FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2002
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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)
(260) 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 May 7, 2002
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$.10 par value 10,842,046 shares
Page 1 of 12
2
FRANKLIN ELECTRIC CO., INC.
Index
Page
PART I. FINANCIAL INFORMATION Number
- --------------------------------- ------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of March 30, 2002 (Unaudited)
and December 29, 2001 (Unaudited)............... 3
Condensed Consolidated Statements of
Income for the Three Months
Ended March 30, 2002 (Unaudited) and
March 31, 2001 (Unaudited)...................... 4
Condensed Consolidated Statements
Of Cash Flows for the Three Months
Ended March 30, 2002 (Unaudited) and
March 31, 2001 (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 4. Submission of Matters to a Vote of
Security Holders.............................. 11
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
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FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) March 30, December 29,
2002 2001
---- ----
ASSETS
Current assets:
Cash and equivalents.................... $ 5,070 $ 20,750
Marketable securities................... - 2,999
Receivables, less allowances of
$1,986 and $1,658, respectively....... 35,225 27,486
Inventories (Note 2).................... 57,838 48,008
Other current assets (including
deferred income taxes of $8,675
and $8,667, respectively)............. 10,673 10,340
-------- --------
Total current assets.................. 108,806 109,583
Property, plant and equipment,
net (Note 3)............................ 66,697 58,839
Deferred and other assets (including
deferred income taxes of $19
and $17, respectively).................. 14,978 12,710
Goodwill.................................. 24,892 14,511
-------- --------
Total assets.............................. $215,373 $195,643
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 4,053 $ 1,058
Accounts payable........................ 17,701 11,683
Accrued expenses........................ 23,830 24,146
Income taxes............................ 2,323 3,538
-------- --------
Total current liabilities............. 47,907 40,425
Long-term debt............................ 22,882 14,465
Employee benefit plan obligations......... 13,291 13,199
Other long-term liabilities............... 4,314 4,285
Shareowners' equity:
Common stock (Note 5)................... 1,073 533
Additional capital...................... 24,584 23,882
Retained earnings....................... 111,501 109,103
Loan to ESOP Trust...................... (1,130) (1,362)
Accumulated other comprehensive
loss (Note 7)......................... (9,049) (8,887)
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Total shareowners' equity............. 126,979 123,269
-------- --------
Total liabilities and shareowners' equity. $215,373 $195,643
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
------------------
March 30, March 31,
2002 2001
---- ----
Net sales.............................. $68,069 $65,899
Costs and expenses:
Cost of sales........................ 50,218 48,786
Selling and administrative expenses.. 11,661 11,341
Interest expense..................... 338 325
Other income, net.................... (226) (143)
Foreign exchange loss................ 208 727
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62,199 61,036
Income before income taxes............. 5,870 4,863
Income taxes........................... 2,188 1,847
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Net income............................. $ 3,682 $ 3,016
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Per share data (Note 6):
Net income per common share.......... $ .34 $ .27
======= =======
Net income per common share,
assuming dilution.................. $ .32 $ .26
======= =======
Dividends per common share........... $ .12 $ .11
======= =======
See Notes to Condensed Consolidated Financial Statements.
5
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) Three Months Ended
------------------
March 30, March 31,
2002 2001
---- ----
Cash flows from operating activities:
Net income................................ $ 3,682 $ 3,016
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization........... 3,184 3,130
Loss on disposals of plant
and equipment......................... - 66
Changes in assets and liabilities:
Receivables........................... (4,409) (1,039)
Inventories........................... (6,269) (17,813)
Accounts payable and other accrued
expenses............................ (5,111) (367)
Employee benefit plan obligations..... 109 331
Other, net............................ (264) (548)
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Net cash flows from
operating activities.............. (9,078) (13,224)
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Cash flows from investing activities:
Additions to plant and equipment.......... (1,078) (1,109)
Proceeds from sale of plant and
equipment............................... - 18
Additions to deferred assets.............. (2,640) (46)
Cash paid for acquisition................. (17,475) -
Proceeds from maturities of marketable
securities ............................. 2,999 -
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Net cash flows from
investing activities.................. (18,194) (1,137)
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Cash flows from financing activities:
Borrowing on long-term debt............... 8,350 -
Borrowing on line of credit and
short-term borrowings................... 3,000 10,000
Repayment of line of credit
and short-term borrowings............... (5) (3)
Proceeds from issuance of common stock.... 1,242 -
Purchases of common stock................. - (1,001)
Reduction of loan to ESOP Trust........... 232 232
Dividends paid............................ (1,284) (1,210)
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Net cash flows from
financing activities.................. 11,535 8,018
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Effect of exchange rate changes on cash..... 57 501
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Net change in cash and equivalents.......... (15,680) (5,842)
Cash and equivalents at beginning of period. 20,750 9,631
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Cash and equivalents at end of period....... $ 5,070 $ 3,789
======= =======
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 three
months ended March 30, 2002 are not necessarily indicative of the results that
may be expected for the year ending December 28, 2002. 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 29, 2001.
