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 ~~September~~June 30, ~~2021~~2022

☐ 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 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						~~October~~July 29, ~~2021~~2022
$0.10						~~46,430,743~~46,291,718 shares

FRANKLIN ELECTRIC CO., INC.

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION	Number

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	4
	Condensed Consolidated Statements of Income for the ~~Third~~Second Quarters and ~~Nine~~ Six Months Ended ~~September 30,~~June 3 0 , 2022 and 2021 ~~and 2020~~ (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income/(Loss) for the ~~Third~~Second Quarters and ~~Nine Months~~Six Month Ended ~~September~~June 30 , 2022 and 2021 ~~and 2020~~ (Unaudited)	5
	Condensed Consolidated Balance Sheets as of ~~September~~June 30 ~~2021~~, 2022 and December 31, ~~2020~~2021 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30 , 2022 and 2021 ~~and 2020~~ (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2526
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3233
Item 4.	Controls and Procedures	3233


PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3334
Item 1A.	Risk Factors	3334
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3334
Item 6.	Exhibits	3435

Signatures		3536

PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Third Quarter Ended				Nine Months Ended					Second Quarter Ended				Six Months Ended
(In thousands, except per share amounts)	(In thousands, except per share amounts)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020		(In thousands, except per share amounts)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021

Net sales	Net sales	$	459,019	$	351,190	$	1,229,345	$	926,225	Net sales	$	551,138	$	437,280	$	1,002,608	$	770,326
Cost of sales	Cost of sales	295,903		226,893		798,444		604,489		Cost of sales	361,850		285,041		667,986		502,541
Gross profit	Gross profit	163,116		124,297		430,901		321,736		Gross profit	189,288		152,239		334,622		267,785
Selling, general, and administrative expenses	Selling, general, and administrative expenses	106,446		75,472		288,534		223,409		Selling, general, and administrative expenses	108,313		100,485		212,986		182,088
Restructuring expense		76		441		381		2,189
Restructuring (income)/expense										Restructuring (income)/expense	(7)		153		713		305
Operating income	Operating income	56,594		48,384		141,986		96,138		Operating income	80,982		51,601		120,923		85,392
Interest expense	Interest expense	(1,384)		(1,130)		(3,840)		(3,496)		Interest expense	(2,932)		(1,366)		(4,426)		(2,456)
Other income/(expense), net	Other income/(expense), net	2,061		(463)		1,531		(1,062)		Other income/(expense), net	(1,159)		(430)		(1,537)		(530)
Foreign exchange income/(expense)	Foreign exchange income/(expense)	(408)		(140)		(1,654)		(84)		Foreign exchange income/(expense)	(329)		(1,189)		(914)		(1,246)
Income before income taxes	Income before income taxes	56,863		46,651		138,023		91,496		Income before income taxes	76,562		48,616		114,046		81,160
Income tax (benefit)/expense		10,409		8,076		24,043		17,327
Income tax expense										Income tax expense	16,799		9,253		24,164		13,634
Net income	Net income	$	46,454	$	38,575	$	113,980	$	74,169	Net income	$	59,763	$	39,363	$	89,882	$	67,526
Less: Net (income)/expense attributable to noncontrolling interests		(282)		(203)		(787)		(503)
Less: Net (income)/loss attributable to noncontrolling interests										Less: Net (income)/loss attributable to noncontrolling interests	(399)		(222)		(753)		(505)
Net income attributable to Franklin Electric Co., Inc.	Net income attributable to Franklin Electric Co., Inc.	$	46,172	$	38,372	$	113,193	$	73,666	Net income attributable to Franklin Electric Co., Inc.	$	59,364	$	39,141	$	89,129	$	67,021
Income per share:
Earnings per share:										Earnings per share:
Basic	Basic	$	0.99	$	0.82	$	2.43	$	1.58	Basic	$	1.27	$	0.84	$	1.91	$	1.44
Diluted	Diluted	$	0.98	$	0.82	$	2.40	$	1.57	Diluted	$	1.26	$	0.83	$	1.89	$	1.42

See Notes to Condensed Consolidated Financial Statements.

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(Unaudited)


		Third Quarter Ended				Nine Months Ended					Second Quarter Ended				Six Months Ended
(In thousands)	(In thousands)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020		(In thousands)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021

Net income	Net income	$	46,454	$	38,575	$	113,980	$	74,169	Net income	$	59,763	$	39,363	$	89,882	$	67,526
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	(12,085)		3,364		(15,464)		(32,381)		Foreign currency translation adjustments	(19,505)		8,135		(10,913)		(3,379)
Employee benefit plan activity	Employee benefit plan activity	1,158		966		3,391		2,768		Employee benefit plan activity	1,184		1,117		2,376		2,233
Other comprehensive income/(loss)	Other comprehensive income/(loss)	(10,927)		4,330		(12,073)		(29,613)		Other comprehensive income/(loss)	(18,321)		9,252		(8,537)		(1,146)
Income tax expense related to items of other comprehensive income/(loss)	Income tax expense related to items of other comprehensive income/(loss)	(243)		(192)		(707)		(562)		Income tax expense related to items of other comprehensive income/(loss)	(260)		(232)		(520)		(464)
Other comprehensive income/(loss), net of tax	Other comprehensive income/(loss), net of tax	(11,170)		4,138		(12,780)		(30,175)		Other comprehensive income/(loss), net of tax	(18,581)		9,020		(9,057)		(1,610)
Comprehensive income	Comprehensive income	35,284		42,713		101,200		43,994		Comprehensive income	41,182		48,383		80,825		65,916
Less: Comprehensive income/(loss) attributable to noncontrolling interests	Less: Comprehensive income/(loss) attributable to noncontrolling interests	231		237		692		564		Less: Comprehensive income/(loss) attributable to noncontrolling interests	312		243		628		461
Comprehensive income attributable to Franklin Electric Co., Inc.	Comprehensive income attributable to Franklin Electric Co., Inc.	$	35,053	$	42,476	$	100,508	$	43,430	Comprehensive income attributable to Franklin Electric Co., Inc.	$	40,870	$	48,140	$	80,197	$	65,455

See Notes to Condensed Consolidated Financial Statements.

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands, except per share amounts)	(In thousands, except per share amounts)	September 30, 2021		December 31, 2020		(In thousands, except per share amounts)	June 30, 2022		December 31, 2021

ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	75,952	$	130,787	Cash and cash equivalents	$	33,225	$	40,536
Receivables, less allowances of $4,549 and $3,999, respectively		218,175		159,827
Receivables, less allowances of $4,218 and $3,975, respectively						Receivables, less allowances of $4,218 and $3,975, respectively	278,924		196,173
Inventories:	Inventories:					Inventories:
Raw material	Raw material	141,845		87,226		Raw material	208,451		166,918
Work-in-process	Work-in-process	23,924		20,565		Work-in-process	31,255		24,725
Finished goods	Finished goods	229,762		193,141		Finished goods	327,437		258,332
Total inventories	Total inventories	395,531		300,932		Total inventories	567,143		449,975
Other current assets	Other current assets	38,472		27,708		Other current assets	33,891		37,963
Total current assets	Total current assets	728,130		619,254		Total current assets	913,183		724,647

Property, plant, and equipment, at cost:	Property, plant, and equipment, at cost:					Property, plant, and equipment, at cost:
Land and buildings	Land and buildings	154,374		152,323		Land and buildings	155,539		154,544
Machinery and equipment	Machinery and equipment	293,285		287,840		Machinery and equipment	291,137		296,078
Furniture and fixtures	Furniture and fixtures	42,916		47,890		Furniture and fixtures	46,748		44,324
Other	Other	36,411		33,193		Other	47,790		40,231
Property, plant, and equipment, gross	Property, plant, and equipment, gross	526,986		521,246		Property, plant, and equipment, gross	541,214		535,177
Less: Allowance for depreciation	Less: Allowance for depreciation	(321,016)		(312,225)		Less: Allowance for depreciation	(330,575)		(324,523)
Property, plant, and equipment, net	Property, plant, and equipment, net	205,970		209,021		Property, plant, and equipment, net	210,639		210,654
Right-of-use asset, net	Right-of-use asset, net	36,181		31,954		Right-of-use asset, net	47,683		48,379
Deferred income taxes	Deferred income taxes	7,716		8,824		Deferred income taxes	7,373		7,675
Intangible assets, net	Intangible assets, net	244,110		133,782		Intangible assets, net	239,939		249,691
Goodwill	Goodwill	320,256		266,737		Goodwill	327,100		329,630
Other assets	Other assets	3,618		2,735		Other assets	5,623		4,489
Total assets	Total assets	$	1,545,981	$	1,272,307	Total assets	$	1,751,540	$	1,575,165


		September 30, 2021		December 31, 2020
							June 30, 2022		December 31, 2021
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	163,941	$	95,903	Accounts payable	$	195,614	$	164,758
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	114,692		89,048		Accrued expenses and other current liabilities	102,804		115,408
Current lease liability	Current lease liability	12,240		11,090		Current lease liability	15,313		15,320
Income taxes	Income taxes	4,307		5,112		Income taxes	2,742		2,547
Current maturities of long-term debt and short-term borrowings	Current maturities of long-term debt and short-term borrowings	106,293		2,551		Current maturities of long-term debt and short-term borrowings	223,054		97,981
Total current liabilities	Total current liabilities	401,473		203,704		Total current liabilities	539,527		396,014
Long-term debt	Long-term debt	90,527		91,966		Long-term debt	89,846		90,535
Long-term lease liability	Long-term lease liability	24,087		20,866		Long-term lease liability	32,240		32,937
Income taxes payable non-current	Income taxes payable non-current	11,610		11,965		Income taxes payable non-current	8,707		11,610
Deferred income taxes	Deferred income taxes	27,540		25,671		Deferred income taxes	30,139		28,162
Employee benefit plans	Employee benefit plans	39,899		44,443		Employee benefit plans	38,817		40,696
Other long-term liabilities	Other long-term liabilities	25,267		23,988		Other long-term liabilities	23,407		26,568

Commitments and contingencies (see Note 15)	Commitments and contingencies (see Note 15)	—		—		Commitments and contingencies (see Note 15)	—		—

Redeemable noncontrolling interest	Redeemable noncontrolling interest	(146)		(245)		Redeemable noncontrolling interest	284		(19)

Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Common stock (65,000 shares authorized, $.10 par value) outstanding (46,415 and 46,222, respectively)		4,641		4,622
Common stock (65,000 shares authorized, $.10 par value) outstanding (46,277 and 46,483, respectively)						Common stock (65,000 shares authorized, $.10 par value) outstanding (46,277 and 46,483, respectively)	4,628		4,648
Additional capital	Additional capital	303,685		283,420		Additional capital	318,837		310,617
Retained earnings	Retained earnings	832,145		764,562		Retained earnings	900,135		859,817
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(217,456)		(204,771)		Accumulated other comprehensive loss	(237,513)		(228,581)
Total shareholders' equity	Total shareholders' equity	923,015		847,833		Total shareholders' equity	986,087		946,501
Noncontrolling interest	Noncontrolling interest	2,709		2,116		Noncontrolling interest	2,486		2,161
Total equity	Total equity	925,724		849,949		Total equity	988,573		948,662
Total liabilities and equity	Total liabilities and equity	$	1,545,981	$	1,272,307	Total liabilities and equity	$	1,751,540	$	1,575,165

See Notes to Condensed Consolidated Financial Statements.

