UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________

FORM 10-Q

_________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2020

☐ 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 incorporation or organization)

(I.R.S. Employer Identification No.)

9255 Coverdale Road

Fort Wayne,

Indiana

46809

(Address of principal executive offices)

(Zip Code)

(260) 824-2900

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.10 par value

FELE

NASDAQ

Global Select Market

(Title of each class)

(Trading symbol)

(Name of each exchange on which registered)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes			☒			No			☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes			☒			No			☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).


Yes			☐			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 Par Value						~~May 1,~~July 31, 2020
$0.10						~~46,164,173~~46,190,670 shares

FRANKLIN ELECTRIC CO., INC.

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION	Number

Item 1.	Condensed Consolidated Financial Statements	4
	Condensed Consolidated Statements of Income for the Second Quarters ~~First Quarter~~s and Six Months Ended ~~March~~31 , June 30, 2020 and 2019 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income/(Loss) for the ~~First~~Second ~~Quarte~~Quarters r s and Six Months Ended ~~March~~ 31June 30 , 2020 and 2019 (Unaudited)	5
	Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2020 and December 31, 2019 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the ~~First Quarters~~Six Months Ended ~~March~~ 31 ~~, 20~~20 June 30, 2020 and ~~201~~9 2019 (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2324
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2730
Item 4.	Controls and Procedures	2730


PART II.	OTHER INFORMATION

Item 1A.	Risk Factors	2831
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2831
Item 6.	Exhibits	2831

Signatures		2932

~~Exhibit Index~~		30

PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		First Quarter Ended							Second Quarter Ended						Six Months Ended
(In thousands, except per share amounts)	(In thousands, except per share amounts)	March 31, 2020		March 31, 2019		(In thousands, except per share amounts)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019

Net sales	Net sales	$	266,754	$	290,715	Net sales	$	308,281	$	355,340	$	575,035	$	646,055
Cost of sales	Cost of sales	176,437		201,209		Cost of sales	201,159		235,622		377,596		436,831
Gross profit	Gross profit	90,317		89,506		Gross profit	107,122		119,718		197,439		209,224
Selling, general, and administrative expenses	Selling, general, and administrative expenses	75,623		76,299		Selling, general, and administrative expenses	72,314		75,782		147,937		152,081
Restructuring expense	Restructuring expense	873		1,086		Restructuring expense	875		245		1,748		1,331
Operating income	Operating income	13,821		12,121		Operating income	33,933		43,691		47,754		55,812
Interest (expense)		(1,234)		(2,342)
Other income/(expense), net		(202)		239
Foreign exchange income		962		589
Interest expense						Interest expense	(1,132)		(2,295)		(2,366)		(4,637)
Other expense, net						Other expense, net	(397)		(292)		(599)		(53)
Foreign exchange income/(expense)						Foreign exchange income/(expense)	(906)		(505)		56		84
Income before income taxes	Income before income taxes	13,347		10,607		Income before income taxes	31,498		40,599		44,845		51,206
Income tax expense	Income tax expense	2,555		1,480		Income tax expense	6,696		7,787		9,251		9,267
Net income	Net income	$	10,792	$	9,127	Net income	$	24,802	$	32,812	$	35,594	$	41,939
Less: Net (income) attributable to noncontrolling interests	Less: Net (income) attributable to noncontrolling interests	(149)		(71)		Less: Net (income) attributable to noncontrolling interests	(151)		(67)		(300)		(138)
Net income attributable to Franklin Electric Co., Inc.	Net income attributable to Franklin Electric Co., Inc.	$	10,643	$	9,056	Net income attributable to Franklin Electric Co., Inc.	$	24,651	$	32,745	$	35,294	$	41,801
Income per share:	Income per share:					Income per share:
Basic	Basic	$	0.23	$	0.19	Basic	$	0.53	$	0.70	$	0.76	$	0.89
Diluted	Diluted	$	0.23	$	0.19	Diluted	$	0.52	$	0.70	$	0.75	$	0.89

See Notes to Condensed Consolidated Financial Statements.

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(Unaudited)


		First Quarter Ended							Second Quarter Ended						Six Months Ended
(In thousands)	(In thousands)	March 31, 2020		March 31, 2019		(In thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019

Net income	Net income	$	10,792	$	9,127	Net income	$	24,802	$	32,812	$	35,594	$	41,939
Other comprehensive income/(loss), before tax:	Other comprehensive income/(loss), before tax:					Other comprehensive income/(loss), before tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	(37,722)		(2,810)		Foreign currency translation adjustments	1,977		1,362		(35,745)		(1,448)
Employee benefit plan activity	Employee benefit plan activity	901		650		Employee benefit plan activity	901		649		1,802		1,299
Other comprehensive (loss)		(36,821)		(2,160)
Income tax expense related to items of other comprehensive (loss)		(185)		(141)
Other comprehensive (loss), net of tax		(37,006)		(2,301)
Comprehensive income/(loss)		(26,214)		6,826
Other comprehensive income/(loss)						Other comprehensive income/(loss)	2,878		2,011		(33,943)		(149)
Income tax expense related to items of other comprehensive income/(loss)						Income tax expense related to items of other comprehensive income/(loss)	(185)		(141)		(370)		(282)
Other comprehensive income/(loss), net of tax						Other comprehensive income/(loss), net of tax	2,693		1,870		(34,313)		(431)
Comprehensive income						Comprehensive income	27,495		34,682		1,281		41,508
Less: Comprehensive income attributable to noncontrolling interests	Less: Comprehensive income attributable to noncontrolling interests	154		32		Less: Comprehensive income attributable to noncontrolling interests	173		126		327		158
Comprehensive income/(loss) attributable to Franklin Electric Co., Inc.		$	(26,368)	$	6,794
Comprehensive income attributable to Franklin Electric Co., Inc.						Comprehensive income attributable to Franklin Electric Co., Inc.	$	27,322	$	34,556	$	954	$	41,350

See Notes to Condensed Consolidated Financial Statements.

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands)	(In thousands)	March 31, 2020		December 31, 2019		(In thousands)	June 30, 2020		December 31, 2019

ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	39,987	$	64,405	Cash and cash equivalents	$	43,083	$	64,405
Receivables, less allowances of $3,907 and $3,705, respectively		167,590		173,327
Receivables, less allowances of $4,741 and $3,705, respectively						Receivables, less allowances of $4,741 and $3,705, respectively	183,210		173,327
Inventories:	Inventories:					Inventories:
Raw material	Raw material	97,538		98,286		Raw material	94,697		98,286
Work-in-process	Work-in-process	21,452		18,392		Work-in-process	20,696		18,392
Finished goods	Finished goods	191,016		183,568		Finished goods	184,002		183,568
Total inventories	Total inventories	310,006		300,246		Total inventories	299,395		300,246
Other current assets	Other current assets	25,472		29,466		Other current assets	23,653		29,466
Total current assets	Total current assets	543,055		567,444		Total current assets	549,341		567,444

Property, plant, and equipment, at cost:	Property, plant, and equipment, at cost:					Property, plant, and equipment, at cost:
Land and buildings	Land and buildings	134,041		142,189		Land and buildings	133,620		142,189
Machinery and equipment	Machinery and equipment	271,115		276,541		Machinery and equipment	270,702		276,541
Furniture and fixtures	Furniture and fixtures	42,984		43,631		Furniture and fixtures	45,159		43,631
Other	Other	26,824		29,293		Other	28,879		29,293
Property, plant, and equipment, gross	Property, plant, and equipment, gross	474,964		491,654		Property, plant, and equipment, gross	478,360		491,654
Less: Allowance for depreciation	Less: Allowance for depreciation	(286,318)		(290,326)		Less: Allowance for depreciation	(291,997)		(290,326)
Property, plant, and equipment, net	Property, plant, and equipment, net	188,646		201,328		Property, plant, and equipment, net	186,363		201,328
Right-of-Use Asset, net	Right-of-Use Asset, net	26,583		27,621		Right-of-Use Asset, net	27,687		27,621
Deferred income taxes	Deferred income taxes	9,167		9,171		Deferred income taxes	7,911		9,171
Intangible assets, net	Intangible assets, net	124,503		131,127		Intangible assets, net	121,725		131,127
Goodwill	Goodwill	255,772		256,059		Goodwill	256,219		256,059
Other assets	Other assets	1,807		1,993		Other assets	2,086		1,993
Total assets	Total assets	$	1,149,533	$	1,194,743	Total assets	$	1,151,332	$	1,194,743


		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	88,388	$	82,593	Accounts payable	$	86,767	$	82,593
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	48,921		68,444		Accrued expenses and other current liabilities	65,316		68,444
Current lease liability	Current lease liability	9,451		9,838		Current lease liability	10,273		9,838
Income taxes	Income taxes	2,907		3,010		Income taxes	7,297		3,010
Current maturities of long-term debt and short-term borrowings	Current maturities of long-term debt and short-term borrowings	41,720		21,879		Current maturities of long-term debt and short-term borrowings	4,243		21,879
Total current liabilities	Total current liabilities	191,387		185,764		Total current liabilities	173,896		185,764
Long-term debt	Long-term debt	92,563		93,141		Long-term debt	92,489		93,141
Long-term lease liability	Long-term lease liability	17,134		17,785		Long-term lease liability	17,416		17,785
Income taxes payable non-current	Income taxes payable non-current	11,964		11,965		Income taxes payable non-current	11,965		11,965
Deferred income taxes	Deferred income taxes	27,117		27,598		Deferred income taxes	25,748		27,598
Employee benefit plans	Employee benefit plans	37,057		38,288		Employee benefit plans	36,631		38,288
Other long-term liabilities	Other long-term liabilities	19,090		21,769		Other long-term liabilities	17,938		21,769

Commitments and contingencies (see Note 14)	Commitments and contingencies (see Note 14)	—		—		Commitments and contingencies (see Note 14)	—		—

Redeemable noncontrolling interest	Redeemable noncontrolling interest	(245)		(236)		Redeemable noncontrolling interest	(262)		(236)

Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Common stock (65,000 shares authorized, $.10 par value) outstanding (46,144 and 46,391, respectively)		4,614		4,639
Common stock (65,000 shares authorized, $.10 par value) outstanding (46,185 and 46,391, respectively)						Common stock (65,000 shares authorized, $.10 par value) outstanding (46,185 and 46,391, respectively)	4,618		4,639
Additional capital	Additional capital	274,869		269,656		Additional capital	278,175		269,656
Retained earnings	Retained earnings	698,917		712,460		Retained earnings	715,621		712,460
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(227,221)		(190,210)		Accumulated other comprehensive loss	(224,550)		(190,210)
Total shareholders' equity	Total shareholders' equity	751,179		796,545		Total shareholders' equity	773,864		796,545
Noncontrolling interest	Noncontrolling interest	2,287		2,124		Noncontrolling interest	1,647		2,124
Total equity	Total equity	753,466		798,669		Total equity	775,511		798,669
Total liabilities and equity	Total liabilities and equity	$	1,149,533	$	1,194,743	Total liabilities and equity	$	1,151,332	$	1,194,743

See Notes to Condensed Consolidated Financial Statements.

