting period. Therefore, in the year of adoption
and subsequently affected years, the effects of applying SFAS No. 123 for
providing pro forma net income and earnings per share are not likely to be
representative of the effects on reported income in future years. The following
table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of SFAS No. 123 to stock-based
compensation:
(In
millions, except per share amounts) |
|
|
|
2004 |
|
2003 |
|
2002 |
|
Reported
net income |
|
$ |
38.1 |
|
$ |
34.5 |
|
$ |
32.2 |
|
Less:
Total fair value computed stock-based compensation, net of
tax |
|
|
(1.5 |
) |
|
(1.5 |
) |
|
(1.3 |
) |
Pro
forma net income |
|
$ |
36.6 |
|
$ |
33.0 |
|
$ |
30.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Reported
net income available per common share |
|
$ |
1.73 |
|
$ |
1.59 |
|
$ |
1.48 |
|
Pro
forma net income available per common share |
|
$ |
1.67 |
|
$ |
1.52 |
|
$ |
1.43 |
|
|
|
|
|
|
|
|
|
|
|
|
Reported
net income available per common share, assuming dilution |
|
$ |
1.65 |
|
$ |
1.52 |
|
$ |
1.42 |
|
Pro
forma net income available per common share, assuming
dilution |
|
$ |
1.59 |
|
$ |
1.46 |
|
$ |
1.36 |
|
The
weighted-average grant-date fair value of options granted during 2004, 2003 and
2002 was $7.47, $6.06 and $6.28, respectively.
The
Black-Scholes option valuation model used by the Company was developed for use
in estimating the fair value of fully tradable options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. It is management’s opinion that the Company’s stock options
have characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
fair value estimate, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
Earnings
Per Common Share--Basic
and diluted earnings per share are computed and disclosed under SFAS No. 128,
“Earnings Per Share”. Diluted earnings per share is computed based upon earnings
applicable to common shares divided by the weighted-average number of common
shares outstanding during the period adjusted for the effect of other dilutive
securities.
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 respective 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, and actual results could differ from those
estimates.
Reclassifications--Certain
prior year amounts are reclassified when necessary to conform to the current
year presentation. All share and per share data included in these financial
statements reflect the Company’s two-for-one stock splits effected in the form
of a 100 percent stock distribution made on June 15, 2004.
Accounting
Pronouncements-- In
November 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs”,
an amendment of ARB No. 43, Chapter 4. The amendments made by SFAS No. 151
clarify that abnormal amounts of idle facility expense, freight, handling costs
and wasted materials (spoilage) should be recognized as current-period charges
and require the allocation of fixed production overheads to inventory based on
the normal capacity of the production facilities. The pronouncement is effective
for inventory costs incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred during fiscal
years beginning after November 23, 2004. The Company currently recognizes, as
period costs, any abnormal amounts of idle facility expense, freight, handling
costs and wasted materials and allocates fixed production overhead to inventory
based on the normal capacity of the production facilities. The adoption of this
pronouncement will not have a significant impact on the Company’s results of
operations or financial position. The Company will adopt this pronouncement for
fiscal 2005.
On
December 16, 2004, the FASB issued SFAS No. 123(R) “Share-Based Payment”, that
requires compensation costs related to share-based payment transactions
recognized in the financial statements. With minor exceptions, the amounts of
compensation costs will be measured based on the grant-date fair value of the
equity or liability instruments issued, over the period that the employee
provides service in exchange for the award. In addition liability awards will be
re-measured each reporting period. This pronouncement is effective as of the
first interim or annual reporting period that begins after June 15, 2005. The
impact on the Company’s results of operations or financial position as of the
adoption of this pronouncement is not expected to be materially different from
the pro-forma results included above: Stock-Based Compensation.
On
December 21, 2004, the FASB issued “Application
of FASB Statement No. 109, Accounting
for Income Taxes, to the
Tax Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004”, a FASB
Staff Position (FSP) that provides guidance on the application of SFAS No. 109
to the tax deduction on qualified production activities provided by the American
Jobs Creation Act of 2004. FSP FAS 109-1 states that the qualified production
activities deduction should be accounted for as a special deduction in
accordance with SFAS No. 109, whereby the deduction is contingent upon the
future performance of specific activities, including wage levels. The FASB also
concluded that the special deductions should be considered with measuring
deferred taxes and assessing a valuation allowance. The impact on the Company’s
results of operations or financial position of FSP FAS 109-1 has not yet been
determined.
On
December 21, 2004, the FASB issued “Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004”, a FSP
that provides accounting and disclosure guidance for the foreign earnings
repatriation provision within the American Jobs Creation Act of 2004. The Act
provides special, one-time dividends received deduction on the repatriation of
certain foreign earnings to a U.S. taxpayer. FSP FAS 109-2 states that a company
is allowed time beyond the financial reporting period of enactment to evaluate
the effect of the Act on its plan for reinvestment or repatriation of foreign
earnings, as it applies to the application of SFAS No. 109. The decision process
to build the plan may occur in stages, as an enterprise may separately evaluate
the provisions of the Act. The Company has not begun the evaluation process of
the effects of the repatriation provision.
2.
GOODWILL AND OTHER INTANGIBLE ASSETS
The
company uses the purchase method of accounting for business combinations and
accounts for goodwill on an impairment-only basis in accordance with SFAS Nos.
141 and 142, “Business Combinations” and “Goodwill and Other Intangible Assets”,
respectively. During the fourth quarter of each year, the Company performs its
annual impairment testing required by SFAS No. 142. No impairment loss was
required to be recognized.
Information
regarding the Company’s other intangible assets which are included in deferred
and other assets, and goodwill follows:
(in
millions) |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Amortized
intangibles |
|
|
|
|
|
Patents |
|
$ |
3.5 |
|
$ |
3.5 |
|
Supply
agreements |
|
|
10.4 |
|
|
10.2 |
|
Other |
|
|
1.7 |
|
|
1.6 |
|
Accumulated
amortization |
|
|
(9.3 |
) |
|
(6.8 |
) |
Total |
|
$ |
6.3 |
|
$ |
8.5 |
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
57.4 |
|
$ |
56.2 |
|
|
|
|
|
|
|
|
|
The
change in goodwill from 2003 to 2004 is related to foreign exchange rate changes
from year to year. Amortization expense related to intangible assets for the
year ended January 1, 2005 was $2.1 million. Amortization expense for each of
the five succeeding years is projected as $1.2 million, $0.8 million, $0.7
million, $0.7 million and $0.7 million for fiscal 2005, 2006, 2007, 2008, 2009,
respectively.
