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 September 29, 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 November 1, 2001
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$.10 par value 5,334,267 shares
Page 1 of 1
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FRANKLIN ELECTRIC CO., INC.
Index
Page
PART I. FINANCIAL INFORMATION Number
--------------------------------- ------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 29, 2001 (Unaudited)
and December 30, 2000 (Unaudited)............. 3
Condensed Consolidated Statements of
Income for the Third Quarter and Nine Months
Ended September 29, 2001 (Unaudited) and
September 30, 2000 (Unaudited)................ 4
Condensed Consolidated Statements
Of Cash Flows for the Nine Months
Ended September 29, 2001 (Unaudited) and
September 30, 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.............. 11
Signatures................................................ 12
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3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
-----------------------------
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) September 29, December 30,
2001 2000
ASSETS ---- ----
Current assets:
Cash and equivalents.................... $ 11,591 $ 9,631
Receivables, less allowances of
$1,849 and $1,949, respectively....... 28,036 31,568
Inventories (Note 2).................... 56,573 49,090
Other current assets (including
deferred income taxes of $9,725
and $9,538, respectively)............. 11,852 11,672
-------- --------
Total current assets.................. 108,052 101,961
Property, plant and equipment,
net (Note 3)............................ 60,478 64,604
Deferred and other assets (including
deferred income taxes of $1,547
and $1,483, respectively)............... 13,792 15,048
Goodwill, less accumulated amortization
of $986 and $258, respectively)......... 15,956 15,566
-------- --------
Total assets.............................. $198,278 $197,179
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 1,063 $ 1,076
Accounts payable........................ 13,095 16,114
Accrued expenses........................ 25,677 27,105
Income taxes............................ 6,211 2,769
-------- --------
Total current liabilities............. 46,046 47,064
Long-term debt............................ 15,740 15,874
Employee benefit plan obligations......... 14,934 13,981
Other long-term liabilities............... 4,274 4,262
Shareowners' equity:
Common stock (Note 5)................... 534 550
Additional capital...................... 23,060 30,035
Retained earnings....................... 102,545 93,445
Loan to ESOP Trust...................... (1,362) (1,594)
Accumulated other comprehensive
loss (Note 7)......................... (7,493) (6,438)
-------- --------
Total shareowners' equity............. 117,284 115,998
-------- --------
Total liabilities and shareowners' equity. $198,278 $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)
Third Qtr. Ended Nine Months Ended
---------------- -----------------
Sept 29, Sept 30, Sept 29, Sept 30,
2001 2000 2001 2000
---- ---- ---- ----
Net sales.............................. $86,764 $85,173 $235,523 $236,099
Costs and expenses:
Cost of sales........................ 61,729 64,255 170,219 174,402
Selling and administrative expenses.. 12,267 11,253 35,415 32,344
Interest expense..................... 274 284 974 855
Other expense/(income), net.......... 31 (210) (183) (584)
Foreign exchange loss/(gain)......... (561) 818 542 1,499
Costs of unsuccessful acquisition.... - 3,237 - 3,237
------- ------- -------- --------
73,740 79,637 206,967 211,753
Income before income taxes............. 13,024 5,536 28,556 24,346
Income taxes........................... 4,832 2,094 10,734 9,216
------- ------- -------- --------
Net income............................. $ 8,192 $ 3,442 $ 17,822 $ 15,130
======= ======= ======== ========
Per share data (Note 6):
Net income per common share.......... $ 1.50 $ .63 $ 3.25 $ 2.79
======= ======= ======== ========
Net income per common share,
assuming dilution.................. $ 1.44 $ .61 $ 3.12 $ 2.67
======= ======= ======== ========
Dividends per common share........... $ .24 $ .22 $ .70 $ .64
======= ======= ======== ========
See Notes to Condensed Consolidated Financial Statements.