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Three Months Ended							Six Months Ended
(In thousands)	(In thousands)	March 31, 2020		March 31, 2019		(In thousands)	June 30, 2020		June 30, 2019

Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	10,792	$	9,127	Net income	$	35,594	$	41,939
Adjustments to reconcile net income to net cash flows from operating activities:	Adjustments to reconcile net income to net cash flows from operating activities:					Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	Depreciation and amortization	9,199		9,268		Depreciation and amortization	17,990		18,350
Non-cash lease expense	Non-cash lease expense	1,962		2,805		Non-cash lease expense	5,283		5,199
Share-based compensation	Share-based compensation	4,352		3,230		Share-based compensation	7,015		5,524

Deferred income taxes	Deferred income taxes	(82)		(37)		Deferred income taxes	(125)		501
Loss on disposals of plant and equipment	Loss on disposals of plant and equipment	106		530		Loss on disposals of plant and equipment	448		594
Foreign exchange income	Foreign exchange income	(962)		(589)		Foreign exchange income	(56)		(84)
Changes in assets and liabilities, net of acquisitions:	Changes in assets and liabilities, net of acquisitions:					Changes in assets and liabilities, net of acquisitions:
Receivables	Receivables	(2,574)		(6,517)		Receivables	(17,820)		(46,371)
Inventory	Inventory	(19,952)		(20,986)		Inventory	(7,520)		(35,318)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(4,223)		1,309		Accounts payable and accrued expenses	8,561		18,637
Operating Leases		(1,962)		(2,804)
Operating leases						Operating leases	(5,283)		(5,195)
Income taxes	Income taxes	786		(509)		Income taxes	3,825		535

Employee benefit plans	Employee benefit plans	(35)		(31)		Employee benefit plans	99		(50)
Other, net	Other, net	(2,063)		2,269		Other, net	(1,010)		(116)
Net cash flows from operating activities	Net cash flows from operating activities	(4,656)		(2,935)		Net cash flows from operating activities	47,001		4,145
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Additions to property, plant, and equipment	Additions to property, plant, and equipment	(5,535)		(5,220)		Additions to property, plant, and equipment	(9,445)		(10,444)
Proceeds from sale of property, plant, and equipment	Proceeds from sale of property, plant, and equipment	25		64		Proceeds from sale of property, plant, and equipment	25		866
Cash paid for acquisitions, net of cash acquired	Cash paid for acquisitions, net of cash acquired	(5,626)		(5,405)		Cash paid for acquisitions, net of cash acquired	(5,826)		(6,728)

Other, net	Other, net	—		3		Other, net	3		8
Net cash flows from investing activities	Net cash flows from investing activities	(11,136)		(10,558)		Net cash flows from investing activities	(15,243)		(16,298)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of debt	Proceeds from issuance of debt	56,680		53,202		Proceeds from issuance of debt	98,234		129,985
Repayment of debt	Repayment of debt	(37,010)		(33,533)		Repayment of debt	(116,142)		(113,171)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	871		1,251		Proceeds from issuance of common stock	1,520		1,495
Purchases of common stock	Purchases of common stock	(16,981)		(4,329)		Purchases of common stock	(17,724)		(9,543)
Dividends paid	Dividends paid	(7,240)		(6,723)		Dividends paid	(14,446)		(13,510)

Purchase of redeemable noncontrolling shares						Purchase of redeemable noncontrolling shares	—		(485)
Net cash flows from financing activities	Net cash flows from financing activities	(3,680)		9,868		Net cash flows from financing activities	(48,558)		(5,229)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(4,946)		(1,184)		Effect of exchange rate changes on cash	(4,522)		(800)
Net change in cash and equivalents	Net change in cash and equivalents	(24,418)		(4,809)		Net change in cash and equivalents	(21,322)		(18,182)
Cash and equivalents at beginning of period	Cash and equivalents at beginning of period	64,405		59,173		Cash and equivalents at beginning of period	64,405		59,173
Cash and equivalents at end of period	Cash and equivalents at end of period	$	39,987	$	54,364	Cash and equivalents at end of period	$	43,083	$	40,991


		Three Months Ended							Six Months Ended
(In thousands)	(In thousands)	March 31, 2020		March 31, 2019		(In thousands)	June 30, 2020		June 30, 2019

Cash paid for income taxes, net of refunds	Cash paid for income taxes, net of refunds	$	3,126	$	1,896	Cash paid for income taxes, net of refunds	$	6,227	$	8,578
Cash paid for interest	Cash paid for interest	$	2,254	$	3,113	Cash paid for interest	$	2,483	$	4,731

Non-cash items:	Non-cash items:					Non-cash items:
Additions to property, plant, and equipment, not yet paid	Additions to property, plant, and equipment, not yet paid	$	314	$	368	Additions to property, plant, and equipment, not yet paid	$	204	$	307
Right-of-Use Assets obtained in exchange for new operating lease liabilities	Right-of-Use Assets obtained in exchange for new operating lease liabilities	$	1,888	$	—	Right-of-Use Assets obtained in exchange for new operating lease liabilities	$	4,915	$	1,772
Payable to sellers of acquired entities		$	650	$	—
Accrued dividends payable to noncontrolling interests						Accrued dividends payable to noncontrolling interests	$	830	$	642

See Notes to Condensed Consolidated Financial Statements.

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES

INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


		Page Number

Note 1.	Condensed Consolidated Financial Statements	11
Note 2.	Accounting Pronouncements	11
Note 3.	Acquisitions	11
Note 4.	Fair Value Measurements	12
Note 5.	Financial Instruments	13
Note 6.	Goodwill and Other Intangible Assets	13
Note 7.	Employee Benefit Plans	13
Note 8.	Income Taxes	14
Note 9.	Debt	15
Note 10.	Earnings Per Share	16
Note 11.	Equity Roll Forward	17
Note 12.	Accumulated Other Comprehensive Income/(Loss)	1819
Note 13.	Segment and Geographic Information	1819
Note 14.	Commitments and Contingencies	2021
Note 15.	Share-Based Compensation	2122

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of ~~March 31,~~June 30, 2020, and for the ~~first~~second quarters and six months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019 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. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, all accounting entries and adjustments (including normal, recurring adjustments) considered necessary for a fair presentation of the financial position and the results of operations for the interim periods have been made. Operating results for the ~~first~~second quarter and six months ended ~~March 31,~~June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. For further information, including a description of the critical accounting policies of Franklin Electric Co., Inc. (the "Company"), refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

2. ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards

In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 removes step two from the goodwill impairment test and instead requires an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit's fair value. The ASU is effective on a prospective basis for interim and annual periods beginning after December 15, 2019 with early adoption permitted. The Company adopted the standard effective January 1, 2020. The standard did not have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses on certain financial instruments, including trade receivables. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted. Amendments should be applied using a modified retrospective approach except for debt securities, which require a prospective transitions approach. The Company adopted the standard effective January 1, 2020. The standard did not have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

Accounting Standards Issued But Not Yet Adopted

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments remove disclosures that no longer are considered cost beneficial, including the estimated amounts in accumulated other comprehensive income expected to be recognized as components of net periodic expense over the next fiscal year. The amendments clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant, including the reasons for significant gains and losses related to change in the benefit obligation for the period. The ASU should be applied retrospectively and is effective for interim and annual periods beginning after December 15, 2020. The Company is still determining the date of adoption for this ASU but does not anticipate the adoption to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is expected to reduce cost and complexity related to accounting for income taxes. ASU 2019-12 eliminates the need for the Company to analyze whether certain exceptions apply and improves financial statement preparers' application of income tax-related guidance. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020 with early adoption permitted. Amendments related to franchise taxes that are partially based on income should be applied on either a retrospective or modified retrospective basis. All other amendments should be applied on a prospective basis. The Company is still determining the date of adoption of this ASU. Adoption is not expected to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

3. ACQUISITIONS

During the first quarter ended March 31, 2020, the Company acquired all of the assets of a company that manufactures line shaft turbines and other adjacent product lines for a purchase price of $6.3 million after working capital adjustments. The fair value of the assets acquired and liabilities assumed are preliminary as of ~~March 31,~~June 30, 2020. In addition, the Company has not

presented separate results of operations since closing or combined pro forma financial information of the Company and the acquired interest since the beginning of 2020, as the results of operations for this acquisition is immaterial.

During the third quarter ended September 30, 2019, the Company acquired 100 percent of the ownership interests of First Sales, LLC for a purchase price of approximately $15.5 million after working capital adjustments. The acquisition was not material, and the fair value of the assets acquired and liabilities assumed are preliminary as of ~~March 31,~~June 30, 2020.

During the second quarter ended June 30, 2019, the Company acquired the remaining interest in Pluga Pumps and Motors Private Limited, India, increasing the Company's ownership to 100 percent. The redemption of this interest was immaterial.

During the first quarter ended March 31, 2019, the Company acquired 100 percent of the ownership interests of Mt. Pleasant, Michigan-based Milan Supply Company ("Milan Supply"). The fair value of the assets acquired and the liabilities assumed for the acquisition are considered final as of March 31, 2020, and the final purchase price was $6.1 million after working capital adjustments. The Company has not presented fair values of the assets acquired and the liabilities assumed as the values are not material.

Transaction costs were expensed as incurred under the guidance of FASB Accounting Standards Codification Topic 805, Business Combinations.and were not material for the second quarter and six months ended June 30, 2020. There were $0.1 million and $0.1 million of transaction costs included in the "Selling, general, and administrative expenses" line of the Company's condensed consolidated statements of income for the second quarter and six months ended June 30, 2019 respectively.

4. FAIR VALUE MEASUREMENTS

FASB ASC Topic 820, Fair Value Measurements and Disclosures, provides guidance for defining, measuring, and disclosing fair value within an established framework and hierarchy. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard established a fair value hierarchy which requires an entity to maximize the use of observable inputs and to minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value within the hierarchy are as follows:

Level 1 – Quoted prices for identical assets and liabilities in active markets;

Level 2 – Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

As of ~~March 31,~~June 30, 2020 and December 31, 2019, the assets measured at fair value on a recurring basis were as set forth in the table below:


(In millions)	(In millions)	March 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(In millions)	June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	Cash equivalents	$	2.6	$	2.6	$	—	$	—	Cash equivalents	$	4.4	$	4.4	$	—	$	—

		December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	Cash equivalents	$	4.0	$	4.0	$	—	$	—	Cash equivalents	$	4.0	$	4.0	$	—	$	—

The Company's Level 1 assets consist of cash equivalents which are generally comprised of foreign bank guaranteed certificates of deposit.

The Company has no assets measured on a recurring basis classified as Level 2 or Level 3.

Total debt, including current maturities, have carrying amounts of ~~$134.3~~$96.7 million and $115.0 million and estimated fair values of ~~$138.4~~$105.1 million and $121.0 million as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively. In the absence of quoted prices in active markets, considerable judgment is required in developing estimates of fair value. Estimates are not necessarily

indicative of the amounts the Company could realize in a current market transaction. In determining the fair value of its debt, the Company uses estimates based on rates currently available to the Company for debt with similar terms and remaining maturities. Accordingly, the fair value of debt is classified as Level 2 within the valuation hierarchy.

5. FINANCIAL INSTRUMENTS

The Company’s deferred compensation stock program is subject to variable plan accounting and, accordingly, is adjusted for changes in the Company’s stock price at the end of each reporting period. The Company has entered into share swap transaction agreements (the "swap") to mitigate the Company’s exposure to the fluctuations in the Company's stock price. The swap has not been designated as a hedge for accounting purposes and is cancellable with 30 days' written notice by either party. As of ~~March 31,~~June 30, 2020, the swap had a notional value based on ~~260,000~~280,000 shares. For the ~~first quarters~~second quarter and six months ended ~~March 31,~~June 30, 2020, the swap resulted in a gain of $1.3 million and ~~March 31,~~a loss of $1.5 million, respectively. For the second quarter and six months ended June 30, 2019, the swap resulted in a loss of ~~$2.7~~$0.9 million and a gain ~~$1.9~~$1.0 million, respectively. Gains and losses resulting from ~~the~~ the swap were primarily offset by gains and losses on the fair value of the deferred compensation stock liability. All gains or losses and expenses related to the swap are recorded in the Company's condensed consolidated statements of income within the “Selling, general, and administrative expenses” line.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amounts of the Company’s intangible assets are as follows:


(In millions)	(In millions)	March 31, 2020						December 31, 2019						(In millions)	June 30, 2020				December 31, 2019
		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortizing intangibles:	Amortizing intangibles:									Amortizing intangibles:
Patents	Patents	$	7.4	$	(7.0)	$	7.4	$	(7.0)	Patents	$	7.4	$	(7.1)	$	7.4	$	(7.0)
Technology	Technology	7.5		(6.9)		7.5		(6.8)		Technology	7.5		(7.0)		7.5		(6.8)
Customer relationships	Customer relationships	151.3		(71.8)		155.4		(71.4)		Customer relationships	150.9		(73.6)		155.4		(71.4)
Other	Other	3.7		(2.7)		3.8		(2.8)		Other	3.7		(2.8)		3.8		(2.8)
Total	Total	$	169.9	$	(88.4)	$	174.1	$	(88.0)	Total	$	169.5	$	(90.5)	$	174.1	$	(88.0)
Unamortizing intangibles:	Unamortizing intangibles:									Unamortizing intangibles:
Trade names	Trade names	43.0		—		45.0		—		Trade names	42.7		—		45.0		—
Total intangibles	Total intangibles	$	212.9	$	(88.4)	$	219.1	$	(88.0)	Total intangibles	$	212.2	$	(90.5)	$	219.1	$	(88.0)

Amortization expense related to intangible assets for the ~~first~~second quarters ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019 was ~~$2.4~~$2.3 million and $2.3 million, and for the six months ended June 30, 2020 and June 30, 2019, $4.7 million and $4.6 million respectively.