Acquisitions
During
2004, the Company acquired certain assets of JBD, Inc., a pump manufacturer
located in Little Rock, Arkansas, for their estimated fair value of
approximately $9.3 million. During 2002, the Company paid $30.3 million for
acquisitions, net of cash acquired, of which $24.3 million was recorded as
goodwill based on the estimated fair values of the net assets acquired. In
January 2002, the Company acquired certain assets and liabilities of Coverco
S.p.A., and Emco S.r.L.(jointly “Coverco”) manufacturers of submersible and
industrial electric motors and controls in Italy. In July 2002, the Company
acquired all of the outstanding shares of Intelligent Controls, Inc., a producer
of fueling systems electronic leak detection and inventory management systems
controls in Maine. These acquisitions did not materially affect the Company’s
financial statements. The pro forma results of the Company’s operations as if
these acquisitions had occurred at the beginning of the year acquired would not
differ materially from the reported results.
These
acquisitions were accounted for using the purchase method of accounting.
Accordingly, a portion of the aggregate purchase price was allocated to the net
assets acquired based on the estimated fair values. When applicable, the excess
of purchase price over the fair value of the net assets acquired has been
recorded as goodwill.
3.
EMPLOYEE BENEFIT PLANS
Defined
Benefit Plans - As of
January 1, 2005, the Company maintains three domestic pension plans and one
German pension plan. The Company uses a December 31 measurement date for its
plans.
The
following table sets forth aggregated information related to the Company’s
pension benefits and other postretirement benefits, including changes in the
benefit obligations, changes in plan assets, funded status, amounts recognized
in the Consolidated Balance Sheets, and actuarial assumptions:
(In
millions) |
|
|
|
|
|
Pension
Benefits |
|
Other
Benefits |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Change
in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation, beginning of year |
|
$ |
126.5 |
|
$ |
117.1 |
|
$ |
13.2 |
|
$ |
12.9 |
|
Service
cost |
|
|
4.3 |
|
|
4.1 |
|
|
0.4 |
|
|
0.3 |
|
Interest
cost |
|
|
7.5 |
|
|
7.6 |
|
|
0.9 |
|
|
0.8 |
|
Plan
amendments |
|
|
- |
|
|
1.1 |
|
|
2.4 |
|
|
- |
|
Actuarial
loss |
|
|
6.1 |
|
|
6.4 |
|
|
.6 |
|
|
0.4 |
|
Settlements
paid |
|
|
(0.9 |
) |
|
(1.0 |
) |
|
- |
|
|
- |
|
Benefits
paid |
|
|
(9.2 |
) |
|
(9.1 |
) |
|
(1.6 |
) |
|
(1.2 |
) |
Exchange |
|
|
0.1 |
|
|
0.3 |
|
|
- |
|
|
- |
|
Benefit
obligation, end of year |
|
$ |
134.4 |
|
$ |
126.5 |
|
$ |
16.0 |
|
$ |
13.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of assets, beginning of year |
|
$ |
115.9 |
|
$ |
98.0 |
|
$ |
- |
|
$ |
- |
|
Actual
return on plan assets |
|
|
17.9 |
|
|
22.2 |
|
|
- |
|
|
- |
|
Company
contributions |
|
|
5.8 |
|
|
5.8 |
|
|
1.6 |
|
|
1.2 |
|
Settlements
paid |
|
|
(1.0 |
) |
|
(1.0 |
) |
|
|
|
|
|
|
Benefits
paid |
|
|
(9.2 |
) |
|
(9.1 |
) |
|
(1.6 |
) |
|
(1.2 |
) |
Fair
value of assets, end of year |
|
$ |
129.4 |
|
$ |
115.9 |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of funded status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status |
|
$ |
(5.0 |
) |
$ |
(10.6 |
) |
$ |
(16.0 |
) |
$ |
(13.2 |
) |
Unrecognized
net (gain)/loss |
|
|
(0.6 |
) |
|
0.6 |
|
|
3.6 |
|
|
3.1 |
|
Unrecognized
transition obligation |
|
|
- |
|
|
- |
|
|
3.9 |
|
|
4.4 |
|
Unrecognized
prior service cost |
|
|
4.0 |
|
|
5.3 |
|
|
2.2
|
|
|
- |
|
Net
amount recognized |
|
$ |
(1.6 |
) |
$ |
(4.7 |
) |
$ |
(6.3 |
) |
$ |
(5.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in the Consolidated Balance Sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
benefit plan obligations |
|
$ |
(12.5 |
) |
$ |
(13.0 |
) |
$ |
(6.3 |
) |
$ |
(5.7 |
) |
Accrued
expenses |
|
|
(0.1 |
) |
|
(0.1 |
) |
|
- |
|
|
- |
|
Deferred
income taxes |
|
|
1.4 |
|
|
1.3 |
|
|
- |
|
|
- |
|
Deferred
and other assets |
|
|
7.4 |
|
|
5.1 |
|
|
- |
|
|
- |
|
Accumulated
other comprehensive income (loss) |
|
|
2.2 |
|
|
2.0 |
|
|
- |
|
|
- |
|
Net
amount recognized |
|
$ |
(1.6 |
) |
$ |
(4.7 |
) |
$ |
(6.3 |
) |
$ |
(5.7 |
) |
|
|
Pension
Benefits |
|
Other
Benefits |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Increase/(decrease)
in minimum liability included in other comprehensive
income |
|
$ |
0.2 |
|
$ |
(2.0 |
) |
$ |
- |
|
$ |
- |
|
Actuarial
assumptions used to determine benefit obligations:
|
|
Pension
Benefits |
|
Other
Benefits |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Discount
rate |
|
|
5.75 |
% |
|
6.25 |
% |
|
5.75 |
% |
|
6.25 |
% |
Rate
of increase in future compensation |
|
|
2.5-7.00 |
% |
|
2.5-7.00 |
% |
|
2.5-7.00 |
% |
|
2.5-7.00 |
% |
|
|
|
(Graded |
) |
|
|
) |
|
(Graded |
) |
|
(Graded |
) |
Actuarial
assumptions used to determine periodic benefit cost: |
|
|
|
|
|
Pension
