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 30, 2022~~March 31, 2023

☐ 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 28, 2022~~May 2, 2023
$0.10						~~46,318,535~~46,193,240 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~~First Quarters Ended March 31, 2023 and ~~Nine Months Ended September 30,~~ 2022 ~~and 2021~~ (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income/(Loss) for the ~~Third~~First Quarters Ended March 31, 2023 and ~~Nine Months Ended September 30,~~ 2022 ~~and 2021~~ (Unaudited)	5
	Condensed Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	109
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2720
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3424
Item 4.	Controls and Procedures	3424


PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3525
Item 1A.	Risk Factors	3525
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3525
Item 6.	Exhibits	3626

Signatures		3727

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
(In thousands, except per share amounts) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Net sales $ 551,672 $ 459,019 $ 1,554,280 $ 1,229,345
Cost of sales 361,077 295,903 1,029,063 798,444
Gross profit 190,595 163,116 525,217 430,901
Selling, general, and administrative expenses 109,366 106,446 322,352 288,534
Restructuring expense 1,185 76 1,898 381
Operating income 80,044 56,594 200,967 141,986
Interest expense (3,066) (1,384) (7,492) (3,840)
Other income/(expense), net (1,250) 2,061 (2,787) 1,531
Foreign exchange income/(expense) (3,376) (408) (4,290) (1,654)
Income before income taxes 72,352 56,863 186,398 138,023
Income tax expense 13,380 10,409 37,544 24,043
Net income $ 58,972 $ 46,454 $ 148,854 $ 113,980
Less: Net (income)/loss attributable to noncontrolling interests (348) (282) (1,101) (787)
Net income attributable to Franklin Electric Co., Inc. $ 58,624 $ 46,172 $ 147,753 $ 113,193
Earnings per share:
Basic $ 1.26 $ 0.99 $ 3.17 $ 2.43
Diluted $ 1.24 $ 0.98 $ 3.13 $ 2.40


	First Quarter Ended
(In thousands, except per share amounts)	March 31, 2023		March 31, 2022

Net sales	$	484,551	$	451,470
Cost of sales	322,286		306,136
Gross profit	162,265		145,334
Selling, general, and administrative expenses	109,535		104,673
Restructuring expense	124		720
Operating income	52,606		39,941
Interest expense	(3,147)		(1,494)
Other income/(expense), net	409		(378)
Foreign exchange income/(expense)	(2,044)		(585)
Income before income taxes	47,824		37,484
Income tax expense	10,248		7,365
Net income	$	37,576	$	30,119
Less: Net (income)/loss attributable to noncontrolling interests	(251)		(354)
Net income attributable to Franklin Electric Co., Inc.	$	37,325	$	29,765
Earnings per share:
Basic	$	0.81	$	0.64
Diluted	$	0.79	$	0.63

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
(In thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Net income $ 58,972 $ 46,454 $ 148,854 $ 113,980
Other comprehensive income/(loss), before tax:
Foreign currency translation adjustments (16,046) (12,085) (26,959) (15,464)
Employee benefit plan activity 1,656 1,158 4,032 3,391
Other comprehensive income/(loss) (14,390) (10,927) (22,927) (12,073)
Income tax expense related to items of other comprehensive income/(loss) (379) (243) (899) (707)
Other comprehensive income/(loss), net of tax (14,769) (11,170) (23,826) (12,780)
Comprehensive income 44,203 35,284 125,028 101,200
Less: Comprehensive income/(loss) attributable to noncontrolling interests 226 231 854 692
Comprehensive income attributable to Franklin Electric Co., Inc. $ 43,977 $ 35,053 $ 124,174 $ 100,508


	First Quarter Ended
(In thousands)	March 31, 2023		March 31, 2022

Net income	$	37,576	$	30,119
Other comprehensive income/(loss), before tax:
Foreign currency translation adjustments	6,494		8,592
Employee benefit plan activity	555		1,192
Other comprehensive income/(loss)	7,049		9,784
Income tax expense related to items of other comprehensive income/(loss)	(138)		(260)
Other comprehensive income/(loss), net of tax	6,911		9,524
Comprehensive income	44,487		39,643
Less: Comprehensive (income)/loss attributable to noncontrolling interests	(274)		(316)
Comprehensive income attributable to Franklin Electric Co., Inc.	$	44,213	$	39,327

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, 2022		December 31, 2021		(In thousands, except per share amounts)	March 31, 2023		December 31, 2022

ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	39,523	$	40,536	Cash and cash equivalents	$	51,873	$	45,790
Receivables, less allowances of $3,988 and $3,975, respectively		251,543		196,173
Receivables, less allowances of $3,984 and $4,211, respectively						Receivables, less allowances of $3,984 and $4,211, respectively	276,503		230,404
Inventories:	Inventories:					Inventories:
Raw material	Raw material	213,206		166,918		Raw material	200,829		196,876
Work-in-process	Work-in-process	31,596		24,725		Work-in-process	32,147		30,276
Finished goods	Finished goods	312,802		258,332		Finished goods	367,675		317,828
Total inventories	Total inventories	557,604		449,975		Total inventories	600,651		544,980
Other current assets	Other current assets	39,049		37,963		Other current assets	39,018		36,916
Total current assets	Total current assets	887,719		724,647		Total current assets	968,045		858,090

Property, plant, and equipment, at cost:	Property, plant, and equipment, at cost:					Property, plant, and equipment, at cost:
Land and buildings	Land and buildings	153,952		154,544		Land and buildings	161,946		159,253
Machinery and equipment	Machinery and equipment	282,818		296,078		Machinery and equipment	303,486		297,496
Furniture and fixtures	Furniture and fixtures	47,798		44,324		Furniture and fixtures	53,055		50,264
Other	Other	50,188		40,231		Other	54,687		50,249
Property, plant, and equipment, gross	Property, plant, and equipment, gross	534,756		535,177		Property, plant, and equipment, gross	573,174		557,262
Less: Allowance for depreciation	Less: Allowance for depreciation	(327,042)		(324,523)		Less: Allowance for depreciation	(352,582)		(342,108)
Property, plant, and equipment, net	Property, plant, and equipment, net	207,714		210,654		Property, plant, and equipment, net	220,592		215,154
Right-of-use asset, net		47,808		48,379
Lease right-of-use assets, net						Lease right-of-use assets, net	45,622		48,948
Deferred income taxes	Deferred income taxes	7,073		7,675		Deferred income taxes	6,730		6,778
Intangible assets, net	Intangible assets, net	234,363		249,691		Intangible assets, net	227,459		231,275
Goodwill	Goodwill	323,999		329,630		Goodwill	329,330		328,046
Other assets	Other assets	6,331		4,489		Other assets	5,668		5,910
Total assets	Total assets	$	1,715,007	$	1,575,165	Total assets	$	1,803,446	$	1,694,201


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	153,540	$	164,758	Accounts payable	$	187,985	$	139,266
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	110,366		115,408		Accrued expenses and other current liabilities	88,722		120,555
Current lease liability	Current lease liability	15,434		15,320		Current lease liability	15,144		15,959
Income taxes	Income taxes	2,849		2,547		Income taxes	9,730		3,233
Current maturities of long-term debt and short-term borrowings	Current maturities of long-term debt and short-term borrowings	179,619		97,981		Current maturities of long-term debt and short-term borrowings	185,280		126,756
Total current liabilities	Total current liabilities	461,808		396,014		Total current liabilities	486,861		405,769
Long-term debt	Long-term debt	89,225		90,535		Long-term debt	88,766		89,271
Long-term lease liability	Long-term lease liability	32,245		32,937		Long-term lease liability	30,346		32,858
Income taxes payable non-current	Income taxes payable non-current	8,707		11,610		Income taxes payable non-current	8,707		8,707
Deferred income taxes	Deferred income taxes	31,971		28,162		Deferred income taxes	30,893		29,744
Employee benefit plans	Employee benefit plans	37,333		40,696		Employee benefit plans	32,303		31,889
Other long-term liabilities	Other long-term liabilities	25,547		26,568		Other long-term liabilities	29,969		25,209

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

Redeemable noncontrolling interest	Redeemable noncontrolling interest	455		(19)		Redeemable noncontrolling interest	633		620

Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Common stock (65,000 shares authorized, $.10 par value) outstanding (46,318 and 46,483, respectively)		4,632		4,648
Common stock (65,000 shares authorized, $.10 par value) outstanding (46,138 and 46,193, respectively)						Common stock (65,000 shares authorized, $.10 par value) outstanding (46,138 and 46,193, respectively)	4,614		4,619
Additional capital	Additional capital	323,119		310,617		Additional capital	332,263		325,426
Retained earnings	Retained earnings	949,584		859,817		Retained earnings	980,114		969,261
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(252,160)		(228,581)		Accumulated other comprehensive loss	(224,560)		(231,448)
Total shareholders' equity	Total shareholders' equity	1,025,175		946,501		Total shareholders' equity	1,092,431		1,067,858
Noncontrolling interest	Noncontrolling interest	2,541		2,161		Noncontrolling interest	2,537		2,276
Total equity	Total equity	1,027,716		948,662		Total equity	1,094,968		1,070,134
Total liabilities and equity	Total liabilities and equity	$	1,715,007	$	1,575,165	Total liabilities and equity	$	1,803,446	$	1,694,201

See Notes to Condensed Consolidated Financial Statements.