Amortization expense for each of the five succeeding years is projected as follows:


(In millions)	2020		2021		2022		2023		2024
	$	9.2	$	8.8	$	8.6	$	8.5	$	8.3

The change in the carrying amount of goodwill by reportable segment for the ~~three~~six months ended ~~March 31,~~June 30, 2020, is as follows:


(In millions)	(In millions)															(In millions)
		Water Systems		Fueling Systems		Distribution		Consolidated			Water Systems		Fueling Systems		Distribution		Consolidated
Balance as of December 31, 2019	Balance as of December 31, 2019	$	151.0	$	67.6	$	37.5	$	256.1	Balance as of December 31, 2019	$	151.0	$	67.6	$	37.5	$	256.1
Acquisitions	Acquisitions	2.7		—		—		2.7		Acquisitions	3.0		—		—		3.0

Foreign currency translation	Foreign currency translation	(2.8)		(0.2)		—		(3.0)		Foreign currency translation	(2.7)		(0.2)		—		(2.9)
Balance as of March 31, 2020		$	150.9	$	67.4	$	37.5	$	255.8
Balance as of June 30, 2020										Balance as of June 30, 2020	$	151.3	$	67.4	$	37.5	$	256.2

7. EMPLOYEE BENEFIT PLANS

Defined Benefit Plans - As of ~~March 31,~~June 30, 2020, the Company maintained 2 domestic pension plans and 3 German pension plans. The Company used a December 31, 2019 measurement date for these plans. One of the Company's domestic pension plans covers one active management employee, while the other domestic plan covers all eligible employees (plan was frozen as of December 31, 2011). The 2 domestic and 3 German plans collectively comprise the 'Pension Benefits' disclosure caption.

Other Benefits - The Company's other post-retirement benefit plan provides health and life insurance to domestic employees hired prior to 1992.

The following table sets forth the aggregated net periodic benefit cost for all pension plans for the ~~first~~second quarters and six months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019:


(In millions)	(In millions)	Pension Benefits						Other Benefits							(In millions)	Pension Benefits
		First Quarter Ended						First Quarter Ended								Second Quarter Ended				Six Months Ended
		March 31, 2020		March 31, 2019		March 31, 2020		March 31, 2019			June 30, 2020		June 30, 2019			June 30, 2020		June 30, 2019
Service cost	Service cost	$	0.1	$	0.2	$	—	$	—	Service cost	$	0.2	$	0.2		$	0.3	$	0.4
Interest cost	Interest cost	1.1		1.5		0.1		0.1		Interest cost	1.1		1.5			2.2		3.0
Expected return on assets	Expected return on assets	(1.7)		(2.0)		—		—		Expected return on assets	(1.7)		(2.0)			(3.4)		(4.0)
Amortization of:	Amortization of:									Amortization of:
Prior service cost	Prior service cost	—		—		—		—		Prior service cost	—		—			—		—
Actuarial loss	Actuarial loss	0.9		0.6		—		—		Actuarial loss	0.9		0.7			1.8		1.3
Settlement cost	Settlement cost	—		—		—		—		Settlement cost	—		—			—		—
Net periodic benefit cost	Net periodic benefit cost	$	0.4	$	0.3	$	0.1	$	0.1	Net periodic benefit cost	$	0.5	$	0.4		$	0.9	$	0.7

In the ~~first quarter~~six months ended ~~March 31,~~June 30, 2020, the Company made contributions of $0.1 million to the funded plans. The amount of contributions to be made to the plans during the calendar year 2020 will be finalized by September 15, 2020, based upon the funding level requirements identified and year-end valuation performed at December 31, 2019.

The following table sets forth the aggregated net periodic benefit cost for the other post-retirement benefit plan for the second quarters and six months ended June 30, 2020 and June 30, 2019:


(In millions)	Other Benefits
	Second Quarter Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Service cost	$	—	$	—	$	—	$	—
Interest cost	—		0.1		0.1		0.2
Expected return on assets	—		—		—		—
Amortization of:
Prior service cost	—		—		—		—
Actuarial loss	—		—		—		—
Settlement cost	—		—		—		—
Net periodic benefit cost	$	—	$	0.1	$	0.1	$	0.2

8. INCOME TAXES

The Company’s effective tax rate from continuing operations for the ~~three~~six month period ended ~~March 31,~~June 30, 2020 was ~~19.1~~20.6 percent as compared to ~~13.9~~18.1 percent for the ~~three~~six month period ended ~~March 31,~~June 30, 2019. The effective tax rate is lower than the U.S. statutory rate of 21 percent primarily due to foreign earnings taxed at rates below the U.S. statutory rate, the recognition of the U.S. foreign-derived intangible income (FDII) provisions, and certain discrete events including excess tax benefits from share-based ~~compensation partially offset by state taxes.~~

compensation. For the second quarter of 2020, the effective tax rate was 21.3 percent as compared to 19.2 percent for the second quarter of 2019. The increase in the effective tax rate ~~for the three months ended March 31, 2020, compared with the same period in 2019,~~ was primarily a result of net unfavorable discrete events of $0.4 ~~million.~~million recorded in the second quarter of 2020 compared to net favorable discrete events of $0.6 million in the second quarter of 2019.

During the second quarter of 2020, the Company recorded $1.4 million of expense for a valuation allowance on deferred tax assets in foreign jurisdictions to recognize only the portion of the deferred tax assets that are more likely than not to be realized.

In addition, the Company recorded a benefit of $1.2 million for the release of a deferred tax liability related to unrecognized foreign exchange on the settlement of an intercompany loan. The Company also recorded $0.2 million of expense for other discrete events primarily related to foreign withholding tax on a distribution in a foreign jurisdiction.

On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of the employer portion of social security payments, net operating loss carryback periods, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. ~~While the Company is still assessing the impact of the legislation, the~~The Company does not expect there to be a material impact to the consolidated financial ~~statements at this time.~~statements.

9. DEBT

Debt consisted of the following:


(In millions)	(In millions)	March 31, 2020		December 31, 2019		(In millions)	June 30, 2020		December 31, 2019

Tax increment financing debt	Tax increment financing debt	18.2		18.7		Tax increment financing debt	18.2		18.7
New York Life Agreement	New York Life Agreement	75.0		75.0		New York Life Agreement	75.0		75.0
Credit Agreement	Credit Agreement	39.0		19.0		Credit Agreement	1.7		19.0
Financing Leases	Financing Leases	—		0.1		Financing Leases	—		0.1
Foreign subsidiary debt	Foreign subsidiary debt	2.2		2.3		Foreign subsidiary debt	1.9		2.3
Less: unamortized debt issuance costs	Less: unamortized debt issuance costs	(0.1)		(0.1)		Less: unamortized debt issuance costs	(0.1)		(0.1)
		$	134.3	$	115.0		$	96.7	$	115.0
Less: current maturities	Less: current maturities	(41.7)		(21.9)		Less: current maturities	(4.2)		(21.9)
Long-term debt	Long-term debt	$	92.6	$	93.1	Long-term debt	$	92.5	$	93.1

Debt outstanding, excluding unamortized debt issuance costs, at ~~March 31,~~June 30, 2020 matures as follows:


(In millions)	(In millions)	Total		Year 1		Year 2		Year 3		Year 4		Year 5		More Than 5 Years		(In millions)	Total		Year 1		Year 2		Year 3		Year 4		Year 5		More Than 5 Years
Debt	Debt	$	134.4	$	41.7	$	1.3	$	1.3	$	1.3	$	1.4	$	87.4	Debt	$	96.8	$	4.2	$	1.3	$	1.3	$	1.3	$	1.4	$	87.3

Prudential Agreement

The Company maintains the Third Amended and Restated Note Purchase and Private Shelf Agreement (the "Prudential Agreement"), which expires on July 30, 2021 and has an initial borrowing capacity of $250.0 million. As of ~~March 31,~~June 30, 2020, the Company has $150.0 million borrowing capacity available under the Prudential Agreement.

Project Bonds

The Company, Allen County, Indiana and certain institutional investors maintain a Bond Purchase and Loan Agreement. Under the agreement, Allen County, Indiana issued a series of Project Bonds entitled “Taxable Economic Development Bonds, Series 2012 (Franklin Electric Co., Inc. Project)." The aggregate principal amount of the Project Bonds that were issued, authenticated, and are now outstanding thereunder was limited to $25.0 million. These Project Notes ("Tax increment financing debt") bear interest at 3.6 percent per annum. Interest and principal balance of the Project Notes are due and payable by the Company directly to the institutional investors in aggregate semi-annual installments commencing on July 10, 2013, and concluding on January 10, 2033.

New York Life Agreement

The Company maintains an uncommitted and unsecured private shelf agreement with NYL Investors LLC, an affiliate of New York Life, and each of the undersigned holders of Notes (the "New York Life Agreement"), with a maximum aggregate borrowing capacity of $200.0 million. On September 26, 2018, the Company issued and sold $75.0 million of fixed rate senior notes due September 26, 2025. These senior notes bear an interest rate of 4.04 percent with interest-only payments due semi-annually. The proceeds from the issuance of the notes were used to pay off existing variable interest rate indebtedness. As of ~~March 31,~~June 30, 2020, there was $125.0 million remaining borrowing capacity under the New York Life Agreement.

Credit Agreement

The Company maintains the Third Amended and Restated Credit Agreement (the "Credit Agreement”). The Credit Agreement has a maturity date of October 28, 2021 and commitment amount of $300.0 million. The Credit Agreement provides that the Borrowers may request an increase in the aggregate commitments by up to $150.0 million (not to exceed a total commitment

of $450.0 million). Under the Credit Agreement, the Borrowers are required to pay certain fees, including a facility fee of 0.100% to 0.275% (depending on the Company's leverage ratio) of the aggregate commitment, which fee is payable quarterly in arrears. Loans may be made either at (i) a Eurocurrency rate based on LIBOR plus an applicable margin of 0.75% to 1.60% (depending on the Company's leverage ratio) or (ii) an alternative base rate as defined in the Credit Agreement.

As of ~~March 31,~~June 30, 2020, the Company had ~~$39.0~~$1.7 million in outstanding borrowings which were primarily used for working capital needs, the payment of existing indebtedness and acquisitions, $4.2 million in letters of credit outstanding, and ~~$256.8~~$294.1 million of available capacity under the Credit Agreement.

Covenants

The Company’s credit agreements contain customary financial covenants. The Company’s most significant agreements and restrictive covenants are in the New York Life Agreement, the Project Bonds, the Prudential Agreement, and the Credit Agreement; each containing both affirmative and negative covenants. The affirmative covenants relate to financial statements, notices of material events, conduct of business, inspection of property, maintenance of insurance, compliance with laws and most favored lender obligations. The negative covenants include limitations on loans, advances and investments, and the granting of liens by the Company or its subsidiaries, as well as prohibitions on certain consolidations, mergers, sales and transfers of assets. The covenants also include financial requirements including a maximum leverage ratio of 1.00 to 3.50 and a minimum interest coverage ratio of 1.00 to 3.00. Cross default is applicable with the Prudential Agreement, the Project Bonds, the New York Life Agreement, and the Credit Agreement but only if the Company is defaulting on an obligation exceeding $10.0 million. The Company was in compliance with all financial covenants as of ~~March 31,~~June 30, 2020.

10. EARNINGS PER SHARE

The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company's participating securities consist of share-based payment awards that contain a nonforfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common shareholders.

Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.