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine Months Ended					Six Months Ended
(In thousands)	(In thousands)	September 30, 2021		September 30, 2020		(In thousands)	June 30, 2022		June 30, 2021

Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	113,980	$	74,169	Net income	$	89,882	$	67,526
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	32,767		26,917		Depreciation and amortization	24,521		20,535
Non-cash lease expense	Non-cash lease expense	9,394		8,478		Non-cash lease expense	8,526		6,471
Share-based compensation	Share-based compensation	8,921		8,312		Share-based compensation	6,322		6,573

Deferred income taxes	Deferred income taxes	471		(2,089)		Deferred income taxes	2,004		376
(Gain)/Loss on disposals of plant and equipment	(Gain)/Loss on disposals of plant and equipment	(147)		1,383		(Gain)/Loss on disposals of plant and equipment	721		131
Foreign exchange (income)/expense	Foreign exchange (income)/expense	1,654		84		Foreign exchange (income)/expense	914		1,246
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	(57,434)		(5,147)		Receivables	(93,063)		(62,860)
Inventory	Inventory	(85,873)		4,322		Inventory	(123,817)		(41,848)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	92,214		26,069		Accounts payable and accrued expenses	29,969		50,262
Operating leases	Operating leases	(9,394)		(8,478)		Operating leases	(8,526)		(6,471)
Income taxes	Income taxes	(4,524)		1,050		Income taxes	(1,891)		(4,362)
Income taxes-U.S. Tax Cuts and Jobs Act	Income taxes-U.S. Tax Cuts and Jobs Act	(355)		—		Income taxes-U.S. Tax Cuts and Jobs Act	(355)		(355)
Employee benefit plans	Employee benefit plans	21		(55)		Employee benefit plans	826		(160)
Other, net	Other, net	(7,793)		(1,307)		Other, net	1,426		(1,534)
Net cash flows from operating activities	Net cash flows from operating activities	93,902		133,708		Net cash flows from operating activities	(62,541)		35,530
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	(20,274)		(15,239)		Additions to property, plant, and equipment	(20,084)		(12,777)
Proceeds from sale of property, plant, and equipment	Proceeds from sale of property, plant, and equipment	839		28		Proceeds from sale of property, plant, and equipment	6		8
Cash paid for acquisitions, net of cash acquired	Cash paid for acquisitions, net of cash acquired	(193,987)		(6,089)		Cash paid for acquisitions, net of cash acquired	(1,365)		(180,917)

Other, net	Other, net	38		(74)		Other, net	(8)		27
Net cash flows from investing activities	Net cash flows from investing activities	(213,384)		(21,374)		Net cash flows from investing activities	(21,451)		(193,659)
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	204,720		117,435		Proceeds from issuance of debt	341,810		150,343
Repayment of debt	Repayment of debt	(102,325)		(138,183)		Repayment of debt	(215,538)		(21,079)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	11,390		3,014		Proceeds from issuance of common stock	1,916		8,989
Purchases of common stock	Purchases of common stock	(21,138)		(19,091)		Purchases of common stock	(30,644)		(11,231)
Dividends paid	Dividends paid	(24,499)		(21,641)		Dividends paid	(18,205)		(16,320)

Net cash flows from financing activities	Net cash flows from financing activities	68,148		(58,466)		Net cash flows from financing activities	79,339		110,702
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(3,501)		(3,793)		Effect of exchange rate changes on cash	(2,658)		(1,763)
Net change in cash and equivalents	Net change in cash and equivalents	(54,835)		50,075		Net change in cash and equivalents	(7,311)		(49,190)
Cash and equivalents at beginning of period	Cash and equivalents at beginning of period	130,787		64,405		Cash and equivalents at beginning of period	40,536		130,787
Cash and equivalents at end of period	Cash and equivalents at end of period	$	75,952	$	114,480	Cash and equivalents at end of period	$	33,225	$	81,597


		Nine Months Ended					Six Months Ended
(In thousands)	(In thousands)	September 30, 2021		September 30, 2020		(In thousands)	June 30, 2022		June 30, 2021

Cash paid for income taxes, net of refunds	Cash paid for income taxes, net of refunds	$	24,970	$	19,130	Cash paid for income taxes, net of refunds	$	24,739	$	17,496
Cash paid for interest	Cash paid for interest	$	4,749	$	4,537	Cash paid for interest	$	4,235	$	2,505

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	$	398	$	421	Additions to property, plant, and equipment, not yet paid	$	571	$	492
Right-of-Use Assets obtained in exchange for new operating lease liabilities	Right-of-Use Assets obtained in exchange for new operating lease liabilities	$	8,097	$	5,154	Right-of-Use Assets obtained in exchange for new operating lease liabilities	$	8,359	$	5,515
Payable to sellers of acquired entities	Payable to sellers of acquired entities	$	600	$	11	Payable to sellers of acquired entities	$	—	$	600
Accrued dividends payable to noncontrolling interest		$	—	$	830

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	1211
Note 4.	Fair Value Measurements	13
Note 5.	Financial Instruments	13
Note 6.	Goodwill and Other Intangible Assets	14
Note 7.	Employee Benefit Plans	1415
Note 8.	Accrued Expenses and Other Current Liabilities	1516
Note 9.	Income Taxes	1516
Note 10.	Debt	16
Note 11.	Earnings Per Share	1718
Note 12.	Equity Roll Forward	1819
Note 13.	Accumulated Other Comprehensive Income/(Loss)	2021
Note 14.	Segment and Geographic Information	2021
Note 15.	Commitments and Contingencies	2223
Note 16.	Share-Based Compensation	2324

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying condensed consolidated balance sheet as of December 31, ~~2020,~~2021, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of ~~September~~June 30, ~~2021,~~2022, and for the ~~third~~second quarters and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021 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 ~~third~~second quarter and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2021.~~2022. 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, ~~2020.~~2021.

In the second quarter of 2022, the Company concluded that Turkey represents a highly inflationary economy as its projected three-year cumulative inflation rate exceeds 100%. As a result, the Company started remeasuring the financial statements for the Company’s Turkish operations in accordance with the highly inflationary accounting rules in ASC 830, Foreign Currency Matters, as of April 1, 2022. As a result, all gains and losses resulting from the remeasurement of the financial results of operations and other transactional foreign exchange gains and losses would be reflected in earnings rather than as a component of the Company’s comprehensive income within stockholders’ equity. As of June 30, 2022, this impact was not significant to the Company’s results.

2. ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards

In August ~~2021,~~2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2021-06,~~ Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services— Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. This update amends certain SEC disclosure guidance that is included in the accounting standards codification to reflect the SEC’s recent issuance of rules intended to modernize and streamline disclosure requirements, including updates to business acquisition and disposition significance tests used, the significance thresholds for proforma statement disclosures, the number of preceding years of financial statements required for disclosure as well as other provisions in the SEC releases. The Company adopted the SEC’s guidance on January 1, 2021, the effective date of the release, relating to the amendments to financial disclosures about acquired and disposed businesses, and it did not have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

~~In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04,~~ ~~Facilitation of the Effects of Reference Rate Reform on Financial Reporting,~~ which provides optional expedients and exceptions for applying U.S. generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate ("LIBOR") and other reference rates which are expected to be discontinued due to reference rate reform. ASU 2020-04 is effective on a prospective basis between March 12, 2020 and December 31, 2022. The Company adopted the standard effective January 1, 2021, and it did not 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 adopted the standard effective January 1, 2021, and it 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 2020, the FASB issued ASU~~ 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 reduces the number of accounting models for various convertible instruments and reduces form-over-substance-based accounting conclusions for the derivatives scope exception for contracts in an entity’s own equity. The FASB also updated Earnings Per Share (“EPS”) guidance under Topic 260 by requiring an entity to consider the potential effect of share settlement in the diluted EPS calculation for instruments that may be settled in cash or shares as well as other amendments. ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2021 with early adoption permitted but no earlier than fiscal years beginning after December 15, 2020. The guidance should be adopted at the beginning of a fiscal year. ASU 2020-06 should be applied on either a retrospective or modified retrospective basis. The Company adopted the standard effective January 1, 2022 using the modified retrospective approach, and it 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 October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires entities to recognize and measure contracts on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. This will improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. ASU 2021-08 is ~~planning~~effective for interim and annual periods beginning after December 15, 2022 with early adoption permitted. ASU 2021-08 should be applied on a prospective basis to business combinations that occur after the effective date. The Company plans to adopt this ASU on January 1, ~~2022, but~~2023 and does not ~~expect~~anticipate the ~~ASU~~adoption to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

3. ACQUISITIONS

During the fourth quarter ended December 31, 2021, the Company acquired 100 percent of the ownership interests of B&R Industries, Inc. ("B&R"), a water treatment equipment provider located in Mesa, Arizona, for a cash purchase price of $16.3 million after purchase price adjustments based on the level of working capital acquired. B&R will be included as part of the Water Systems segment of the Company. The Company also acquired, in a separate transaction, 100 percent of the ownership interests of Blake Group Holdings, Inc. ("Blake"), a professional groundwater distributor operating in the northeast United States for a cash purchase price of $28.5 million after purchase price adjustments based on the level of working capital acquired. Blake will be included as part of the Distribution segment of the Company. The fair value of the assets acquired and liabilities assumed for both acquisitions is preliminary as of June 30, 2022.

~~3. ACQUISITIONS~~

During the third quarter ended September 30, 2021, the Company acquired 100 percent of the ownership interests of Minetuff Dewatering Pumps Australia Pty Ltd for a cash purchase price of $13.7 million after purchase price adjustments based on the level of working capital acquired. Minetuff manufactures and sells submersible pumps, spare parts, and accessories to the mining industry and will expand the Company’s existing product offerings and channel access in the Water Systems segment. The fair value of the assets acquired and liabilities assumed for the acquisition is preliminary as of ~~September~~June 30, ~~2021, and is classified as Level 3 within the valuation hierarchy.~~2022.

During the second quarter ended June 30, 2021, the Company acquired, in separate transactions, 100 percent of the ownership interests of Puronics, Inc. and its wholly owned subsidiaries, headquartered in Livermore, California, and 100 percent of the ownership interests of New Aqua, LLC and its wholly owned subsidiaries, headquartered in Indianapolis, Indiana. Both Puronics and New Aqua are water treatment equipment providers and will be included as a part of the Water Systems segment of the Company. In a separate transaction during the second quarter ended June 30, 2021, the Company acquired all of the assets of Power Integrity Services, LLC, a North Carolina-based company, which will be included in the Fueling Systems segment of the Company.

In another separate transaction during the second quarter ended June 30, 2021, the Company acquired all of the assets of Atlantic Turbine Pump, LLC, a Georgia-based company, which will be included in the Distribution segment of the Company. ~~As of September 30, 2021, the~~The Company ~~has~~ recorded estimated fair values that exceed the acquisition price by ~~$0.5~~$0.4 million, representing a bargain purchase gain due to favorable market conditions within ~~accrued expenses and other current liabilities in~~ the ~~consolidated balance sheets for the Atlantic Turbine Pump acquisition. Once the determination of fair values is complete in 2022, the Company will recognize the bargain purchase gain~~"Other income/(expense), net" line in the consolidated statements of ~~income.~~income for the year ended December 31, 2021.

The final combined, all-cash purchase price for all acquisitions in the second quarter was ~~$185.1~~$185.5 million after purchase price adjustments based on the level of working capital ~~acquired, which were all cash transactions. All acquisitions in the second quarter expand the Company's geographical presence and product channels.~~acquired. The fair value of the assets acquired and liabilities assumed ~~for all acquisitions are preliminary~~were considered final as of ~~September~~June 30, ~~2021 and is classified as Level 3 within the valuation hierarchy.~~2022.

The identifiable intangible assets recognized in the separate transactions in 2021 were ~~$121.4~~$131.5 million and consist primarily of customer relationships and trade names from New Aqua of $93.2 million, which will be amortized using the straight-line method over 12 - 20 years.

The goodwill of ~~$55.5~~$66.2 million resulting from the acquisitions in 2021 consists primarily of expanded geographical presence and product channel expansion. Goodwill deductible for tax purposes is ~~$52.1~~$62.3 million from the acquisitions in 2021. Goodwill was recorded in the Water Systems and Fueling Systems ~~segments (see Note 6 - Goodwill and Other Intangible Assets).~~segments.

~~For~~The preliminary purchase price assigned to the major identifiable assets and liabilities for all acquisitions in 2021 ~~consolidated annual revenue for the full year 2020 was $102.4 million, which would be incremental to the Company's revenue had the acquisitions occurred~~ on ~~the first day of 2020. Since acquisition in 2021, consolidated revenue was $42.9 million.~~ an aggregated basis is as follows:


(In millions)
Assets:
Inventory	$	34.4
Intangible assets	131.5
Goodwill	66.2
Other assets	39.1
Total assets	271.2
Liabilities	26.8
Less: Bargain purchase gain	0.4
Total consideration paid	$	244.0

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,~~2021, as the results of operations for all ~~acquisitions is immaterial.~~

During the fourth quarter ended December 31, 2020, the Company acquired 100 percent of the ownership interests of Gicon Pumps & Equipment, Inc., a professional groundwater distributor operating seven locations in the state of Texas for a purchase price of $28.1 million after purchase price adjustments based on the level of working capital acquired. Gicon will be included as part of the Distribution segment of the Company. As of September 30, 2021, the Company has recorded estimated fair values that exceed the acquisition price by $5.6 million, representing a bargain purchase gain due to favorable market conditions within accrued expenses and other current liabilities in the consolidated balance sheets. Once the determination of fair values is complete in 2021, the Company will recognize the bargain purchase gain in the consolidated statements of income. In a separate transaction during the fourth quarter ended December 31, 2020, the Company acquired 100 percent of the ownership interests in Waterite Inc. and its affiliate Waterite America Inc., headquartered in Winnipeg, Manitoba, Canada, for a purchase price of $21.9 million after purchase price adjustments based on the level of working capital acquired. Waterite will be included as a part of the Water Systems segment of the Company. The fair value of the assets acquired and liabilities assumed for both acquisitions are preliminary as of September 30, 2021 and is classified as Level 3 within the valuation hierarchy. 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 both acquisitions is immaterial.

Transaction costs were expensed as incurred under the guidance of FASB Accounting Standards Codification Topic 805, Business Combinations. There were $0.0 million and ~~$0.8~~$0.2 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, 2022, respectively. There were $0.8 million and $0.9 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, 2021, respectively.

administrative expenses" line of the Company's condensed consolidated statements of income for the third quarter and nine months ended September 30, 2021, respectively. Transaction costs were immaterial in the third quarter and nine months ended September 30, 2020.