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
Nine Months Ended
(In thousands) September 30, 2022 September 30, 2021
Cash flows from operating activities:
Net income $ 148,854 $ 113,980
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization 37,067 32,767
Non-cash lease expense 12,939 9,394
Share-based compensation 8,940 8,921
Deferred income taxes 3,783 471
(Gain)/Loss on disposals of plant and equipment 1,087 (147)
Foreign exchange (income)/expense 4,290 1,654
Changes in assets and liabilities, net of acquisitions:
Receivables (73,995) (57,434)
Inventory (122,150) (85,873)
Accounts payable and accrued expenses 1,881 92,214
Operating leases (12,939) (9,394)
Income taxes (3,604) (4,524)
Income taxes-U.S. Tax Cuts and Jobs Act (355) (355)
Employee benefit plans 1,544 21
Other, net (182) (7,793)
Net cash flows from operating activities 7,160 93,902
Cash flows from investing activities:
Additions to property, plant, and equipment (29,327) (20,274)
Proceeds from sale of property, plant, and equipment 6 839
Cash paid for acquisitions, net of cash acquired (1,576) (193,987)
Other, net 9 38
Net cash flows from investing activities (30,888) (213,384)
Cash flows from financing activities:
Proceeds from issuance of debt 434,548 204,720
Repayment of debt (350,869) (102,325)
Proceeds from issuance of common stock 3,584 11,390
Purchases of common stock (30,731) (21,138)
Dividends paid (27,293) (24,499)
Net cash flows from financing activities 29,239 68,148
Effect of exchange rate changes on cash (6,524) (3,501)
Net change in cash and equivalents (1,013) (54,835)
Cash and equivalents at beginning of period 40,536 130,787
Cash and equivalents at end of period $ 39,523 $ 75,952


	Three Months Ended
(In thousands)	March 31, 2023		March 31, 2022

Cash flows from operating activities:
Net income	$	37,576	$	30,119
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	12,837		12,078
Non-cash lease expense	4,239		4,181
Share-based compensation	3,912		3,985

Deferred income taxes	1,102		1,268
(Gain)/Loss on disposals of plant and equipment	104		620
Foreign exchange (income)/expense	2,044		585
Changes in assets and liabilities, net of acquisitions:
Receivables	(43,408)		(34,119)
Inventory	(50,725)		(74,690)
Accounts payable and accrued expenses	13,163		(2,753)
Operating leases	(4,239)		(4,181)
Income taxes	5,062		2,654

Employee benefit plans	422		343
Other, net	5,892		(1,401)
Net cash flows from operating activities	(12,019)		(61,311)
Cash flows from investing activities:
Additions to property, plant, and equipment	(9,563)		(9,456)

Cash paid for acquisitions, net of cash acquired	(4,990)		553


Net cash flows from investing activities	(14,553)		(8,903)
Cash flows from financing activities:
Proceeds from issuance of debt	141,671		198,556
Repayments of debt	(83,938)		(101,705)
Proceeds from issuance of common stock	2,938		343
Purchases of common stock	(17,133)		(19,319)
Dividends paid	(10,440)		(9,130)

Net cash flows from financing activities	33,098		68,745
Effect of exchange rate changes on cash and cash equivalents	(443)		(486)
Net change in cash and cash equivalents	6,083		(1,955)
Cash and cash equivalents at beginning of period	45,790		40,536
Cash and cash equivalents at end of period	$	51,873	$	38,581


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

Cash paid for income taxes, net of refunds		$	38,343	$	24,970
Cash paid for interest		$	7,994	$	4,749

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	$	483	$	398	Additions to property, plant, and equipment, not yet paid	$	1,461	$	749
Right-of-Use Assets obtained in exchange for new operating lease liabilities	Right-of-Use Assets obtained in exchange for new operating lease liabilities	$	13,745	$	8,097	Right-of-Use Assets obtained in exchange for new operating lease liabilities	$	506	$	1,962
Payable to sellers of acquired entities	Payable to sellers of acquired entities	$	—	$	600	Payable to sellers of acquired entities	$	614	$	—

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	1110
Note 2.	Accounting Pronouncements	1110
Note 3.	Acquisitions	1210
Note 4.	Fair Value Measurements	1311
Note 5.	Financial Instruments	1412
Note 6.	Goodwill and Other Intangible Assets	1512
Note 7.	Employee Benefit Plans	1513
Note 8.	Accrued Expenses and Other Current Liabilities	1613
Note 9.	Income Taxes	1614
Note 10.	Debt	1714
Note 11.	Earnings Per Share	1814
Note 12.	Equity Roll Forward	2016
Note 13.	Accumulated Other Comprehensive Income/(Loss)	2217
Note 14.	Segment and Geographic Information	2217
Note 15.	Commitments and Contingencies	24
~~Note 16.~~	~~Share-Based Compensation~~	2519

109

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying condensed consolidated balance sheet as of December 31, ~~2021,~~2022, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of ~~September 30, 2022,~~March 31, 2023, and for the ~~third~~first quarters ended March 31, 2023 and ~~nine months ended September 30,~~March 31, 2022 ~~and September 30, 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~~first quarter ~~and nine months~~ ended ~~September 30, 2022~~March 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2022.~~2023. 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, ~~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 September 30, 2022, this impact was not significant to the Company’s results.

2. ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards

In ~~August 2020,~~October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 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~~adopted this ASU on January 1, 2023, and ~~does~~it did not ~~anticipate the adoption to~~ have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. ASU 2022-04 creates the obligation for a company that uses a supplier finance program to purchase goods or services to disclose qualitative and quantitative information about its supplier finance program(s). This will allow financial statement users to better consider the effect of the program(s) on the entity's working capital, liquidity and cash flow over time. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023 with early adoption permitted. ASU 2022-04 should be applied retrospectively to each period in which a balance sheet is presented except for the amendment on rollforward information, which should be be applied

prospectively. The Company ~~plans to adopt~~adopted this ASU on January 1, 2023, and ~~does~~it did not ~~anticipate the adoption to~~ have a material impact on the Company's consolidated financial position, results of operations, or cash ~~flows.~~flows as the Company has no current supplier finance programs.

3. ACQUISITIONS

2023

During the ~~fourth~~first quarter ended ~~December~~March 31, ~~2021,~~2023, the Company acquired all of the assets of Phil-Good Products, Inc. ("Phil-Good"). Phil-Good is an injection molded plastics component manufacturer. In another, separate transaction in the first quarter of 2023, the Company acquired 100 percent of the ownership interests of ~~B&R Industries, Inc.~~Hydropompe S.r.l. ("~~B&R"~~Hydropompe"),. Hydropompe is a ~~water treatment equipment provider located in Mesa, Arizona, for~~pump manufacturer with 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 operatingfocus 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.dewatering and sewage products. The ~~fair value of the assets acquired and liabilities assumed for both acquisitions is preliminary as of September 30, 2022.~~

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 were considered final as of September 30, 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. The Company recorded estimated fair values that exceed the acquisition price by $0.4 million, representing a bargain purchase gain due to favorable market conditions within the "Other income/(expense), net" line in the consolidated statements of income for the year ended December 31, 2021.

~~The final~~ combined, all-cash purchase price for ~~all~~both acquisitions in the ~~second~~first quarter of 2023 was ~~$185.5~~$6.9 million after purchase price adjustments based on the level of working capital acquired. The fair value of the assets acquired and liabilities assumed ~~were considered final~~for both acquisitions is preliminary as of ~~June 30, 2022.~~March 31, 2023. In addition, the Company has not presented separate results of operations of the acquired companies since the closing of the acquisitions or combined pro forma financial information of the Company and the acquired interests since the beginning of 2022, as the results of operations for both acquisitions are immaterial.

~~The identifiable intangible assets recognized in~~2022

During the ~~separate transactions in 2021 were $132.3 million and consist primarily~~fourth quarter ended December 31, 2022, the Company acquired 100 percent of ~~customer relationships and trade names from New Aqua~~the ownership interests of ~~$93.2 million, which will be amortized using the straight-line method over 12 - 20 years.~~

~~The goodwill of $65.8 million resulting from the acquisitions in 2021 consists primarily of expanded geographical presence and product channel expansion. Goodwill deductible~~Casper Well Products ("Casper") for ~~tax purposes is $62.5 million from the acquisitions in 2021. Goodwill was recorded in the Water Systems and Fueling Systems segments.~~

~~The preliminary~~a purchase price ~~assigned to~~of $2.0 million after purchase price adjustments based on the ~~major identifiable~~level of working capital acquired. Casper conducts the sale and distribution of pumps, drilling equipment, tanks, pipe, accessories and other equipment used in drilling water wells and distribution of water-related products. The fair value of the assets acquired and liabilities ~~for all acquisitions in 2021 on an aggregated basis~~assumed is preliminary as ~~follows:~~of March 31, 2023. In addition, the Company has not presented separate results of

1210


~~(In millions)~~
~~Assets:~~
~~Inventory~~	$	~~34.3~~
~~Intangible assets~~	~~132.3~~
~~Goodwill~~	~~65.8~~
~~Other assets~~	~~39.0~~
~~Total assets~~	~~271.4~~
~~Liabilities~~	~~27.0~~
~~Less: Bargain purchase gain~~	~~0.4~~
~~Total consideration paid~~	$	~~244.0~~

~~The Company has not presented separate results~~operations of ~~operations~~the acquired company since the closing of the acquisition or combined pro forma financial information of the Company and the acquired interest since the beginning of ~~2021,~~2022, as the results of operations for ~~all acquisitions is~~this acquisition are 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 $0.2 million of transaction costs included in the "Selling, general, and administrative expenses" line of the Company's condensed consolidated statements of income for the ~~third quarter~~first quarters ended March 31, 2023 and ~~nine months ended September 30,~~March 31, 2022, respectively. There were $0.0 million and $0.8 million of transaction costs included in the "Selling, general, and administrative expenses" line of the Company's condensed consolidated statements of income for the third quarter and nine months ended September 30, 2021, respectively.