The following table sets forth the computation of basic and diluted earnings per share:


		First Quarter Ended							Second Quarter Ended						Six Months Ended
(In millions, except per share amounts)	(In millions, except per share amounts)	March 31, 2020		March 31, 2019		(In millions, except per share amounts)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Numerator:	Numerator:					Numerator:
Net income attributable to Franklin Electric Co., Inc.	Net income attributable to Franklin Electric Co., Inc.	$	10.6	$	9.1	Net income attributable to Franklin Electric Co., Inc.	$	24.7	$	32.7	$	35.3	$	41.8
Less: Earnings allocated to participating securities	Less: Earnings allocated to participating securities	—		0.1		Less: Earnings allocated to participating securities	0.2		0.2		0.2		0.3
Net income available to common shareholders	Net income available to common shareholders	$	10.6	$	9.0	Net income available to common shareholders	$	24.5	$	32.5	$	35.1	$	41.5
Denominator:	Denominator:					Denominator:
Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	46.4		46.3		Basic weighted average common shares outstanding	46.2		46.3		46.3		46.3
Effect of dilutive securities:	Effect of dilutive securities:					Effect of dilutive securities:
Non-participating employee stock options and performance awards	Non-participating employee stock options and performance awards	0.4		0.4		Non-participating employee stock options and performance awards	0.3		0.4		0.4		0.4
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	46.8		46.7		Diluted weighted average common shares outstanding	46.5		46.7		46.7		46.7
Basic earnings per share	Basic earnings per share	$	0.23	$	0.19	Basic earnings per share	$	0.53	$	0.70	$	0.76	$	0.89
Diluted earnings per share	Diluted earnings per share	$	0.23	$	0.19	Diluted earnings per share	$	0.52	$	0.70	$	0.75	$	0.89

There were ~~0.3~~0.4 million and ~~0.1~~0.3 million stock options outstanding for the ~~first~~second quarters ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019, and 0.3 million and 0.2 million stock options outstanding for the six months ended June 30, 2020 and June 30, 2019 respectively, that were excluded from the computation of diluted earnings per share, as their inclusion would be anti-dilutive.

11. EQUITY ROLL FORWARD

The schedules below set forth equity changes in the ~~first~~second quarters ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019:


(In thousands)	(In thousands)	Common Stock		Additional Paid in Capital		Retained Earnings		Minimum Pension Liability		Cumulative Translation Adjustment		Noncontrolling Interest		Total Equity		Redeemable Noncontrolling Interest		(In thousands)	Common Stock		Additional Paid in Capital		Retained Earnings		Minimum Pension Liability		Cumulative Translation Adjustment		Noncontrolling Interest		Total Equity		Redeemable Noncontrolling Interest
Balance as of December 31, 2019		$	4,639	$	269,656	$	712,460	$	(50,089)	$	(140,121)	$	2,124	$	798,669	$	(236)
Balance as of March 31, 2020																		Balance as of March 31, 2020	$	4,614	$	274,869	$	698,917	$	(49,373)	$	(177,848)	$	2,287	$	753,466	$	(245)
Net income	Net income					10,643						187		10,830		(38)		Net income					24,651						169		24,820		(18)

Dividends on common stock ($0.155/share)	Dividends on common stock ($0.155/share)					(7,240)								(7,240)				Dividends on common stock ($0.155/share)					(7,206)								(7,206)
Common stock issued	Common stock issued	2		869										871				Common stock issued	2		647										649
Common stock repurchased	Common stock repurchased	(35)				(16,946)								(16,981)				Common stock repurchased	(2)				(741)								(743)
Share-based compensation	Share-based compensation	8		4,344										4,352				Share-based compensation	4		2,659										2,663

Noncontrolling dividend																		Noncontrolling dividend											(830)		(830)
Purchase of redeemable noncontrolling shares																		Purchase of redeemable noncontrolling shares													—		—
Currency translation adjustment	Currency translation adjustment									(37,727)		(24)		(37,751)		29		Currency translation adjustment									1,955		21		1,976		1
Pension liability, net of tax	Pension liability, net of tax							716						716				Pension liability, net of tax							716						716

Balance as of March 31, 2020		$	4,614	$	274,869	$	698,917	$	(49,373)	$	(177,848)	$	2,287	$	753,466	$	(245)
Balance as of June 30, 2020																		Balance as of June 30, 2020	$	4,618	$	278,175	$	715,621	$	(48,657)	$	(175,893)	$	1,647	$	775,511	$	(262)


(In thousands)	(In thousands)	Common Stock		Additional Paid in Capital		Retained Earnings		Minimum Pension Liability		Cumulative Translation Adjustment		Noncontrolling Interest		Total Equity		Redeemable Noncontrolling Interest		(In thousands)	Common Stock		Additional Paid in Capital		Retained Earnings		Minimum Pension Liability		Cumulative Translation Adjustment		Noncontrolling Interest		Total Equity		Redeemable Noncontrolling Interest
Balance as of December 31, 2018		$	4,632	$	257,535	$	654,724	$	(48,585)	$	(134,434)	$	1,955	$	735,827	$	518
Balance as of March 31, 2019																		Balance as of March 31, 2019	$	4,637	$	262,002	$	652,737	$	(48,076)	$	(137,205)	$	2,097	$	736,192	$	408
Net income	Net income					9,056						174		9,230		(103)		Net income					32,745						247		32,992		(180)
Dividends on common stock ($0.145/share)	Dividends on common stock ($0.145/share)					(6,723)								(6,723)				Dividends on common stock ($0.145/share)					(6,787)								(6,787)
Common stock issued	Common stock issued	6		1,245										1,251				Common stock issued	1		243										244
Common stock repurchased	Common stock repurchased	(9)				(4,320)								(4,329)				Common stock repurchased	(12)				(5,202)								(5,214)
Share-based compensation	Share-based compensation	8		3,222										3,230				Share-based compensation	6		2,288										2,294

Noncontrolling dividend																		Noncontrolling dividend											(642)		(642)
Purchase of redeemable noncontrolling shares																		Purchase of redeemable noncontrolling shares													—		(485)
Currency translation adjustment	Currency translation adjustment									(2,771)		(32)		(2,803)		(7)		Currency translation adjustment									1,303		12		1,315		47
Pension liability, net of tax	Pension liability, net of tax							509						509				Pension liability, net of tax							508						508
Balance as of March 31, 2019		$	4,637	$	262,002	$	652,737	$	(48,076)	$	(137,205)	$	2,097	$	736,192	$	408
Balance as of June 30, 2019																		Balance as of June 30, 2019	$	4,632	$	264,533	$	673,493	$	(47,568)	$	(135,902)	$	1,714	$	760,902	$	(210)

The schedules below set forth equity changes in the six months ended June 30, 2020 and June 30, 2019:


(In thousands)	Common Stock		Additional Paid in Capital		Retained Earnings		Minimum Pension Liability		Cumulative Translation Adjustment		Noncontrolling Interest		Total Equity		Redeemable Noncontrolling Interest
Balance as of December 31, 2019	$	4,639	$	269,656	$	712,460	$	(50,089)	$	(140,121)	$	2,124	$	798,669	$	(236)
Net Income					35,294						356		35,650		(56)
Dividends on common stock ($0.310/share)					(14,446)								(14,446)
Common stock issued	4		1,516										1,520
Common stock repurchased	(37)				(17,687)								(17,724)
Share-based compensation	12		7,003										7,015
Noncontrolling dividend											(830)		(830)
Purchase of redeemable non-controlling shares													—		—
Currency translation adjustment									(35,772)		(3)		(35,775)		30
Pension liability, net of taxes							1,432						1,432
Balance as of June 30, 2020	$	4,618	$	278,175	$	715,621	$	(48,657)	$	(175,893)	$	1,647	$	775,511	$	(262)


(In thousands)	Common Stock		Additional Paid in Capital		Retained Earnings		Minimum Pension Liability		Cumulative Translation Adjustment		Noncontrolling Interest		Total Equity		Redeemable Noncontrolling Interest
Balance as of December 31, 2018	$	4,632	$	257,535	$	654,724	$	(48,585)	$	(134,434)	$	1,955	$	735,827	$	518
Net Income					41,801						421		42,222		(283)
Dividends on common stock ($0.290/share)					(13,510)								(13,510)
Common stock issued	7		1,488										1,495
Common stock repurchased	(21)				(9,522)								(9,543)
Share-based compensation	14		5,510										5,524
Noncontrolling dividend											(642)		(642)
Purchase of redeemable non-controlling shares													—		(485)
Currency translation adjustment									(1,468)		(20)		(1,488)		40
Pension liability, net of taxes							1,017						1,017
Balance as of June 30, 2019	$	4,632	$	264,533	$	673,493	$	(47,568)	$	(135,902)	$	1,714	$	760,902	$	(210)

1718

12. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

Changes in accumulated other comprehensive income/(loss) by component for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019, are summarized below:


(In millions)	(In millions)									(In millions)
For the three months ended March 31, 2020:		Foreign Currency Translation Adjustments			Pension and Post-Retirement Plan Benefit Adjustments ⁽²⁾			Total
For the six months ended June 30, 2020:										For the six months ended June 30, 2020:	Foreign Currency Translation Adjustments		Pension and Post-Retirement Plan Benefit Adjustments ⁽²⁾		Total
Balance as of December 31, 2019	Balance as of December 31, 2019	$	(140.2)		$	(50.0)		$	(190.2)	Balance as of December 31, 2019	$	(140.2)	$	(50.0)	$	(190.2)

Other comprehensive income/(loss) before reclassifications	Other comprehensive income/(loss) before reclassifications	(37.7)			—			(37.7)		Other comprehensive income/(loss) before reclassifications	(35.8)		—		(35.8)
Amounts reclassified from accumulated other comprehensive income/(loss) ⁽¹⁾	Amounts reclassified from accumulated other comprehensive income/(loss) ⁽¹⁾	—			0.7			0.7		Amounts reclassified from accumulated other comprehensive income/(loss) ⁽¹⁾	—		1.4		1.4
Net other comprehensive income/(loss)	Net other comprehensive income/(loss)	(37.7)		—	0.7		—	(37.0)		Net other comprehensive income/(loss)	(35.8)		1.4		(34.4)

Balance as of March 31, 2020		$	(177.9)		$	(49.3)		$	(227.2)
Balance as of June 30, 2020										Balance as of June 30, 2020	$	(176.0)	$	(48.6)	$	(224.6)

For the three months ended March 31, 2019:
For the six months ended June 30, 2019:										For the six months ended June 30, 2019:
Balance as of December 31, 2018	Balance as of December 31, 2018	$	(134.5)		$	(48.5)		$	(183.0)	Balance as of December 31, 2018	$	(134.5)	$	(48.5)	$	(183.0)

Other comprehensive income/(loss) before reclassifications	Other comprehensive income/(loss) before reclassifications	(2.8)			—			(2.8)		Other comprehensive income/(loss) before reclassifications	(1.4)		—		(1.4)
Amounts reclassified from accumulated other comprehensive income/(loss) ⁽¹⁾	Amounts reclassified from accumulated other comprehensive income/(loss) ⁽¹⁾	—			0.5			0.5		Amounts reclassified from accumulated other comprehensive income/(loss) ⁽¹⁾	—		0.9		0.9
Net other comprehensive income/(loss)	Net other comprehensive income/(loss)	(2.8)		—	0.5		—	(2.3)		Net other comprehensive income/(loss)	(1.4)		0.9		(0.5)

Balance as of March 31, 2019		$	(137.3)	—	$	(48.0)		$	(185.3)
Balance as of June 30, 2019										Balance as of June 30, 2019	$	(135.9)	$	(47.6)	$	(183.5)

(1) This accumulated other comprehensive income/(loss) component is included in the computation of net periodic pension cost (refer to Note 7 for additional details) and is included in the "Other income/(expense), net" line of the Company's condensed consolidated statements of income.

(2) Net of tax expense of ~~$0.2~~$0.4 million and ~~$0.1~~$0.3 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019, respectively.

Amounts related to noncontrolling interests were not material.

13. SEGMENT AND GEOGRAPHIC INFORMATION

The accounting policies of the operating segments are the same as those described in Note 1 of the Company's Form 10-K. Revenue is recognized based on the invoice price at the point in time when the customer obtains control of the product, which is typically upon shipment to the customer. The Water and Fueling segments include manufacturing operations and supply certain components and finished goods, both between segments and to the Distribution segment. The Company reports these product transfers between Water and Fueling as inventory transfers as a significant number of the Company's manufacturing facilities are shared across segments for scale and efficiency purposes. The Company reports intersegment transfers from Water to Distribution as intersegment revenue at market prices to properly reflect the commercial arrangement of vendor to customer that exists between the Water and Distribution segments.

Segment operating income is a key financial performance measure. Operating income by segment is based on net sales less identifiable operating expenses and allocations and includes profits recorded on sales to other segments of the Company.