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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the assets and liabilities measured at fair value on a recurring basis were as set forth in the table below:


(In millions)	(In millions)	September 30, 2021		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, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:										Assets:
Cash equivalents	Cash equivalents	$	6.2	$	6.2	$	—	$	—	Cash equivalents	$	6.2	$	6.2	$	—	$	—

Forward currency contracts assets										Forward currency contracts assets	0.1		—		0.1		—
Total assets										Total assets	$	6.3	$	6.2	$	0.1	$	—

Liabilities:										Liabilities:
Share swap transaction										Share swap transaction	$	0.6	$	0.6	$	—	$	—

Total liabilities										Total liabilities	$	0.6	$	0.6	$	—	$	—

		December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:										Assets:
Cash equivalents	Cash equivalents	$	20.2	$	20.2	$	—	$	—	Cash equivalents	$	5.3	$	5.3	$	—	$	—

Share swap transaction										Share swap transaction	0.6		0.6		—		—
Total assets										Total assets	$	5.9	$	5.9	$	—	$	—

The ~~Company's~~Company’s Level 1 ~~assets consist of~~ cash equivalents ~~which~~assets are generally comprised of foreign bank guaranteed certificates of ~~deposit.~~deposit and short term deposits. The share swap transaction and forward currency contracts assets and liabilities are recorded within the "Receivables" and "Accounts Payable" lines of the condensed consolidated balance sheets and are further described in Note 5 - Financial Instruments.

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

Total debt, including current maturities, have carrying amounts of ~~$196.8~~$312.9 million and ~~$94.6~~$188.5 million and estimated fair values of ~~$206.7~~$311.9 million and ~~$107.3~~$196.1 million as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 non-employee directors' 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 ~~September~~June 30, ~~2021,~~2022, the swap had a notional value based on ~~210,000~~225,000 shares. For the ~~third~~second quarter and ~~nine~~six months ended ~~September~~June 30, 2022, the swap resulted in a loss of $2.1 million and a loss of $4.6 million, respectively. For the second quarters and six months ended June 30, 2021, the swap resulted in a ~~loss~~gain of ~~$0.2~~$0.6 million and a gain of ~~$3.1~~$3.3 million, respectively. ~~For the~~ ~~third~~ ~~quarter and nine months ended September 30, 2020 the swap resulted in gains of $1.8 million and $0.3 million respectively.~~ Gains and losses resulting from the swap were largely 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.

The Company is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business including making sales and purchases of raw materials and finished goods in foreign denominated currencies with third party customers and suppliers as well as to wholly owned subsidiaries of the Company. To reduce its exposure to foreign currency exchange rate volatility, the Company enters into various forward currency contracts to offset these fluctuations. The Company uses forward currency contracts only in an attempt to limit underlying exposure from foreign currency exchange rate fluctuations and to minimize earnings volatility associated with foreign currency exchange rate fluctuations and has not elected to use hedge accounting. Decisions on whether to use such derivative instruments are primarily based on the amount of exposure to the currency involved and an assessment of the near-term market value for each currency. For the second quarter and six months ended June 30, 2022, the forward currency contracts resulted in a gain of $0.5 million and a gain of $0.3 million, respectively. This is recorded in the Company's condensed consolidated statements of income within the "Foreign exchange income/(expense)" line.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

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


(In millions)	(In millions)	September 30, 2021				December 31, 2020				(In millions)	June 30, 2022				December 31, 2021
		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:
Customer relationships	Customer relationships	250.7		(86.1)		165.1		(78.5)		Customer relationships	253.0		(95.0)		255.1		(88.8)
Patents	Patents	$	7.4	$	(7.3)	$	7.5	$	(7.3)	Patents	$	7.3	$	(7.3)	$	7.3	$	(7.3)
Technology	Technology	7.5		(7.3)		7.5		(7.2)		Technology	7.5		(7.4)		7.5		(7.3)
Trade names	Trade names	37.1		(1.0)		$	3.4	(0.2)		Trade names	41.9		(2.6)		$	42.1	(1.5)
Other	Other	3.1		(2.9)		2.9		(2.8)		Other	2.7		(2.6)		2.8		(2.7)
Total	Total	$	305.8	$	(104.6)	$	186.4	$	(96.0)	Total	$	312.4	$	(114.9)	$	314.8	$	(107.6)
Unamortizing intangibles:	Unamortizing intangibles:									Unamortizing intangibles:
Trade names	Trade names	42.9		—		43.4		—		Trade names	42.4		—		42.5		—
Total intangibles	Total intangibles	$	348.7	$	(104.6)	$	229.8	$	(96.0)	Total intangibles	$	354.8	$	(114.9)	$	357.3	$	(107.6)

Amortization expense related to intangible assets for the ~~third~~second quarters ended ~~September~~June 30, 2022 and June 30, 2021 ~~and September 30, 2020~~ was ~~$4.3~~$4.4 million and ~~$2.4~~$3.5 million, respectively, and for the ~~nine~~six months ended ~~September~~June 30, 2022 and June 30, 2021, ~~and September 30, 2020, $10.2~~$8.7 million and ~~$7.0~~$6.0 million, respectively.

Amortization expense for each of the five succeeding years is projected as follows:
(In millions) 2021 2022 2023 2024 2025
$ 12.9 $ 14.8 $ 14.6 $ 14.4 $ 13.6


(In millions)	2022		2023		2024		2025		2026
	$	16.9	$	16.8	$	16.7	$	15.8	$	14.9

The change in the carrying amount of goodwill by reportable segment for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, 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, 2020		$	161.5	$	67.7	$	37.5	$	266.7
Balance as of December 31, 2021										Balance as of December 31, 2021	$	213.9	$	70.7	$	45.0	$	329.6
Acquisitions	Acquisitions	52.9		2.6		—		55.5		Acquisitions	—		—		—		—
Adjustments to prior year acquisitions	Adjustments to prior year acquisitions	0.1		—		—		0.1		Adjustments to prior year acquisitions	0.9		—		(0.6)		0.3
Foreign currency translation	Foreign currency translation	(2.0)		—		—		(2.0)		Foreign currency translation	(2.5)		(0.3)		—		(2.8)
Balance as of September 30, 2021		$	212.5	$	70.3	$	37.5	$	320.3
Balance as of June 30, 2022										Balance as of June 30, 2022	$	212.3	$	70.4	$	44.4	$	327.1

7. EMPLOYEE BENEFIT PLANS

Defined Benefit Plans - As of ~~September~~June 30, ~~2021,~~2022, the Company maintained 2 domestic pension plans and 3 German pension plans. The Company used a December 31, ~~2020~~2021 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~~employees. Both domestic plans were frozen as of December 31, ~~2011).~~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 ~~third~~second quarters and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020:~~2021:


(In millions)	Pension Benefits
	Second Quarter Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Service cost	$	0.2	$	0.2	$	0.4	$	0.4
Interest cost	0.8		0.7		1.6		1.4
Expected return on assets	(1.5)		(1.4)		(3.0)		(2.8)
Amortization of:
Prior service cost	—		—		—		—
Actuarial loss	1.2		1.1		2.4		2.1
Settlement cost	—		—		—		—
Net periodic benefit cost	$	0.7	$	0.6	$	1.4	$	1.1

(In millions) Pension Benefits
Third Quarter Ended Nine Months Ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Service cost $ 0.2 $ 0.2 $ 0.6 $ 0.5
Interest cost 0.7 1.1 2.1 3.3
Expected return on assets (1.3) (1.7) (4.1) (5.1)
Amortization of:
Prior service cost 1.2 — 3.3 —
Actuarial loss — 1.0 — 2.8
Settlement cost — — — —
Net periodic benefit cost $ 0.8 $ 0.6 $ 1.9 $ 1.5

In the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, 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 ~~2021 was~~2022 will be finalized by September 15, ~~2021,~~2022, based upon the funding level requirements identified and year-end valuation performed at December 31, ~~2020.~~2021.

The following table sets forth the aggregated net periodic benefit cost for the other post-retirement benefit plan for the ~~third~~second quarters and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020:~~

(In millions) Other Benefits
Third Quarter Ended Nine Months Ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Service cost $ — $ — $ — $ —
Interest cost — 0.1 0.1 0.2
Expected return on assets — — — —
Amortization of:
Prior service cost — — 0.1 —
Actuarial loss — — — —
Settlement cost — — — —
Net periodic benefit cost $ — $ 0.1 $ 0.2 $ 0.2

~~8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES~~

~~Accrued expenses and other current liabilities consist of:~~

(In millions) September 30, 2021 December 31, 2020
Salaries, wages, and commissions 54.5 36.4
Product warranty costs 10.3 9.7
Insurance 2.6 2.4
Employee benefits 10.0 9.8
Other 37.3 30.7
114.7 89.0

~~9. INCOME TAXES~~

The Company’s effective tax rate from continuing operations for the nine month period ended September 30, 2021 was 17.4 percent as compared to 18.9 percent for the nine month period ended September 30, 2020. 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. For the third quarter of 2021, the effective tax rate was 18.3 percent as compared to 17.3 percent for the third quarter of 2020.2021:


(In millions)	Other Benefits
	Second Quarter Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Service cost	$	—	$	—	$	—	$	—
Interest cost	—		0.1		0.1		0.1
Expected return on assets	—		—		—		—
Amortization of:
Prior service cost	—		—		—		—
Actuarial loss	—		0		—		0.1
Settlement cost	—		—		—		—
Net periodic benefit cost	$	—	$	0.1	$	0.1	$	0.2

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of:


(In millions)	June 30, 2022	December 31, 2021

Salaries, wages, and commissions	46.6	62.3
Product warranty costs	11.0	10.5
Insurance	2.1	2.3
Employee benefits	8.5	11.9
Other	34.6	28.4
Total	102.8	115.4

9. INCOME TAXES

The ~~decrease~~Company’s effective tax rate from continuing operations for the six month period ended June 30, 2022 was 21.2 percent as compared to 16.8 percent for the six month period ended June 30, 2021. The effective tax rate is higher than the U.S. statutory rate of 21 percent primarily due to state taxes offset by the recognition of the U.S. foreign-derived intangible income (FDII) provisions. For the second quarter of 2022, the effective tax rate was 21.9 percent compared to19.0 percent for the second quarter of 2021.

The increase in the effective tax rate for the ~~nine~~second quarter of 2022 as well as the six month period ended ~~September~~June 30, ~~2021, as compared to the nine month period ended September 30, 2020,~~2022 was primarily a result of ~~net~~less favorable discrete events ~~of $4.0 million~~recorded in the six month period ended June 30, 2022, as compared to the six month period ended June 30, 2021, ~~including increased~~primarily related to excess tax benefits from ~~share-based compensation, compared to net favorable discrete events of $0.7 million in 2020.~~share based compensation.

10. DEBT

Debt consisted of the following:


(In millions)	(In millions)	September 30, 2021		December 31, 2020		(In millions)	June 30, 2022		December 31, 2021

New York Life Agreement	New York Life Agreement	75.0		75.0		New York Life Agreement	75.0		75.0
Credit Agreement	Credit Agreement	105.0		—		Credit Agreement	217.7		96.6
Tax increment financing debt	Tax increment financing debt	16.5		17.6		Tax increment financing debt	15.9		16.5
Financing Leases		—		0.1

Foreign subsidiary debt	Foreign subsidiary debt	0.6		1.8		Foreign subsidiary debt	4.5		0.5
Other	Other	—		0.2		Other	—		0.1
Less: unamortized debt issuance costs	Less: unamortized debt issuance costs	(0.3)		(0.1)		Less: unamortized debt issuance costs	(0.2)		(0.2)
		$	196.8	$	94.6		$	312.9	$	188.5
Less: current maturities	Less: current maturities	(106.3)		(2.6)		Less: current maturities	(223.1)		(98.0)
Long-term debt	Long-term debt	$	90.5	92.0		Long-term debt	$	89.8	90.5

Debt outstanding, excluding unamortized debt issuance costs, at ~~September~~June 30, ~~2021~~2022 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	$	197.1	$	106.3	$	1.3	$	1.4	$	1.4	$	76.5	$	10.2	Debt	$	313.1	$	223.1	$	1.3	$	1.4	$	76.4	$	1.5	$	9.4

Prudential Agreement

The Company maintains the Fourth Amended and Restated Note Purchase and Private Shelf Agreement (the "Prudential Agreement") with PGIM, Inc. and its affiliates, which was renewed on July 30, 2021 and expires on July 30, 2024. The Prudential Agreement has an initial borrowing capacity of $150.0 million. As of ~~September~~June 30, ~~2021,~~2022, the Company had no notes issued and $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 Bonds ("Tax increment financing debt") bear interest at 3.6 percent per annum. Interest and principal balance of the Project Bonds 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 and its affiliates (the "New York Life Agreement"), which was renewed on July 30, 2021 and expires on July 30, 2024. The New York Life Agreement has 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 ~~September~~June 30, ~~2021,~~2022, there was $125.0 million remaining borrowing capacity under the New York Life Agreement.

