UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________

FORM 10-K

_________

OF THE SECURITIES EXCHANGE ACT OF 1934

OR

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-362

 

FRANKLIN ELECTRIC CO., INC.

(Exact name of registrant as specified in its charter)

(260) 824-2900

(Registrant'sRegistrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of each class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company"company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

The aggregate market value of the registrant'sregistrant’s common stock held by non-affiliates of the registrant at July 1, 2016June 30, 2019 (the last business day of the registrant’s most recently completed second quarter) was $1,527,181,567.$2,175,331,613. The stock price used in this computation was the last sales price on that date, as reported by NASDAQ Global Select Market. For purposes of this calculation, the registrant has excluded shares held by executive officers and directors of the registrant, including restricted shares and except for shares owned by the executive officers through the registrant'sregistrant’s 401(k) Plan. Determination of stock ownership by non-affiliates was made solely for the purpose of responding to this requirement and the registrant is not bound by this determination for any other purpose.

46,382,58646,393,240 shares

DOCUMENTS INCORPORATED BY REFERENCE

A portion of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 5, 20178, 2020 (Part III).

FRANKLIN ELECTRIC CO., INC.

TABLE OF CONTENTS

 

PART I

ITEM 1. BUSINESS

Franklin Electric Co., Inc. (“Franklin Electric” or the “Company”) is an Indiana corporation founded in 1944 and incorporated in 1946. Named after America’s pioneer electrical engineer, Benjamin Franklin, Franklin Electric manufactured the first water-lubricated submersible motor for water systems, and the first submersible motor for fueling systems. With 20162019 revenue of $949.9 millionabout $1.3 billion and approximately 5,2005,400 employees, today the Company designs, manufactures and distributes water and fuel pumping systems, composed primarily of submersible motors, pumps, electronic controls and related parts and equipment.

The Company’s water pumping systems move fresh and waste waterwastewater for the housing, agriculture,residential, agricultural, and other industrial end markets. The Company also sells various groundwater equipment products to well installation contractors, including water pumping systems, through its distribution branches located in the U.S. With a growing global footprint, the Company has also evolved into being a top supplier of submersible fueling systems at gas stations, making pumps, pipes, electronic controls, and monitoring devices. Fuel pumping systems account for the balance of the Company’s revenues.

The Company'sCompany’s products are sold worldwide by its employee sales force and independent manufacturing representatives. 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.

While maintaining a culture of safety and lean principals,principles, Franklin Electric promises to deliver quality, availability, service, innovation, and valuecost in every encounter the Company has with stakeholders, including direct or indirect customers, employees, shareholders, and suppliers. These key factors for success are a roadmap to ensurefor the CompanyCompany's growth as a global provider of water and fuel systems, through geographic expansion and product line extensions, leveraging its global platform and competency in system design, all while consistently offersoffering the best value to its customer.

The Company'sCompany’s business consists of two reportingthree reportable segments based on the principal end market served: the Water Systems, segment and the Fueling Systems, segment.and Distribution segments. The Company includes unallocated corporate expenses in an “Other”“Intersegment Eliminations/Other” segment that, together with the Water Systems, and Fueling Systems, and Distribution segments, represent the Company. Segment and geographic information appears in Note 16, “Segment15 - Segment and Geographic Information”Information to the consolidated financial statements.

The market for the Company'sCompany’s products is highly competitive and includes diversified accounts by size and type. The Company'sCompany’s Water Systems and Fueling Systems products and related equipment are sold to specialty distributors and some original equipment manufacturers (“OEMs”), as well as industrial and petroleum equipment distributors and major oil and utility companies. The Company’s Distribution segment sells products primarily to water well contractors.

Water Systems is a global leader in the production and marketing of water pumping systems and is a technical leader in submersible motors, pumps, drives, electronic controls, and monitoring devices. The Water Systems segment designs, manufactures and sells motors, pumps, drives, electronic controls, monitoring devices, and related parts and equipment primarily for use in groundwater, wastewater,water transfer and fuel transfer applications.wastewater.

Water Systems products are sold in highly competitive markets. Water-pumping systems contributeWater Systems contributes about 75 to 8060 percent of the Company’s total revenue. Significant portions of segment revenue come from selling groundwater and surface pumps, tomotors, and controls for residential and commercial buildings, as well as agricultural sales which are more seasonal and subject to commodity price changes. The Water Systems segment generates approximately 40 percent of its revenue in developing markets, which often lack municipal water systems. As those countries bringinstall water systems, up to date, the Company views those markets as an opportunity. The Company has had 156 to 209 percent compounded annual sales growth in thosedeveloping regions in recent years. Water Systems competes in each of its targeted markets based on product design, quality of products and services, performance, availability, and price. The Company'sCompany’s principal competitors in the specialty water products industry are Grundfos Management A/S, Pentair, Inc., and Xylem, Inc.