1819

Financial information by reportable business segment is included in the following summary:


		First Quarter Ended							Second Quarter Ended						Six Months Ended
(In millions)	(In millions)	March 31, 2020		March 31, 2019		(In millions)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
		Net sales							Net sales
Water Systems	Water Systems					Water Systems
External sales	External sales					External sales
United States & Canada	United States & Canada	$	70.9	$	86.8	United States & Canada	$	80.8	$	103.1	$	151.7	$	189.9
Latin America	Latin America	28.2		30.5		Latin America	24.2		29.4		52.4		59.9
Europe, Middle East & Africa	Europe, Middle East & Africa	38.2		37.7		Europe, Middle East & Africa	35.5		39.0		73.7		76.7
Asia Pacific	Asia Pacific	13.8		22.2		Asia Pacific	19.7		18.7		33.5		40.9
Intersegment sales	Intersegment sales					Intersegment sales
United States & Canada	United States & Canada	13.0		11.2		United States & Canada	18.2		14.8		31.2		26.0
Total sales	Total sales	164.1		188.4		Total sales	178.4		205.0		342.5		393.4
Distribution	Distribution					Distribution
External sales	External sales					External sales
United States & Canada	United States & Canada	60.4		53.3		United States & Canada	92.1		87.1		152.5		140.4
Intersegment sales	Intersegment sales	—		—		Intersegment sales	—		—		—		—
Total sales	Total sales	60.4		53.3		Total sales	92.1		87.1		152.5		140.4
Fueling Systems	Fueling Systems					Fueling Systems
External sales	External sales					External sales
United States & Canada	United States & Canada	37.4		35.1		United States & Canada	35.3		45.9		72.6		81.1
All other	All other	17.9		25.1		All other	20.7		32.1		38.6		57.2
Intersegment sales	Intersegment sales	—		—		Intersegment sales	—		—		—		—
Total sales	Total sales	55.3		60.2		Total sales	56.0		78.0		111.2		138.3

Intersegment Eliminations/Other	Intersegment Eliminations/Other	(13.0)		(11.2)		Intersegment Eliminations/Other	(18.2)		(14.8)		(31.2)		(26.0)
Consolidated	Consolidated	$	266.8	$	290.7	Consolidated	$	308.3	$	355.3	$	575.0	$	646.1

		First Quarter Ended							Second Quarter Ended						Six Months Ended
		March 31, 2020		March 31, 2019			June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
		Operating income/(loss)							Operating income/(loss)
Water Systems	Water Systems	$	18.8	$	19.2	Water Systems	$	28.7	$	30.9	$	47.5	$	50.1
Distribution	Distribution	(2.2)		(4.3)		Distribution	6.8		4.5		4.6		0.2
Fueling Systems	Fueling Systems	12.1		12.3		Fueling Systems	13.5		21.7		25.6		34.0
Intersegment Eliminations/Other	Intersegment Eliminations/Other	(14.9)		(15.1)		Intersegment Eliminations/Other	(15.1)		(13.4)		(29.9)		(28.5)
Consolidated	Consolidated	$	13.8	$	12.1	Consolidated	$	33.9	$	43.7	$	47.8	$	55.8


		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
		Total assets							Total assets
Water Systems	Water Systems	$	635.2	$	658.3	Water Systems	$	625.2	$	658.3
Distribution	Distribution	192.5		180.2		Distribution	200.3		180.2
Fueling Systems	Fueling Systems	272.3		283.8		Fueling Systems	267.3		283.8
Other	Other	49.5		72.4		Other	58.5		72.4
Consolidated	Consolidated	$	1,149.5	$	1,194.7	Consolidated	$	1,151.3	$	1,194.7

1920

Other Assets are generally Corporate assets that are not allocated to the segments and are comprised primarily of cash and property, plant and equipment.

14. COMMITMENTS AND CONTINGENCIES

The Company is defending various claims and legal actions which have arisen in the ordinary course of business. In the opinion of management, based on current knowledge of the facts and after discussion with counsel, these claims and legal actions can be defended or resolved without a material effect on the Company’s financial position, results of operations, and net cash flows.

At ~~March 31,~~June 30, 2020, the Company had ~~$5.2~~$8.5 million of commitments primarily for capital expenditures and purchase of raw materials to be used in production.

The Company provides warranties on most of its products. The warranty terms vary but are generally two years to five years from date of manufacture or one year to five years from date of installation. Provisions for estimated expenses related to product warranty are made at the time products are sold or when specific warranty issues are identified. These estimates are established using historical information about the nature, frequency, and average cost of warranty claims. The Company actively studies trends of warranty claims and takes actions to improve product quality and minimize warranty claims. The Company believes that the warranty reserve is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the reserve.

The changes in the carrying amount of the warranty accrual, as recorded in the "Accrued expenses and other current liabilities" line of the Company's condensed consolidated balance sheet for the ~~first quarter~~six months ended ~~March 31,~~June 30, 2020, are as follows:


(In millions)
Balance as of December 31, 2019	$	9.1
Accruals related to product warranties	~~2.1~~4.8
Additions related to acquisitions	—
Reductions for payments made	~~(2.5)~~(4.8)
Balance as of ~~March 31,~~June 30, 2020	$	~~8.7~~9.1

The Company maintains certain warehouses, distribution centers, office space, and equipment operating leases. The Company also has lease agreements that are classified as financing. These financing leases are immaterial to the Company.

The Company utilizes interest rates from lease agreements unless the lease agreement does not provide a readily determinable rate. In these instances, the Company utilizes its incremental borrowing rate based on the information available as of the adoption of ASU 2016-02 or at the inception of any new leases entered into thereafter when determining the present value of future lease payments.

Some of the Company’s leases include renewal options. The Company excludes these renewal options in the expected lease term unless the Company is reasonably certain that the option will be exercised.

The components of the Company’s operating lease portfolio as of the ~~first~~second quarter and six months ended ~~March 31,~~June 30, 2020 are as follows:


~~Lease Cost (in millions):~~
~~Operating lease cost~~	$	~~2.0~~
~~Short-term lease cost~~	~~0.1~~

~~Other Information:~~
~~Weighted-average remaining lease term~~	~~4 years~~
~~Weighted-average discount rate~~	~~3.8~~		%


Lease Cost (in millions):	Second Quarter Ended		Six Months Ended
Operating lease cost	$	3.2	$	5.2
Short-term lease cost	0.1		0.2

Other Information:
Weighted-average remaining lease term			4 years
Weighted-average discount rate			3.8		%

The minimum rental payments for non-cancellable operating leases as of ~~March 31,~~June 30, 2020, are as follows:

(In millions) 2020 2021 2022 2023 2024 Thereafter
Future Minimum Rental Payments $ 8.1 $ 8.6 $ 5.1 $ 3.3 $ 1.5 $ 2.5

2021


(In millions)	2020		2021		2022		2023		2024		Thereafter
Future Minimum Rental Payments	$	5.7	$	9.5	$	6.2	$	3.9	$	1.6	$	2.5

15. SHARE-BASED COMPENSATION

The Franklin Electric Co., Inc. 2017 Stock Plan (the "2017 Stock Plan") is a stock-based compensation plan that provides for discretionary grants of stock options, stock awards, stock unit awards, and stock appreciation rights ("SARs") to key employees and non-employee directors. The number of shares that may be issued under the Plan is 1,400,000. Stock options and SARs reduce the number of available shares by 1 share for each share subject to the option or SAR, and stock awards and stock unit awards settled in shares reduce the number of available shares by 1.5 shares for every one share delivered.

The Company also maintains the Franklin Electric Co., Inc. 2012 Stock Plan (the "2012 Stock Plan"), which is a stock-based compensation plan that provides for discretionary grants of stock options, stock awards, and stock unit awards to key employees and non-employee directors.

The 2012 Stock Plan authorized 2,400,000 shares for issuance as follows:


2012 Stock Plan						Authorized Shares
Stock Options						1,680,000
Stock/Stock Unit Awards						720,000

The Company also maintains the Amended and Restated Franklin Electric Co., Inc. Stock Plan (the "2009 Stock Plan") which, as amended in 2009, provided for discretionary grants of stock options and stock awards. The 2009 Stock Plan authorized 4,400,000 shares for issuance as follows:


2009 Stock Plan			Authorized Shares
Stock Options			3,200,000
Stock Awards			1,200,000

All options in the 2009 Stock Plan have been awarded and no additional awards are granted out of the plan. However, there are still unvested awards and unexercised options under this plan.

The Company currently issues new shares from its common stock balance to satisfy option exercises and the settlement of stock awards and stock unit awards made under the outstanding stock plans.

Stock Options:

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model with a single approach and amortized using a straight-line attribution method over the option’s vesting period.

The assumptions used for the Black-Scholes model to determine the fair value of options granted during the ~~first quarters~~six months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019 are as follows:

March 31, 2020 March 31, 2019
Risk-free interest rate 1.39 % 2.53 %
Dividend yield 1.04 % 1.05 %
Volatility factor 29.45 % 29.38 %
Expected term 5.5 years 5.5 years


	June 30, 2020		June 30, 2019
Risk-free interest rate	1.39	%	2.53	%
Dividend yield	1.04	%	1.05	%

Volatility factor	29.45	%	29.38	%

Expected term	5.5 years		5.5 years

2122

A summary of the Company’s outstanding stock option activity and related information for the ~~first quarter~~six months ended ~~March 31,~~June 30, 2020 is as follows:


(Shares in thousands)	(Shares in thousands)	March 31, 2020					(Shares in thousands)	June 30, 2020
Stock Options	Stock Options	Shares	Weighted-Average Exercise Price		Stock Options	Shares		Weighted-Average Exercise Price
Outstanding at beginning of period	Outstanding at beginning of period	1,262	$	37.99	Outstanding at beginning of period	1,262		$	37.99
Granted	Granted	214	59.71		Granted	214		59.71
Exercised	Exercised	(23)	36.86		Exercised	(43)		34.82
Forfeited	Forfeited	—	—		Forfeited	(4)		50.13
Outstanding at end of period	Outstanding at end of period	1,453	$	41.21	Outstanding at end of period	1,429		$	41.31
Expected to vest after applying forfeiture rate	Expected to vest after applying forfeiture rate	1,450	$	41.18	Expected to vest after applying forfeiture rate	1,427		$	41.29
Vested and exercisable at end of period	Vested and exercisable at end of period	960	$	35.32	Vested and exercisable at end of period	958		$	35.70

A summary of the weighted-average remaining contractual term and aggregate intrinsic value as of ~~March 31,~~June 30, 2020 is as follows:

Weighted-Average Remaining Contractual Term

Aggregate Intrinsic Value (000's)

Outstanding at end of period

~~6.25~~5.87 years

~~12,774~~18,033

Expected to vest after applying forfeiture rate

~~6.25~~5.86 years

~~12,770~~18,027

Vested and exercisable at end of period

~~4.87~~4.48 years

~~11,814~~16,338

The total intrinsic value of options exercised during the ~~first quarters~~six months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019 was ~~$0.5~~$0.9 million and ~~$2.0~~$2.1 million, respectively.

As of ~~March 31,~~June 30, 2020, there was ~~$2.1~~$1.6 million of total unrecognized compensation cost related to non-vested stock options granted under the ~~2012 Stock Plan.~~stock plans. That cost is expected to be recognized over a weighted-average period of ~~1.74~~1.66 years.

Stock/Stock Unit Awards:

A summary of the Company’s restricted stock/stock unit award activity and related information for the ~~first quarter~~six months ended ~~March 31,~~June 30, 2020 is as follows:


(Shares in thousands)	(Shares in thousands)	March 31, 2020					(Shares in thousands)	June 30, 2020
Restricted Stock/Stock Unit Awards	Restricted Stock/Stock Unit Awards	Shares	Weighted-Average Grant- Date Fair Value		Restricted Stock/Stock Unit Awards	Shares		Weighted-Average Grant- Date Fair Value
Non-vested at beginning of period	Non-vested at beginning of period	463	$	42.36	Non-vested at beginning of period	463		$	42.36
Awarded	Awarded	114	59.66		Awarded	118		59.27
Vested	Vested	(85)	29.39		Vested	(127)		33.85
Forfeited	Forfeited	(1)	46.71		Forfeited	(17)		48.72
Non-vested at end of period	Non-vested at end of period	491	$	48.61	Non-vested at end of period	437		$	49.16

As of ~~March 31,~~June 30, 2020, there was ~~$13.0~~$11.1 million of total unrecognized compensation cost related to non-vested restricted stock/stock unit awards granted under the stock plans. That cost is expected to be recognized over a weighted-average period of ~~1.79~~1.56 years.