Credit Agreement

The Company maintains the Fourth Amended and Restated Credit Agreement (the "Credit Agreement”). The Credit Agreement was renewed on May 13, 2021, has a maturity date of May 13, ~~2026, and~~2026. On May 11, 2022, the Company entered into Amendment No. 1 that increased the commitment amount offrom $250.0 million to $350.0 million. The Credit Agreement provides that the Borrowers may request an increase in the aggregate commitments by up to $125.0 million subject to agreement of the lenders (not to exceed a total commitment of ~~$375.0~~$475.0 million). Under the Credit Agreement, the Borrowers are required to pay certain fees, including a facility fee of ~~0.100%~~0.100 percent to ~~0.275%~~0.275 percent (depending on the Company's leverage ratio) of the aggregate commitment, which fee is payable quarterly in arrears. ~~Loans~~USD loans may be made either at (i) a ~~Eurocurrency rate based~~

Secured Overnight Financing Rate (SOFR) Term

~~on LIBOR~~Benchmark, with a zero percent floor, plus an applicable margin of ~~0.85%~~0.950 percent to ~~1.88%~~1.975 percent (depending on the Company's leverage ratio) or (ii) an alternative base rate as defined in the Credit Agreement. EUR loans may be made in Euro Interbank Offer Rate (EURIBOR) Term Benchmark, with a zero percent floor, plus an applicable margin of 0.850 percent to 1.875 percent (depending on the Company’s leverage ratio) or (ii) an alternative base rate as defined in the Credit Agreement.

As of ~~September~~June 30, ~~2021,~~2022, the Company had ~~$105.0~~$217.7 million outstanding borrowings, ~~$4.1~~$4.0 million in letters of credit outstanding, and ~~$140.9~~$128.3 million of available capacity under the Credit Agreement.

The Company also has lines of credit for certain subsidiaries with various expiration dates. The aggregate maximum borrowing capacity of these overdraft lines of credits is $19.3 million. As of June 30, 2022, there were $4.0 million outstanding borrowings and $15.3 million of available capacity under these lines of credit.

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 3.50 to 1.00 and a

minimum interest coverage ratio of 3.00 to 1.00. 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 ~~September~~June 30, ~~2021.~~2022.

11. 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 non-forfeitable 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:


		Third Quarter Ended				Nine Months Ended					Second Quarter Ended				Six Months Ended
(In millions, except per share amounts)	(In millions, except per share amounts)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020		(In millions, except per share amounts)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Numerator:	Numerator:									Numerator:
Net income attributable to Franklin Electric Co., Inc.	Net income attributable to Franklin Electric Co., Inc.	$	46.2	$	38.4	$	113.2	$	73.7	Net income attributable to Franklin Electric Co., Inc.	$	59.4	$	39.1	$	89.1	$	67.0
Less: Earnings allocated to participating securities	Less: Earnings allocated to participating securities	0.3		0.3		0.7		0.5		Less: Earnings allocated to participating securities	0.2		0.2		0.4		0.4
Net income available to common shareholders	Net income available to common shareholders	$	45.9	$	38.1	$	112.5	$	73.2	Net income available to common shareholders	$	59.2	$	38.9	$	88.7	$	66.6
Denominator:	Denominator:									Denominator:
Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	46.5		46.2		46.4		46.2		Basic weighted average common shares outstanding	46.3		46.5		46.4		46.4
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Non-participating employee stock options and performance awards		0.5		0.4		0.6		0.4
Non-participating employee stock options, performance awards, and deferred shares to non-employee directors										Non-participating employee stock options, performance awards, and deferred shares to non-employee directors	0.6		0.6		0.7		0.6
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	47.0		46.6		47.0		46.6		Diluted weighted average common shares outstanding	46.9		47.1		47.1		47.0
Basic earnings per share	Basic earnings per share	$	0.99	$	0.82	$	2.43	$	1.58	Basic earnings per share	$	1.27	$	0.84	$	1.91	$	1.44
Diluted earnings per share	Diluted earnings per share	$	0.98	$	0.82	$	2.40	$	1.57	Diluted earnings per share	$	1.26	$	0.83	$	1.89	$	1.42

There were ~~0.0~~0.1 million and ~~0.3~~0.0 million stock options outstanding for the ~~third~~second quarters ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, and 0.1 million and ~~0.4~~0.1 million stock options outstanding for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021, respectively, that were excluded from the computation of diluted earnings per share, as their inclusion would be anti-dilutive.

1718

12. EQUITY ROLL FORWARD

The schedules below set forth equity changes in the ~~third~~second quarters ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020:~~2021:


(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 June 30, 2021		$	4,645	$	298,944	$	804,047	$	(50,897)	$	(155,440)	$	2,541	$	903,840	$	(209)
Balance as of March 31, 2022																		Balance as of March 31, 2022	$	4,635	$	314,935	$	861,156	$	(48,144)	$	(170,875)	$	2,352	$	964,059	$	106
Net income	Net income					46,172						218		46,390		64		Net income					59,364						229		59,593		170
Dividends on common stock ($0.175/share)						(8,179)								(8,179)
Dividends on common stock ($0.195/share)																		Dividends on common stock ($0.195/share)					(9,076)								(9,076)
Common stock issued	Common stock issued	7		2,394										2,401				Common stock issued	3		1,570										1,573
Common stock repurchased	Common stock repurchased	(12)				(9,895)								(9,907)				Common stock repurchased	(15)				(11,309)								(11,324)
Share-based compensation	Share-based compensation	1		2,347										2,348				Share-based compensation	5		2,332										2,337
Noncontrolling dividend												—		—

Currency translation adjustment	Currency translation adjustment									(12,034)		(50)		(12,084)		(1)		Currency translation adjustment									(19,418)		(95)		(19,513)		8
Pension liability, net of tax	Pension liability, net of tax							915						915				Pension liability, net of tax							924						924
Balance as of September 30, 2021		$	4,641	$	303,685	$	832,145	$	(49,982)	$	(167,474)	$	2,709	$	925,724	$	(146)
Balance as of June 30, 2022																		Balance as of June 30, 2022	$	4,628	$	318,837	$	900,135	$	(47,220)	$	(190,293)	$	2,486	$	988,573	$	284


(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 June 30, 2020		$	4,618	$	278,175	$	715,621	$	(48,657)	$	(175,893)	$	1,647	$	775,511	$	(262)
Balance as of March 31, 2021																		Balance as of March 31, 2021	$	4,641	$	292,668	$	779,456	$	(51,782)	$	(163,554)	$	2,257	$	863,686	$	(168)
Net Income	Net Income					38,372						178		38,550		25		Net Income					39,141						270		39,411		(48)
Dividends on common stock ($0.155/share)						(7,195)								(7,195)
Dividends on common stock ($0.175/share)																		Dividends on common stock ($0.175/share)					(8,177)								(8,177)
Common stock issued	Common stock issued	6		1,488										1,494				Common stock issued	12		3,894										3,906
Common stock repurchased	Common stock repurchased	(3)				(1,364)								(1,367)				Common stock repurchased	(9)				(6,373)								(6,382)
Share-based compensation	Share-based compensation	(1)		1,298										1,297				Share-based compensation	1		2,382										2,383
Noncontrolling dividend												—		—

Currency translation adjustment	Currency translation adjustment									3,330		48		3,378		(14)		Currency translation adjustment									8,114		14		8,128		7
Pension liability, net of taxes	Pension liability, net of taxes							774						774				Pension liability, net of taxes							885						885
Balance as of September 30, 2020		$	4,620	$	280,961	$	745,434	$	(47,883)	$	(172,563)	$	1,873	$	812,442	$	(251)
Balance as of June 30, 2021																		Balance as of June 30, 2021	$	4,645	$	298,944	$	804,047	$	(50,897)	$	(155,440)	$	2,541	$	903,840	$	(209)

1819

The schedule below set forth equity changes in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020:~~2021:


(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
Balance as of December 31, 2021																		Balance as of December 31, 2021	$	4,648	$	310,617	$	859,817	$	(49,076)	$	(179,505)	$	2,161	$	948,662	$	(19)
Net Income																		Net Income					89,129						464		89,593		289
Dividends on common stock ($0.390/share)																		Dividends on common stock ($0.390/share)					(18,205)								(18,205)
Common stock issued																		Common stock issued	4		1,912										1,916
Common stock repurchased																		Common stock repurchased	(38)				(30,606)								(30,644)
Share-based compensation																		Share-based compensation	14		6,308										6,322

Currency translation adjustment																		Currency translation adjustment									(10,788)		(139)		(10,927)		14
Pension liability, net of taxes																		Pension liability, net of taxes							1,856						1,856
Balance as of June 30, 2022																		Balance as of June 30, 2022	$	4,628	$	318,837	$	900,135	$	(47,220)	$	(190,293)	$	2,486	$	988,573	$	284

(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, 2020	Balance as of December 31, 2020	$	4,622	$	283,420	$	764,562	$	(52,666)	$	(152,105)	$	2,116	$	849,949	$	(245)	Balance as of December 31, 2020	$	4,622	$	283,420	$	764,562	$	(52,666)	$	(152,105)	$	2,116	$	849,949	$	(245)
Net Income	Net Income					113,193						695		113,888		92		Net Income					67,021						477		67,498		28
Dividends on common stock ($0.525/share)						(24,499)								(24,499)
Dividends on common stock ($0.350/share)																		Dividends on common stock ($0.350/share)					(16,320)								(16,320)
Common stock issued	Common stock issued	33		11,357										11,390				Common stock issued	26		8,963										8,989
Common stock repurchased	Common stock repurchased	(27)				(21,111)								(21,138)				Common stock repurchased	(15)				(11,216)								(11,231)
Share-based compensation	Share-based compensation	13		8,908										8,921				Share-based compensation	12		6,561										6,573
Noncontrolling dividend												—		—

Currency translation adjustment	Currency translation adjustment									(15,369)		(102)		(15,471)		7		Currency translation adjustment									(3,335)		(52)		(3,387)		8
Pension liability, net of taxes	Pension liability, net of taxes							2,684						2,684				Pension liability, net of taxes							1,769						1,769
Balance as of September 30, 2021		$	4,641	$	303,685	$	832,145	$	(49,982)	$	(167,474)	$	2,709	$	925,724	$	(146)
Balance as of June 30, 2021																		Balance as of June 30, 2021	$	4,645	$	298,944	$	804,047	$	(50,897)	$	(155,440)	$	2,541	$	903,840	$	(209)

(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						73,666						534		74,200		(31)
Dividends on common stock ($0.465/share)						(21,641)								(21,641)
Common stock issued		10		3,004										3,014
Common stock repurchased		(40)				(19,051)								(19,091)
Share-based compensation		11		8,301										8,312
Noncontrolling dividend												(830)		(830)

Currency translation adjustment										(32,442)		45		(32,397)		16
Pension liability, net of taxes								2,206						2,206
Balance as of September 30, 2020		$	4,620	$	280,961	$	745,434	$	(47,883)	$	(172,563)	$	1,873	$	812,442	$	(251)

1920

13. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

Changes in accumulated other comprehensive income/(loss) by component for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, are summarized below:


(In millions)	(In millions)							(In millions)	Foreign Currency Translation Adjustments			Pension and Post-Retirement Plan Benefit Adjustments (2)			Total
For the nine months ended September 30, 2021:		Foreign Currency Translation Adjustments		Pension and Post-Retirement Plan Benefit Adjustments (2)		Total
For the six months ended June 30, 2022:								For the six months ended June 30, 2022:			Foreign Currency Translation Adjustments			Pension and Post-Retirement Plan Benefit Adjustments (2)			Total
Balance as of December 31, 2021								Balance as of December 31, 2021

Other comprehensive income/(loss) before reclassifications								Other comprehensive income/(loss) before reclassifications	(10.7)					—			(10.7)
Amounts reclassified from accumulated other comprehensive income/(loss) (1)								Amounts reclassified from accumulated other comprehensive income/(loss) (1)	—			1.8			1.8
Net other comprehensive income/(loss)								Net other comprehensive income/(loss)	(10.7)			1.8			(8.9)

Balance as of June 30, 2022								Balance as of June 30, 2022	$	(190.3)		$	(47.2)		$	(237.5)

For the six months ended June 30, 2021:								For the six months ended June 30, 2021:
Balance as of December 31, 2020	Balance as of December 31, 2020	$	(152.2)	$	(52.6)	$	(204.8)	Balance as of December 31, 2020	$	(152.2)		$	(52.6)		$	(204.8)

Other comprehensive income/(loss) before reclassifications	Other comprehensive income/(loss) before reclassifications	(15.3)		—		(15.3)		Other comprehensive income/(loss) before reclassifications	(3.3)			—			(3.3)
Amounts reclassified from accumulated other comprehensive income/(loss) (1)	Amounts reclassified from accumulated other comprehensive income/(loss) (1)	—		2.7		2.7		Amounts reclassified from accumulated other comprehensive income/(loss) (1)	—			1.8			1.8
Net other comprehensive income/(loss)	Net other comprehensive income/(loss)	(15.3)		2.7		(12.6)		Net other comprehensive income/(loss)	(3.3)			1.8			(1.5)

Balance as of September 30, 2021		$	(167.5)	$	(49.9)	$	(217.4)

For the nine months ended September 30, 2020:
Balance as of December 31, 2019		$	(140.2)	$	(50.0)	$	(190.2)

Other comprehensive income/(loss) before reclassifications		(32.4)		—		(32.4)
Amounts reclassified from accumulated other comprehensive income/(loss) (1)		—		2.2		2.2
Net other comprehensive income/(loss)		(32.4)		2.2		(30.2)

Balance as of September 30, 2020		$	(172.6)	$	(47.8)	$	(220.4)
Balance as of June 30, 2021								Balance as of June 30, 2021	$	(155.5)		$	(50.8)		$	(206.3)

(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 ~~$0.7~~$0.5 million and ~~$0.6~~$0.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, respectively.

Amounts related to noncontrolling interests were not material.