5
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) Nine Months Ended
-----------------
Sept 29, Sept 30,
2001 2000
---- ----
Cash flows from operating activities:
Net income................................ $17,822 $15,130
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization........... 9,917 7,603
Loss on disposals of plant
and equipment......................... 316 161
Changes in assets and liabilities:
Receivables........................... 3,000 (917)
Inventories........................... (9,163) (6,015)
Accounts payable and other accrued
expenses............................ (461) (3,711)
Employee benefit plan obligations..... 990 1,075
Other, net............................ (137) (2,328)
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Net cash flows from
operating activities.............. 22,284 10,998
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Cash flows from investing activities:
Additions to plant and equipment.......... (4,320) (10,460)
Proceeds from sale of plant and
equipment............................... 32 47
Additions to deferred assets.............. (693) (1,677)
Purchase of marketable securities......... - (2,915)
Cash paid for acquisition................. - (17,687)
Proceeds from maturities of marketable
securities ............................. - 11,883
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Net cash flows from
investing activities.................. (4,981) (20,809)
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Cash flows from financing activities:
Repayment of long-term debt............... (8) (21)
Borrowing on line of credit
and short-term borrowings............... 11,056 -
Repayment of line of credit
and short-term borrowings............... (11,069) -
Proceeds from issuance of common stock.... 795 1,408
Purchases of common stock................. (12,665) (5,003)
Reduction of loan to ESOP Trust........... 232 233
Dividends paid............................ (3,842) (3,464)
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Net cash flows from
financing activities.................. (15,501) (6,847)
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Effect of exchange rate changes on cash..... 158 805
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Net change in cash and equivalents.......... 1,960 (15,853)
Cash and equivalents at beginning of period. 9,631 27,844
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Cash and equivalents at end of period....... $11,591 $11,991
======= =======
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 nine months
ended September 29, 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
--------------------
Inventories consist of the following:
(In thousands) Sept 29, Dec 30,
2001 2000
---- ----
Raw Materials........................ $15,860 $19,950
Work in Process...................... 6,445 7,559
Finished Goods....................... 45,101 32,414
LIFO Reserve......................... (10,833) (10,833)
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Total Inventory...................... $56,573 $49,090
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Note 3: Property, Plant and Equipment
--------------------------------------
Property, plant and equipment, at cost, consists of the following:
(In thousands) Sept 29, Dec 30,
2001 2000
---- ----
Land and Building.................... $ 25,498 $ 25,301
Machinery and Equipment.............. 123,276 122,191
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148,774 147,492
Allowance for Depreciation........... (88,296) (82,888)
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$ 60,478 $ 64,604
======== ========
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.
7
Note 5: Shareowners' Equity
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The Company had 5,344,267 shares of common stock (25,000,000 shares
authorized, $.10 par value) outstanding as of September 29, 2001.
During the third quarter of 2001, the Company repurchased a total of 150,400
shares for $10.4 million. All repurchased shares were retired. A portion of
these transactions completed a 500,000 share repurchase program approved by
the Company's Board of Directors on October 16, 1998. During 2001, a program
to repurchase an additional 500,000 shares was approved by the Company's Board
of Directors.
Note 6: Earnings Per Share
---------------------------
Following is the computation of basic and diluted earnings per share:
(In thousands, except Third Qtr. Ended Nine Months Ended
per share amounts) ---------------- -----------------
Sept 29, Sept 30, Sept 29, Sept 30,
2001 2000 2001 2000
---- ---- ---- ----
Numerator:
Net Income..................... $8,192 $3,442 $17,822 $15,130
====== ====== ======= =======
Denominator:
Basic
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Weighted average common
shares....................... 5,450 5,448 5,479 5,425
Diluted
-------
Effect of dilutive securities:
Employee and director
incentive stock options
and awards................. 235 218 233 232
------ ------ ------- -------
Adjusted weighted average
common shares................ 5,685 5,666 5,712 5,657
====== ====== ======= =======
Basic earnings per share......... $ 1.50 $ 0.63 $ 3.25 $ 2.79
====== ====== ======= =======
Diluted earnings per share....... $ 1.44 $ 0.61 $ 3.12 $ 2.67
====== ====== ======= =======
8
Note 7: Other Comprehensive Income
-----------------------------------
Comprehensive income is as follows:
(In thousands) Third Qtr. Ended Nine Months Ended
---------------- -----------------
Sept 29, Sept 30, Sept 29, Sept 30,
2001 2000 2001 2000
---- ---- ---- ----
Net income......................... $8,192 $3,442 $17,822 $15,130
Other comprehensive gain/(loss):
Foreign currency translation
adjustments..................... 956 (1,292) (1,055) (2,420)
------ ------ ------- -------
Comprehensive income, net of tax... $9,148 $2,150 $16,767 $12,710
====== ====== ======= =======
Accumulated other comprehensive loss consists of the following:
(In thousands) Sept 29, Dec 30,
2001 2000
---- ----
Cumulative translation adjustment........... $(6,811) $(5,756)
Minimum pension liability adjustment,
net of tax................................ (682) (682)
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$(7,493) $(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" was published
in June 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 $0.6 million of
goodwill during the third quarter and the nine months ended September 29,
2001, respectively.