2223

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~First~~Second Quarter 2020 vs. ~~First~~Second Quarter 2019

OVERVIEW

Sales in the ~~first~~second quarter of 2020 decreased from the ~~first~~second quarter of last year. ~~Sales~~The sales decrease was primarily from lower volumes, in part created by uncertainty and general disruptions around the ~~quarter declined by $24 million or about 8 percent primarily due to lower Water and Fueling Systems sales volumes and foreign currency exchange partially offset by achieved price.~~global pandemic as the World Health Organization categorized the spread of the novel coronavirus on March 11, 2020 (the "Global Pandemic") . The Company's consolidated gross profit was ~~$90.3~~$107.1 million for the ~~first~~second quarter of 2020, ~~an increase~~a decrease from the prior year’s ~~first~~second quarter. The gross profit as a percent of net sales was ~~33.9~~34.7 percent in the ~~first~~second quarter of 2020 versus ~~30.8~~33.7 percent during the ~~first~~second quarter 2019 and improved primarily due to better price realization and product sales mix.

EFFECTS OF THE GLOBAL PANDEMIC

The top priority of the Company is the health and welfare of its employees and partners around the world. In response to the health risks posed by the Global Pandemic, the Company implemented and has been following the recommended hygiene and social distancing practices promulgated by the United States Centers for Disease Control and the World Health Organization.

The Company’s products and services are generally viewed as essential in most jurisdictions in which the Company operates. ~~Accordingly,~~Effectively, all the Company’s global manufacturing and distribution operations generally remain open subject to temporary government mandated closures which have occurred in China, Italy, South Africa, India and several countries in South America. These temporary closures have not had a material impact on the ability to supply products to the Company’s customers.are operating.

The ~~Company has assessed~~primary impacts of the Global Pandemic on the Company’s end markets ~~it serves~~continue to determine changes in demand patterns and customer behaviors. From this assessment, the Company currently believes that the most significant risks to the previously provided financial outlook for 2020 arebe a reduction of large dewatering equipment sales in the Water Systems segment; Water Systems customers ~~destocking~~de-stocking their inventory, particularly in the U.S. and Canada plumbing channel; and, the deferral or cancellation of the construction of new filling stations in the Fueling Systems ~~segment in the U.S and Canada.~~segment. Additionally, the strengthening of the U.S. dollar versus most international currencies ~~will result~~has resulted in lower translations of both ~~net sales~~Net Sales and earnings from many of the Company’s businesses outside the U.S. ~~Beyond these specific end market considerations, the Company may experience other negative impacts to profitability from various~~The Company’s financial results were also impacted negatively by government mandated closures and related customer ~~behavior.~~

Additional adverse financial impacts from these risks include lost operational efficiencies, deleveraging of the manufacturing fixed costs base due to lower manufactured volumes, and the potential for higher bad debt expense. The Company has taken action to offset the negative impacts of these risks by implementing various reductions in all discretionary spending.

The Company ended the first quarter of 2020 with a cash balance of $40 million and had total incremental borrowing capacity of $478 million. The Company believes it has enough liquidity to meet its operating and cash flow requirements for the foreseeable future.behaviors.

RESULTS OF OPERATIONS

Net Sales

Net sales in the ~~first~~second quarter of 2020 were ~~$266.8~~$308.3 million, a decrease of ~~$23.9~~$47.0 million or about 813 percent compared to 2019 ~~first~~second quarter sales of ~~$290.7~~$355.3 million. ~~The sales increase from acquisition~~Acquisition related sales ~~was $3.9~~were $3.3 million. Sales revenue decreased by ~~$8.1~~$12.2 million or about 3 percent in the ~~first~~second quarter of 2020 due to foreign currency translation. ~~Excluding acquisitions and~~Organic sales decreased about 10 percent compared to the ~~impact~~second quarter of ~~foreign currency translation, the Company’s organic sales growth was negative about 7 percent.~~2019.


	Net Sales
(In millions)	Q2 2020		Q2 2019		2020 v 2019
Water Systems	$	178.4	$	205.0	$	(26.6)
Fueling Systems	56.0		78.0		$	(22.0)
Distribution	92.1		87.1		$	5.0
Eliminations/Other	(18.2)		(14.8)		$	(3.4)
Consolidated	$	308.3	$	355.3	$	(47.0)

Net Sales
(In millions) Q1 2020 Q1 2019 2020 v 2019
Water Systems $ 164.1 $ 188.4 $ (24.3)
Fueling Systems 55.3 60.2 $ (4.9)
Distribution 60.4 53.3 $ 7.1
Eliminations/Other (13.0) (11.2) $ (1.8)
Consolidated $ 266.8 $ 290.7 $ (23.9)

Net Sales-Water Systems

Water Systems ~~revenues~~sales were ~~$164.1~~$178.4 million in the ~~first~~second quarter 2020, a decrease of ~~$24.3~~$26.6 million or about 13 percent versus the ~~first~~second quarter 2019 sales of ~~$188.4~~$205.0 million. ~~In the first quarter of 2020,~~Acquisition related sales ~~from businesses acquired since the first quarter of 2019~~ were ~~$3.9~~$3.3 million. ~~Sales~~Water Systems sales were ~~decreased~~reduced by ~~$7.7~~$11.6 million or 4about 6 percent in the quarter due to foreign currency translation. Excluding acquisitions and foreign currency translation, Water Systems sales were down $18.3 million or about 119 percent ~~excluding acquisitions and foreign currency translation, in~~compared to the ~~first~~second quarter ~~of 2020 versus the first quarter of~~ 2019.

Water Systems sales in the U.S. and Canada ~~decreased by 14 percent overall~~were down compared to the ~~first~~second quarter ~~2019, primarily due to lower~~2019. The impact of foreign currency translation decreased sales ~~of dewatering equipment.~~by about 1 percent. Sales of dewatering equipment decreased by nearly 5470 percent due to lower sales in rental channels and substantial uncertainty in oil production end markets. Sales of groundwater pumping equipment increased by 25 percent versus the ~~first~~second quarter ~~2019, in part due to more normal weather conditions than a year ago.~~2019. Sales of surface pumping equipment decreased by 1418 percent on lower sales of both wastewater and water transfer systems as customers in this channel began to feel the impact of the Global Pandemic and lowered their own inventory levels.

Water Systems sales in markets outside the U.S. and Canada declined by 9 percent overall. The impact of foreign currency translation decreased sales by about 12 percent. Excluding the impact of foreign currency translation, Water Systems sales in markets outside the U.S. and Canada, increased by 3 percent, primarily driven by higher sales in Latin America and Asia Pacific, as well as increased sales in both Europe and the Middle East, offset by lower sales in the South African market.

Net Sales-Fueling Systems

Fueling Systems sales were $56.0 million in the second quarter 2020, a decrease of $22.0 million or about 28 percent versus the second quarter 2019 sales of $78.0 million. Fueling Systems sales decreased by $0.6 million or about 1 percent in the quarter due to foreign currency translation. Fueling Systems organic sales decreased about 27 percent compared to the second quarter of 2019.

Fueling Systems sales in the U.S. and Canada decreased by 22 percent compared to the second quarter 2019. The decrease was in all product lines and due to declining demand for new filling stations. Outside the U.S. and Canada, Fueling Systems revenues declined by 35 percent, driven by lower sales in Asia Pacific, primarily China.

Net Sales-Distribution

Distribution sales were $92.1 million in the second quarter 2020, versus second quarter 2019 sales of $87.1 million. The Distribution segment organic sales increased 6 percent compared to the second quarter of 2019. More favorable weather conditions versus the second quarter last year contributed to the revenue growth.

Cost of Sales

Cost of sales as a percent of net sales for the second quarter of 2020 was 65.3 percent and 66.3 percent for the second quarter of 2019. Correspondingly, the gross profit margin was 34.7 percent and 33.7 percent for the second quarters of 2020 and 2019, respectively. The Company's consolidated gross profit was $107.1 million for the second quarter of 2020, down $12.6 million from the gross profit of $119.7 million in the second quarter of 2019. The gross profit decrease was due to lower sales. In the second quarter, the gross profit margin percentage improvement was primarily due to better selling price realization and improved product sales mix.

Selling, General, and Administrative (“SG&A”)

Selling, general, and administrative (SG&A) expenses were $72.3 million in the second quarter of 2020 compared to $75.8 million in the second quarter of 2019. SG&A expenses were lower versus the prior year due to companywide efforts to lower spending in response to the impacts of the Global Pandemic and in part because of foreign currency translation.

Restructuring Expenses

Restructuring expenses for the second quarter of 2020 were $0.9 million and related to continued miscellaneous manufacturing and distribution realignment activities in the Water segment. Restructuring expenses for the second quarter of 2019 were $0.2 million and related to branch consolidations and other asset rationalizations in the Headwater distribution segment.

Operating Income

Operating income was $33.9 million in the second quarter of 2020, down $9.8 million or about 22 percent from $43.7 million in the second quarter of 2019.


	Operating income (loss)
(In millions)	Q2 2020		Q2 2019		2020 v 2019
Water Systems	$	28.7	$	30.9	$	(2.2)
Fueling Systems	13.5		21.7		(8.2)
Distribution	6.8		4.5		2.3
Eliminations/Other	(15.1)		(13.4)		(1.7)
Consolidated	$	33.9	$	43.7	$	(9.8)

Operating Income-Water Systems

Water Systems operating income was $28.7 million in the second quarter 2020, down $2.2 million or 7 percent versus the second quarter 2019 and operating income margin was 16.1 percent compared to the 15.1 percent in the second quarter 2019 primarily due to product and geographic sales mix shifts.

Operating Income-Fueling Systems

Fueling Systems operating income was $13.5 million in the second quarter of 2020, down $8.2 million or about 38 percent compared to $21.7 million in the second quarter of 2019 and the second quarter operating income margin was 24.1 percent, a decrease of 370 basis points from the 27.8 percent of net sales in the second quarter of 2019. The decrease in operating income margin was primarily due to lost leverage on fixed cost from lower sales.

Operating Income-Distribution

Distribution operating income was $6.8 million in the second quarter of 2020 and the second quarter operating income margin was 7.4 percent. Distribution operating income was $4.5 million in the second quarter of 2019 and the second quarter operating income margin was 5.2 percent. The increase in operating income margin is primarily related to higher revenues.

Operating Income-Eliminations/Other

Operating income-Eliminations/Other is composed primarily of unallocated general and administrative expenses and inter-segment sales and profit eliminations. The inter-segment profit elimination impact in the second quarter of 2020 versus the second quarter of 2019 was $1.1 million. General and administrative expenses were higher by $0.6 million.

Interest Expense

Interest expense for the second quarter of 2020 and 2019 was $1.1 million and $2.3 million, respectively.

Other Income or Expense

Other income or expense was a loss of $0.4 million and $0.3 million in the second quarter of 2020 and 2019, respectively.

Foreign Exchange

Foreign currency-based transactions produced a loss for the second quarter of 2020 of $0.9 million, primarily due to the Argentinian peso relative to the U.S. dollar. Foreign currency-based transactions produced a loss for the second quarter of 2019 of $0.5 million, primarily due to the Turkish Lira relative to the U.S. dollar.

Income Taxes

The provision for income taxes in the second quarter of 2020 and 2019 was $6.7 million and $7.8 million, respectively. The effective tax rate for the second quarter of 2020 was about 21 percent and, before the impact of discrete events, was about 20 percent. The effective tax rate for the second quarter of 2019 was about 19 percent and, before the impact of discrete events, was about 21 percent. The increase in the effective tax rate was primarily a result of net unfavorable discrete events recorded in the second quarter of 2020 compared to net favorable discrete events in the second quarter of 2019. Discrete events in the second quarter 2020 included tax expense for a valuation allowance on foreign deferred tax assets and withholding tax on a foreign distribution and tax benefit on the release of a foreign deferred tax liability on foreign exchange from the settlement of an intercompany loan. The tax rate as a percentage of pre-tax earnings for the full year 2020 is projected to be about 20 percent, compared to the full year 2019 tax rate of about 20 percent, both before discrete adjustments.

Net Income

Net income for the second quarter of 2020 was $24.8 million compared to the prior year second quarter net income of $32.8 million. Net income attributable to Franklin Electric Co., Inc. for the second quarter of 2020 was $24.7 million, or $0.52 per diluted share, compared to the prior year second quarter net income attributable to Franklin Electric Co., Inc. of $32.7 million or $0.70 per diluted share.

First Half of 2020 vs. First Half of 2019

OVERVIEW

Sales in the first half of 2020 were down from the same period last year. The sales decrease was primarily from lower volumes, in part created by uncertainty and general disruptions around the Global Pandemic. The Company's consolidated gross profit was $197.4 million for the first half of 2020, a decrease of $11.8 million or about 6 percent from the first half of 2019. Diluted earnings per share in the first half of 2020 were down from the same period last year.

