<PAGE>
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended June 30, 1995 Commission File No. 0-14841
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 22-2476703
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE FRANKLIN PLAZA, BURLINGTON, NEW JERSEY 08016-4907
(Address of principal executive office) (Zip Code)
Registrant's telephone number (609) 386-2500
Indicate by check mark whether 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 preceeding 12 months (or for such shorter period that Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
COMMON STOCK OUTSTANDING AS OF
JUNE 30, 1995--7,748,209 SHARES
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1995 1995
-------- ---------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $14,310 $21,018
Accounts receivable, less allowance for
doubtful accounts of $885 and $859 12,222 9,926
Inventories 27,843 20,916
Deferred income tax asset 1,047 1,622
Prepaids and other assets 1,726 1,958
------- -------
TOTAL CURRENT ASSETS 57,148 55,440
------- -------
PROPERTY AND EQUIPMENT 9,901 8,111
GOODWILL, less accumulated amortization
of $588 and $568 1,850 1,870
OTHER ASSETS 5,458 5,153
------- -------
TOTAL ASSETS $74,357 $70,574
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $18,563 $16,601
------- -------
SHAREHOLDERS' EQUITY:
Preferred stock, $2.50 par value, authorized 10,000,000
shares, none issued or outstanding -- --
Common stock, no par value, authorized 50,000,000 shares,
issued and outstanding 7,748,209 and 7,710,150 shares 47,711 47,386
Retained earnings 8,207 6,799
Foreign currency translation adjustment (124) (212)
------- -------
TOTAL SHAREHOLDERS' EQUITY 55,794 53,973
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $74,357 $70,574
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNT)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
PRO-FORMA
1995 1994 1994
------- ------- ---------
<S> <C> <C> <C>
SALES $18,619 $15,125 $15,125
COST OF SALES 10,358 8,275 8,275
------- ------- -------
GROSS PROFIT 8,261 6,850 6,850
------- ------- -------
EXPENSES:
Sales and marketing 3,117 2,723 2,723
Research and development 1,273 1,140 1,140
General and administrative 1,800 1,432 1,432
Interest (net) and investment income (200) (63) (63)
------- ------- -------
5,990 5,232 5,232
------- ------- -------
INCOME FROM OPERATIONS 2,271 1,618 1,618
Non-operating charges to income -- 1,716 --
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 2,271 (98) 1,618
INCOME TAX (BENEFIT) PROVISION 863 (1,727) 615
------- ------- -------
NET INCOME $ 1,408 $ 1,629 $ 1,003
======= ======= =======
NET INCOME PER SHARE:
PRIMARY $ .17 $ .21 $ .13
======= ======= =======
FULLY DILUTED $ .17 $ .21 $ .13
======= ======= =======
WEIGHTED AVERAGE COMMON SHARES AND COMMON
EQUIVALENTS:
PRIMARY 8,222 7,730 7,730
======= ======= =======
FULLY DILUTED 8,222 7,730 7,730
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS OTHER EQUITY
--------- ------- -------- ----- -------------
<S> <C> <C> <C> <C> <C>
BALANCE--MARCH 31, 1995 7,710,150 $47,386 $6,799 $(212) $53,973
Issuance of common shares
under employee stock option
plan 30,967 246 -- -- 246
Issuance of shares and
amortization of deferred
compensation expense for
shares issued for services
net of forfeitures (unearned
portion $224) (600) 29 -- -- 29
Issuance of common shares for
warrants exercised 7,692 50 -- -- 50
Income for the period -- -- 1,408 -- 1,408
Foreign currency translation
adjustment -- -- -- 88 88
--------- ------- ------ ----- -------
BALANCE--JUNE 30, 1995 7,748,209 $47,711 $8,207 $(124) $55,794
========= ======= ====== ===== =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
----------------
1995 1994
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 1,408 $ 1,629
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Depreciation and amortization 796 680
Provision for losses on accounts receivable 26 19
Write down of fixed assets -- 350
Loss on sales of investment securities, net -- 92
Revaluation of investment securities to market -- 416
Accrued retirement -- 560
Deferred income tax benefit 575 (1,722)
Source (use) of cash from change in operating assets and
liabilities:
Accounts receivable (2,322) (1,227)
Inventories (6,927) (5,463)
Prepaids and other assets 232 (182)
Accounts payable and accrued expenses 1,962 1,300
------- -------
NET CASH USED IN OPERATING ACTIVITIES (4,250) (3,548)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments (net) in investment securities -- 420
Purchase of property and equipment (2,198) (723)
Change in other assets (644) (117)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (2,842) (420)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares 296 53
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 296 53
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 88 (78)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (6,708) (3,993)
CASH AND CASH EQUIVALENTS AT MARCH 31 21,018 11,012
------- -------
CASH AND CASH EQUIVALENTS AT JUNE 30 $14,310 $ 7,019
======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the financial statements included in the Company's Annual
Report (Form 10-K) filed with the Securities and Exchange Commission for the
year ended March 31, 1995.