Note 2: Inventories
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Inventories consist of the following:
(In thousands) March 30, December 29,
2002 2001
---- ----
Raw Materials........................ $15,759 $16,447
Work in Process...................... 7,585 6,005
Finished Goods....................... 44,451 35,662
LIFO Reserve......................... (9,957) (10,106)
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Total Inventory...................... $57,838 $48,008
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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) March 30, December 29,
2002 2001
---- ----
Land and Building.................... $ 32,354 $ 25,343
Machinery and Equipment.............. 124,980 121,791
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157,334 147,134
Allowance for Depreciation........... 90,637 88,295
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$ 66,697 $ 58,839
======== ========
7
Note 4: Tax Rates
- ------------------
The effective tax rate on income before income taxes in 2002 and 2001 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
- ----------------------------
The Company had 10,730,334 shares of common stock (25,000,000 shares
authorized, $.10 par value) outstanding as of March 30, 2002. All share and
per share data included in these financial statements reflect the Company's
two-for-one stock split effected in the form of a 100 percent stock
distribution made on March 22, 2002.
Note 6: Earnings Per Share
- ---------------------------
Following is the computation of basic and diluted earnings per share:
Three Months Ended
(In thousands, except ------------------
per share amounts) March 30, March 31,
2002 2001
---- ----
Numerator:
Net Income..................... $ 3,682 $ 3,016
======= =======
Denominator:
Basic
Weighted average common
shares....................... 10,697 10,996
Diluted
Effect of dilutive securities:
Employee and director
incentive stock options
and awards................. 684 456
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Adjusted weighted average
common shares................ 11,381 11,452
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Basic earnings per share......... $ .34 $ .27
======= =======
Diluted earnings per share....... $ .32 $ .26
======= =======
8
Note 7: Comprehensive Income
- -----------------------------
Comprehensive income is as follows:
Three Months Ended
(In thousands) ------------------
March 30, March 31,
2002 2001
---- ----
Net income.............................. $3,682 $3,016
Other comprehensive loss:
Foreign currency translation
adjustments.......................... (162) (1,316)
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Comprehensive income, net of tax........ $3,520 $1,700
====== ======
Accumulated other comprehensive loss consists of the following:
(In thousands) March 30, December 29,
2002 2001
---- ----
Cumulative translation adjustment........... $(8,271) $(8,109)
Minimum pension liability adjustment,
net of tax................................ (778) (778)
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$(9,049) $(8,887)
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Note 8: 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, 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 or results of operations.
Note 9: Goodwill and Other Intangible Assets
- ---------------------------------------------
Statement of Financial Accounting Standards (SFAS) No. 141 and 142, "Business
Combinations" and "Goodwill and Other Intangible Assets", respectively, were
published in June 2001. SFAS No. 141 requires the purchase method of
accounting for business combinations, and SFAS No. 142 changes the accounting
for goodwill from an amortization method to an impairment-only approach. The
Company adopted the provisions of SFAS Nos. 141 and 142 effective December 30,
2001, and accordingly, the Company's recorded goodwill is no longer being
amortized. In addition, during the first quarter of 2002, the Company
performed its initial impairment testing required by SFAS No. 142. No
impairment loss or transition adjustments were required.