4. FAIR VALUE MEASUREMENTS

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

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

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

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

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(In millions)	March 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Cash equivalents	Cash equivalents	$	7.6	$	7.6	$	—	$	—	Cash equivalents	$	11.2	$	11.2	$	—	$	—
Share swap transaction										Share swap transaction	0.8		0.8		—		—
Forward currency contracts										Forward currency contracts	0.5		—		0.5		—
Total assets										Total assets	$	12.5	$	12.0	$	0.5	$	—

Forward currency contracts assets		0.3		—		0.3		—

											December 31, 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	$	7.9	$	7.9	$	—	$	—

Total assets	Total assets	$	7.9	$	7.6	$	0.3	$	—	Total assets	$	7.9	$	7.9	$	—	$	—

Liabilities:	Liabilities:									Liabilities:
Share swap transaction	Share swap transaction	$	0.9	$	0.9	$	—	$	—	Share swap transaction	$	0.1	$	0.1	$	—	$	—

Total liabilities	Total liabilities	$	0.9	$	0.9	$	—	$	—	Total liabilities	$	0.1	$	0.1	$	—	$	—

		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:
Cash equivalents		$	5.3	$	5.3	$	—	$	—
Share swap transaction		0.6		0.6		—		—
Total assets		$	5.9	$	5.9	$	—	$	—

The Company’s Level 1 cash equivalents assets are generally comprised of foreign bank guaranteed certificates of 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 3.~~

Total debt, including current maturities, have carrying amounts of ~~$268.8~~$274.1 million and ~~$188.5~~$216.1 million and estimated fair values of ~~$265.4~~$271.9 million and ~~$196.1~~$213.2 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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 30,~~March 31, 2023 and December 31, 2022, the swap had a notional value based on 225,000 shares. For the ~~third quarter~~first quarters ended March 31, 2023 and ~~nine months ended September 30,~~March 31, 2022, changes in the fair value of the swap resulted in a gain of ~~$1.8~~$2.9 million and a loss of ~~$2.8 million, respectively. For the third quarters and nine months ended September 30, 2021, the swap resulted in a loss of $0.2 million and a gain of $3.1~~$2.4 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. As of March 31, 2023 and December 31, 2022, respectively, the Company had a notional amount of $22.4 million and $10.3 million in forward currency contracts outstanding and the related fair value of those contracts was not material. For the ~~third quarter~~first quarters ended March 31, 2023 and ~~nine months ended September 30,~~March 31, 2022, changes is the fair value of the forward currency contracts resulted in a gain of ~~$0.4~~$1.0 million and a ~~gain~~loss of ~~$0.7~~$0.2 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, 2022				December 31, 2021				(In millions)	March 31, 2023				December 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortizing intangibles:
Definite-lived intangibles:										Definite-lived intangibles:
Customer relationships	Customer relationships	250.5		(97.3)		255.1		(88.8)		Customer relationships	251.9		(105.2)		251.6		(101.5)
Patents	Patents	$	7.2	$	(7.2)	$	7.3	$	(7.3)	Patents	$	7.3	$	(7.3)	$	7.3	$	(7.3)
Technology	Technology	7.5		(7.4)		7.5		(7.3)		Technology	7.5		(7.4)		7.5		(7.4)
Trade names	Trade names	41.6		(3.1)		$	42.1	(1.5)		Trade names	41.7		(4.2)		$	41.8	(3.7)
Other	Other	3.2		(2.5)		2.8		(2.7)		Other	3.4		(2.8)		3.4		(2.7)
Total	Total	$	310.0	$	(117.5)	$	314.8	$	(107.6)	Total	$	311.8	$	(126.9)	$	311.6	$	(122.6)
Unamortizing intangibles:
Indefinite-lived intangibles:										Indefinite-lived intangibles:
Trade names	Trade names	41.9		—		42.5		—		Trade names	42.6		—		42.3		—
Total intangibles	Total intangibles	$	351.9	$	(117.5)	$	357.3	$	(107.6)	Total intangibles	$	354.4	$	(126.9)	$	353.9	$	(122.6)

Amortization expense related to intangible assets for the ~~third~~first quarters ended ~~September 30,~~March 31, 2023 and March 31, 2022 ~~and September 30, 2021~~ was $4.2 million and $4.3 million, ~~respectively, and for the nine months ended September 30, 2022 and September 30, 2021, $12.9 million and $10.2 million,~~ respectively.