RESULTS OF OPERATIONS

Net Sales

Net sales in the first half of 2020 were $575.0 million, a decrease of $71.1 million or about 11 percent compared to 2019 first half sales of $646.1 million. The incremental impact of sales from acquired businesses was $7.2 million. Sales revenue decreased by $20.3 million or about 3 percent in the first half of 2020 due to foreign currency translation.


	Net Sales
(In millions)	YTD June 30, 2020		YTD June 30, 2019		2020 v 2019
Water Systems	$	342.5	$	393.4	$	(50.9)
Fueling Systems	111.2		138.3		$	(27.1)
Distribution	152.5		140.4		$	12.1
Eliminations/Other	(31.2)		(26.0)		$	(5.2)
Consolidated	$	575.0	$	646.1	$	(71.1)

Net Sales-Water Systems

Water Systems sales were $342.5 million in the first half of 2020, a decrease of $50.9 million or about 13 percent versus the first half of 2019. The incremental impact of sales from acquired businesses was $7.2 million. Foreign currency translation changes decreased sales $19.3 million, or about 5 percent, compared to sales in the first half of 2019. The Water Systems sales change in the first half of 2020, excluding acquisitions and foreign currency translation, was a decrease of $38.8 million or about 10 percent.

Water Systems sales in the U.S. and Canada decreased by about 15 percent compared to the first half of 2019. The incremental impact of sales from acquired businesses was $7.2 million. Sales revenue decreased by $0.7 million in the first half of 2020 due to foreign currency translation. In the first half of 2020, sales of dewatering equipment decreased by about 60 percent due to lower sales in rental channels and substantial uncertainty in oil production end markets. Sales of groundwater pumping equipment increased by 4 percent versus the first half of 2019. Sales of other surface pumping equipment decreased by 16 percent on lower sales of both wastewater and water transfer systems as customers in this channel began to feel the impact of the Global Pandemic and lowered their own inventory levels.

Water Systems sales in markets outside the U.S. and Canada decreased by 11about 10 percent ~~overall. Foreign~~compared to the first half of 2019. Sales revenue decreased by $18.6 million or about 10 percent in the first half of 2020 due to foreign currency translation. International Water Systems sales change in the first half of 2020, excluding foreign currency translation, ~~decreased sales by 9 percent. Outside the U.S. and Canada,~~was flat or less than 1 percent increase. International Water Systems ~~organic~~ sales ~~decreased~~growth in Latin America and EMENA were partially offset by ~~2 percent, primarily driven by~~lower sales in the Asia Pacific ~~markets as customers in Korea, Japan and China were impacted by the Global Pandemic.~~markets.

Net Sales-Fueling Systems

Fueling Systems sales were ~~$55.3~~$111.2 million in the first ~~quarter of~~half 2020, a decrease of ~~$4.9~~$27.1 million or about 820 percent ~~versus~~from the first ~~quarter 2019~~half of 2019. Foreign currency translation changes decreased sales $1.0 million or about 1 percent compared to sales in the first half of ~~$60.2 million.~~2019. The Fueling Systems sales ~~were decreased by $0.4 million or 1 percent~~change in the ~~quarter due to foreign currency translation. Fueling Systems sales,~~first half of 2020, excluding acquisitions and foreign currency translation, ~~declined by~~was a decrease of about 719 percent.

Fueling Systems sales in the U.S. and Canada ~~increased~~declined by about 710 percent ~~compared to~~during the first ~~quarter 2019.~~half. The ~~increase~~decrease was ~~principally~~ in ~~the piping, pumping~~all product lines and ~~fuel management systems product lines. Outside the U.S. and Canada,~~due to declining demand for new filling stations. Internationally, Fueling Systems revenues declined by about 3033 percent, driven by lower sales in Asia Pacific, primarily ~~China.~~China and India.

Net Sales-Distribution

Distribution sales were ~~$60.4~~$152.5 million in the first ~~quarter~~half of 2020, ~~an increase~~versus the first half of ~~$7.1 million versus first quarter~~ 2019 sales of ~~$53.3~~$140.4 million. ~~The~~ Distribution segment organic sales increased about 139 percent compared to the first ~~quarter~~half of ~~2019. More~~2019 primarily due to more favorable weather conditions versus ~~the first quarter~~ last ~~year contributed to the revenue growth.~~year.

Cost of Sales

Cost of sales as a ~~percentage~~percent of net sales for the first ~~quarters~~half of 2020 and 2019 was ~~66.1~~65.7 percent and ~~69.2~~67.6 percent, respectively. Correspondingly, the gross profit margin ~~increased to 33.9~~was 34.3 percent ~~from 30.8 percent.~~and 32.4 percent, respectively. The ~~Company’s~~Company's consolidated gross profit was ~~$90.3~~$197.4 million for the first ~~quarter~~half of 2020, ~~an increase~~down $11.8 million from the ~~first quarter of 2019~~ gross profit of ~~$89.5 million.~~$209.2 million in the first half of 2019. The gross profit ~~margin improved~~decrease was primarily due to lower sales. The improvement in gross profit margin percentage is partially attributable to better selling price realization and improved product and geographic sales mix shifts.

Selling, General, and Administrative (“SG&A”)

Selling, general, and administrative ~~(SG&A)~~ expenses were ~~$75.6~~$147.9 million in the first ~~quarter~~half of 2020 and decreased by $4.2 million or 3 percent in the first half of 2020 compared to ~~$76.3~~$152.1 million in the first ~~quarter~~half of 2019. SG&A expenses from acquired businesses were $0.8 million and excluding the acquired entities, the Company’s SG&A expenses in the first quarter of 2020 were $74.8 million, a decrease of about 2 percent from the first quarter 2019.last year. SG&A expenses were lower ~~in part because of foreign currency translation~~ versus the prior year ~~lower variable compensation expenses, and company wide~~due to companywide efforts to lower spending in response to the ~~pending~~ impacts of the Global ~~Pandemic.~~Pandemic and in part because of foreign currency translation.

Restructuring Expenses

~~There were $0.9 million of restructuring expenses for the first quarter of 2020.~~ Restructuring expenses for the first ~~quarter~~half of 2020 were ~~$0.6~~$1.7 million. Restructuring expenses were $1.5 million in the Water segment and ~~$0.2 million in Fueling segments and related to continued miscellaneous manufacturing realignment activities, as well as~~ $0.1 million in the ~~Distribution~~Fueling segment from continued miscellaneous manufacturing and distribution realignment activities and $0.1 in distribution related to ~~miscellaneous~~ branch ~~closings~~consolidations and ~~consolidation.~~

~~There were $1.1 million of restructuring expenses for~~other asset rationalizations in the ~~first quarter of 2019.~~Headwater distribution segment. Restructuring expenses for the first ~~quarter~~half of 2019 were ~~$0.6 million in the Distribution segment and related to miscellaneous branch closings and consolidation.~~$1.3 million. Restructuring expenses ~~for the first quarter of 2019~~ were $0.5 million in the Water segment ~~and related to~~from continued miscellaneous manufacturing realignment ~~activities.~~ activities and $0.8 in distribution related to branch consolidations and other asset rationalizations in the Headwater distribution segment.

Operating Income

Operating income was ~~$13.8~~$47.8 million in the first ~~quarter~~half of 2020, ~~up $1.7~~down $8.0 million or about 14 percent from ~~$12.1~~$55.8 million in the first ~~quarter~~half of 2019.


		Operating income (loss)											Operating income (loss)
(In millions)	(In millions)	Q1 2020		Q1 2019		2020 v 2019		(In millions)	YTD June 30, 2020		YTD June 30, 2019		2020 v 2019
Water Systems	Water Systems	$	18.8	$	19.2	$	(0.4)	Water Systems	$	47.5	$	50.1	$	(2.6)
Fueling Systems	Fueling Systems	12.1		12.3		(0.2)		Fueling Systems	25.6		34.0		(8.4)
Distribution	Distribution	(2.2)		(4.3)		2.1		Distribution	4.6		0.2		4.4
Eliminations/Other	Eliminations/Other	(14.9)		(15.1)		0.2		Eliminations/Other	(29.9)		(28.5)		(1.4)
Consolidated	Consolidated	$	13.8	$	12.1	$	1.7	Consolidated	$	47.8	$	55.8	$	(8.0)

Operating Income-Water Systems

Water Systems operating income was ~~$18.8~~$47.5 million in the first ~~quarter~~half of 2020 ~~down $0.4~~compared to $50.1 million ~~versus~~in the first ~~quarter 2019. Operating income decreased in Water Systems primarily due to lower sales volume.~~half of 2019, a decrease of about 5 percent. The first ~~quarter~~half operating income margin was ~~11.5~~13.9 percent ~~up 130~~and increased by 120 basis points ~~from 10.2 percent in~~compared to the first ~~quarter~~half of 2019. Operating income margin increased in Water Systems primarily due to ~~better price realization~~product and ~~improved product~~geographic sales ~~mix.~~mix shifts.

Operating Income-Fueling Systems

Fueling Systems operating income was ~~$12.1~~$25.6 million in the first ~~quarter~~half of 2020 compared to ~~$12.3~~$34.0 million in the first ~~quarter~~half of 2019. The ~~decrease in operating income was primarily related to lower sales. The~~ first ~~quarter Fueling Systems~~half operating income margin was ~~21.9~~23.0 percent ~~an increase of 150 basis points from the 20.4~~compared to 24.6 percent of net sales in the first ~~quarter~~half of ~~2019. Operating~~2019, a decrease of 160 basis points. The decrease in operating income margin ~~improved due to a better geographic and product sales mix.~~

~~Operating Income-Distribution~~

~~The Distribution segment recorded an operating loss of $2.2 million in the first quarter of 2020 compared to a $4.3 million loss in the first quarter of 2019. The Distribution loss~~ was primarily due to lost leverage on fixed ~~costs~~cost from lower sales. ~~The~~

Operating Income-Distribution

Distribution ~~segment’s operations are seasonal~~operating income was $4.6 million in the first half of 2020 and ~~product~~operating income margin was 3.0 percent. Distribution operating income was $0.2 million in the first half of 2019 and operating income margin was 0.1 percent. Operating income margin increased in Distribution due to higher sales ~~are significantly slower during the fourth and first quarters, i.e., the winter months in North America.~~volumes.

Operating Income-Eliminations/Other

Operating income-Eliminations/Other is composed primarily of ~~intersegment~~inter-segment sales and profit eliminations and unallocated general and administrative expenses. The ~~intersegment~~inter-segment profit elimination impact in the first ~~quarter~~half of 2020 versus the first ~~quarter~~half of 2019 was ~~income of $0.7~~$0.3 million. The intersegment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in the consolidated financial results until such time as the transferred product is sold from the Distribution segment to its end third party customer. General and administrative expenses were higher by ~~$0.5~~$1.1 million or about 4 percent to last ~~year.~~year in the first half.

Interest Expense

Interest expense for the first ~~quarters~~half of 2020 and 2019 was ~~$1.2~~$2.4 million and ~~$2.3~~$4.6 million, respectively. ~~Interest expense was lower primarily due to lower debt.~~

Other Income or Expense

Other income or expense was a loss ~~in the first quarter~~ of ~~2020 of $0.2 million and a gain of $0.2~~$0.6 million in the first ~~quarter~~half of 2020. Other income or expense was a loss of $0.1 million in the first half of 2019.

Foreign Exchange

Foreign currency-based transactions ~~produced a gain~~ for the first ~~quarters~~half of 2020 ~~and~~was a gain $0.1 million due to movements in several currencies relative to the U.S. dollar, none of which individually were significant. Foreign currency-based transactions for the first half of 2019 was a gain of ~~$1.0~~$0.1 million ~~and $0.6 million, respectively.~~due to movements in several currencies relative to the U.S. dollar, none of which individually were significant.

Income Taxes

The provision for income taxes in the first ~~quarter~~half of 2020 and 2019 was ~~$2.6~~$9.3 million ~~and $1.5 million, respectively.~~for both. The effective tax rate for the first ~~quarter~~half of 2020 was about 1921 percent and, before the impact of discrete events, was about 20 percent. The effective tax rate ~~for~~in the first ~~quarter~~half of 2019 was about 1418 percent and, before the impact of discrete events, was about 2021 percent. The increase in the effective tax rate was primarily ~~the~~a result of net unfavorable discrete events ~~of $0.4 million during~~recorded in the first ~~quarter~~half of ~~2020.~~2020 compared to net favorable discrete events in the first half of 2019. The Company estimates its effective tax rate ~~as a percentage of pre-tax earnings~~ for ~~the full year of~~ 2020 ~~is projected to~~after discrete events will be about 20 percent, ~~compared to~~or about 2 points higher than the ~~full year 2019~~effective tax rate of ~~about 20~~18 percent ~~both before discrete adjustments.~~in 2019.