Benefits |
|
Other
Benefits |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Discount
rate |
|
6.25% |
|
6.75% |
|
6.25% |
|
6.75% |
|
Rate
of increase in future compensation |
|
2.5-7.00% |
|
2.5-7.00% |
|
2.5-7.00% |
|
2.5-7.00% |
|
|
|
|
(Graded |
) |
|
(Graded |
) |
|
(Graded |
) |
|
(Graded |
) |
Expected
long-term rate of return on plan assets |
|
|
9.25 |
% |
|
9.25 |
% |
|
- |
|
|
- |
|
The
following table sets forth aggregated net periodic benefit cost for 2004, 2003
and 2002:
(In
millions) |
|
|
|
Pension
Benefits |
|
Other
Benefits |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost |
|
$ |
4.3 |
|
$ |
4.1 |
|
$ |
3.6 |
|
$ |
0.4 |
|
$ |
0.3 |
|
$ |
0.3 |
|
Interest
cost |
|
|
7.5 |
|
|
7.6 |
|
|
7.6 |
|
|
0.9 |
|
|
0.8 |
|
|
0.9 |
|
Expected
return on assets |
|
|
(10.9 |
) |
|
(10.6 |
) |
|
(10.4 |
) |
|
- |
|
|
- |
|
|
- |
|
Amortization
of unrecognized obligation/(asset) |
|
|
- |
|
|
- |
|
|
- |
|
|
0.5 |
|
|
0.5 |
|
|
0.5 |
|
Prior
service cost |
|
|
1.4 |
|
|
1.5 |
|
|
1.2 |
|
|
0.2 |
|
|
- |
|
|
- |
|
Loss/(Gain) |
|
|
- |
|
|
(0.2 |
) |
|
(0.7 |
) |
|
0.2 |
|
|
0.2 |
|
|
0.1 |
|
Net
periodic benefit cost |
|
$ |
2.3 |
|
$ |
2.4 |
|
$ |
1.3 |
|
$ |
2.2 |
|
$ |
1.8 |
|
$ |
1.8 |
|
Settlement
|
|
|
0.3 |
|
|
0.2 |
|
|
0.1 |
|
|
- |
|
|
- |
|
|
- |
|
Total
benefit cost |
|
$ |
2.6 |
|
$ |
2.6 |
|
$ |
1.4 |
|
$ |
2.2 |
|
$ |
1.8 |
|
$ |
1.8 |
|
The
Company consults with actuaries, asset allocation consultants and investment
advisors to determine the expected long term rate of return on plan assets.
While past performance is not a guarantee of future returns, the plan assets of
the pension plans for the past fifteen years have averaged in excess of 12%
annually. Effective January 1, 2005 an expected long term rate of return on plan
assets of 8.50% was selected to reflect capital market expectations based in
part on input from the Company’s actuaries, consultants and
advisors.
|
|
Plan
Assets at December 31 |
|
|
|
|
|
|
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Equity
Securities |
|
|
74 |
% |
|
76 |
% |
Fixed
Income Securities |
|
|
26 |
% |
|
24 |
% |
Total |
|
|
100 |
% |
|
100 |
% |
Equity
securities include Company stock of $25.5 million (20% of total plan assets) and
$22.0 million (19% of total plan assets) at December 31, 2004 and 2003,
respectively.
The
Company employs a total return investment approach whereby a mix of equity and
fixed-income investments are used to maximize the long-term return on plan
assets for a prudent level of risk. Risk tolerance is established through
careful consideration of plan liabilities, plan funded status, and corporate
financial condition. The investment portfolio contains a diversified blend of
equity and fixed-income investments. Furthermore, equity investments are
diversified across growth, value, and small and large capitalizations.
Investment risk is measured and monitored on an ongoing basis through investment
portfolio reviews, annual liability measurements, and periodic asset/liability
studies.
One of
the Company’s four pension plans covers certain management employees. The
Company does not fund this plan, and its assets were zero in 2004 and 2003. The
plan’s projected benefit obligation and accumulated benefit obligation were
$6.4 million
and $5.0 million, respectively, at January 1, 2005, and $6.2 million and $4.8
million, respectively, at January 3, 2004.
The
Company estimates total contributions to the plans of $3.4 million in
2005.
The
following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:
(In
millions) |
|
|
|
|
|
|
|
Pension |
|
Other |
|
|
|
Benefits |
|
Benefits |
|
2005 |
|
$ |
9.2 |
|
$ |
1.6 |
|
2006 |
|
|
8.6 |
|
|
1.3 |
|
2007 |
|
|
8.0 |
|
|
1.3 |
|
2008 |
|
|
8.3 |
|
|
1.3 |
|
2009 |
|
|
9.6 |
|
|
1.3 |
|
Years
2010 through 2014 |
|
|
49.6 |
|
|
6.5 |
|
The
Company’s other postretirement benefit plans provide health and life insurance
benefits to domestic employees hired prior to 1992. The Company effectively
capped its cost for those benefits through plan amendments made in 1992,
freezing Company contributions for insurance benefits at 1991 levels for current
and future beneficiaries with actuarially reduced benefits for employees who
retire before age 65. On December 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 was signed into law. After reviewing
the Act, it was determined that there was no direct impact to the Company’s
postretirement medical plan. However, to assist retirees in maintaining their
current standard of living, the Company decided to make a one-time increase to
its post-65 benefit payment to retirees. The accumulated postretirement benefit
obligation for this benefit change increased $2.4 million and the annual net
periodic postretirement benefit cost increased $0.3 million.
Defined
Contribution Plans - The
Company maintains an integrated 401(k) and Employee Stock Ownership Plan (ESOP).