The financial statements for the periods ended June 30, 1995 and 1994 are
unaudited and include all adjustments which, in the opinion of management, are
necessary to a fair statement of the results of operations for the periods then
ended. All such adjustments are of a normal recurring nature. The results of
the Company's operations for any interim period are not necessarily indicative
of the results of the Company's operations for a full fiscal year.
1. PRO-FORMA INCOME STATEMENT
The Company recognized its remaining federal tax benefits applicable to future
years in the quarter ended June 30, 1994 and as a result, the Company's
earnings beginning in the quarter ended June 30, 1995 are reported on a fully
taxed basis. The pro-forma June 30, 1994 first quarter results are reported on
a fully taxed basis and exclude the impact of the non-operating charges.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1995 1994
Reported: ------------- -------------
<S> <C> <C>
Income From Operations: $ 2,271 $ 1,618
Net Income: $ 1,408 $ 1,629
Net Income Per Share: $ .17 $ .21
- --------------------------------------------------------
Pro-Forma:(a)
Income From Operations: $ 2,271 $ 1,618
Net Income: $ 1,408 $ 1,003
Net Income Per Share: $ .17 $ .13
- --------------------------------------------------------
</TABLE>
(a) The Company recognized its remaining federal tax benefits applicable to
future years in the quarter ended June 30, 1994 and as a result, the
Company's earnings beginning in the quarter ended June 30, 1995 are
reported on a fully taxed basis. The pro-forma June 30, 1994 first quarter
results are reported on a fully taxed basis and exclude the impact of the
non-operating charges.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 AS COMPARED WITH
JUNE 30, 1994:
Net Sales
Sales of $18,619,000 for the quarter ended June 30, 1995 were 23% higher than
sales of $15,125,000 for the same quarter one year earlier. Sales of electronic
books increased by 24% to $17,714,000, or 95% of total sales. The increase in
sales of electronic books is attributed in part to the introduction of new
electronic books, such as the BOOKMAN series, and sales through the Company's
French, German, Australian, and Canadian subsidiaries. Royalties from
technology licenses decreased as a % of sales from 5% to 4.
Gross Profits
The Company reported net income of $1,408,000 or $.17 per share for the first
quarter ending June 30, 1995, an increase of 40% from earnings on a comparable
basis of $1,003,000 or $.13 per share. Increased sales
7
<PAGE>
primarily contributed to the increase in gross profits from $6,850,000 to
$8,261,000. Gross profit margins remained relatively stable at 44% as compared
with 45% last year.
Operating Expenses
Total operating expenses increased to $5,990,000 in the current 1995 quarter as
compared with $5,232,000 in the same quarter last year, decreasing as a
percentage of total sales from 35% to 32%. Sales and marketing expenses were up
by $394,000 from last year's level of $2,723,000 to $3,117,000. Research and
development expenses increased to $1,273,000 as compared with $1,140,000 in the
period one year earlier as the Company continued its development efforts for
new products in the BOOKMAN series. General and administrative expenses
increased to $1,800,000 from $1,432,000 due in part to the inclusion of the
expenses of operations of the company's new wholly-owned international sales
subsidiaries in Germany and Australia. Interest and investment income increased
from $63,000 to $200,000 due to the Company's improved cash position.