14. 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.

2021

Financial information by reportable business segment is included in the following summary:
Third Quarter Ended Nine Months Ended
(In millions) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Net sales
Water Systems
External sales
United States & Canada $ 134.8 $ 93.4 $ 333.1 $ 245.1
Latin America 36.5 30.1 102.9 82.5
Europe, Middle East & Africa 46.9 41.8 142.7 115.5
Asia Pacific 19.6 19.5 59.9 53.0
Intersegment sales
United States & Canada 22.9 18.1 66.9 49.3
Total sales 260.7 202.9 705.5 545.4
Distribution
External sales
United States & Canada 140.2 98.0 380.7 250.5
Intersegment sales — — — —
Total sales 140.2 98.0 380.7 250.5
Fueling Systems
External sales
United States & Canada 58.9 46.4 146.6 119.0
All other 22.1 22.0 63.4 60.6
Intersegment sales — — — —
Total sales 81.0 68.4 210.0 179.6
Intersegment Eliminations/Other (22.9) (18.1) (66.9) (49.3)
Consolidated $ 459.0 $ 351.2 $ 1,229.3 $ 926.2
Third Quarter Ended Nine Months Ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Operating income/(loss)
Water Systems $ 36.8 $ 36.6 $ 102.7 $ 84.1
Distribution 12.3 6.4 30.3 10.9
Fueling Systems 23.9 18.9 57.3 44.5
Intersegment Eliminations/Other (16.4) (13.5) (48.3) (43.4)
Consolidated $ 56.6 $ 48.4 $ 142.0 $ 96.1


							Second Quarter Ended				Six Months Ended
(In millions)						(In millions)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
							Net sales
Water Systems						Water Systems
External sales						External sales
United States & Canada						United States & Canada	$	158.4	$	114.1	$	293.1	$	198.3
Latin America						Latin America	41.7		34.7		79.6		66.4
Europe, Middle East & Africa						Europe, Middle East & Africa	49.7		51.4		100.7		95.8
Asia Pacific						Asia Pacific	24.2		20.1		44.7		40.3
Intersegment sales						Intersegment sales
United States & Canada						United States & Canada	36.5		26.9		65.0		44.0
Total sales						Total sales	310.5		247.2		583.1		444.8
Distribution						Distribution
External sales						External sales
United States & Canada						United States & Canada	191.1		144.8		326.0		240.5
Intersegment sales						Intersegment sales	—		—		—		—
Total sales						Total sales	191.1		144.8		326.0		240.5
Fueling Systems						Fueling Systems
External sales						External sales
United States & Canada						United States & Canada	64.2		50.6		116.0		88.1
All other						All other	21.8		21.6		42.5		40.9
Intersegment sales						Intersegment sales	—		—		—		—
Total sales						Total sales	86.0		72.2		158.5		129.0

Intersegment Eliminations/Other						Intersegment Eliminations/Other	(36.5)		(26.9)		(65.0)		(44.0)
Consolidated						Consolidated	$	551.1	$	437.3	$	1,002.6	$	770.3

							Second Quarter Ended				Six Months Ended
		September 30, 2021		December 31, 2020			June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
		Total assets					Operating income/(loss)
Water Systems	Water Systems	$	909.7	$	645.9	Water Systems	$	49.0	$	34.6	$	82.2	$	65.9
Distribution	Distribution	293.6		249.0		Distribution	23.3		16.0		32.7		18.0
Fueling Systems	Fueling Systems	282.5		268.9		Fueling Systems	26.1		18.5		43.8		33.4
Other		60.2		108.5
Intersegment Eliminations/Other						Intersegment Eliminations/Other	(17.4)		(17.5)		(37.8)		(31.9)
Consolidated	Consolidated	$	1,546.0	$	1,272.3	Consolidated	$	81.0	$	51.6	$	120.9	$	85.4


	June 30, 2022		December 31, 2021
	Total assets
Water Systems	$	1,019.3	$	894.4
Distribution	407.2		363.0
Fueling Systems	278.8		273.6
Other	46.2		44.2
Consolidated	$	1,751.5	$	1,575.2

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

15. COMMITMENTS AND CONTINGENCIES

In 2011, the Company became aware of a review of alleged issues with certain underground piping connections installed in filling stations in France owned by the French Subsidiary of Exxon Mobile, Esso S.A.F. A French court ordered that a designated, subject-matter expert review 103 filling stations to determine what, if any, damages are present and the cause of those damages. The Company has participated in this investigation since 2011, along with several other third parties including equipment installers, engineering design firms who designed and provided specifications for the stations, and contract manufacturers of some of the installed equipment. ~~The~~In May 2022 the subject-matter expert ~~has~~ issued its ~~preliminary~~final report, which indicates that total damages incurred by Esso amounted to approximately 129.5 million ~~euro.~~Euro. It is the Company’s continuing position that its products were not the cause of any alleged damage. The ~~Company has retained experts to demonstrate that its products did not cause the damage, and in January 2021, submitted its~~Company's response to the ~~expert’s preliminary report for each station. The~~ expert's ~~response to the Company's~~final report is due toin January 2023, at which time the ~~Court in June 2022.~~French court will determine whether the merits of the claim warrant additional proceedings. The Company cannot predict the ultimate outcome of this matter. Any exposure related to this matter is neither probable nor estimable at this time. If payments result from a resolution of this matter, depending on the amount, they could have a material effect on the Company’s financial position, results of operations, or cash flows.

The Company is defending other 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 ~~September~~June 30, ~~2021,~~2022, the Company had ~~$14.1~~$13.9 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 ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, are as follows:


(In millions)
Balance as of December 31, ~~2020~~2021	$	~~9.7~~10.5
Accruals related to product warranties	~~7.0~~4.8
Additions related to acquisitions	~~0.1~~—
Reductions for payments made	~~(6.5)~~(4.3)
Balance as of ~~September~~June 30, ~~2021~~2022	$	~~10.3~~11.0

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~~in effect at the inception of ~~any new leases entered into thereafter~~a lease 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 second quarter and six months ended June 30, 2022 are as follows:

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	Second Quarter Ended				Six Months Ended
Lease Cost (in millions):	June 30, 2022		June 30, 2021		June 30, 2022			June 30, 2021
Operating lease cost	$	4.3	$	2.7	$	8.5		$	5.7
Short-term lease cost	—		0.1		0.1			0.4

Other Information:
Weighted-average remaining lease term					4.2 years			4.1 years
Weighted-average discount rate					3.8		%	4.0		%

~~The components~~

As of June 30, 2022, the ~~Company’s operating~~Company has approximately $2.9 million of additional ROU assets related to leases that have not yet commenced, but create future lease ~~portfolio as of the third quarter and nine months ended September 30, 2021 are as follows:~~
Lease Cost (in millions): Third Quarter Ended Nine Months Ended
Operating lease cost $ 3.5 $ 9.2
Short-term lease cost 0.1 0.5
Other Information:
Weighted-average remaining lease term 4.1 years
Weighted-average discount rate 4.1 %
obligations.

The minimum rental payments for non-cancellable operating leases as of ~~September~~June 30, ~~2021,~~2022, are as follows:


(In millions)	(In millions)	2021		2022		2023		2024		2025		Thereafter		(In millions)	2022		2023		2024		2025		2026		Thereafter
Future Minimum Rental Payments	Future Minimum Rental Payments	$	3.9	$	12.1	$	8.5	$	5.1	$	3.3	$	7.1	Future Minimum Rental Payments	$	8.6	$	14.6	$	9.6	$	6.4	$	5.1	$	7.5

16. 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

No additional options and awards are granted out of the 2012 Stock Plan. However, there are still unvested awards and unexercised options under this plan.

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.

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The assumptions used for the Black-Scholes model to determine the fair value of options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021 are as follows:


		September 30, 2021		September 30, 2020			June 30, 2022		June 30, 2021
Risk-free interest rate	Risk-free interest rate	0.66	%	1.39	%	Risk-free interest rate	1.87	%	0.66	%
Dividend yield	Dividend yield	0.96	%	1.04	%	Dividend yield	0.93	%	0.96	%

Volatility factor	Volatility factor	34.98	%	29.45	%	Volatility factor	33.88	%	34.98	%

Expected term	Expected term	5.5 years		5.5 years		Expected term	5.5 years		5.5 years

A summary of the Company’s outstanding stock option activity and related information for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 is as follows:


(Shares in thousands)	(Shares in thousands)	September 30, 2021			(Shares in thousands)	June 30, 2022
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	1,331	$	41.90	Outstanding at beginning of period	1,043	$	49.21
Granted	Granted	152	73.14		Granted	110	83.90
Exercised	Exercised	(333)	34.18		Exercised	(39)	48.84
Forfeited	Forfeited	—	—		Forfeited	(19)	73.52
Expired					Expired	(3)	$	73.14
Outstanding at end of period	Outstanding at end of period	1,150	$	48.25	Outstanding at end of period	1,092	$	52.23
Expected to vest after applying forfeiture rate	Expected to vest after applying forfeiture rate	1,147	$	48.22	Expected to vest after applying forfeiture rate	1,090	$	52.18
Vested and exercisable at end of period	Vested and exercisable at end of period	764	$	41.45	Vested and exercisable at end of period	858	$	46.04

A summary of the weighted-average remaining contractual term and aggregate intrinsic value as of ~~September~~June 30, ~~2021~~2022 is as follows:

Weighted-Average Remaining Contractual Term

Aggregate Intrinsic Value (000's)

Outstanding at end of period

~~6.22~~5.68 years

~~24,688~~24,068

Expected to vest after applying forfeiture rate

~~6.21~~5.68 years

~~24,676~~24,066

Vested and exercisable at end of period

~~5.13~~4.81 years

~~21,223~~23,363

The total intrinsic value of options exercised during the ~~nine~~six months ended ~~September~~June 30, 2022 and June 30, 2021 ~~and September 30, 2020~~ was ~~$15.1~~$1.1 million and ~~$2.4~~$11.2 million, respectively.

As of ~~September~~June 30, ~~2021,~~2022, there was ~~$1.2~~$1.3 million of total unrecognized compensation cost related to non-vested stock options granted under the stock plans. That cost is expected to be recognized over a weighted-average period of ~~1.49~~1.88 years.

Stock/Stock Unit Awards:

A summary of the Company’s restricted stock/stock unit award activity and related information for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 is as follows:


(Shares in thousands)	(Shares in thousands)	September 30, 2021			(Shares in thousands)	June 30, 2022
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	403	$	49.34	Non-vested at beginning of period	348	$	58.20
Awarded	Awarded	104	74.23		Awarded	121	81.16
Vested	Vested	(124)	43.52		Vested	(180)	50.53
Forfeited	Forfeited	(11)	50.06		Forfeited	(24)	69.69
Non-vested at end of period	Non-vested at end of period	372	$	58.21	Non-vested at end of period	265	$	72.83

As of ~~September~~June 30, ~~2021,~~2022, there was ~~$9.7~~$12.5 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 ~~1.13~~1.63 years.

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

~~Third~~Second Quarter ~~2021~~2022 vs. ~~Third~~Second Quarter ~~2020~~2021

OVERVIEW

Sales in the ~~third~~second quarter of ~~2021~~2022 increased from the ~~third~~second quarter of last year. ~~The~~Sales in the quarter increased by $113.8 million, or about 26 percent, due to higher sales ~~increase was led~~across all three segments, achieved by ~~increases from volume,~~ price realization, acquisitions, and ~~acquisitions.~~volume. The Company's consolidated gross profit was ~~$163.1~~$189.3 million for the ~~third~~second quarter of ~~2021,~~2022, an increase ~~of $38.8 million or about 31 percent~~ from the prior year’s ~~third~~second quarter. ~~Earnings~~The gross profit as a percent of net sales was 34.3 percent in the second quarter of 2022 versus 34.8 percent during the second quarter of 2021. Diluted earnings per share in the ~~third~~second quarter of ~~2021~~2022 were up tofrom the same period last ~~year by about 20 percent.~~year.

RESULTS OF OPERATIONS

Net Sales

Net sales in the ~~third~~second quarter of ~~2021~~2022 were ~~$459.0~~$551.1 million, an increase of ~~$107.8~~$113.8 million or about 3126 percent compared to ~~2020 third~~2021 second quarter sales of ~~$351.2~~$437.3 million. Acquisition related sales were ~~$47.4~~$34.4 million. Sales ~~revenue increased~~decreased by ~~$1.1~~$19.4 million or ~~less than 1~~about 4 percent in the ~~third~~second quarter of ~~2021~~2022 due to foreign currency translation. The Company’s organic sales growth, led by price realization, increased about 23 percent compared to the second quarter of 2021.