In 1996 and 1992, the ESOP Trustee acquired shares of Company common stock on
the open market using the proceeds of a ten-year, $0.3 million loan and a
fifteen-year, $3.0 million loan, respectively, from the Company. Under the terms
of the variable rate loan (6.31 percent at January 1, 2005), 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.
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 Company stock fund of the 401(k) and ESOP
Trusts, and allocated to participants' accounts to satisfy the balance of the
Company's 401(k) matching contribution.
At
January 1, 2005, 550,211 shares were allocated to the accounts of participants,
31,011 shares were committed to be released and allocated to the accounts of
participants for service rendered during 2004, and 85,062 shares were held by
the ESOP Trust in suspense. The following table sets forth the interest expense
and Company contributions to the integrated ESOP and 401(k) Plan.
(In
millions) |
|
|
|
2004 |
|
2003 |
|
2002 |
|
Interest
expense incurred by the plan on ESOP debt |
|
$ |
0.0 |
|
$ |
0.1 |
|
$ |
0.1 |
|
Company
contributions to integrated plan |
|
$ |
0.9 |
|
$ |
1.0 |
|
$ |
1.1 |
|
4.
ACCRUED EXPENSES
Accrued
expenses consisted of:
(In
millions) |
|
|
|
|
|
|
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Salaries,
wages and commissions |
|
$ |
13.9 |
|
$ |
11.5 |
|
Product
warranty costs |
|
|
7.1 |
|
|
5.4 |
|
Insurance |
|
|
6.6 |
|
|
5.8 |
|
Employee
benefits |
|
|
2.1 |
|
|
2.1 |
|
Other |
|
|
3.7 |
|
|
3.3 |
|
|
|
$ |
33.4 |
|
$ |
28.1 |
|
5. INCOME
TAXES
Income
before income taxes consisted of:
(In
millions) |
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
48.1 |
|
$ |
42.5 |
|
$ |
45.3 |
|
Foreign |
|
|
10.9 |
|
|
8.8 |
|
|
5.1 |
|
|
|
$ |
59.0 |
|
$ |
51.3 |
|
$ |
50.4 |
|
The
income tax provision consisted of:
(In
millions) |
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
Currently
payable: |
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
12.9 |
|
$ |
9.3 |
|
$ |
11.9 |
|
Foreign |
|
|
5.0 |
|
|
3.0 |
|
|
2.9 |
|
State |
|
|
1.8 |
|
|
1.4 |
|
|
2.8 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
1.8 |
|
|
2.1 |
|
|
1.4 |
|
Foreign |
|
|
(0.7 |
) |
|
0.7 |
|
|
(0.8 |
) |
State |
|
|
0.1 |
|
|
0.3 |
|
|
0.1 |
|
|
|
$ |
20.9 |
|
$ |
16.8 |
|
$ |
18.3 |
|
Significant
components of the Company's deferred tax assets and liabilities were as
follows:
(In
millions) |
|
|
|
|
|
|
|
2004 |
|
2003 |
|
Deferred
tax assets: |
|
|
|
|
|
|
|
Accrued
expenses and reserves |
|
$ |
5.7 |
|
$ |
5.1 |
|
Compensation
and employee benefits |
|
|
7.6 |
|
|
8.8 |
|
Other
items |
|
|
1.5 |
|
|
2.1 |
|
Total
deferred tax assets |
|
|
14.8 |
|
|
16.0 |
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities: |
|
|
|
|
|
|
|
Accelerated
depreciation on fixed assets |
|
|
9.0 |
|
|
8.8 |
|
Other
items |
|
|
1.7 |
|
|
1.9 |
|
Total
deferred tax liabilities |
|
|
10.7 |
|
|
10.7 |
|
|
|
|
|
|
|
|
|
Net
deferred tax assets |
|
$ |
4.1 |
|
$ |
5.3 |
|
The
portions of current and non-current deferred tax assets and liabilities were as
follows:
(In
millions) |
|
|
|
|
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Tax
Assets |
|
Deferred
Tax
Liabilities |
|
Deferred
Tax
Assets |
|
Deferred
Tax
Liabilities |
|
Current |
|
$ |
10.6 |
|
$ |
0.2 |
|
$ |
9.7 |
|
$ |
0.0 |
|
Non-current |
|
|
4.2 |
|
|
10.5 |
|
|
6.3 |
|
|
10.7 |
|
|
|
$ |
14.8 |
|
$ |
10.7 |
|
$ |
16.0 |
|
$ |
10.7 |
|
There was
no valuation allowance for deferred tax assets required in 20042003 or
2003.2002.
The
differences between the statutory and effective tax rates were as
follows:
|
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
U.S.
Federal statutory rate |
|
|
35.0 |
% |
|
35.0 |
% |
|
35.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
State
income taxes, net of federal benefit |
|
|
2.1 |
|
|
2.2 |
|
|
3.7 |
|
Extraterritorial
income exclusion |
|
|
(1.8 |
) |
|
(4.0 |
) |
|
(1.9 |
) |
R&D
tax credits |
|
|
(0.7 |
) |
|
(1.2 |
) |
|
(1.3 |
) |
Other
items |
|
|
0.9 |
|
|
0.8 |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate |
|
|
35.5 |
% |
|
32.8 |
% |
|
36.2 |
% |
6.
DEBT
Long-term
debt consisted of:
(In
millions) |
|
|
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Insurance
Company - - 6.31%, principal payments of $1.0 million due in annual
installments, with a balloon payment of $10.0 in 2008 ($3.4 denominated in
JPY at 1/01/05) |
|
$ |
13.3 |
|
$ |
14.2 |
|
Capital
Leases |
|
|
1.8 |
|
|
2.2 |
|
|
|
|
15.1 |
|
|
16.4 |
|
Less
Current Maturities |
|
|
(1.3 |
) |
|
(1.4 |
) |
|
|
$ |
13.8 |
|
$ |
15.0 |
|
The
following debt payments are expected to be paid:
(In
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Year
1 |
|
Year
2 |
|
Year
3 |
|
Year
4 |
|
Year
5 |
|
Debt |
|
$ |
13.3 |
|
$ |
1.0 |
|
$ |
1.0 |
|
$ |
1.0 |
|
$ |
10.3 |
|
$ |
- |
|
Capital
Leases |
|
|
1.8 |
|
|
0.3 |
|
|
0.3 |
|
|
0.3 |
|
|
0.3 |
|
|
0.6 |
|
|
|
$ |
15.1 |
|
$ |
1.3 |
|
$ |
1.3 |
|
$ |
1.3 |
|
|
10.6 |
|
$ |
0.6 |
|
On
September 9, 2004, the Company entered into an unsecured, 60-month, $80.0
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 no outstanding borrowings under the Agreement at January 1, 2005.
