Franklin Electric Company, Inc.

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Franklin Electric Company, Inc.

400 East Spring Street
Blufton, Indiana 46714
U.S.A.
Telephone: (219) 824-2900
Fax: (219) 824-2909
Web site:http://www.franklin-electric.com

Public Company
Incorporated: 1946
Employees: 2,802
Sales: $325.7 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: FELE
NAIC: 335312 Motor and Generator Manufacturing; 335314 Relay and Industrial Control Manufacturing;333911 Pump and Pumping Equipment Mnufacturing; 333913 Measuring and Dispensing Pump Manufacturing

Franklin Electric Inc. of Blufton, Indiana, is the world’s leading producer of submersible motors, which are used primarily for pumping systems in water wells, underground diesel and gasoline storage, and wastewater systems. The company produces a wide range of submersible electric motors and other specialty electric motors, for the commercial, industrial and original equipment manufacturer (OEM) markets. Franklin’s other specialty motors are used the world over in products such as gasoline dispensers, paint sprayers, electric hoists, livestock feeding systems, explosion-proof vapor exhaust fans and ice cream machines. Franklin has over 2,800 employees at facilities in more than 15 countries.

1940s Origins

The Franklin Electric Company was founded in Blufton, Indiana, by E.J. (Ed) Schaefer and T.W. (Wayne) Kehoe. Schaefer and Kehoe, then both in their 40s, were already successful electrical engineers who believed they could make a go of manufacturing small electric motors on a mass scale. With their wives as their business partners, and less than $20,000 in start-up capital, Schaefer and Kehoe started the company in November 1944. From the very beginning the two engineers had their sights set on serving a nation-wide market, and hence they were reluctant to name the new firm after themselves. Instead they christened the concern after Benjamin Franklin, whom they considered the country’s first electrical engineer, because of his early experiments with electromagnetism.

From the beginning, Schaefer and Kehoe planned that Franklin would specialize in designing products for the specific needs of individual customers. As they were getting started, however, World War II was at its peak and there was virtually no civilian market for electrical motors. Despite that formidable hurdle, its first customer got Franklin off to a running start. Less than three months after it was founded, Franklin received a contract from the U.S. government to produce lightweight electric generators to power the radio equipment used by paratroopers and other assault troops. Over the next four months Franklin sold $228,219 in generators to the Army Signal Corps. The military contract kept the young company very busy. In fact, the Army was Franklin’s only customer during 1945. In August 1945, however, World War II ended. When the Army’s orders to Franklin abruptly stopped, the company had to learn to cope with a peacetime economy.

Franklin Electric formally incorporated in 1946 and began designing and manufacturing fractional horsepower motors that could be used in homes, to pump in water for drinking and washing, or pump water out of flooded basements. It was a time when returning GIs were causing a boom in new home building. The motors were a hit. Sales in 1947 reached nearly $1.7 million and earned Franklin profits of about a quarter of a million dollars.

In 1950, the company introduced its breakthrough product. It had been in development for most of the late 1940s and once it had been perfected it set Franklin on the course it would follow into the new millennium. Called its greatest achievement by Franklin itself, the invention was an electric motor that was fully-submersible. It was designed to function under water, in particular to operate pumps. Unlike Franklin’s earlier pump motors, the new submersibles were more quiet, more resistant to freezing, smaller, easier to install and had a much higher pumping capacity. Another critical improvement was that the new submersible pumps could operate at a depth of 100 feet. They could recover water from much deeper in the earth than the conventional pumps of the day. Grateful customers included communities who had lost water supplies because their water tables had dropped so low. The pumps also made possible settlement of areas with naturally low water tables for the first time. The motors proved to be highly versatile and eventually their application was expanded to include gasoline pumps, commercial air conditioning units, crude oil recovery and deep-sea use.

Fortunes Rise in the 1950s with a New Submersible Pump

Franklin’s submersible pumps were an immediate success. Before long they were the company’s leading product, the basis of its growing product line. An innovative variation for homeowners was the Submatic sump pump. Introduced in 1951, the Submatic was sealed in a special stainless steel casing. The casing was designed to sense when water was rising and to turn on the motor automatically. Not only was an external float switch no longer needed to detect flooding, the motor could be also mounted out of sight beneath floor level. The Submatic became one of Franklin’s most successful products. By the 1980s, homeowners made up about half of the customer base for Franklin submersible motors, with commercial and agricultural customers making up the other half.

By late 1952 Franklin had about 500 employees turning out over 1,000 motors every day. The company continued to grow steadily through the 1950s. Nationwide sales reached $12 million in 1959.

The company went public that same year, its stock opening at $18 a share. As the Franklin product line continued to diversify in the 1960s, sales continued to climb. Around this time Franklin served its northernmost customer when one of its 3HP submersible motors was sent first to the U.S. Army Polar Research Center at Thule, Greenland, and from there on to a research base near the North Pole. The site was so remote that delivery had to be made by a parachute drop to scientists camped on the ground. In May 1966, founder and board member Wayne Kehoe passed away.

Submersible motors were firmly established by the 1960s and in 1966 a new model was introduced. That same year, Franklin’s one millionth submersible motor was produced at the Siloam Springs, Arkansas, plant. Franklin was not the country’s only producer of such motors. By mid-decade, however, Franklin had produced more than four times as many submersible motors as any other company. On an annual basis its output exceeded all its competitors put together.

The mid-1960s saw the introduction of a brand new line of Franklin products. Specialized gearmotors developed by the company were marketed successfully to makers of conveyors, business machines, and other commercial and industrial equipment. At the same time, Franklin introduced a system of automatic packaging equipment for supermarkets which could wrap and label various sized packages of fresh meat at a rate of 35 per minute. It food packaging products were so successful, that Franklin expanded the line in 1968 by purchasing J.B Dove & Sons, Inc, the maker of a broad line of packaging equipment. A second such acquisition, Battle Creek Packaging Machines, Inc., made in 1969, added 30 more wrapping machines to Franklin’s line.

By the mid-1960s it was clear that Franklin motors could be used to pump more than just water. In 1967, Franklin and Gould Pumps, Inc. made a deal to sell oil pumping systems and to consolidate production and marketing of motors and pumps needed for oil wells under one roof. The two companies formed Oil Dynamics, a joint venture, that specialized in secondary oil recovery systems. The venture was a highly successful one. Thirty years later, in November 1994, Franklin would buy an additional 47 percent of Oil Dynamic shares, increasing its control in the firm to 97 percent; by October 1997 Franklin would sell Oil Dynamics to Baker Hughes Inc. for approximately $31.5 million in cash.

Franklin introduced its “Sea-Mersibles” line in 1968. These were general purpose submersible motors for undersea use. Recognizing the importance of this field to its business, a year later the company established the independent Oceanology Engineering Department. Franklin manufactured its five-millionth fractional horsepower motor in 1969, and one year later was listed among Fortune’s top 1,000 manufacturing firms in the United States.

Expansion at Home and Globally in the 1970s

Franklin Electric passed a number of milestones in 1972. Its submersible motor production topped 2 million. Its main plant at Blufton, Indiana, was enlarged by 74,000 square feet. It booked record sales of more than $64 million. It acquired a 200,000 square foot facility in Jacksonville, Arkansas, from the Singer Company, and the plant in Siloam Springs was doubled in size.

Company Perspectives:

Mr. Edward Schaefer, Franklin’s founder, believed in the ability of ordinary individuals to do extraordinary things. He understood that imagination, commitment, and persistence can open doors into worlds filled with opportunity. Over the years Franklin people have had the courage to open many such doors, and as we begin the 21st century, we are pledged to build on this Franklin heritage. We are confident we are prepared to meet the challenges of the future and to extend the Franklin record of achievement for many years to come.

The 1970s also saw an expansion of Franklin’s overseas activities. The company had established its first foreign presence as early as 1962 when it set up a plant in Dandenong, Victoria, Australia, a venture in which Franklin had a 50 percent holding. A year afterwards it established its first wholly-owned subsidiary, Franklin Electric of Canada; in 1965 Franklin Electric Europa GmbH, a wholly-owned subsidiary located in Wittlich, West Germany, was formed. In the early-1960s foreign sales accounted for barely three percent of Franklin’s total business. By 1969, however, the percentage had grown nearly fourfold. In 1972, at a time when exports from South Africa were being severely curtailed by international sanctions, Franklin Electric South Africa Pty, another wholly-owned subsidiary, was formed in Johannesburg. Another subsidiary, Franklin Electric do Brasil, Ltd., was formed around this time. It marketed and later also manufactured Franklin products for the Latin American market. Canadian business was increasing rapidly. Franklin acquired Control Company of Canada in 1973, and a year later expanded its facilities in Strathroy Ontario by 67,000 feet. 1983 saw the opening of Franklin’s first Mexican plant, a submersible motor facility in Monterrey, Mexico.

Franklin’s sales grew by leaps and bounds through the 1970s. It expanded its Blufton plant a second time in 1975, adding 50,000 square feet. It brought out major new products including the four-inch Super Stainless, the industry’s only fully submersible motor in a stainless steel casing. In 1976 the company recorded new sales highs, driven by demand for electric motors for home heating and electricity that was increasing so rapidly the company could hardly keep up. The demand continued through the end of the decade. In 1980 Franklin purchased a factory in Wilburton, Oklahoma, that was three-quarters the size of the home facility in Blufton. The same year the ten-millionth Franklin fractional motor rolled out of the Blufton plant.

The Challenging 1980s

By 1982, however, the boom times had begun to wane rapidly catching Franklin with large back stocks of inventory. The company was forced to initiate belt-tightening measures. In April it announced plans to close four of its domestic plants temporarily, a move that affected a full two-thirds of the company’s total workforce. Within six months, the company was operating at only 50 percent capacity, according to president Conrad J. Balentine, and sales were down 19 percent from a year earlier. The situation did not take a turn for the better until 1983 when a midwestern heat wave and drought created a new demand for motors for air conditioning units and motors that could be used to drill for and pump water.

General Electric added to Franklin’s woes in 1982, when the gigantic competitor brought suit, claiming that former GE employees had revealed company secrets after being hired by Franklin. GE alleged that the purloined information had enabled Franklin to trim millions of dollars from the cost of manufacturing its fractional horsepower motors. The damages GE sought were never publicized, and the suit dragged out for a year before the two companies eventually reached an out of court settlement of which the details were never revealed.

The doldrums experienced by the motor industry were offset by the fruits of Franklin’s research and development (R&D) activities. In 1982 it brought out the electrical industry’s first cheap, dependable solid state switch, of which its straightforward name said it all: the Amazing Little Switch. Called the most outstanding innovation in electric motors in over 30 years, tests showed it could perform without failure for more than 15 million starts against less than one million for older centrifugal switches. The Amazing Little Switch was first put to use in motors for swimming pools and spas and in airless paint sprayers. Another Franklin innovation was the Subtrol, a control device with a built-in microprocessor capable of detecting 15 potential problems in underwater motors and pumps. The Subtrol was especially attractive to users of large pumping systems, such as municipal waterworks and wastewater facilities and operators of large agricultural irrigation systems, for whom breakdowns could be costly and time-consuming. By 1985 Franklin had completed the development of a submerged pump that was operated by solar energy. The new product was seen as a boon to Third World villages that did not have supplies of electricity as well as to ranchers in remote areas who needed to pump water for livestock.

In 1988, Franklin Electric approved a recapitalization plan. Public holders, the company pension plan, management shareholders, and the Schaefer family all received additional shares for each share already held. Public holders received a cash bonus as well. The purpose of the plan was to avoid any hostile takeover attempts that might result from the high estate taxes that could accrue upon the death of its founder, CEO, and principal shareholder Edward Schaefer, then 87 years old. Edward Schaefer passed away in 1991.

Key Dates:

1944:: E.J. Schaefer and T.W. Kehoe found Franklin Electric Company.
1950:: Franklin develops the first practical submersible motor.
1951:: The Submatic sump pump is introduced.
1962:: Franklin establishes its first foreign venture in Australia.
1963:: Franklin founds its first fully-owned, foreign subsidiary, Franklin Electric of Canada.
1964:: Franklin diversifies into food packaging equipment.
1965:: Franklin Electric Europa GmbH is founded.
1966:: Franklin manufactures its one millionth submersible motor.
1967:: Oil Dynamics, Inc is founded as a joint venture with Gould Pumps, Inc.
1969:: Franklin produces its five millionth fractional horsepower motor.
1970:: Fortune ranks Franklin in top 1000 manufacturing companies in the U.S.
1980:: Franklin produces its ten millionth fractional motor.
1982:: The Amazing Little Switch, an inexpensive solid state switch, goes into production.
1991:: Founder E.J. Schaefer passes away.
1994:: Franklin acquires a 97 percent interest in Oil Dynamics, Inc.
1997:: Franklin sells Oil Dynamics, Inc. to Baker Hughes, Inc.

The 1990s and Beyond

By the 1990s a full one-third of Franklin’s sales were from foreign markets. In 1991 it added a distribution center to its European headquarters in Germany to be positioned for the new European Union and the newly opened markets in Eastern Europe. It moved into the Asian market for the first time as well. Subsidiaries were established in Mexico and Australia. Its oil pumps brought Franklin substantial business in de-sovietized Russia. Eventually it also established a Netherlands holding company and a European trading company.

Franklin’s submersible motor line continued to expand until the end of the 1990s, into new applications such as mine dewatering and geothermal heating. Franklin’s Engineered Motor Products Division developed an Integrated Motor Drive System that promised to be widely accepted. It combined sensor technology and electronic control into a so-called “smart motor” with a wide range of uses.

Given the company’s role as the leader in submersible motors, as well as its healthy balance sheet, analysts regarded the future of Franklin Electric as solid. Its commitment to “aggressive, but thoughtful global expansion,” according to company literature, promised greater market share for the company, particularly in Europe and the Middle East.

Principal Subsidiaries

Franklin Electric Europa GmbH; Franklin Electric of Canada; Franklin Electric do Brasil, Ltd.; Franklin Electric (International) Pty. Ltd. (Australia); Franklin Electric South Africa Proprietary Ltd.; Motores Franklin S.A. de C.V. (Mexico); FE Petro, Inc.