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 31, 2001 -------------- 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. --------------------------- (Exact name of registrant as specified in its charter) INDIANA 35-0827455 ------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 EAST SPRING STREET BLUFFTON, INDIANA 46714 ----------------- ----- (Address of principal executive offices) (Zip Code) (219) 824-2900 -------------- (Registrant's telephone number, including area code) NOT APPLICABLE -------------- (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 ------ ------ 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 10, 2001 --------------------- -------------- $.10 par value 5,490,867 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 31, 2001 (Unaudited) and December 30, 2000 (Unaudited)............... 3 Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2001 (Unaudited) and April 1, 2000 (Unaudited)....................... 4 Condensed Consolidated Statements Of Cash Flows for the Three Months Ended March 31, 2001 (Unaudited) and April 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 4. Submission of Matters to a Vote of Security Holders.............................. 11 Item 6. Exhibits and Reports on Form 8-K................ 11 Signatures.................................................. 12 - ----------
3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) March 31, December 30, 2001 2000 ---- ---- ASSETS Current assets: Cash and equivalents.................... $ 3,789 $ 9,631 Receivables, less allowances of $1,967 and $1,949, respectively....... 31,893 31,568 Inventories (Note 2).................... 65,837 49,090 Other current assets (including deferred income taxes of $9,486 and $9,538, respectively)............. 11,929 11,672 -------- -------- Total current assets.................. 113,448 101,961 Property, plant and equipment, net (Note 3)............................ 62,465 64,604 Deferred and other assets (including deferred income taxes of $1,476 and $1,483, respectively)............... 14,400 15,048 Goodwill, less accumulated amortization of $455 and $258, respectively.......... 15,369 15,566 -------- -------- Total assets.............................. $205,682 $197,179 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Current maturities of long-term debt and short-term borrowings........ $ 11,073 $ 1,076 Accounts payable........................ 16,245 16,114 Accrued expenses........................ 24,658 27,105 Income taxes............................ 3,909 2,769 -------- -------- Total current liabilities............. 55,885 47,064 Long-term debt............................ 15,601 15,874 Employee benefit plan obligations......... 14,241 13,981 Other long-term liabilities............... 4,236 4,262 Shareowners' equity: Common stock (Note 5)................... 549 550 Additional capital...................... 30,035 30,035 Retained earnings....................... 94,251 93,445 Loan to ESOP Trust...................... (1,362) (1,594) Accumulated other comprehensive loss (Note 7)......................... (7,754) (6,438) -------- -------- Total shareowners' equity............. 115,719 115,998 -------- -------- Total liabilities and shareowners' equity. $205,682 $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) Three Months Ended ------------------ March 31, April 1, 2001 2000 ---- ---- Net sales.............................. $65,899 $66,051 Costs and expenses: Cost of sales........................ 48,786 48,864 Selling and administrative expenses.. 11,341 10,309 Interest expense..................... 325 285 Other expense/(income), net.......... (143) (295) Foreign exchange loss................ 727 611 ------- ------- 61,036 59,774 Income before income taxes............. 4,863 6,277 Income taxes........................... 1,847 2,374 ------- ------- Net income............................. $ 3,016 $ 3,903 ======= ======= Per share data (Note 6): Net income per common share.......... $ .55 $ .72 ======= ======= Net income per common share, assuming dilution.................. $ .53 $ .69 ======= ======= Dividends per common share........... $ .22 $ .20 ======= ======= 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 31, April 1, 2001 2000 ---- ---- Cash flows from operating activities: Net income................................ $ 3,016 $ 3,903 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization........... 3,130 2,514 Loss on disposals of plant and equipment......................... 66 42 Changes in assets and liabilities: Receivables........................... (1,039) (4,249) Inventories........................... (17,813) (11,579) Accounts payable and other accrued expenses............................ (367) (11,033) Employee benefit plan obligations..... 331 307 Other, net............................ (548) (9) ------- ------- Net cash flows from operating activities.............. (13,224) (20,104) ------- ------- Cash flows from investing activities: Additions to plant and equipment.......... (1,109) (2,932) Proceeds from sale of plant and equipment............................... 18 22 Additions to deferred assets.............. (46) (353) Proceeds from maturities of marketable securities ............................. - 8,968 ------- ------- Net cash flows from investing activities.................. (1,137) 5,705 ------- ------- Cash flows from financing activities: Borrowing on line of credit............... 10,000 - Repayment of line of credit and short-term borrowings............... (3) - Proceeds from issuance of common stock.... - 981 Purchases of common stock................. (1,001) (3,367) Reduction of loan to ESOP Trust........... 232 233 Dividends paid............................ (1,210) (1,088) ------- ------- Net cash flows from financing activities.................. 8,018 (3,241) ------- ------- Effect of exchange rate changes on cash..... 501 336 ------- ------- Net change in cash and equivalents.......... (5,842) (17,304) Cash and equivalents at beginning of period. 9,631 27,844 ------- ------- Cash and equivalents at end of period....... $ 3,789 $10,540 ======= ======= 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 31, 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) March 31, December 30, 2001 2000 ---- ---- Raw Materials........................ $19,255 $19,950 Work in Process...................... 6,957 7,559 Finished Goods....................... 50,458 32,414 LIFO Reserve......................... (10,833) (10,833) ------- ------- Total Inventory...................... $65,837 $49,090 ======= ======= Note 3: Property, Plant and Equipment - -------------------------------------- Property, plant and equipment, at cost, consists of the following: (In thousands) March 31, December 30, 2001 2000 ---- ---- Land and Building.................... $ 25,371 $ 25,301 Machinery and Equipment.............. 121,753 122,191 -------- -------- 147,124 147,492 Allowance for Depreciation........... 84,659 82,888 -------- -------- $ 62,465 $ 64,604 ======== ========