~~Amortization expense for each of the five succeeding years is projected as follows:~~
(In millions) 2022 2023 2024 2025 2026
$ 16.8 $ 16.7 $ 16.6 $ 15.8 $ 14.8

~~The change in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2022, is as follows:~~
(In millions)
Water Systems Fueling Systems Distribution Consolidated
Balance as of December 31, 2021 $ 213.9 $ 70.7 $ 45.0 $ 329.6
Acquisitions — — — —
Adjustments to prior year acquisitions 0.3 — (0.4) (0.1)
Foreign currency translation (5.0) (0.5) — (5.5)
Balance as of September 30, 2022 $ 209.2 $ 70.2 $ 44.6 $ 324.0

~~7. EMPLOYEE BENEFIT PLANS~~

~~Defined Benefit Plans~~ - As of September 30, 2022, the Company maintained two domestic pension plans and three German pension plans. The Company used a December 31, 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. Both domestic plans were frozen as of December 31, 2011. The two domestic and three 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 quarters and nine months ended September 30, 2022 and September 30, 2021:~~

1512

(In millions) Pension Benefits
Third Quarter Ended Nine Months Ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Service cost $ 0.1 $ 0.2 $ 0.5 $ 0.6
Interest cost 0.9 0.7 2.5 2.1
Expected return on assets (1.7) (1.3) (4.7) (4.1)
Amortization of:
Prior service cost 1.5 1.2 3.9 3.3
Actuarial loss — — — —
Settlement cost — — — —
Net periodic benefit cost $ 0.8 $ 0.8 $ 2.2 $ 1.9
The change in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2023, is as follows:


(In millions)
	Water Systems		Fueling Systems		Distribution		Consolidation
Balance as of December 31, 2022	$	211.9	$	70.3	$	45.8	$	328.0
Acquisitions	0.7		—		—		0.7

Foreign currency translation	0.5		0.1		—		0.6
Balance as of March 31, 2023	$	213.1	$	70.4	$	45.8	$	329.3

7. EMPLOYEE BENEFIT PLANS

The following table sets forth the ~~nine months~~aggregated net periodic benefit cost for all pension plans for the first quarters ended September 30, 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 2022 will be finalized by September 15, 2022, based upon the funding level requirements identifiedMarch 31, 2023 and ~~year-end valuation performed at December~~March 31, ~~2021.~~2022:


(In millions)	Pension Benefits
	First Quarter Ended
	March 31, 2023		March 31, 2022
Service cost	$	0.1	$	0.2
Interest cost	1.5		0.8
Expected return on assets	(1.8)		(1.5)
Amortization of:
Prior service cost	—		—
Actuarial loss	0.6		1.2
Settlement cost	—		—
Net periodic benefit cost	$	0.4	$	0.7

The following table sets forth the aggregated net periodic benefit cost for the other post-retirement benefit plan for the ~~third~~first quarters ended March 31, 2023 and ~~nine months ended September 30, 2022 and September 30, 2021:~~March 31, 2022:


(In millions)	(In millions)	Other Benefits								(In millions)	Other Benefits
		Third Quarter Ended				Nine Months Ended					First Quarter Ended
		September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021			March 31, 2023		March 31, 2022
Service cost	Service cost	$	—	$	—	$	—	$	—	Service cost	$	—	$	—
Interest cost	Interest cost	—				0.1		0.1		Interest cost	0.1		0.1
Expected return on assets	Expected return on assets	—		—		—		—		Expected return on assets	—		—
Amortization of:	Amortization of:									Amortization of:
Prior service cost	Prior service cost	0.1		—		0.1		0.1		Prior service cost	—		—
Actuarial loss	Actuarial loss	—		—		—		—		Actuarial loss	—		—
Settlement cost	Settlement cost	—		—		—		—		Settlement cost	—		—
Net periodic benefit cost	Net periodic benefit cost	$	0.1	$	—	$	0.2	$	0.2	Net periodic benefit cost	$	0.1	$	0.1

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of:


(In millions)	(In millions)	September 30, 2022	December 31, 2021	(In millions)	March 31, 2023	December 31, 2022

Salaries, wages, and commissions	Salaries, wages, and commissions	52.7	62.3	Salaries, wages, and commissions	35.2	57.9
Product warranty costs	Product warranty costs	11.9	10.5	Product warranty costs	11.3	11.2
Insurance	Insurance	2.2	2.3	Insurance	1.6	1.7
Employee benefits	Employee benefits	11.5	11.9	Employee benefits	6.0	13.5
Other	Other	32.1	28.4	Other	34.6	36.3
Total	Total	110.4	115.4	Total	88.7	120.6

9. INCOME TAXES

The Company’s effective tax rate ~~from continuing operations~~ for the ~~nine month~~three-month period ended ~~September 30, 2022~~March 31, 2023, was ~~20.1~~21.4 percent as compared to ~~17.4~~19.7 percent for the ~~nine month~~three-month period ended ~~September 30, 2021.~~March 31, 2022. The effective tax rate ~~is lower than~~differs from the U.S. statutory rate of 21 percent primarily due to state taxes partially offset by 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 2022, the effective tax rate was 18.5 percent compared to 18.3 percent for the third quarter of 2021.~~compensation.