The following sets forth a reconciliation of reported net income and earnings
per share to the same amounts adjusted to exclude amortization expense
recognized on goodwill in each respective period:
(In thousands, except per share amounts) Three Months Ended
March 30, March 31,
2002 2001
Reported net income..................... $3,682 $3,016
Add back: Goodwill amortization........ - 197
Adjusted net income..................... $3,682 $3,213
Basic earnings per share:
Reported net income..................... $ .34 .27
Add back: Goodwill amortization........ - .02
Adjusted net income..................... $ .34 $ .29
Diluted earnings per share:
Reported net income..................... $ .32 .26
Add back: Goodwill amortization........ - .02
Adjusted net income..................... $ .32 $ .28
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 first quarter of 2002 were $68.1 million, a 3.3 percent
increase from 2001 first quarter net sales of $65.9 million. The increase in
sales was principally due to the inclusion of Coverco, a January 2002
acquisition, and higher volume of submersible water systems motors. These
increases were partially offset by lower sales of submersible fueling systems
motors and industrial motor products.
Cost of sales as a percentage of net sales for the first quarter of 2002 was
73.8 percent compared to 74.0 percent for the same period in 2001. The
decrease is primarily the result of cost reduction, productivity improvement
and other operations initiatives.
Selling and administrative expenses as a percent of net sales for the first
quarter of 2002 was 17.1 percent compared to 17.2 percent for the same period
in 2001.
Interest expense was $0.3 million for both the first quarter of 2002 and 2001.
Included in other income, net, for the first quarter of 2002 was $0.1 million
of interest income compared to $0.2 million interest income for the first
quarter 2001. Interest income was attributable to amounts invested principally
in short-term U.S. treasury and agency securities.
The foreign currency based transactions for the first quarter of 2002 produced
a loss of $0.2 million compared to a $0.7 million loss for the same period in
2001. The foreign currency transaction loss in 2002 and 2001 was primarily due
to the strengthening U.S. dollar relative to the Euro.
Net income for the first quarter of 2002 was $3.7 million, or $.32 per diluted
share, compared to net income of $3.0 million, or $.26 per diluted share, for
the same period a year ago.
Capital Resources and Liquidity
- -------------------------------
Cash, cash equivalents and marketable securities decreased $18.7 million
during the first quarter of 2002. The principal use of cash for operating
activities was the seasonal increase in inventories. Working capital
decreased $8.3 million during the first quarter of 2002. The current ratio
was 2.3 and 2.7 at March 30, 2002 and December 29, 2001, respectively.
Net cash flows used in investing activities were $18.2 million and were
principally used for the acquisition of Coverco.
10
"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.
11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The 2002 Annual Meeting of Shareholders of the Company was held on April 19,
2002 for the following purposes: 1) To elect three directors for terms
expiring at the 2005 Annual Meeting of Shareholders; and 2) To ratify the
appointment of Deloitte & Touche LLP as independent auditors for the 2002
fiscal year.
The results were:
1) Nominees for Director For Withhold Authority
--------------------- --- ------------------
John B. Lindsay 4,826,335 45,109
Juris Vikmanis 4,828,143 43,301
Howard B. Witt 4,820,441 51,003
Delivered
For Against Abstain not Voted
--- ------- ------- ---------
2) Ratification of
Deloitte & Touche LLP 4,437,913 3,389 425,824 4,318
Total shares represented at the Annual Meeting in person or by proxy were
4,871,444 of a total of 5,348,167 shares outstanding. This represented 91.0
percent of Company common stock and constituted a quorum.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits (Filed with this quarterly report)
3 (ii) Amended and Restated By-Laws of Franklin Electric Co., Inc.
10.1 Amended and Restated Note Purchase and Private Shelf Agreement
dated March 1, 2002 between the Company and The Prudential Insurance
Company of America.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the SEC by the Company on
February 15, 2002 to report a two-for-one stock split.
12
SIGNATURES
----------
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 May 7, 2002 By /s/ William H. Lawson
------------------- --------------------------------
William H. Lawson, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date May 7, 2002 By /s/ Gregg C. Sengstack
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Gregg C. Sengstack, Senior Vice
President and Chief Financial
Officer (Principal Financial
and Accounting Officer)
5