CHANGES IN FINANCIAL CONDITION
Inventories increased from $20,916,000 at March 31, 1995 to $27,843,000 at the
end of the June quarter due primarily to planned inventory increases in
anticipation of higher sales in the seasonally active second and third
quarters. The inventory increases were also a function of the establishment of
new international subsidiaries. Cash and cash equivalents decreased from
$21,018,000 at March 31 to $14,310,000 as working capital was employed to
support inventory and accounts receivable increases. Accounts receivable
increased from $9,926,000 to $12,222,000 at June 30 as a result of higher sales
in the first quarter over the fourth fiscal quarter. Current liabilities
increased from $16,601,000 at March 31 to $18,563,000 at June 30 as purchases
were made to increase inventory levels for the reasons stated above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity over the last three fiscal years was
cash flow from operations. Management believes that cash flow from operations
and its bank line of credit will be adequate to provide for the Company's
liquidity and capital needs for at least the next fiscal year.
In order to accommodate seasonal inventory and accounts receivable buildup, the
Company may finance its day to day operations by drawing down advances against
a recently increased $35,000,000 revolving line of credit facility. The
Company's new credit arrangement with its lending
8
<PAGE>
bank has been extended through October 1998. At June 30, 1995, there were no
borrowings under the bank line of credit. The Company believes that it has
sufficient borrowing capacity to utilize for seasonal cash requirements.
Borrowings against the line of credit bear interest at the bank's prime rate or
1 1/2% over LIBOR. The Company also pays a commitment fee of 1/4 of 1% per
annum on the unused portion of the line of credit.
The Company occupied its new facility during the June quarter. The Company has
no additional material commitments for capital expenditures in the next twenty-
four months.
9
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
In April 1995 Berkeley Speech Technologies ("Berkeley") filed a declaratory
judgment action to invalidate one of the Company's registered copyrights, which
action also demands monetary damages. The Company filed counterclaims against
Berkeley for infringing the Company's registered copyright and for contract
violations. The Company believes that Berkeley's action is without merit and
intends vigorously to defend this action and to prosecute its counterclaims;
therefore, the Company believes that the resolution of this matter will not
have a material adverse effect on its financial condition and results of
operations as reported in the accompanying financial statements.
ITEM 2. CHANGES IN SECURITIES--NONE
ITEM 3. DEFAULT UPON SENIOR SECURITIES--NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS--NONE
ITEM 5. OTHER INFORMATION--NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K--NONE
10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
FRANKLIN ELECTRONIC
PUBLISHERS, INCORPORATED
REGISTRANT
AUGUST 8, 1995 /s/ Gregory J. Winsky
- -------------- ----------------------------------------------
Date Gregory J. Winsky
Senior Vice President,
General Counsel
(Duly Authorized Officer)
AUGUST 8, 1995 /s/ Kenneth H. Lind
- -------------- ----------------------------------------------
Date Kenneth H. Lind
Vice President, Finance and
Treasurer
(Chief Accounting Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF FRANKLIN ELECTRONIC PUBLISHERS, INC. AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 14,310
<SECURITIES> 0
<RECEIVABLES> 13,107
<ALLOWANCES> 885
<INVENTORY> 27,843
<CURRENT-ASSETS> 57,148
<PP&E> 9,901
<DEPRECIATION> 0
<TOTAL-ASSETS> 74,357
<CURRENT-LIABILITIES> 18,563
<BONDS> 0
<COMMON> 47,711
0
0
<OTHER-SE> 8,083
<TOTAL-LIABILITY-AND-EQUITY> 74,357
<SALES> 18,619
<TOTAL-REVENUES> 18,619
<CGS> 10,358
<TOTAL-COSTS> 10,358
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,271
<INCOME-TAX> 863
<INCOME-CONTINUING> 1,408
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,408
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