The
Company was in compliance with all debt covenants at all times in 2004 and
2003.
7.
INTEREST
RATE RISK
On
September 24, 2003 the company entered into a fixed-to-variable interest rate
swap to achieve a desired proportion of variable vs. fixed rate debt. The
fixed-to-variable interest rate swap is accounted for as a fair value hedge, per
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”,
with effectiveness assessed based on changes in the fair value of the underlying
debt using incremental borrowing rates currently available on loans with similar
terms and maturities. The effective gain or loss on the interest rate swap and
that of the underlying debt are equal and offsetting resulting in no net effect
to earnings. The fair value of this hedge instrument was $(0.1) million at
January 1, 2005 and is recorded in other assets and other long-term liabilities.
The swap
contract has a notional amount of $10 million and matures on November 10, 2008.
Per the terms of the swap contract the company receives interest at a fixed rate
of 6.31% and pays interest at a variable rate based on the three month LIBOR
rate plus a spread. The average variable rate paid by the company in 2004 was
4.1%. The differential in interest rates on the swap is recognized as an
adjustment of interest expense over the term of the agreement.
8.
SHAREOWNERS' EQUITY
The
Company had 22,041,332 shares of common stock (45,000,000 shares authorized,
$.10 par value) outstanding at the end of 2004.
During
2004 and 2003, pursuant to a stock repurchase program authorized by the
Company’s Board of Directors, the Company repurchased a total of 102,800 shares
for $3.1 million and 380,294 shares
for $9.8 million,
respectively. Of these shares, 300,000 were repurchased from an officer of the
Company in 2003. All repurchased shares were retired.
During
2004 and 2003, under terms of a Company stock option plan, participants
delivered 21,312 shares for $0.7 million and 186,832 for $5.0 million shares of
Company common stock as consideration for stock issued upon the exercise of
stock options. Of these shares, 21,312 in 2004 and 163,776 in 2003 were from
officers of the Company. In 2004 and 2003, the Company recorded a $2.4 million
and a $5.1 million, respectively, reduction in its deferred tax liability and an
increase to shareowners’ equity as a result of these exercises. The shares
delivered to the Company were subsequently retired.
Accumulated
other comprehensive gain (loss), consisting of the currency translation
adjustment and the pension liability adjustment, was $15.7 million and $(2.2)
million, respectively, at January 1, 2005, and $8.7 million and $(1.9) million,
respectively, at January 3, 2004.
9.
EARNINGS PER SHARE
The
following table sets forth the computation of basic and diluted earnings per
share:
(In
millions, except per share amounts) |
|
|
|
2004 |
|
2003 |
|
2002 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
Net
Income |
|
$ |
38.1 |
|
$ |
34.5 |
|
$ |
32.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares |
|
|
22.0 |
|
|
21.6 |
|
|
21.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
and director incentive stock options and awards |
|
|
1.1 |
|
|
1.0 |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
weighted-average common shares |
|
|
23.1 |
|
|
22.6 |
|
|
22.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share |
|
$ |
1.73 |
|
$ |
1.59 |
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share |
|
$ |
1.65 |
|
$ |
1.52 |
|
$ |
1.42 |
|
10.
STOCK-BASED COMPENSATION
The
Company has authorized the grant of options to purchase common stock of the
Company to employees and non-employee directors of the Company and its
subsidiaries under two fixed stock option plans. The plans and the original
number of authorized shares available for grants are as follows:
|
|
Shares |
|
1990
Non-Employee Director Stock Option Plan |
|
|
240,000 |
|
Franklin
Electric Co., Inc. Stock Option Plan |
|
|
3,600,000 |
|
During
2004, all options outstanding under the 1990 Non-Employee Director Stock Option
Plan were exercised. There are no further shares reserved for future awards
under this plan.
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
non-employee directors vest 33 percent a year and become fully vested and
exercisable after three years and options granted to employees vest 20 percent a
year and become fully vested and exercisable after five years. 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.
A summary
of the Company’s fixed stock option plans activity and related information for
2004, 2003 and 2002 follows:
|
|
2004 |
|
2003 |
|
2002 |
|
Fixed
Options |
|
Shares |
|
Weighted-Average
Exercise
Price |
|
Shares |
|
Weighted-Average
Exercise
Price |
|
Shares |
|
Weighted-Average Exercise
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year |
|
|
2,533,800 |
|
$ |
18.925 |
|
|
2,927,800 |
|
$ |
16.060 |
|
|
3,324,600 |
|
$ |
13.150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
198,600 |
|
|
30.569 |
|
|
456,000 |
|
|
23.895 |
|
|
461,000 |
|
|
24.090 |
|
Exercised |
|
|
(331,200 |
) |
|
13.663 |
|
|
(748,000 |
) |
|
10.425 |
|
|
(757,000 |
) |
|
7.855 |
|
Forfeited |
|
|
- |
|
|
- |
|
|
(102,000 |
) |
|
21.230 |
|
|
(100,800 |
) |
|
18.480 |
|
Outstanding
at end of year |
|
|
2,401,200 |
|
$ |
20.610 |
|
|
2,533,800 |
|
$ |
18.925 |
|
|
2,927,800 |
|
$ |
16.060 |
|
The
following summarizes information about fixed stock options outstanding at
January 1, 2005:
|
|
Options
Outstanding |
|
Options
Exercisable |
|
Range
of
Exercise
Prices |
|
Number
Outstanding
at
1/1/05 |
|
Weighted-Average
Remaining
Contractual Life |
|
Weighted-Average
Exercise Price |
|
Number
Exercisable at
1/1/05 |
|
Weighted-Average
Exercise
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$10.50
to 16.00 |
|
|
117,400 |
|
|
2.63
years |
|
$ |
12.42 |
|
|
117,400 |
|
$ |
12.42 |
|
16.01
to 21.00 |
|
|
1,264,200 |
|
|
5.60 |
|
|
17.50 |
|
|
1,005,000 |
|
|
17.42 |
|
21.01
to 32.60 |
|
|
1,019,600 |
|
|
8.11 |
|
|
25.42 |
|
|
361,000 |
|
|
24.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$10.50
to 32.60 |
|
|
2,401,200 |
|
|
6.52 |
|
$ |
20.61 |
|
|
1,483,400 |
|
$ |
18.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
2000, the Franklin Electric Co., Inc. Key Employee Performance Incentive Stock
Plan (Incentive Plan) was established. Under the Incentive Plan, employees may
be granted restricted shares of the Company’s common stock, vesting subject to
the employees’ performance of certain goals. On December 20, 2004, 6,300 shares
were awarded to non-executive employees under the Incentive Plan. No shares were
awarded in 2003. At January 1, 2005, 393,700 shares were available for future
awards.