		Net Sales							Net Sales
(In millions)	(In millions)	Q3 2021		Q3 2020		2021 v 2020		(In millions)	Q2 2022		Q2 2021		2022 v 2021
Water Systems	Water Systems	$	260.7	$	202.9	$	57.8	Water Systems	$	310.5	$	247.2	$	63.3
Fueling Systems	Fueling Systems	81.0		68.4		$	12.6	Fueling Systems	86.0		72.2		13.8
Distribution	Distribution	140.2		98.0		$	42.2	Distribution	191.1		144.8		46.3
Eliminations/Other	Eliminations/Other	(22.9)		(18.1)		$	(4.8)	Eliminations/Other	(36.5)		(26.9)		(9.6)
Consolidated	Consolidated	$	459.0	$	351.2	$	107.8	Consolidated	$	551.1	$	437.3	$	113.8

Net Sales-Water Systems

Water Systems sales were ~~$260.7~~$310.5 million in the ~~third~~second quarter ~~2021,~~of 2022, an increase of ~~$57.8~~$63.3 million or about 26 percent versus the ~~third quarter 2020 sales of $202.9 million. In the third~~second quarter of 2021 sales ~~from businesses acquired since the third quarter~~ of ~~2020~~$247.2 million. Acquisition related sales were ~~$34.2~~$14.8 million. Water Systems sales ~~increased~~decreased by ~~$0.7~~$17.9 million or ~~less than 1~~about 7 percent in the quarter due to foreign currency translation. Excluding acquisitions and foreign currency translation, Water Systems sales ~~excluding acquisitions and the impact of foreign currency translation,~~ were up $66.4 million or about 1127 percent compared to the ~~third~~second quarter ~~2020.~~of 2021. This revenue growth was primarily from price and volume, which was up due to strong end market demand.

Water Systems sales in the U.S. and Canada were up ~~overall by 41~~about 38 percent compared to the ~~third~~second quarter ~~2020.~~of 2021. The impact of foreign currency translation decreased sales by about 1 percent. In the ~~third~~second quarter of ~~2021,~~2022, sales from businesses acquired since the ~~third~~second quarter of ~~2020~~2021 were ~~$33.7~~$12.9 million. InOrganic Water Systems sales in the U.S. and Canada ~~Water Systems organic sales increased by 10 percent.~~were 30 percent in the second quarter. Sales of groundwater pumping equipment increased by about 1238 percent and sales of ~~dewatering equipment were up about 60 percent, both due to strong end market demand. Sales of~~all surface pumping equipment increased by about 322 percent versus the ~~third~~first quarter ~~2020, as supply constraints with certain utility pumps~~2021, due to strong end market demand and ~~lower overall sales of sump pumps limited their growth rate.~~pricing.

Water Systems sales in markets outside the U.S. and Canada increased by 139 percent overall. ~~Foreign~~The impact of foreign currency translation ~~had no effect on sales.~~decreased sales by about 16 percent. In the ~~third~~second quarter of ~~2021,~~2022, sales from businesses acquired since the ~~third~~second quarter of ~~2020~~2021 were ~~$0.5~~$1.9 million. ~~Outside~~Organic Water Systems sales in markets outside the U.S. and Canada, ~~Water Systems organic sales~~ increased by 1223 percent, primarily driven by higher sales in ~~Latin America,~~ Europe, the Middle East and ~~Africa, partially offset by lower~~African (EMEA) markets. The Company also had higher sales in the Latin American and the Asia Pacific markets.

Net Sales-Fueling Systems

Fueling Systems sales were ~~$81.0~~$86.0 million in the ~~third~~second quarter ~~2021,~~of 2022, an increase of ~~$12.6~~$13.8 million or about 19 percent versus the ~~third quarter 2020 sales of $68.4 million. In the third~~second quarter of 2021 sales ~~increased~~of $72.2 million. Fueling Systems sales decreased by ~~$0.4~~$1.5 million or about 12 percent in the quarter due to foreign currency translation. Fueling Systems organic sales increased by $15.3 million or about 1821 percent compared to the ~~third~~second quarter of ~~2020.~~2021, this revenue growth was from price and volume.

Fueling Systems sales in the U.S. and Canada increased by about 2720 percent compared to the ~~third~~second quarter ~~2020.~~of 2021. The increase was due, in part, to ~~higher~~robust demand for ~~Fuel Management and Pumping Systems, and Piping.~~infrastructure buildout in the U.S. Outside the U.S. and Canada, Fueling Systems revenues decreased by about 1 percent, as sales increases of 11 percent in the rest of the world outside of China were offset by lower sales in China. China sales were about $4 million in the third quarter of 2021 compared to the third quarter of 2020 Fueling Systems China sales of about $6 million.

2526

Systems revenues decreased by about 6 percent, as sales increases of 3 percent in the rest of the world outside of China were not enough to offset lower sales in China.

Net Sales - Distribution

Distribution sales were ~~$140.2~~$191.1 million in the ~~third~~second quarter ~~2021,~~of 2022, versus ~~third~~the second quarter ~~2020~~of 2021 sales of ~~$98.0~~$144.8 million. In the ~~third~~second quarter of ~~2021,~~2022, sales from businesses acquired since the ~~third~~second quarter of ~~2020~~2021 were ~~$13.2~~$19.6 million. The Distribution segment organic sales increased ~~about 30~~18 percent compared to the ~~third~~second quarter of ~~2020.~~2021. Revenue growth was primarily from price and was driven by broad-based demand in all regions and product categories.

Cost of Sales

Cost of sales as a percent of net sales for the ~~third~~second quarter of ~~2021 and 2020~~2022 was ~~64.5~~65.7 percent and ~~64.6~~65.2 percent ~~respectively.~~for the second quarter of 2021. Correspondingly, the gross profit margin ~~as a~~was 34.3 percent and 34.8 percent for the second quarters of ~~net sales was 35.5 percent in the third quarter of~~2022 and 2021, ~~compared to 35.4 percent in the third quarter of 2020. The gross profit margin was flat as material inflation costs were offset by price increases.~~respectively. The Company's consolidated gross profit was ~~$163.1~~$189.3 million for the ~~third~~second quarter of ~~2021, an increase of $38.8~~2022, up $37.1 million from the gross profit of ~~$124.3~~$152.2 million in the ~~third~~second quarter of ~~2020.~~2021. The gross profit increase was ~~primarily~~ due to higher sales. In the second quarter, the gross profit margin percentage was down 50 basis points, as realized pricing actions offset inflationary cost increases; however, supply constraints caused some unfavorable manufacturing absorption variances.

Selling, General, and Administrative ("SG&A")

Selling, general, and administrative (SG&A) expenses were ~~$106.4~~$108.3 million in the ~~third~~second quarter of ~~2021~~2022 compared to ~~$75.5~~$100.5 million in the ~~third~~second quarter of ~~the prior year.~~2021. SG&A expenses from acquired businesses were ~~about $12 million. Excluding acquisitions,~~$7.6 million and excluding the acquired entities, SG&A expenses were higher by ~~$19.0~~$0.2 million ~~about $11 million of which is variable compensation expense and commissions on higher sales.~~versus the prior year.

Restructuring Expenses

There were no restructuring expenses for the second quarter of 2022. Restructuring expenses for the ~~third~~second quarter of 2021 were ~~$0.1~~$0.2 million ~~primarily~~and related to continued miscellaneous manufacturing and distribution realignment activities in the Water segment and related to miscellaneous manufacturing realignment activities. Restructuring expenses for the third quarter of 2020 were $0.4 million, primarily in the Water segment and related to miscellaneous manufacturing realignment activities.Systems segment.

Operating Income

Operating income was ~~$56.6~~$81.0 million in the ~~third~~second quarter of ~~2021,~~2022, up ~~$8.2~~$29.4 million or 17about 57 percent from ~~$48.4~~$51.6 million in the ~~third~~second quarter of ~~2020.~~2021.


		Operating income (loss)							Operating income (loss)
(In millions)	(In millions)	Q3 2021		Q3 2020		2021 v 2020		(In millions)	Q2 2022		Q2 2021		2022 v 2021
Water Systems	Water Systems	36.8		$	36.6	$	0.2	Water Systems	$	49.0	$	34.6	$	14.4
Fueling Systems	Fueling Systems	23.9		18.9		5.0		Fueling Systems	26.1		18.5		7.6
Distribution	Distribution	12.3		6.4		5.9		Distribution	23.3		16.0		7.3
Eliminations/Other	Eliminations/Other	(16.4)		(13.5)		(2.9)		Eliminations/Other	(17.4)		(17.5)		0.1
Consolidated	Consolidated	$	56.6	$	48.4	$	8.2	Consolidated	$	81.0	$	51.6	$	29.4

Operating Income-Water Systems

Water Systems operating income was ~~$36.8~~$49.0 million in the ~~third quarter 2021, up $0.2 million compared to $36.6 million in the third quarter 2020. The third~~second quarter of 2022, up $14.4 million or about 42 percent versus the second quarter of 2021 and operating income margin was ~~14.1~~15.8 percent, ~~versus 18.0~~an increase of 180 basis points, compared to the 14.0 percent ~~of net sales~~ in the ~~third~~second quarter of ~~2020.~~2021. The ~~decline~~increase in operating ~~margin~~income was primarily due to higher ~~SG&A expenses; primarily~~sales. Operating income margin improved due to leverage on fixed cost from higher ~~variable compensation~~sales, price realization and ~~other operating expenses relating to increased commercial activity. Additionally, significant~~ cost inflation in materials, components, freight, and tariffs, all of which the Company strived to fully offset with pricing, and a higher mix of Water Treatment sales at a lower margin also contributed to the lower operating margin.management.

Operating Income-Fueling Systems

Fueling Systems operating income was ~~$23.9~~$26.1 million in the ~~third~~second quarter of 2022, up $7.6 million or about 41 percent compared to $18.5 million in the second quarter of 2021, ~~up $5.0 million or about 26~~and the second quarter operating income margin was 30.3 percent, ~~compared to $18.9 million~~an increase of 470 basis points from the 25.6 percent of net sales in the ~~third~~second quarter of ~~2020.~~2021. The increase in operating income was primarily due to higher ~~sales revenues. The third quarter of 2021 operating income margin was 29.5 percent versus 27.6 percent of net sales in the third~~

~~quarter of 2020.~~sales. Operating income margin ~~in the third quarter increased in Fueling Systems primarily~~improved due to leverage on fixed cost from higher sales, ~~volumes, favorable product,~~price realization and ~~geographic sales mix shifts.~~cost management.

Operating Income-Distribution

Distribution operating income was ~~$12.3~~$23.3 million in the ~~third~~second quarter of 2022, and the second quarter operating income margin was 12.2 percent. Distribution operating income was $16.0 million in the second quarter of 2021, and the ~~third~~second quarter operating income margin was ~~8.8~~11.0 percent. ~~Distribution~~The increase in operating income was ~~$6.4 million in the third quarter of 2020 and the third quarter operating income margin was 6.5 percent. Distribution’s operating income was higher in the third quarter~~primarily due to higher ~~sales volumes.~~sales. The increase in operating income margin was related to higher revenues, primarily ~~due to revenue growth and operating leverage.~~price realization.

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Operating Income-Eliminations/Other

Operating income-Eliminations/Other is composed primarily of unallocated general and administrative expenses and inter-segment sales and profit ~~eliminations and unallocated general and administrative expenses.~~eliminations. The inter-segment profit elimination impact in the ~~third~~second quarter of 2022 versus the second quarter of 2021 compared to the third quarter of 2020 negative impact of $0.3 million on operating income. The inter-segment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in the consolidated financial results until the transferred product is sold from the Distribution segment to its customer. Unallocated generalwas unfavorable by $1.8 million. General and administrative expenses were ~~higher~~lower by ~~$2.6~~$1.9 million ~~or about 19 percent,~~ primarily ~~higher~~ due to ~~higher~~lower variable ~~compensation expense.~~compensation.

Interest Expense

Interest expense for the ~~third~~second quarter of 2022 was $2.9 million, up due to higher debt and $0.7 million from interest penalties on an indirect tax settlement in a foreign jurisdiction. Interest expense for the second quarter of 2021 ~~and 2020~~ was $1.4 ~~million and $1.1 million, respectively.~~million.

Other Income or Expense

Other income or expense was a ~~gain~~loss of ~~$2.1~~$1.2 million in the second quarter of 2022 and included an unfavorable indirect tax settlement in a foreign jurisdiction of about $1.0 million and a loss of ~~$0.5~~$0.4 million in the ~~third~~second quarter of ~~2021 and 2020, respectively. Included in other income or expense in the third quarter of 2021 was a gain of $2.5 million related to a settlement of an indirect tax dispute.~~2021.

Foreign Exchange

Foreign currency-based transactions produced a loss for the ~~third~~second quarter of ~~2021~~2022 of ~~$0.4 million.~~$0.3 million, primarily due to the Turkish lira relative to the U.S. dollar. Foreign currency-based transactions produced a loss for the ~~third~~second quarter of ~~2020~~2021 of ~~$0.1 million.~~$1.2 million, primarily due to the Argentinian peso relative to the U.S. dollar.

Income Taxes

The provision for income taxes in the ~~third~~second quarter of 2022 and 2021 ~~and 2020~~ was ~~$10.4~~$16.8 million and ~~$8.1~~$9.3 million, respectively. The effective tax rate for the ~~third~~second quarter of 2022 was about 22 percent and, before the impact of discrete events, was about 21 percent. The effective tax rate for the second quarter of 2021 was about 1819 percent and, before the impact of discrete events, was about 20 percent. The increase in the effective tax rate ~~for~~was primarily a result of net unfavorable discrete events recorded in the ~~third~~second quarter of ~~2020 was about 17 percent and, before the impact of~~2022, as opposed to net favorable discrete events, ~~was about 20 percent.~~recorded in the second quarter of 2021, primarily related to excess tax benefits from share-based compensation. The tax rate as a percentage of pre-tax earnings for the full year ~~2021~~2022 is projected to be about 2021 percent, compared to the full year ~~2020~~2021 tax rate of about 21 percent, both before discrete adjustments.

Net Income

Net income for the ~~third~~second quarter of ~~2021~~2022 was ~~$46.5~~$59.8 million compared to the prior year ~~third~~second quarter net income of ~~$38.6~~$39.4 million. Net income attributable to Franklin Electric Co., Inc. for the ~~third~~second quarter of ~~2021~~2022 was ~~$46.2~~$59.4 million, or ~~$0.98~~$1.26 per diluted share, compared to the prior year ~~third~~second quarter net income attributable to Franklin Electric Co., Inc. of ~~$38.4~~$39.1 million or ~~$0.82~~$0.83 per diluted share.

First ~~Nine Months~~Half of ~~2021~~2022 vs. First ~~Nine Months~~Half of ~~2020~~2021

OVERVIEW

Sales in the first ~~nine months~~half of ~~2021~~2022 were up from the same period last year. ~~The~~Sales in the first half increased by $232.3 million, or about 30 percent, due to higher sales ~~increase was primarily from higher volumes,~~across all three segments, achieved by price realization, acquisitions, and ~~acquisitions. The impact of foreign currency translation increased sales by less than 1 percent.~~volume. The Company's consolidated gross profit was ~~$430.9~~$334.6 million for the first ~~nine months~~half of ~~2021,~~2022, an increase of ~~$109.2~~$66.8 million or about 3425 percent from the first ~~nine months~~half of ~~2020. Earnings~~2021. Diluted earnings per share in the first ~~nine months~~half of ~~2021~~2022 were up from the same period last year.

RESULTS OF OPERATIONS

Net Sales

Net sales in the first ~~nine months~~half of ~~2021~~2022 were ~~$1,229.3~~$1,002.6 million, an increase of ~~$303.1~~$232.3 million or about 3330 percent compared to ~~2020~~2021 first ~~nine months~~half sales of ~~$926.2~~$770.3 million. ~~The incremental impact of~~Acquisition related sales ~~from acquired businesses was $109.8~~were $82.6 million. Sales ~~revenue increased~~decreased by ~~$4.3~~$32.5 million or ~~less than 1~~about 4 percent in the first ~~nine months~~half of ~~2021~~2022 due to foreign currency translation.

The Company’s organic sales growth, led by price realization, was about 24 percent.

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		Net Sales							Net Sales
(In millions)	(In millions)	YTD September 30, 2021		YTD September 30, 2020		2021 v 2020		(In millions)	YTD June 30, 2022		YTD June 30, 2021		2022 v 2021
Water Systems	Water Systems	$	705.5	$	545.4	$	160.1	Water Systems	$	583.1	$	444.8	$	138.3
Fueling Systems	Fueling Systems	210.0		179.6		$	30.4	Fueling Systems	158.5		129.0		29.5
Distribution	Distribution	380.7		250.5		$	130.2	Distribution	326.0		240.5		85.5
Eliminations/Other	Eliminations/Other	(66.9)		(49.3)		$	(17.6)	Eliminations/Other	(65.0)		(44.0)		(21.0)
Consolidated	Consolidated	$	1,229.3	$	926.2	$	303.1	Consolidated	$	1,002.6	$	770.3	$	232.3

Net Sales-Water Systems

Water Systems sales were ~~$705.5~~$583.1 million in the first ~~nine months 2021,~~half of 2022, an increase of ~~$160.1~~$138.3 million or about 2931 percent versus the first ~~nine months~~half of ~~2020.~~2021. The incremental impact of sales from acquired businesses was ~~$65.2~~$48.7 million. Foreign currency translation changes ~~increased~~decreased sales ~~$1.8~~$30.3 million or ~~less than 1~~about 7 percent compared to sales in the first ~~nine months~~half of ~~2020.~~2021. The Water Systems sales change in the first ~~nine months~~half of ~~2021,~~2022, excluding acquisitions and foreign currency translation, was an increase of ~~$93.2~~$119.9 million or about 1727 percent. This revenue growth was primarily from price and volume, which was up due to strong end market demand.

Water Systems sales in the U.S. and Canada increased by about 3648 percent compared to the first ~~nine months~~half of ~~2020.~~2021. The incremental impact of sales from acquired businesses was ~~$64.7~~$45.0 million. Sales revenue ~~increased~~decreased by ~~$3.4~~$0.8 million in the first ~~nine months~~half of ~~2021~~2022 due to foreign currency translation. In the first ~~nine months~~half of ~~2021,~~2022, organic Water Systems sales in the U.S. and Canada were 30 percent. Sales of groundwater pumping equipment increased by about ~~17 percent, sales of dewatering equipment were up about 42~~40 percent and sales of all surface pumping equipment increased by about 821 percent versus the ~~third~~first quarter ~~2020, all~~2021, due to strong end market demand and pricing.

Water Systems sales in markets outside the U.S. and Canada increased by about 2211 percent compared to the first ~~nine months~~half of ~~2020.~~2021. The incremental impact of sales from acquired businesses was ~~$0.5~~$3.7 million. Sales revenue decreased by ~~$1.6~~$29.5 million or about 15 percent in the first ~~nine months~~half of ~~2021~~2022 due to foreign currency translation. ~~The~~Water Systems organic sales in markets outside the U.S. and Canada change in the first ~~nine months~~half of ~~2021,~~2022, excluding ~~acquisitions and~~ foreign currency translation and acquisitions, was an increase of about 2224 percent. ~~Sales~~Water Systems sales grew ~~organically~~ in all major ~~markets;~~geographic regions; EMEA, Latin America ~~EMENA,~~ and the Asia ~~Pacific.~~Pacific markets, on strong end market demand and pricing.

Net Sales-Fueling Systems

Fueling Systems sales were ~~$210.0~~$158.5 million in the first ~~nine months~~half of ~~2021,~~2022, an increase of ~~$30.4~~$29.5 million or about 1723 percent from the first ~~nine months~~half of ~~2020.~~2021. Foreign currency translation changes ~~increased~~decreased sales ~~$2.5~~$2.2 million or about 12 percent compared to sales in the first ~~nine months~~half of ~~2020.~~2021. The Fueling Systems sales change in the first ~~nine months~~half of ~~2021,~~2022, excluding foreign currency translation, was an increase of ~~$27.9 million or~~ about 1625 percent. Revenue growth was from price and volume.

Fueling Systems sales in the U.S. and Canada increased by about 2326 percent during the first ~~nine months of 2021, the~~half. The increase was due, in part, to ~~higher~~robust demand for ~~Fuel Management and Pumping Systems, and Piping.~~infrastructure buildout in the U.S. Outside the U.S. and Canada, Fueling Systems revenues ~~increased~~decreased by about 42 percent, ~~overall,~~ as sales increases of 144 percent in the rest of the world outside of China were not enough to offset by lower sales in ~~China.~~ China.

Net Sales - Distribution

Distribution sales were ~~about $9~~$326.0 million in the first ~~nine months~~half of ~~2021 compared to the first nine months~~2022, an increase of ~~2020 Fueling Systems China sales of~~$85.5 million or about ~~$14 million.~~

~~Net Sales - Distribution~~

~~Distribution sales were $380.7 million in the first nine months of 2021,~~36 percent, versus the first ~~nine months~~half of ~~2020~~2021 sales of ~~$250.5~~$240.5 million. The incremental impact of sales from acquired businesses was ~~$44.6~~$33.9 million. Distribution segment organic sales increased about 3421 percent compared to the first ~~nine months~~half of ~~2020.~~2021. Revenue growth was primarily from price and was driven by broad-based demand in all regions and product categories.

Cost of Sales

Cost of sales as a percent of net sales for the first ~~nine months~~half of 2022 and 2021 ~~and 2020~~ was ~~64.9~~66.6 percent and ~~65.3~~65.2 percent, respectively. Correspondingly, the gross profit margin was ~~35.1~~33.4 percent and ~~34.7~~34.8 percent, respectively. ~~The increase in gross profit margin was primarily driven by price realization, product sales mix and cost management.~~ The Company's consolidated gross profit was ~~$430.9~~$334.6 million for the first ~~nine months~~half of ~~2021,~~2022, up ~~$109.2~~$66.8 million from the gross profit of ~~$321.7~~$267.8 million in the first ~~nine months~~half of ~~2020.~~2021. The gross profit increase was primarily due to higher sales. The decline in gross profit margin percentage is partially attributable to supply constraints causing unfavorable manufacturing absorption variances, as selling price actions offset inflationary cost increases.

Selling, General, and Administrative ("SG&A")

Selling, general, and administrative expenses were ~~$288.5~~$213.0 million in the first ~~nine months~~half of ~~2021~~2022, and increased by ~~$65.1~~$30.9 million or 17 percent in the first half of 2022 compared to ~~$223.4~~$182.1 million in the first ~~nine months~~half of last year. SG&A expenses from acquired ~~businesses were $26.8~~

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~~million. Excluding acquisitions,~~businesses were $20.0 million and excluding the acquired entities, SG&A expenses were higher by ~~$38.3~~$10.9 million ~~about $23 million~~or 6 percent versus the prior year. SG&A costs as a percent of ~~which is variable compensation expense and commissions on higher sales. The remaining SG&A increases~~Net Sales were ~~primarily related to other operating expenses relating to increased commercial activity.~~below 2021.

Restructuring Expenses

Restructuring expenses for the first ~~nine months~~half of ~~2021~~2022 were ~~$0.4~~$0.7 million. Restructuring expenses were ~~$0.3~~$0.6 million in the Water Systems segment ~~and $0.1 million in Distribution segments. Restructuring expenses were primarily~~ from continued miscellaneous manufacturing and distribution realignment activities and $0.1 in distribution related to branch ~~closings~~consolidations and ~~consolidations~~other asset rationalizations in the ~~Distribution~~Headwater distribution segment. Restructuring expenses for the first ~~nine months~~half of ~~2020~~2021 were ~~$2.2~~$0.3 million. Restructuring expenses were ~~$2.0~~$0.2 million in the Water Systems segment ~~and $0.1 million in both the Fueling and Distribution segments. Restructuring expenses were primarily~~ from continued miscellaneous manufacturing and distribution realignment activities and $0.1 in distribution related to branch ~~closings~~consolidations and ~~consolidations~~other asset rationalizations in the ~~Distribution~~Headwater distribution segment.

Operating Income

Operating income was ~~$142.0~~$120.9 million in the first ~~nine months~~half of ~~2021,~~2022, up ~~$45.9~~$35.5 million or 48about 42 percent from ~~$96.1~~$85.4 million in the first ~~nine months~~half of ~~2020.~~2021.

Operating income (loss)
(In millions) YTD September 30, 2021 YTD September 30, 2020 2021 v 2020
Water Systems 102.7 84.1 $ 18.6
Fueling Systems 57.3 44.5 12.8
Distribution 30.3 10.9 19.4
Eliminations/Other (48.3) (43.4) (4.9)
Consolidated $ 142.0 $ 96.1 $ 45.9


	Operating income (loss)
(In millions)	YTD June 30, 2022		YTD June 30, 2021		2022 v 2021
Water Systems	$	82.2	$	65.9	$	16.3
Fueling Systems	43.8		33.4		10.4
Distribution	32.7		18.0		14.7
Eliminations/Other	(37.8)		(31.9)		(5.9)
Consolidated	$	120.9	$	85.4	$	35.5

Operating Income-Water Systems

Water Systems operating income was ~~$102.7~~$82.2 million in the first ~~nine months~~half of ~~2021~~2022 compared to ~~$84.1~~$65.9 million in the first ~~nine months~~half of ~~2020,~~2021, an increase of 22about 25 percent. ~~Operating income increased in Water Systems primarily due to higher sales volumes.~~ The first ~~nine months~~half operating income margin was ~~14.6~~14.1 percent and decreased by 70 basis points compared to the first ~~nine months~~half of ~~2020 operating income margin of 15.4 percent.~~2021. Operating income margin decreased in Water Systems primarily ~~due to significant~~because supply constraints caused unfavorable absorption variances, as selling price actions offset inflationary cost inflation in materials, components, freight, and tariffs; all of which the Company strived to fully offset with pricing; and a higher mix of Water Treatment sales at a lower margin also contributed to the lower operating margin.increases.

Operating Income-Fueling Systems

Fueling Systems operating income was ~~$57.3~~$43.8 million in the first ~~nine months~~half of ~~2021~~2022 compared to ~~$44.5~~$33.4 million in the first ~~nine months~~half of ~~2020. Operating income increased in Fueling Systems primarily due to higher sales volumes.~~2021. The first ~~nine months~~half operating income margin was ~~27.3~~27.6 percent compared to ~~24.8~~25.9 percent of net sales in the first ~~nine months~~half of ~~2020.~~2021, an increase of 170 basis points. The increase in operating income was primarily due to higher sales. Operating income margin increased in Fueling Systems primarily due to ~~operating~~ leverage on fixed cost from higher sales, ~~favorable product~~price realization and ~~geographic sales mix shifts.~~cost management.