20162019 Water Systems research and development expenditures were primarily related to the following activities:

Fueling Systems has expanded its product offerings through internal development and acquisitions. Highlights of the Fueling Systems history are as follows:

Fueling Systems products are sold in highly competitive markets. Rising carvehicle use is leading to more investment in gasfueling stations which, in turn, leads to increased demand for the Company’s Fueling Systems products. The Company believes there is growth opportunity in developing markets and, accordingly, acquired an investment in India in 2014.markets. Fueling Systems competes in each of its targeted markets based on product design, quality of products and services, performance, availability, and price. The Company'sCompany’s principal competitors in the petroleum equipment industry are DanaherFortive Corporation and Dover Corporation.

20162019 Fueling Systems research and development expenditures were primarily related to the following activities:

The Distribution Segment is operated as a collection of wholly owned leading groundwater distributors known as the Headwater Companies. Headwater Companies deliver quality products and leading brands to the industry, providing contractors with the availability and service they demand to meet their application challenges. The Distribution segment operates within the U.S. professional groundwater market. Highlights of the Distribution Segment are as follows:

The Company incurred research and development expense as follows:

Expenses incurred were for activities related to the development of new products, improvement of existing products and manufacturing methods, and other applied research and development.

The Company owns a number of patents, trademarks, and licenses.  In the aggregate, these patents are of material importance to the operation of the business; however, the Company believes that its operations are not dependent on any single patent or group of patents.

The principal raw materials used in the manufacture of the Company’s products are coil and bar steel, stainless steel, copper wire, and aluminum ingot. Major components are electric motors, capacitors, motor protectors, forgings, gray iron castings, plastic resins, and bearings. Most of these raw materials are available from multiple sources in the United States and world markets. Generally, the Company believes that adequate alternative sources are available for the majority of its key raw material and purchased component needs; however, the Company is dependent on a single or limited number of suppliers for certain materials or components. AvailabilityThe Company believes that availability of fuel and energy is adequate to satisfy current and projected overall operations unless interrupted by government direction, allocation or allocation.other disruption.

No single customer accounted for over 10 percent of net sales in 2016, 2015,2019, 2018, or 2014.2017. No single customer accounted for over 10 percent of gross accounts receivable in 20162019 and 2015.2018.

The dollar amount of backlog by segment was as follows:

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 2017.2020.  The Company’s sales in the first quarter are generally less than its sales in other quarters due to generally less water well drilling and overall product sales during the winter months 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.

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 effect upon the financial position, results of operations, cash flows, or competitive position of the Company.

ITEM 1A. RISK FACTORS

The following describes the principal risks affecting the Company and its business.  Additional risks and uncertainties, not presently known to the Company, could negatively impact the Company’s results of operations or financial condition in the future.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Franklin Electric serves customers worldwide with over 125175 manufacturing and distribution facilities located in over 20 countries. The Global Headquarters is located in Fort Wayne, Indiana, United States and houses sales, marketing, and administrative offices along with a state of the art research and engineering facility. Besides the owned corporate facility, the Company considers the following to be principal properties:

The Company also owns and leases other smallsmaller facilities which serve as manufacturing locations and distribution warehouses. The Company does not consider these facilities to be principal to the business or operations. In the Company’s opinion, its facilities are suitable for their intended use, adequate for the Company’s business needs, all currently utilized, and in good condition.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT

Current executive officers of the Company, their ages, current position, and business experience during at least the past five years as of December 31, 2016,2019, are as follows:

All executive officers are elected annually by the Board of Directors at the Board meeting held in conjunction with the annual meeting of shareholders. All executive officers hold office until their successors are duly elected or until their death, resignation, or removal by the Board.

PART II

ITEM 5. MARKET FOR REGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The number of shareholders of record as of February 15, 201711, 2020 was 762.682. The Company'sCompany’s stock is traded on the NASDAQ Global Select Market under the symbol FELE.

Dividends paid and the price range per common share as quoted by the NASDAQ Global Select Market for 20162019 and 20152018 were as follows:

The Company has increased dividend payments on an annual basis for 2427 consecutive periods. The payment of dividends in the future will be determined by the Board of Directors and will depend on business conditions, earnings, and other factors.