The increase in the effective tax rate ~~for the nine month period ended September 30, 2022~~ was primarily a result of less favorable discrete events recorded in the ~~nine~~three month period ended ~~September 30, 2022,~~March 31, 2023, as compared to the ~~nine~~three month period ended ~~September 30, 2021, primarily related to excess tax benefits from share based compensation.~~

During the third quarter of 2022, the Company recorded $1.1 million of benefit from the reconciliation of the domestic federal return to the provision predominantly related to additional FDII benefit. During the third quarter of 2021, the Company recorded $0.8 million of excess tax benefits from share-based compensation.March 31, 2022.

10. DEBT

Debt consisted of the following:
(In millions) September 30, 2022 December 31, 2021
New York Life Agreement 75.0 75.0
Credit Agreement 174.2 96.6
Tax increment financing debt 15.3 16.5
Foreign subsidiary debt 4.5 0.5
Other — 0.1
Less: unamortized debt issuance costs (0.2) (0.2)
$ 268.8 $ 188.5
Less: current maturities (179.6) (98.0)
Long-term debt $ 89.2 90.5

~~Debt outstanding, excluding unamortized debt issuance costs, at September 30, 2022 matures as follows:~~
(In millions) Total Year 1 Year 2 Year 3 Year 4 Year 5 More Than 5 Years
Debt $ 269.0 $ 179.6 $ 1.4 $ 76.4 $ 1.5 $ 1.4 $ 8.7

~~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 30, 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 30, 2022, there was $125.0 million remaining borrowing capacity under the New York Life Agreement.


(In millions)	March 31, 2023		December 31, 2022

New York Life Agreement	75.0		75.0
Credit Agreement	182.5		122.8
Tax increment financing debt	14.7		15.3

Foreign subsidiary debt	2.0		3.1
Other	—		—
Less: unamortized debt issuance costs	(0.1)		(0.1)
	$	274.1	$	216.1
Less: current maturities	(185.3)		(126.8)
Long-term debt	$	88.8	89.3

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. On May 11, 2022, the Company entered into Amendment No. 1 that increased the commitment amount from $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 $475.0 million). Under the Credit Agreement, the Borrowers are required to pay certain fees, including a facility fee of 0.100 percent to 0.275 percent (depending on the Company's leverage ratio) of the aggregate commitment, which fee is payable quarterly in arrears. USD loans may be made either at (i) a Secured Overnight Financing Rate (SOFR) TermBenchmark, with a zero percent floor, plus an applicable margin of 0.950 percent to 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 30, 2022,~~March 31, 2023, the Company had ~~$174.2~~$182.5 million outstanding borrowings with a weighted-average interest rate of 5.6 percent, $3.6 million in letters of credit outstanding, and $163.9 million of available capacity under its credit agreement. As of December 31,2022, the company had $122.8 million outstanding borrowings with a weighted-average interest rate of 5.0 percent, $4.0 million in letters of credit outstanding, and ~~$171.8~~$223.2 million of available capacity under ~~the Credit Agreement.~~its 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 ~~$18.7~~$21.9 million. As of ~~September 30, 2022,~~March 31, 2023, there were ~~$4.2~~$1.5 million outstanding borrowings and ~~$14.5~~$20.4 million of available capacity under these lines of credit.

~~Covenants~~

~~The Company’s~~ As of December 31, 2022, there were $22.0 million overdraft lines of credit ~~agreements contain customary financial covenants. The Company’s most significant agreements~~with $2.7 million of outstanding borrowings 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$19.3 million of ~~material events, conduct~~available capacity under these lines 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 30, 2022.credit.

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.

1814

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


		Third Quarter Ended				Nine Months Ended					First Quarter Ended
(In millions, except per share amounts)	(In millions, except per share amounts)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021		(In millions, except per share amounts)	March 31, 2023		March 31, 2022
Numerator:	Numerator:									Numerator:
Net income attributable to Franklin Electric Co., Inc.	Net income attributable to Franklin Electric Co., Inc.	$	58.6	$	46.2	$	147.8	$	113.2	Net income attributable to Franklin Electric Co., Inc.	$	37.3	$	29.8
Less: Earnings allocated to participating securities	Less: Earnings allocated to participating securities	0.2		0.3		0.6		0.7		Less: Earnings allocated to participating securities	0.1		0.1
Net income available to common shareholders	Net income available to common shareholders	$	58.4	$	45.9	$	147.2	$	112.5	Net income available to common shareholders	$	37.2	$	29.7
Denominator:	Denominator:									Denominator:
Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	46.3		46.5		46.4		46.4		Basic weighted average common shares outstanding	46.2		46.4
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
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	0.7		0.5		0.7		0.6		Non-participating employee stock options, performance awards, and deferred shares to non-employee directors	0.7		0.7
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	47.0		47.0		47.1		47.0		Diluted weighted average common shares outstanding	46.9		47.1
Basic earnings per share	Basic earnings per share	$	1.26	$	0.99	$	3.17	$	2.43	Basic earnings per share	$	0.81	$	0.64
Diluted earnings per share	Diluted earnings per share	$	1.24	$	0.98	$	3.13	$	2.40	Diluted earnings per share	$	0.79	$	0.63