Operating Income-Distribution

Distribution operating income was ~~$30.3~~$32.7 million in the first ~~nine months~~half of 2022 and operating income margin was 10.0 percent. Distribution operating income was $18.0 million in the first half of 2021 and operating income margin was ~~8.0~~7.5 percent. Distribution operating income was $10.9 million in the first nine months of 2020 and operating income margin was 4.4 percent. Distribution’s operating income in the first nine months was higher in due to higher sales volumes. The increase in operating income and margin ~~was~~is related to higher revenues, primarily ~~due to revenue growth and operating leverage.~~price realization.

Operating Income-Eliminations/Other

Operating income-Eliminations/Other is composed primarily of inter-segment sales and profit eliminations and unallocated general and administrative expenses. The inter-segment profit elimination impact in the first ~~nine months~~half of 2022 versus the first half of 2021 increased operating income about $0.1 million versus the impact in the first nine months of 2020. The inter-segment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in the consolidated financial results until the transferred product is sold from the Distribution segment to its third-party customer. Unallocated generalwas $4.9 million. General and administrative expenses were higher by ~~$5.0~~$1.0 million or about 123 percent to last year in the first ~~nine months, primarily~~half.

Interest Expense

Interest expense for the first half of 2022 was $4.4 million, up due to higher ~~variable compensation expense.~~debt and included a $0.7 million from interest penalties on an indirect tax settlement in a foreign jurisdiction. Interest expense for the first half of 2021 was $2.5 million.

Other Income or Expense

Other income or expense was a loss of $1.5 million in the first half of 2022 and included an unfavorable indirect tax settlement in a foreign jurisdiction of about $1.0 million. Other income or expense was a loss of $0.5 million in the first half of 2021.

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~~Interest Expense~~Foreign Exchange

~~Interest expense~~Foreign currency-based transactions for the first ~~nine months~~half of ~~2021 and 2020 was $3.8 million and $3.5 million, respectively, primarily as a result of higher debt levels.~~

~~Other Income or Expense~~

~~Other income or expense~~2022 was a ~~gain of $1.5~~loss $0.9 million, ~~and a loss of 1.1 million, respectively in~~primarily due to the Argentinian peso relative to the U.S. dollar. Foreign currency-based transactions for the first ~~nine months~~half of ~~2021 and 2020. Included in other income or expense in~~ 2021 was a ~~gain of $2.5 million related to a settlement of an indirect tax dispute.~~

~~Foreign Exchange~~

~~Foreign currency–based transactions produced a~~ loss ~~for the first nine months of 2021 of $1.7~~$1.2 million, primarily ~~from~~due to the Argentinian ~~peso. Foreign currency–based transactions produced a loss for~~peso relative to the ~~first nine months of 2020 of $0.1 million.~~U.S. dollar.

Income Taxes

The provision for income taxes in the first ~~nine months~~half of 2022 and 2021 ~~and 2020~~ was ~~$24.0~~$24.2 million and ~~$17.3~~$13.6 million, respectively. The effective tax rate for the first ~~nine months~~half of 2022 before and after the impact of discrete events was about 21 percent. The effective tax rate in the first half of 2021 was about 17 percent and, before the impact of discrete events, was about 20 percent. The ~~effective tax rate in the first nine months of 2020 was about 19 percent and, before the impact of discrete events, was about 20 percent. The decrease~~increase in the effective tax rate was primarily a result of ~~increased~~ net ~~favorable~~unfavorable discrete events recorded in the first ~~nine months~~half of 2022 compared to net favorable discrete events in the first half of 2021, ~~compared~~primarily related to ~~the first nine months of 2020.~~excess tax benefits from share-based compensation. The tax rate as a percentage of pre-tax earnings for the full year ~~of 2021~~2022 is projected to be about 2021 percent, compared to the full year ~~2020~~2021 tax rate of about 21 percent, both before discrete adjustments.

Net Income

Net income for the first ~~nine months~~half of ~~2021~~2022 was ~~$114.0~~$89.9 million compared to ~~2020~~2021 first ~~nine months~~half net income of ~~$74.2~~$67.5 million. Net income attributable to Franklin Electric Co., Inc. for the first ~~nine months~~half of ~~2021~~2022 was ~~$113.2~~$89.1 million, or ~~$2.40~~$1.89 per diluted share, compared to ~~2020~~2021 first ~~nine months~~half net income attributable to Franklin Electric Co., Inc. of ~~$73.7~~$67.0 million or ~~$1.57~~$1.42 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 ~~September~~June 30, ~~2021~~2022 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 ~~September~~June 30, ~~2021~~2022 the Company had a ~~$250.0~~$350.0 million revolving credit facility. The facility is scheduled to mature on May 13, 2026. As of ~~September~~June 30, ~~2021,~~2022, the Company had ~~$140.9~~$128.3 million borrowing capacity under the Credit Agreement as ~~$4.1~~$4.0 million in letters of commercial and standby letters of credit were outstanding and undrawn and ~~$105~~$217.7 million in revolver borrowings were drawn and outstanding, which were primarily used for funding ~~recent acquisitions.~~working capital requirements.

In addition, 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 remaining borrowing capacity of $125.0 million as of ~~September~~June 30, ~~2021.~~2022. The Company also has other long-term debt borrowings outstanding as of ~~September~~June 30, ~~2021.~~2022. See Note 10 - Debt for additional specifics regarding these obligations and future maturities.

At ~~September~~June 30, ~~2021,~~2022, the Company had ~~$61.1~~$28.5 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 ~~nine~~six months of ~~2021~~2022 and ~~2020.~~2021.


(in millions)	2022		2021
Net cash flows from operating activities	$	(62.5)	$	35.5
Net cash flows from investing activities	(21.5)		(193.7)
Net cash flows from financing activities	79.3		110.7
Impact of exchange rates on cash and cash equivalents	(2.6)		(1.7)
Change in cash and cash equivalents	$	(7.3)	$	(49.2)

Cash Flows from Operating Activities

2022 vs. 2021

Net cash used by operating activities was $62.5 million for the six months ended June 30, 2022 compared to $35.5 million provided by operating activities for the six months ended June 30, 2021. The increase in cash used by operating activities was primarily due to increased working capital requirements in support of supply chain resiliency and meeting the strong demand from our customers.

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(in millions) 2021 2020
Net cash flows from operating activities $ 93.9 $ 133.7
Net cash flows from investing activities (213.4) (21.4)
Net cash flows from financing activities 68.2 (58.5)
Impact of exchange rates on cash and cash equivalents (3.5) (3.8)
Change in cash and cash equivalents $ (54.8) $ 50.0

~~Cash Flows from Operating Activities~~

~~2021 vs. 2020~~

Net cash provided by operating activities was $93.9 million for the nine months ended September 30, 2021 compared to $133.7 million provided by operating activities for the nine months ended September 30, 2020. The decrease in cash provided by operating activities was primarily due to increased working capital requirements in support of higher revenues.

Cash Flows from Investing Activities

~~2021~~2022 vs. ~~2020~~2021

Net cash used in investing activities was ~~$213.4~~$21.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$21.4~~$193.7 million used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~increase~~decrease in cash used in investing activities was attributable to ~~increased~~decreased acquisition activity in ~~2021.~~2022.

Cash Flows from Financing Activities

~~2021~~2022 vs. ~~2020~~2021

Net cash provided by financing activities was ~~$68.2~~$79.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$58.5~~$110.7 million ~~used in~~provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~increase~~decrease in cash provided by financing activities was attributable to increased ~~debt proceeds and issuance of~~ common stock ~~primarily through stock option exercises,~~repurchases slightly offset by ~~increased dividend payments~~decreased proceeds from debt and common stock ~~repurchases.~~issuances.

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, ~~2020,~~2021, 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.

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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 ~~third~~second quarter ended ~~September~~June 30, ~~2021.~~2022. 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, ~~2020.~~2021.

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.

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.

3233

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is defending various claims and legal actions which have arisen in the ordinary course of business. For a description of the Company's material legal proceedings, refer to Note 15 - Commitments and Contingencies, in the Notes to Consolidated Financial Statements included in Part I, Item 1, "Notes to Condensed Consolidated Financial Statements (Unaudited)," of this Quarterly Report on Form 10-Q, which is incorporated into this Item 1 by reference. In the opinion of management, based on current knowledge of the facts and after discussion with counsel, other 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.

ITEM 1A. RISK FACTORS

There have been no material changes to the Company's risk factors as set forth in the annual report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021 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.

The Company has significant investments in foreign entities and has significant sales and purchases in foreign denominated currencies creating exposure to foreign currency exchange rate fluctuations. The Company has significant investments outside the United States, including Europe, South Africa, Brazil, Mexico, India, China, Turkey, Canada and Argentina. Further, the Company has sales and makes purchases of raw materials and finished goods in foreign denominated currencies. Accordingly, the Company has exposure to fluctuations in foreign currency exchange rates relative to the U.S. dollar. Foreign currency exchange rate risk is partially mitigated through several means: maintenance of local production facilities in the markets served, invoicing of customers in the same currency as the source of the products, prompt settlement of intercompany balances, limited use of foreign currency denominated debt, and application of derivative instruments when appropriate. To the extent that these mitigating strategies are not successful, foreign currency rate fluctuations can have a material adverse impact on the Company’s international operations or on the business as a whole.

In the second quarter of 2022, the Company concluded that Turkey represents a highly inflationary economy as its projected three-year cumulative inflation rate exceeds 100%. As a result, the Company started remeasuring the financial statements for the Company’s Turkish operations in accordance with ASC 830 "Foreign Currency Matters" as of the beginning of the second quarter of 2022. As a result, all gains and losses resulting from the remeasurement of the financial results of operations and other transactional foreign exchange gains and losses would be reflected in earnings, which could result in volatility within the Company’s earnings, rather than as a component of the Company’s comprehensive income within stockholders’ equity. Turkey becoming a highly inflationary economy may have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

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 ~~98,169~~130,322 shares for approximately ~~$7.9~~$9.8 million under the plan during the ~~third~~second quarter of ~~2021.~~2022. The maximum number of shares that may still be purchased under this plan as of ~~September~~June 30, ~~2021~~2022 is ~~742,273.~~423,914.

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
July 1 - July 31 22,895 78.89 22,895 817,547
August 1 - August 31 6,422 80.89 6,422 811,125
September 1 - September 30 68,852 80.84 68,852 742,273
Total 98,169 80.39 98,169 742,273


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
April 1 - April 30	62,922	80.6	62,922	491,314
May 1 - May 31	—	—	—	491,314
June 1 - June 30	67,400	70.09	67,400	423,914
Total	130,322	75.16	130,322	423,914

3334

ITEM 6. EXHIBITS


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			Employment Security Agreement between the Company and ~~Jeffery L. Taylor (incorporated by reference to Exhibit 10.1 of the Company's form 10-Q filed on August 3, 2021)~~Kenneth Keene (filed herewith)*
10.2			Employment Security Agreement between the Company and Brent Spikes (filed herewith)*
10.3			Form of Confidentiality and Non-Compete Agreement between the Company and ~~Jeffery L. Taylor~~Kenneth Keene and Brent Spikes (incorporated by reference to Exhibit 10.15 of the Company’s Form 10-K for the fiscal year ended January 1, 2005)*
~~10.3~~			Retirement Agreement and General Release between the Company and John J. Haines dated June 14, 2021 (incorporated by reference to Exhibit 10.3 of the Company's form 10-Q filed on August 3, 2021)*
10.4			Amendment No. 1 dated May 11, 2022 to the Fourth Amended and Restated Credit Agreement, dated May 13, 2021, by and among Franklin Electric Co., Inc., Franklin Electric B.V., JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and the lenders identified therein (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed on May ~~13, 2021)~~
~~10.5~~			Amended and Restated Note Purchase and Private Shelf Agreement by and among Franklin Electric Co., Inc., Franklin Electric B.V., NYL Investors LLC, and the purchasers named therein (incorporated by reference to Exhibit 10.5 to the Company's form 10-Q filed on August 3, 2021)
~~10.6~~			Fourth Amended and Restated Note Purchase and Private Shelf Agreement by and among Franklin Electric Co., Inc., Franklin Electric B.V., Prudential Insurance Company of America and the purchasers named therein (incorporated by reference to Exhibit 10.6 of the Company's form 10-Q filed on August 3, 2021)11, 2022)
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 ~~September~~June 30, ~~2021,~~2022, formatted in Inline eXtensible Business Reporting Language (Inline XBRL): (i) Condensed Consolidated Statements of Income for the ~~third~~second quarter and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (ii) Condensed Consolidated Statements of Comprehensive Income/(Loss) for the ~~third~~second quarter and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, (iii) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, (iv) Condensed Consolidated Statement of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, 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

3435

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: ~~November~~August 2, ~~2021~~2022	By	/s/ Gregg C. Sengstack
		Gregg C. Sengstack, Chairperson and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~November~~August 2, ~~2021~~2022	By	/s/ Jeffery L. Taylor
		Jeffery L. Taylor, Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

3536


(in millions)	2021		2020
Net cash flows from operating activities	$	93.9	$	133.7
Net cash flows from investing activities	(213.4)		(21.4)
Net cash flows from financing activities	68.2		(58.5)
Impact of exchange rates on cash and cash equivalents	(3.5)		(3.8)
Change in cash and cash equivalents	$	(54.8)	$	50.0