In April 2007, the Company’s Board of Directors unanimously approved a plan to increase the number of shares remaining for

The following graph compares the Company'sCompany’s cumulative total shareholder return (Common Stock price appreciation plus dividends, on a reinvested basis) over the last five fiscal years with the Guggenheim S&P Global Water Index and the Russell 2000 Index.

 

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the Company’s consolidated financial statements. The information set forth below is not necessarily indicative of future operations.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

RESULTS OF OPERATIONS

Water Systems sales in markets outside the U.S. and Canada decreased by about 3 percent compared to 2018. Sales revenue decreased by $28.0 million or about 8 percent in 2019 due to foreign currency translation. The incremental impact of sales from acquired businesses was $7.6 million. International Water Systems sales change in 2019, excluding acquisitions and foreign currency translation, was an increase of $47.5about 3 percent. International Water Systems sales grew in all three major international markets, Latin American, Asia Pacific and the European, Middle East and African markets.

Foreign currency-based transactions producedfor 2019 was a gainloss of $1.6 million due primarily to the Argentinian Peso weakening relative to the U.S. dollar. Foreign currency-based transactions for 20162018 was a loss of $1.1$0.7 million primarily due to the Turkish liramovements in several currencies relative to the U.S. dollar, and euro.  Foreign currency-based transactions produced a loss for 2015 of $0.9 million, primarily due towith the Turkish Lira, South African rand, Colombian pesoRand, Argentinian Peso and Australian dollar relative toMexican Peso being the U.S. dollar, none of which individually weremost significant.

The provision for income taxes in 20162019 and 20152018 was $24.8$20.8 million and $12.6$14.9 million, respectively. The effective tax rate for 20162019 was 23.8about 18 percent and 2015before the impact of discrete events was 14.6about 20 percent. Discrete adjustments in 2016 were primarily due to the favorable impact from equity compensation share based payments and the reversal of a contingent tax liability offset by adjustments to the Company’s valuation allowance against certain state deferred tax assets that are not likely to be realized. Discrete adjustments during 2015 were the reversal of a deferred tax liability of about $4.8 million created in 2012 when the Company acquired the controlling interest in the Pioneer subsidiary and realized a gain on the then equity investment in Pioneer. This purchase transaction also resulted in other tax benefits of about $3.5 million. The effective tax rate before discrete adjustments for 20162018 was about 2612 percent and 2015before the impact of discrete events was about 2719 percent. The tax rate iswas lower than the statutory rate of 3521 percent primarily due to the indefinite reinvestment of foreign earnings taxed at lower statutory rates, as well as recognition of the U.S. deduction for Foreign Derived Intangible Income, and reducedcertain incentives and discrete events. Discrete events in 2018 include a net benefit related to the release of valuation allowances on deferred taxes on foreign and repatriated earnings. Thein multiple jurisdictions. In 2020, the Company has the abilityestimates its effective tax rate will be about 18 to indefinitely reinvest these foreign earnings based on the earnings and cash projections of its other operations, current cash on hand and available credit.20 percent.

Discussion of fiscal year 2017 items in 2016 and 2015 that impacted net income attributable to Franklin Electric Co., Inc. The Company refers to these items as “non-GAAP adjustments” for purposesthe year-over-year comparison of presenting the non-GAAP financial measures of net income attributable to Franklin Electric Co., Inc. and adjusted EPS.  The Company believes this information helps investors understand underlying trendschanges in the Company's business more easily.  The differences between these non-GAAP financial measurescondition and results of operation as of and for the most comparable GAAP measures are reconciledfiscal years ended December 31, 2018 and December 31, 2017 can be found in Part II, Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the following tables:fiscal year ended December 31, 2018.

CAPITAL RESOURCES AND LIQUIDITY

The Company's primary sources of liquidity are cash on hand, cash flows from operations, revolving credit agreements, and long-term debt funds available.available for at least the next twelve months. The Company believes its capital resources and liquidity position at December 31, 20162019 is adequate to meet projected needs. The Company expects that ongoing requirements for operations, capital expenditures, pension obligations, dividends, and debt service will be adequately funded from cash on hand, operations, and existing credit agreements.

The Company also has other long-term debt borrowings outstanding as of December 31, 2016.2019. See Footnote 11Note 10 - Debt for additional specifics regarding these obligations and future maturities.

The following table summarizes significant sources and uses of cash and cash equivalents: