FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-362
FRANKLIN ELECTRIC CO., INC.
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(Exact name of registrant as specified in its charter)
INDIANA 35-0827455
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 EAST SPRING STREET
BLUFFTON, INDIANA 46714
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(Address of principal executive offices) (Zip Code)
(219) 824-2900
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS OF COMMON STOCK JULY 26, 2001
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$.10 par value 5,494,667 shares
Page 1 of 11
2
FRANKLIN ELECTRIC CO., INC.
Index
Page
PART I. FINANCIAL INFORMATION Number
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 2001 (Unaudited)
and December 30, 2000 (Unaudited)............. 3
Condensed Consolidated Statements of
Income for the Second Quarter and First
Half ended June 30, 2001 (Unaudited) and
July 1, 2000 (Unaudited)...................... 4
Condensed Consolidated Statements
Of Cash Flows for the First Half
Ended June 30, 2001 (Unaudited) and
July 1, 2000 (Unaudited)...................... 5
Notes to Condensed Consolidated
Financial Statements (Unaudited).............. 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations......................... 9-10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk............................. 10
PART II. OTHER INFORMATION
-----------------------------
Item 6. Exhibits and Reports on Form 8-K.............. 10
Signatures................................................ 11
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3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
-----------------------------
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) June 30, December 30,
2001 2000
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ASSETS
Current assets:
Cash and equivalents.................... $ 7,494 $ 9,631
Receivables, less allowances of
$1,870 and $1,949, respectively....... 36 678 31,568
Inventories (Note 2).................... 65,147 49,090
Other current assets (including
deferred income taxes of $9,499
and $9,538, respectively)............. 11,707 11,672
-------- --------
Total current assets.................. 121,026 101,961
Property, plant and equipment,
net (Note 3)............................ 60,973 64,604
Deferred and other assets (including
deferred income taxes of $1,462
and $1,483, respectively)............... 14,095 15,048
Goodwill, less accumulated amortization
Of $652 and $258, respectively ......... 15,172 15,566
-------- --------
Total assets.............................. $211,266 $197,179
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 12,064 $ 1,076
Accounts payable........................ 14,320 16,114
Accrued expenses........................ 26,487 27,105
Income taxes............................ 4,349 2,769
-------- --------
Total current liabilities............. 57,220 47,064
Long-term debt............................ 15,609 15,874
Employee benefit plan obligations......... 14,535 13,981
Other long-term liabilities............... 4,259 4,262
Shareowners' equity:
Common stock (Note 5)................... 549 550
Additional capital...................... 30,644 30,035
Retained earnings....................... 98,261 93,445
Loan to ESOP Trust...................... (1,362) (1,594)
Accumulated other comprehensive
loss (Note 7)......................... (8,449) (6,438)
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Total shareowners' equity............. 119,643 115,998
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Total liabilities and shareowners' equity. $211,266 $197,179
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Second Qtr. Ended First Half Ended
----------------- ----------------
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
---- ---- ---- ----
Net sales.............................. $82,860 $84,875 $148,759 $150,926
Costs and expenses:
Cost of sales........................ 59,704 61,283 108,490 110,147
Selling and administrative expenses.. 11,807 10,782 23,148 21,091
Interest expense..................... 375 286 700 571
Other expense/(income), net.......... (71) (79) (214) (374)
Foreign exchange loss ............... 376 70 1,103 681
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72,191 72,342 133,227 132,116
Income before income taxes............. 10,669 12,533 15,532 18,810
Income taxes........................... 4,055 4,748 5,902 7,122
------- ------- -------- --------
Net income............................. $ 6,614 $ 7,785 $ 9,630 $ 11,688
======= ======= ======== ========
Per share data (Note 6):
Net income per common share.......... $ 1.20 $ 1.44 $ 1.75 $ 2.16
======= ======= ======== ========
Net income per common share,
assuming dilution.................. $ 1.16 $ 1.38 $ 1.68 $ 2.07
======= ======= ======== ========
Dividends per common share........... $ .24 $ .22 $ .46 $ .42
======= ======= ======== ========
See Notes to Condensed Consolidated Financial Statements.
5
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) First Half Ended
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June 30, July 1,
2001 2000
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Cash flows from operating activities:
Net income................................ $ 9,630 $11,688
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization........... 6,563 5,081
Loss on disposals of plant and
equipment............................. 195 151
Changes in assets and liabilities:
Receivables........................... (6,252) (5,483)
Inventories........................... (17,468) (13,900)
Accounts payable and other accrued
expenses............................ 240 (7,092)
Employee benefit plan obligations..... 662 690
Other, net............................ (304) (24)
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Net cash flows from
operating activities.............. (6,734) (8,889)
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Cash flows from investing activities:
Additions to plant and equipment.......... (2,589) (6,570)
Proceeds from sale of plant and
equipment............................... 27 22
Additions to deferred assets.............. (358) (1,129)
Purchase of marketable securities......... - (2,915)
Proceeds from maturities of marketable
securities ............................. - 8,968
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Net cash flows from
investing activities.................. (2,920) (1,624)
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Cash flows from financing activities:
Repayment of long-term debt............... (8) (9)
Borrowing on line of credit
and short-term borrowings............... 11,055 -
Repayment of line of credit
and short-term borrowings............... (7) -
Proceeds from issuance of common stock.... 611 1,116
Purchases of common stock................. (2,289) (4,307)
Reduction of loan to ESOP Trust........... 232 233
Dividends paid............................ (2,528) (2,278)
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Net cash flows from
financing activities.................. 7,066 (5,245)
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Effect of exchange rate changes on cash..... 451 124
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Net change in cash and equivalents.......... (2,137) (15,634)
Cash and equivalents at beginning of period. 9,631 27,844
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Cash and equivalents at end of period....... $ 7,494 $12,210
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See Notes to Condensed Consolidated Financial Statements.
6
FRANKLIN ELECTRIC CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Condensed Consolidated Financial Statements
----------------------------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the first half
ended June 30, 2001 are not necessarily indicative of the results that may be
expected for the year ending December 29, 2001. For further information,
refer to the consolidated financial statements and footnotes thereto included
in Franklin Electric Co., Inc.'s annual report on Form 10-K for the year ended
December 30, 2000.
Note 2: Inventories
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Inventories consist of the following:
(In thousands) June 30, December 30,
2001 2000
---- ----
Raw Materials........................ $17,520 $19,950
Work in Process...................... 6,624 7,559
Finished Goods....................... 51,836 32,414
LIFO Reserve......................... (10,833) (10,833)
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Total Inventory...................... $65,147 $49,090
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Note 3: Property, Plant and Equipment
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Property, plant and equipment, at cost, consists of the following:
(In thousands) June 30, December 30,
2001 2000
---- ----
Land and Building.................... $ 25,336 $ 25,301
Machinery and Equipment.............. 121,583 122,191
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146,919 147,492
Allowance for Depreciation........... 85,946 82,888
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$ 60,973 $ 64,604
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7
Note 4: Tax Rates
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The effective tax rate on income before income taxes in 2001 and 2000 varies
from the United States statutory rate of 35 percent principally due to the
effect of state and foreign income taxes.
Note 5: Shareowners' Equity
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The Company had 5,491,567 shares of common stock (25,000,000 shares
authorized, $.10 par value) outstanding as of June 30, 2001.
During the second quarter of 2001, pursuant to the stock repurchase program
authorized by the Company's Board of Directors, the Company repurchased a
total of 18,800 shares for $1.3 million. All repurchased shares were retired.
Note 6: Earnings Per Share
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Following is the computation of basic and diluted earnings per share:
(In thousands, except Second Qtr. Ended First Half Ended
----------------- ----------------
per share amounts) June 30, July 1, June 30, July 1,
2001 2000 2001 2000
---- ---- ---- ----
Numerator:
Net Income..................... $6,614 $7,785 $ 9,630 $11,688
====== ====== ======= =======
Denominator:
Basic
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Weighted average common
shares....................... 5,489 5,403 5,494 5,413
Diluted
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Effect of dilutive securities:
Employee and director
incentive stock options
and awards................. 237 231 232 233
------ ------ ------ ------
Adjusted weighted average
common shares................ 5,726 5,634 5,726 5,646
====== ====== ======= =======
Basic earnings per share......... $ 1.20 $ 1.44 $ 1.75 $ 2.16
====== ====== ======= =======
Diluted earnings per share....... $ 1.16 $ 1.38 $ 1.68 $ 2.07
====== ====== ======= =======
8
Note 7: Other Comprehensive Income
-----------------------------------
Comprehensive income is as follows:
(In thousands) Second Qtr. Ended First Half Ended
----------------- ----------------
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
---- ---- ---- ----
Net income......................... $6,614 $7,785 $ 9,630 $11,688
Other comprehensive loss:
Foreign currency translation
adjustments..................... (695) (152) (2,011) (1,128)
------ ------ ------- -------
Comprehensive income, net of tax... $5,919 $7,633 $ 7,619 $10,560
====== ====== ======= =======
Accumulated other comprehensive loss consists of the following:
(In thousands) June 30, December 30,
2001 2000
---- ----
Cumulative translation adjustment........... $(7,767) $(5,756)
Minimum pension liability adjustment,
net of tax................................ (682) (682)
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$(8,449) $(6,438)
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Note 8: Pending Accounting Pronouncements
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Goodwill and Other Intangible Assets: Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" will be
published in July 2001. SFAS No. 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Accordingly, effective
the first quarter of the Company's 2002 fiscal year, amortization of goodwill
will discontinue. The Company amortized $0.2 million and $0.4 million of
goodwill during the second quarter and first half of 2001, respectively.
Note 9: Contingencies and Commitments
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The Company is defending various claims and legal actions which have arisen in
the ordinary course of business. The Company has attempted, where possible,
to assess the likelihood of an unfavorable outcome as a result of these
actions. Legal counsel has been retained to assist the Company is making
these determinations, and costs are accrued when an unfavorable outcome is
determined to be probable and a reasonable estimate can be made
9
Item 2. Management's Discussion And Analysis Of Financial Condition And
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Results Of Operations
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Operations
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Net sales for the second quarter of 2001 were $82.9 million, a 2.4 percent
decrease from 2000 second quarter net sales of $84.9 million. Year to date
2001 net sales were $148.8 million, down 1.4 percent from year to date 2000
net sales of $150.9 million. The decreased sales for the quarter and year to
date were primarily the result of the North American manufacturing recession
and the strong dollar/weak Euro that affected European sales. The lower sales
were partially offset by the inclusion of EBW, Inc. ("EBW") and Advanced
Polymer Technology, Inc. ("APT") on a fully consolidated basis in 2001. EBW
and APT were acquired on August 31, 2000.
Cost of sales as a percent of net sales for the second quarter of 2001 was
72.1 percent, a decrease from 72.2 percent for the same period in 2000. Cost
of sales as a percent of net sales for the year to date 2001 was 72.9 percent,
a decrease from 73.0 percent for the same period in 2000.
Selling and administrative expenses as a percent of net sales for the second
quarter of 2001 was 14.2 percent compared to 12.7 percent for the same period
in 2000. Selling and administrative expenses as a percent of net sales for
the year to date 2001 was 15.6 percent compared to 14.0 percent for the year
to date 2000. The increases were primarily due to the inclusion of EBW and
APT in 2001.
Interest expense was $0.4 million for the second quarter of 2001 compared to
$0.3 million for the second quarter of 2000. Interest expense for the year to
date 2001 was $0.7 million compared to $0.6 million for the year to date 2000.
Included in other income, net for the second quarter of both 2001 and 2000 was
$0.2 million of interest income. Included in other income, net for the year
to date 2001 was $0.4 million of interest income compared to $0.6 million of
interest income for the same period in 2000. Interest income was attributable
to amounts invested principally in short-term US treasury and agency
securities.
Foreign currency based transactions for the second quarter of 2001 produced a
loss of $0.4 million compared to a $0.1 million loss for the same period in
2000. Foreign currency based transactions for the year to date 2001 produced
a loss of $1.1 million compared to a $0.7 million loss for the same period in
2000. The increase in the foreign currency transaction losses was due
primarily to the strong dollar and/or the weak Euro.
Net income for the second quarter of 2001 was $6.6 million, or $1.16 per
diluted share, a 15.0 percent decrease compared to net income of $7.8 million,
or $1.38 per diluted share, for the same period in 2000. Year to date 2001
net income was $9.6 million, or $1.68 per diluted share, a 17.6 percent
decrease compared to year to date 2000 net income of $11.7 million, or $2.07
per diluted share.
10
Capital Resources and Liquidity
-------------------------------
Cash, cash equivalents and marketable securities decreased $2.1 million during
the first half of 2001. The principal use of cash for operating activities
was the typical seasonal increase in inventories. Working capital increased
$8.9 million during the first half of 2001 and the current ratio was 2.1 and
2.2 at June 30, 2001, and December 30, 2000, respectively.
Pending Accounting Pronouncements
---------------------------------
Goodwill and Other Intangible Assets: Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" will be
published in July 2001. SFAS No. 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Accordingly, effective
the first quarter of the Company's 2002 fiscal year, amortization of goodwill
will discontinue. The Company amortized $0.2 million and $0.4 million of
goodwill during the second quarter and first half of 2001, respectively.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
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1995
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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, supply constraints, technology
factors, government and regulatory actions, the Company's accounting policies,
future trends, and other risks which are detailed in the Company's Securities
and Exchange Commission filings. These risks and uncertainties may cause
actual results to differ materially from those indicated by the forward
looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
-------------------------------------------------------------------
The Company is subject to market risk associated with changes in foreign
currency exchange rates and interest rates. Foreign currency exchange rate
risk is mitigated through several means: maintenance of local production
facilities in the markets served, invoicing of customers in the same currency
as the source of the products, prompt settlement of intercompany balances
utilizing a global netting system and limited use of foreign currency
denominated debt. Interest rate exposure is principally limited to any
marketable U.S. treasury and agency securities owned by the Company and is
mitigated by the short-term, generally less than 6 months, nature of these
investments.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits (Filed with this quarterly report)
None.
(b) Reports on Form 8-K
None.
11
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report to be signed on its behalf by
the undersigned thereunto duly authorized.
FRANKLIN ELECTRIC CO., INC.
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Registrant
Date July 27, 2001 By /s/ William H. Lawson
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William H. Lawson, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date July 26, 2001 By /s/ Gregg C. Sengstack
---------------------- -----------------------------
Gregg C. Sengstack, Senior Vice
President and Chief Financial
Officer (Principal Financial
and Accounting Officer)
5