On
February 1, 2005, the Company terminated the 1988 Executive Stock Purchase Plan
(1988 Purchase Plan). Prior to termination, there were 2,051,200 shares
available for future awards and there were no outstanding loans to Company
executives.
11.
SEGMENT AND GEOGRAPHIC INFORMATION
Based on
the management approach established by SFAS No. 131, “Disclosure About Segments
of an Enterprise and Related Information”, the Company’s business consists of
three operating segments based on the principal end market served: the water
system segment, the industrial motor segment and the fueling system segment.
The water
system segment designs, manufactures and sells motors, pumps, electronic
controls and related parts and equipment primarily for use in submersible water
and other fluid system applications. The industrial motor segment designs,
manufactures and sells electric motors for various industrial applications
primarily water and fueling system applications. The industrial motor segment
integrates and sells electronic controls produced by the water segment. The
fueling system segment designs, manufactures and sells pumps, electronic
controls and related parts and equipment primarily for use in submersible
fueling system applications. The fueling system segment integrates and sells
motors and electronic controls produced by the water system segment.
Under
SFAS No. 131’s aggregation criteria, the Company’s operating segments have been
combined into a single reportable segment. As a result, there are no significant
differences between reportable segment financial information and the Company’s
consolidated results.
Net sales
by product category, net of intercompany balances, is as follows:
|
|
2004 |
|
2003 |
|
2002 |
|
Water
systems |
|
$ |
333.5 |
|
$ |
291.8 |
|
$ |
296.2 |
|
Fueling
systems |
|
|
70.8 |
|
|
67.7 |
|
|
58.7 |
|
Total |
|
$ |
404.3 |
|
$ |
359.5 |
|
$ |
354.9 |
|
Geographical
information
|
|
Net
Sales |
|
Long-lived
assests |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
United
States |
|
$ |
254.3 |
|
$ |
230.6 |
|
$ |
232.3 |
|
$ |
48.5 |
|
$ |
43.9 |
|
$ |
47.8 |
|
Foreign |
|
|
150.0 |
|
|
128.9 |
|
|
122.6 |
|
|
47.4 |
|
|
40.0 |
|
|
28.2 |
|
Total |
|
$ |
404.3 |
|
$ |
359.5 |
|
$ |
354.9 |
|
$ |
95.9 |
|
$ |
83.9 |
|
$ |
76.0 |
|
ITT
Industries, Inc., and its various subsidiaries and affiliates, accounted for
19.2 percent, 18.0 percent and 18.2 percent of the Company’s consolidated sales
in 2004, 2003, and 2002, respectively. Pentair Corporation and its various
subsidiaries and affiliates, accounted for 20.7 percent, of the Company’s
consolidated sales in 2004. Sta-Rite Industries, Inc., formerly a subsidiary of
Wisconsin Energy Corporation, accounted for 13.6 percent and 11.5 percent of the
Company’s consolidated sales in 2003 and 2002, respectively. Sta-Rite
Industries, Inc. was acquired by Pentair Corporation during 2004 and its sales
have been included with Pentair’s sales for 2004.
12.
RESTRUCTURING
The
Company incurred $5.5 million of expenses during 2004 (included in
“Restructuring Expense” on the income statement) related to its global
manufacturing realignment program. The costs in 2004 were primarily severance,
training, equipment transfers, travel, and employee relocations related to the
ongoing ramp up of the Linares, Mexico facility and the consolidation of Motta
di Livenza, Italy factory into other European factories and to the Fueling
Systems consolidation. The Company will incur additional expenses throughout
2005 to transfer equipment and other related expenses. The operations performed
in the closed facilities will be relocated to other Company facilities and
consolidated. The global manufacturing realignment program is estimated to cost
in total $10.0 million and is expected to be substantially complete by the end
of 2005.
The
components and use of the restructuring reserve is summarized
below:
(in
millions) |
|
Severance
Benefits: |
|
Other |
|
|
|
|
|
|
|
|
|
$ |
0.0 |
|
$ |
0.0 |
|
|
|
|
|
|
|
|
|
Restructuring
Expense |
|
|
3.4 |
|
|
2.1 |
|
|
|
|
|
|
|
|
|
Cost
Incurred |
|
|
(3.1 |
) |
|
(2.1 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
0.3 |
|
$ |
0.0 |
|
13.
CONTINGENCIES AND COMMITMENTS
The
Company is defending various claims and legal actions, including environmental
matters, which have arisen in the ordinary course of business. In the opinion of
management, based on current knowledge of the facts and after discussion with
counsel, these claims and legal actions can be successfully defended or resolved
without a material adverse effect on the Company’s financial position, results
of operation, and net cash flows.
Total
rent expense charged to operations for operating leases including contingent
rentals was $3.4 million, $3.0 million and $2.7 million for 2004, 2003 and 2002,
respectively. The future minimum rental payments for noncancellable operating
leases as of January 1, 2005, are as follows: 2005, $3.0 million; 2006, $1.8
million; and 2007, $1.2 million. Rental commitments subsequent to 2007 are not
significant by year, but aggregated are $4.5 million in total.