7 Note 4: Tax Rates - ------------------ 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 - ---------------------------- The Company had 5,489,467 shares of common stock (25,000,000 shares authorized, $.10 par value) outstanding as of March 31, 2001. During the first quarter of 2001, pursuant to the stock repurchase program authorized by the Company's Board of Directors, the Company repurchased a total of 14,900 shares for $1.0 million. All repurchased shares were retired. Note 6: Earnings Per Share - --------------------------- Following is the computation of basic and diluted earnings per share: (In thousands, except Three Months Ended per share amounts) ------------------ March 31, April 1, 2001 2000 ---- ---- Numerator: Net Income..................... $3,016 $3,903 ====== ====== Denominator: Basic ----- Weighted average common shares....................... 5,498 5,424 Diluted ------- Effect of dilutive securities: Employee and director incentive stock options and awards................. 228 234 ------ ------ Adjusted weighted average common shares................ 5,726 5,658 ====== ====== Basic earnings per share......... $ .55 $ .72 ====== ====== Diluted earnings per share....... $ .53 $ .69 ====== ======
8 Note 7: Other Comprehensive Income - ----------------------------------- Comprehensive income is as follows: (In thousands) Three Months Ended ------------------ March 31, April 1, 2001 2000 ---- ---- Net income.............................. $3,016 $3,903 Other comprehensive loss: Foreign currency translation adjustments.......................... (1,316) (976) ------ ------ Comprehensive income, net of tax........ $1,700 $2,927 ====== ====== Accumulated other comprehensive loss consists of the following: (In thousands) March 31, December 30, 2001 2000 ---- ---- Cumulative translation adjustment........... $(7,072) $(5,756) Minimum pension liability adjustment, net of tax................................ (682) (682) ------- ------- $(7,754) $(6,438) ======= ======= Note 8: 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 - --------------------- Operations - ---------- Net sales for the first quarter of 2001 were $65.9 million, a .2 percent decrease from 2000 first quarter net sales of $66.1 million. The decreased sales resulted primarily from lower volume of submersible water systems motors. The decreases were partially offset by higher sales of submersible petroleum motor systems. Cost of sales as a percentage of net sales for the first quarter of 2001 and 2000 was 74.0 percent. Selling and administrative expenses as a percent of net sales for the first quarter of 2001 was 17.2 percent compared to 15.6 percent for the same period in 2000. The increase is primarily due to modest increases in commissions and fixed marketing expenses. Interest expense was $0.3 million for both the first quarter of 2001 and 2000. Included in other income, net, for the first quarter of 2001 was $0.2 million of interest income compared to $0.4 million interest income for the first quarter 2000. Interest income was attributable to amounts invested principally in short-term US treasury and agency securities. The foreign currency based transactions for the first quarter of 2001 produced a loss of $0.7 million compared to a $0.6 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 first quarter of 2001 was $3.0 million, or $.53 per diluted share, compared to net income of $3.9 million, or $.69 per diluted share, for the same period a year ago. Capital Resources and Liquidity - ------------------------------- Cash, cash equivalents and marketable securities decreased $5.8 million during the first quarter of 2001. The principal use of cash for operating activities was the typical seasonal increase in inventories. Working capital increased $2.7 million during the first quarter of 2001. The current ratio was 2.0 and 2.2 at March 31, 2001, and December 30, 2000, respectively. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of - ----------------------------------------------------------------------------- 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
10 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 2001 Annual Meeting of Shareholders of the Company was held on April 20, 2001 for the following purposes: 1) To elect three directors for terms expiring at the 2004 Annual Meeting of Shareholders; and 2) To ratify the appointment of Deloitte & Touche LLP as independent auditors for the 2001 fiscal year. The results were: 1) Nominees for Director For Withhold Authority --------------------- --- ------------------ William H. Lawson 5,090,979 15,806 Donald J. Schneider 5,089,979 16,806 R. Scott Trumbull 5,090,305 16,480 For Against Abstain --- ------- ------- 2) Ratification of Deloitte & Touche LLP 4,874,736 223,559 8,490 Total shares represented at the Annual Meeting in person or by proxy were 5,106,785 of a total of 5,497,967 shares outstanding. This represented 93 percent of Company common stock and constituted a quorum. Total broker non- votes related to the approval of the ratification of Deloitte & Touche LLP was 0 shares. 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 ---------- 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 May 10, 2001 By /s/ William H. Lawson ------------------ ----------------------------- William H. Lawson, Chairman and Chief Executive Officer (Principal Executive Officer) Date May 10, 2001 By /s/ Gregg C. Sengstack ------------------ ----------------------------- Gregg C. Sengstack, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 5