Note 9: Contingencies and Commitments
--------------------------------------
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 in 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
------------------------------------------------------------------------
Results Of Operations
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Operations
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Net sales for the third quarter of 2001 were $86.8 million, a 1.9 percent
increase from 2000 third quarter net sales of $85.2 million. Year to date
2001 net sales were $235.5 million, compared to year to date 2000 net sales of
$236.1 million. The increase in third quarter sales was principally due to
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. Both for the quarter and on a year to date basis, this
increase is partially offset by decreased sales of core product lines due to a
worldwide manufacturing recession.
Cost of sales as a percent of net sales for the third quarter of 2001 was 71.1
percent, a decrease from 75.4 percent for the same period in 2000. Cost of
sales as a percent of net sales for the year to date 2001 was 72.3 percent, a
decrease from 73.9 percent for the same period in 2000. Both the quarter and
year to date cost of sales as a percent of net sales decreased primarily as a
result of lower employee compensation, cost reductions and productivity
improvement initiatives.
Selling and administrative expenses as a percent of net sales for the third
quarter of 2001 was 14.1 percent compared to 13.2 percent for the same period
in 2000. The increase for the quarter is due primarily to increased expenses
while sales increased at a lower rate. Selling and administrative expenses as
a percent of net sales for the year to date 2001 was 15.0 percent compared to
13.7 percent for the year to date 2000. The year to date increase is due
primarily to the inclusion of EBW and APT in 2001 and increased expenses in
core product lines.
Interest expense was $0.3 million for both the third quarter of 2001 and the
third quarter of 2000. Interest expense for the year to date 2001 was $1.0
million compared to $0.9 million for the year to date 2000.
Included in other income, net for the third quarter of 2001 was $0.2 million
of interest income compared to $0.3 million of interest income for the third
quarter of 2000. Included in other income, net for the year to date 2001 was
$0.5 million of interest income compared to $0.9 million of interest income
for the same period in 2000. Interest income was attributable to amounts
invested principally in short-term U.S. treasury and agency securities.
During the third quarter of 2000, the Company recorded a one-time $3.2 million
($2.0 million after-tax) charge to earnings to recognize the costs of the
unsuccessful acquisition of the fuel pumping systems business of the Marley
Pump Company, a division of United Dominion Industries.
Foreign currency based transactions for the third quarter of 2001 produced a
gain of $0.6 million compared to a $0.8 million loss for the same period of
2000. Year to date 2001 foreign currency based transactions produced a loss
of $0.5 million compared to a $1.5 million loss for the same period of 2000.
The changes were due primarily to the Euro strengthening against the dollar.
10
Net income for the third quarter of 2001 was $8.2 million, or $1.44 per
diluted share, compared to net income of $3.4 million, or $0.61 per diluted
share, for the same period in 2000. Year to date 2001 net income was $17.8
million, or $3.12 per diluted share, a 17.8 percent increase compared to year
to date 2000 net income of $15.1 million, or $2.67 per diluted share.
Capital Resources and Liquidity
-------------------------------
Cash, cash equivalents and marketable securities increased $2.0 million during
the first nine months of 2001. The principal use of cash was the typical
seasonal increase of inventories. Working capital increased $7.1 million
during the first nine months of 2001 and the current ratio was 2.3 and 2.2, at
September 29, 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" was published
in June 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 $0.6 million of
goodwill during the third quarter and the nine months ended September 29,
2001, respectively.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
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1995
----
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.
11
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits (Filed with this quarterly report)
None.
(b) Reports on Form 8-K
None.
12
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.
---------------------------
Registrant
Date November 1, 2001 By /s/ William H. Lawson
--------------------- -------------------------------
William H. Lawson, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date November 1, 2001 By /s/ Gregg C. Sengstack
--------------------- -------------------------------
Gregg C. Sengstack, Senior Vice
President and Chief Financial
Officer (Principal Financial
and Accounting Officer)
5