Below is
a table that shows the activity in the warranty accrual accounts:
(In
millions) |
|
|
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Beginning
Balance |
|
$ |
5.4 |
|
$ |
5.3 |
|
|
|
|
|
|
|
|
|
Accruals
related to product warranties |
|
|
4.9 |
|
|
4.4 |
|
Reductions
for payments made |
|
|
3.2 |
|
|
4.3 |
|
Ending
Balance |
|
$ |
7.1 |
|
$ |
5.4 |
|
14.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited
quarterly financial information for 2004 and 2003 is as follows:
(In
millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales |
|
Gross
Profit |
|
Net
Income |
|
Basic
Earnings
Per Share |
|
Diluted
Earnings
Per Share |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
Quarter |
|
$ |
80.2 |
|
$ |
23.6 |
|
$ |
5.1 |
|
$ |
0.23 |
|
$ |
0.22 |
|
2nd
Quarter |
|
|
106.2 |
|
|
34.5 |
|
|
10.9 |
|
|
|
|
|
0.48 |
|
3rd
Quarter |
|
|
110.3 |
|
|
36.1 |
|
|
11.1 |
|
|
0.51 |
|
|
0.48 |
|
4th
Quarter |
|
|
107.6 |
|
|
36.0 |
|
|
11.0 |
|
|
0.50 |
|
|
0.47 |
|
|
|
$ |
404.3 |
|
$ |
130.2 |
|
$ |
38.1 |
|
$ |
1.73 |
|
|
1.65 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
Quarter |
|
$ |
69.8 |
|
$ |
19.8 |
|
$ |
4.0 |
|
$ |
.18 |
|
$ |
.18 |
|
2nd
Quarter |
|
|
93.8 |
|
|
29.0 |
|
|
9.4 |
|
|
.44 |
|
|
.42 |
|
3rd
Quarter |
|
|
99.7 |
|
|
30.8 |
|
|
10.5 |
|
|
.49
|
|
|
.46 |
|
4th
Quarter |
|
|
96.2 |
|
|
31.4 |
|
|
10.6 |
|
|
.48 |
|
|
.46 |
|
|
|
$ |
359.5 |
|
$ |
111.0 |
|
$ |
34.5 |
|
$ |
1.59 |
|
$ |
1.52 |
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareowners and Directors, Franklin Electric Co., Inc.:
We have
audited the accompanying consolidated balance sheets of Franklin Electric Co.,
Inc. (the “Company”) as of January 1, 2005 and January 3, 2004 and the related
consolidated statements of income, shareowners’ equity and cash flows for each
of the three years in the period ended January 1, 2005. Our audits also included
the financial statement schedule listed in the index at Item 15. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. as of January 1,
2005 and January 3, 2004, and the results of its operations and its cash flows
for each of the three years in the period ended January 1, 2005, in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial 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.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of January 1, 2005, based on the criteria
established in Internal
Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 10, 2005 expressed an unqualified opinion on management’s
assessment of the effectiveness of the Company’s internal control over financial
reporting and an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Chicago,
Illinois
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareowners and Directors, Franklin Electric Co., Inc.:
We have
audited management’s assessment, included in the accompanying Statement of
Management’s Responsibility for Financial Reporting and Management’s Report on
Internal Control over Financial Reporting, that Franklin Electric Co., Inc. and
consolidated subsidiaries (the “Company”) maintained effective internal control
over financial reporting as of January 1, 2005, based on criteria established in
Internal
Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management’s assessment and an opinion on the effectiveness of the Company’s
internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, management’s assessment that the Company maintained effective internal
control over financial reporting as of January 1, 2005, is fairly stated, in all
material respects, based on the criteria established in Internal
Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Also in
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of January 1, 2005, based on the
criteria established in Internal
Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and
financial statement schedule as of and for the year ended January 1, 2005 and
our report dated February 10, 2005 expressed an unqualified opinion on those
financial statements and the financial statement schedule.
Chicago,
Illinois
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
As of the
end of the period covered by this report (the “Evaluation Date”), the Company
carried out an evaluation, under the supervision and with the participation of
the Company’s management, including the Company’s Chief Executive Officer and
the Company’s Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief
Executive Officer and the Company’s Chief Financial Officer concluded that as of
the Evaluation Date, the Company’s disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company and its subsidiaries required to be included in the Company’s periodic
SEC filings.
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 last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
System of
Internal Control over Financial Reporting:
Management
is responsible for establishing and maintaining an adequate system of internal
control over financial reporting of the Company. This system is designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
The
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting can
provide only reasonable assurance with respect to financial statement
preparation and may not prevent or detect misstatements. Further, because of
changes in conditions, effectiveness of internal controls over financial
reporting may vary over time.
Management
conducted an evaluation of the effectiveness of the system of internal control
over financial reporting based on the framework in Internal
Control-Integrated Framework (the
“Framework”) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on its evaluation, management concluded that the
Company’s system of internal control over financial reporting was effective as
of January 1, 2005.
Report of
Independent Registered Public Accounting Firm:
The
consolidated financial statements and management’s assessment of the
effectiveness of the Company’s internal control over financial reporting have
been audited by Deloitte & Touche, an independent registered public
accounting firm, and their report is presented on page 35-36.
ITEM
9B.OTHER
INFORMATION
None.
PART
III
The
information concerning directors required by this Item 10 is set forth in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 29, 2005, 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."
The
information concerning Item 405 disclosures of delinquent Form 3,4 or 5 filers
required by this Item 10 is set forth in the Company’s Proxy Statement for the
Annual Meeting of Shareholders to be held on April 29, 2005, under the heading
of “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE,” and is
incorporated herein by reference.
The
information concerning the procedures for shareholders to recommend nominees to
the Company’s board of directors is set forth in the Company’s Proxy Statement
to the Annual Meeting of Shareholders to be held on April 29, 2005 under the
heading “INFORMATION ABOUT THE BOARD AND ITS COMMITTEES.”
The
Company’s board of directors has determined that Jerome D. Brady, Diana S.