Net Income

Net income for the first ~~quarter~~half of 2020 was ~~$10.8~~$35.6 million compared to ~~the prior year~~2019 first ~~quarter~~half net income of ~~$9.1~~$41.9 million. Net income attributable to Franklin Electric Co., Inc. for the first ~~quarter~~half of 2020 was ~~$10.6~~$35.3 million, or ~~$0.23~~$0.75 per diluted share, compared to ~~the prior year~~2019 first ~~quarter~~half net income attributable to Franklin Electric Co., Inc. of ~~$9.1~~$41.8 million or ~~$0.19~~$0.89 per diluted share.

CAPITAL RESOURCES AND LIQUIDITY

Sources of Liquidity

The Company's primary sources of liquidity are cash on hand, cash flows from operations, revolving credit agreements, and long-term debt funds available. The Company believes its capital resources and liquidity position at ~~March 31,~~June 30, 2020 is adequate to meet projected needs for the foreseeable future. The Company expects that ongoing requirements for operations, capital expenditures, pension obligations, dividends, share repurchases, and debt service will be adequately funded from cash on hand, operations, and existing credit agreements.

As of ~~March 31,~~June 30, 2020 the Company had a $300.0 million revolving credit facility. The facility is scheduled to mature on October 28, 2021. As of ~~March 31,~~June 30, 2020, the Company had ~~$256.8~~$294.1 million borrowing capacity under the Credit Agreement as $4.2 million in letters of commercial and standby letters of credit were outstanding and undrawn and ~~$39.0~~$1.7 million in revolver borrowings were drawn and outstanding which were primarily used for working capital needs and the payment of existing ~~indebtedness, and acquisitions.~~indebtedness.

The Company also has other long-term debt borrowing outstanding as of ~~March 31,~~June 30, 2020. See Note 9 - Debt for additional specifics regarding these obligations and future maturities.

At ~~March 31,~~June 30, 2020, the Company had ~~$34.0~~$33.8 million of cash and cash equivalents held in foreign jurisdictions, which is intended to be used to fund foreign operations. There is currently no need or intent to repatriate these funds in order to meet domestic funding obligations or scheduled cash distributions.

Cash Flows

The following table summarizes significant sources and uses of cash and cash equivalents for the first ~~three~~six months of 2020 and 2019.


(in millions)	(in millions)	2020		2019		(in millions)	2020		2019
Net cash flows from operating activities	Net cash flows from operating activities	$	(4.7)	$	(2.9)	Net cash flows from operating activities	$	47.0	$	4.1
Net cash flows from investing activities	Net cash flows from investing activities	(11.1)		(10.6)		Net cash flows from investing activities	(15.2)		(16.3)
Net cash flows from financing activities	Net cash flows from financing activities	(3.7)		9.9		Net cash flows from financing activities	(48.6)		(5.2)
Impact of exchange rates on cash and cash equivalents	Impact of exchange rates on cash and cash equivalents	(4.9)		(1.2)		Impact of exchange rates on cash and cash equivalents	(4.5)		(0.8)
Change in cash and cash equivalents	Change in cash and cash equivalents	$	(24.4)	$	(4.8)	Change in cash and cash equivalents	$	(21.3)	$	(18.2)

Cash Flows from Operating Activities

2020 vs. 2019

Net cash ~~used in~~provided by operating activities was ~~$4.7~~$47.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 compared to ~~$2.9~~$4.1 million ~~used in~~provided by operating activities for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The increase in cash ~~used~~provided by operating activities was due to a decrease of ~~$4.3~~approximately $46.3 million in ~~other operating activities, primarily in long-term liabilities,~~working capital requirements, partially offset by lower ~~tax payments of $1.3 million as well as an increase in~~ net ~~income of $1.7 million.~~income.

Cash Flows from Investing Activities

2020 vs. 2019

Net cash used in investing activities was ~~$11.1~~$15.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 compared to ~~$10.6~~$16.3 million used in investing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The ~~increase~~decrease in cash used in investing activities iswas primarily attributable to ~~increased~~decreased acquisition ~~activity and property, plant and equipment expenditures.~~activity.

Cash Flows from Financing Activities

2020 vs. 2019

Net cash used in financing activities was ~~$3.7~~$48.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 compared to ~~$9.9~~$5.2 million ~~provided by~~used in financing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The ~~change~~increase in ~~net~~ cash ~~from~~used in financing activities was primarily attributable to a decrease in net debt borrowings of approximately $34.7 million and an increase of ~~$12.7~~$8.2 million in common stock ~~repurchases in the current year.~~repurchases.

FACTORS THAT MAY AFFECT FUTURE RESULTS

This quarterly report on Form 10-Q contains certain forward-looking information, such as statements about the Company’s financial goals, acquisition strategies, financial expectations including anticipated revenue or expense levels, business prospects, market positioning, product development, manufacturing re-alignment, capital expenditures, tax benefits and expenses, and the effect of contingencies or changes in accounting policies. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may increase,” “may fluctuate,” “plan,” “goal,” “target,” “strategy,” and similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” While the Company believes that the assumptions underlying such forward-looking statements are reasonable based on present conditions, forward-looking statements made by the Company involve risks and uncertainties and are not guarantees of future performance. Actual results may differ materially from those forward-looking statements as a result of various factors, including regional or general economic and currency conditions, various conditions specific to the Company’s business and industry, new housing starts, weather conditions, epidemics and pandemics, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases, raw material costs and availability, technology factors, integration of acquisitions, litigation, government and regulatory actions, the Company’s accounting policies, and other risks, all as described in the Company's Securities and Exchange Commission filings, included in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and in Exhibit 99.1 thereto. Any forward-looking statements included in this Form 10-Q are based upon information presently available. The Company does not assume any obligation to update any forward-looking information, except as required by law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in the Company's exposure to market risk during the ~~first~~second quarter ended ~~March 31,~~June 30, 2020. For additional information, refer to Part II, Item 7A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report (the "Evaluation Date"), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rules 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and the Company's Chief Financial Officer concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective.

In the third quarter of 2016, the Company began the process of a multi-year implementation of a global enterprise resource planning (“ERP”) system. The new ERP system was designed to better support the Company's business needs in response to the changing operating environment and for many business units within the Company is an update to a legacy system product. The implementation of a worldwide ERP system affects the processes that constitute the Company's internal control over financial reporting and requires testing for effectiveness as the implementation progresses. The Company expects that the new ERP system will enhance the overall system of internal controls over financial reporting through further automation and integration of business processes, although it is not being implemented in response to any identified deficiency in the Company’s internal controls over financial reporting. The Conversion will happen in two stages. The first stage involved converting the primary legacy ERP system, and the second stage converted those companies that remained on their local ERP system after the date of acquisition. As of March 31, 2020, all material business units have been converted as part of the first and second stage.

~~Other than the ERP implementation, there~~There have been no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15 under the Exchange Act during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.

2730

PART II - OTHER INFORMATION

ITEM 1A. RISK FACTORS

There have been no material changes to our risk factors as set forth in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019 with the exception of the update to the following risk factor. Additional risks and uncertainties, not presently known to the Company or currently deemed immaterial, could negatively impact the Company’s results of operations or financial condition in the future.

Additional Risks to the Company. The Company is subject to various risks in the normal course of business as well as catastrophic events including severe weather events, earthquakes, fires, acts of war, terrorism, civil unrest, epidemics and pandemics and other unexpected events. Exhibit 99.1 sets forth risks and other factors that may affect future results, including those identified above, and is incorporated herein by reference.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In April 2007, the Company's Board of Directors approved a plan to increase the number of shares remaining for repurchase from 628,692 to 2,300,000 shares. There is no expiration date for this plan. On August 3, 2015, the Company's Board of Directors approved a plan to increase the number of shares remaining for repurchase by an additional 3,000,000 shares. The authorization was in addition to the 535,107 shares that remained available for repurchase as of July 31, 2015. The Company ~~repurchased 322,147~~did not repurchase any shares ~~for approximately $15.2 million~~ under ~~the~~its outstanding plan during the ~~first~~second quarter of 2020. The maximum number of shares that may still be purchased under this plan as of ~~March 31,~~June 30, 2020 is 933,823.

Period Total Number of Shares Repurchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares that may yet to be Repurchased
January 1 - January 31 — — — 1,255,970
February 1 - February 29 42,900 51.68 42,900 1,213,070
March 1 - March 31 279,247 46.64 279,247 933,823
Total 322,147 47.31 322,147 933,823

ITEM 6. EXHIBITS

~~Exhibits are set forth in the Exhibit Index located on page 30.~~


Number			Description


3.1			Amended and Restated Articles of Incorporation of Franklin Electric Co., Inc. (incorporated by reference to Exhibit 3.1 of the Company's Form 8-K filed on May 7, 2019)
3.2			Amended and Restated Bylaws of Franklin Electric Co., Inc., as amended January 27, 2020 (incorporated by reference to Exhibit 3.1 of the Company's Form 8-K filed on January 30, 2020)
10.1			Retirement Agreement and General Release between the Company and Steven W. Aikman dated March 17, 2020 (incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q filed on May 5, 2020)*
10.2			Franklin Electric Co., Inc. Nonemployee Directors' Deferred Compensation Plan, as amended and restated (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed on May 6, 2020)*
31.1			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2			Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101			The following financial information from Franklin Electric Co., Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline eXtensible Business Reporting Language (Inline XBRL): (i) Condensed Consolidated Statements of Income for the second quarter and six months ended June 30, 2020 and 2019 (ii) Condensed Consolidated Statements of Comprehensive Income/(Loss) for the second quarter and six months ended June 30, 2020 and 2019, (iii) Condensed Consolidated Balance Sheets as of June 30, 2020, and December 31, 2019, (iv) Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2020 and 2019, and (v) Notes to Condensed Consolidated Financial Statements (filed herewith)
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Management Contract, Compensatory Plan or Arrangement

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 ELECTRIC CO., INC.
		Registrant

Date: ~~May 5,~~August 4, 2020	By	/s/ Gregg C. Sengstack
		Gregg C. Sengstack, Chairman and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~May 5,~~August 4, 2020	By	/s/ John J. Haines
		John J. Haines,
		Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

2932

~~FRANKLIN ELECTRIC CO., INC.~~

~~EXHIBIT INDEX TO THE QUARTERLY REPORT ON FORM 10-Q~~

~~FOR THE FIRST QUARTER ENDED MARCH 31, 2020~~


~~Number~~			~~Description~~


~~3.1~~			~~Amended and Restated Articles of Incorporation of Franklin Electric Co., Inc. (incorporated by reference to Exhibit 3.1 of the Company's Form 8-K filed on May 7, 2019)~~
~~3.2~~			~~Amended and Restated Bylaws of Franklin Electric Co., Inc., as amended~~ ~~January~~ 27 , ~~2020~~ ~~(incorporated by reference to Exhibit 3.~~1 ~~of the Company's Form 8-K filed on~~ ~~January~~30 , ~~2020~~)
~~10.1~~			Retirement Agreement and General Release between the Company and Steven W. Aikman dated March 17, 2020*
~~31.1~~			~~Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes–Oxley Act of 2002~~
~~31.2~~			~~Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes–Oxley Act of 2002~~
~~32.1~~			~~Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~32.2~~			~~Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~101.INS~~			~~XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.~~
~~101.SCH~~			~~Inline XBRL Taxonomy Extension Schema~~
~~101.CAL~~			~~Inline XBRL Taxonomy Extension Calculation Linkbase~~
~~101.LAB~~			~~Inline XBRL Taxonomy Extension Label Linkbase~~
~~101.PRE~~			~~Inline XBRL Taxonomy Extension Presentation Linkbase~~
~~101.DEF~~			~~Inline XBRL Taxonomy Extension Definition Linkbase~~

*Management Contract, Compensatory Plan or Arrangement


Period	Total Number of Shares Repurchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares that may yet to be Repurchased
January 1 - January 31	—	—	—	1,255,970
February 1 - February 29	42,900	51.68	42,900	1,213,070
March 1 - March 31	279,247	46.64	279,247	933,823
Total	322,147	47.31	322,147	933,823