Ferguson, and Robert H. Little, the Audit Committee members, are “audit
committee financial experts” as defined by Item 401(h) of Regulation’s S-K of
the Exchange Act, and are “independent” within the meaning of Item 7 (d)(3)(iv)
of schedule 14A of the Exchange Act.
In
compliance with Section 406 of the Sarbanes-Oxley Act of 2002, the Company has
adopted a code of business conduct and ethics for its directors, principal
financial officer, controller, principal executive officer, and other employees.
The Company has posted its code of ethics on the Company website at http://www.franklin-electric.com. The
company will disclose any amendments to the Code and any waivers from the Code
for directors and executive officers by posting such information on its
website.
ITEM
11. EXECUTIVE COMPENSATION
The
information required by Item 11 is set forth in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 29, 2005, under the
headings of "INFORMATION ABOUT THE BOARD AND ITS COMMITTEES," "PERSONNEL AND
COMPENSATION COMMITTEE REPORT," "SUMMARY COMPENSATION TABLE," "OPTION GRANTS IN
2004 FISCAL YEAR," "AGGREGATED OPTION EXCERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES”, "PENSION PLANS" and "AGREEMENTS," and is incorporated
herein by reference.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
information required by Item 12 is set forth in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 29, 2005, under the
headings of "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and
“SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS,” 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 Shareholders to be held on April 29, 2005, under the
headings of “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” and
"AGREEMENTS," and is incorporated herein by reference.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required by Item 14 is set forth in the Company’s Proxy Statement
for the Annual Meeting of Shareholders to be held on April 29, 2005 under the
heading “Principal Accountant Fees and Services”.
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
|
|
Form
10-K Annual Report(page) |
|
|
(a)
1. Financial
Statements - Franklin Electric |
|
|
|
|
Reports
of Independent Registered Public Accounting Firm |
35-36 |
Consolidated
Statements of Income for the three years ended January 1,
2005 |
16 |
|
17-18 |
Consolidated
Statements of Cash Flows for the three years ended January 1,
2005 |
19 |
Consolidated
Statements of Shareowners' Equity for the three years ended January 1,
2005 |
20 |
Notes
to Consolidated Financial Statements(including quarterly financial
data) |
21-34 |
|
|
2.
Financial
Statement Schedules - Franklin Electric |
|
|
|
|
II.
Valuation and Qualifying Accounts |
39 |
|
|
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 41-42. Management Contract, Compensatory Plan, or
Arrangement is denoted by an asterisk (*).
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
For the
years 2004, 2003 and 2002
(In
millions)
Description |
|
Balance
at beginning of
period |
|
Additions
charged to costs and expenses |
|
Deductions |
|
Other |
|
Balance
at end of
period |
|
Allowance
for doubtful accounts: |
|
2004 |
|
$ |
1.9 |
|
$ |
0.3 |
|
$ |
0.0(A |
) |
$ |
0.1(B |
) |
$ |
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
$ |
1.9 |
|
$ |
0.3 |
|
$ |
0.3(A |
) |
$ |
0.0 |
|
$ |
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
$ |
1.7 |
|
$ |
0.0 |
|
$ |
0.2(A |
) |
$ |
0.4(B |
) |
$ |
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES:
(A) |
Uncollectible
accounts written off, net of recoveries. |
(B) |
Allowance
for doubtful accounts related to accounts receivable of acquired companies
at date of acquisition. |
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. |
|
|
|
/s/
R. SCOTT
TRUMBULL |
|
|
R.
Scott Trumbull |
|
Chairman
of the Board 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 indicated on February 11, 2005.
/s/
R. SCOTT TRUMBULL |
|
Chairman
of the Board and Chief |
R.
Scott Trumbull |
Executive
Officer (Principal |
|
Executive
Officer) |
|
|
/s/
GREGG C. SENGSTACK |
|
Senior
Vice President, Chief |
Gregg
C. Sengstack |
Financial
Officer and Secretary |
|
(Principal
Financial and Accounting |
|
Officer) |
|
|
/s/
JEROME D. BRADY |
|
|
Jerome
D. Brady |
Director |
|
|
|
|
/s/
DIANA S. FERGUSON |
|
|
Diana
S. Ferguson |
Director |
|
|
|
|
/s/
ROBERT H. LITTLE |
|
|
Robert
H. Little |
Director |
|
|
|
|
/s/
DAVID
A. ROBERTS |
|
|
David
A. Roberts |
Director |
|
|
|
|
/s/
DONALD J. SCHNEIDER |
|
|
Donald
J. Schneider |
Director |
|
|
|
|
/s/
HOWARD B. WITT |
|
|
Howard
B. Witt |
Director |
FRANKLIN
ELECTRIC CO., INC.
EXHIBIT
INDEX TO THE ANNUAL REPORT ON FORM 10-K
Exhibit
Number |
Description |
10.3 |
1990
Franklin Electric Non-Employee Director Stock Option Plan (incorporated
herein by reference to the Company's 1991 Proxy Statement for the Annual
Meeting on April 19, 1991)* |
10.4 |
2003
Franklin Electric Co., Inc. Stock Option Plan (incorporated herein by
reference to Exhibit 10.4 of the Company’s Form 10-K for the fiscal year
ended January 3, 2004)* |
10.14 |
Managing
Director Service Contract dated August 1, 2003 between Franklin Electric
Europa GmbH and Mr. Peter-Christian Maske* |
10.15 |
Confidentiality
and Non-Compete Agreement dated February 11, 2005 between the Company and
R. Scott Trumbull, Gregg C. Sengstack, Daniel J. Crose, Donald R. Hobbs,
Thomas A. Miller, Kirk M. Nevins, Robert J. Stone, and Gary
Ward* |
10.17 |
Executive
Officer Annual Incentive Cash Bonus
Program* |
10.18 |
Form
of Non-Qualified Stock Option Agreement for Non-Director
Employees* |
10.19 |
Form
of Non-Qualified Stock Option Agreement for Director
Employees* |
23 |
Independent
Registered Public Accounting Firm’s Consent |
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 |
99.1 |
Forward-Looking
Statements |
*
Management contract or compensatory plan or arrangement