There were ~~0.0~~0.1 million ~~stock options outstanding for the third quarters ended September 30, 2022 and September 30, 2021,~~ and 0.1 million stock options outstanding for the ~~nine months~~first quarters ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and September 30, 2021,~~ respectively, that were excluded from the computation of diluted earnings per share, as their inclusion would be anti-dilutive.

1915

12. EQUITY ROLL FORWARD

The schedules below set forth equity changes in the ~~third~~first quarters ended ~~September 30, 2022~~March 31, 2023 and ~~September 30, 2021:~~March 31, 2022:


(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		Pension and Other Post Retirement Plans		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)
Net Income						46,172						218		46,390		64
Dividends on common stock ($0.175/share)						(8,179)								(8,179)
Balance as of December 31, 2022																		Balance as of December 31, 2022	$	4,619	$	325,426	$	969,261	$	(40,236)	$	(191,212)	$	2,276	$	1,070,134	$	620
Net income																		Net income					37,325						238		37,563		13
Dividends on common stock ($0.225/share)																		Dividends on common stock ($0.225/share)					(10,440)								(10,440)
Common stock issued	Common stock issued	7		2,394										2,401				Common stock issued	7		2,931										2,938
Common stock repurchased	Common stock repurchased	(12)				(9,895)								(9,907)				Common stock repurchased	(18)				(16,032)								(16,050)
Share-based compensation	Share-based compensation	1		2,347										2,348				Share-based compensation	6		3,906										3,912

Currency translation adjustment	Currency translation adjustment									(12,034)		(50)		(12,084)		(1)		Currency translation adjustment									6,471		23		6,494		—
Pension liability, net of taxes								915						915
Balance as of September 30, 2021		$	4,641	$	303,685	$	832,145	$	(49,982)	$	(167,474)	$	2,709	$	925,724	$	(146)
Pension and other post retirement plans, net of taxes																		Pension and other post retirement plans, net of taxes							417						417
Balance as of March 31, 2023																		Balance as of March 31, 2023	$	4,614	$	332,263	$	980,114	$	(39,819)	$	(184,741)	$	2,537	$	1,094,968	$	633

(In thousands)																		(In thousands)	Common Stock		Additional Paid in Capital		Retained Earnings		Pension and Other Post Retirement Plans		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					29,765						235		30,000		119
Dividends on common stock ($0.195/share)																		Dividends on common stock ($0.195/share)					(9,129)								(9,129)
Common stock issued																		Common stock issued	1		342										343
Common stock repurchased																		Common stock repurchased	(23)				(19,297)								(19,320)
Share-based compensation																		Share-based compensation	9		3,976										3,985

Currency translation adjustment																		Currency translation adjustment									8,630		(44)		8,586		6
Pension and other post retirement plans, net of taxes																		Pension and other post retirement plans, net of taxes							932						932
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

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

(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 $ 4,648 $ 310,617 $ 859,817 $ (49,076) $ (179,505) $ 2,161 $ 948,662 $ (19)
Net Income 147,753 644 148,397 457
Dividends on common stock ($0.585/share) (27,293) (27,293)
Common stock issued 8 3,576 3,584
Common stock repurchased (38) (30,693) (30,731)
Share-based compensation 14 8,926 8,940
Currency translation adjustment (26,712) (264) (26,976) 17
Pension liability, net of taxes 3,133 3,133
Balance as of September 30, 2022 $ 4,632 $ 323,119 $ 949,584 $ (45,943) $ (206,217) $ 2,541 $ 1,027,716 $ 455
(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 $ 4,622 $ 283,420 $ 764,562 $ (52,666) $ (152,105) $ 2,116 $ 849,949 $ (245)
Net Income 113,193 695 113,888 92
Dividends on common stock ($0.525/share) (24,499) (24,499)
Common stock issued 33 11,357 11,390
Common stock repurchased (27) (21,111) (21,138)
Share-based compensation 13 8,908 8,921
Currency translation adjustment (15,369) (102) (15,471) 7
Pension liability, net of taxes 2,684 2,684
Balance as of September 30, 2021 $ 4,641 $ 303,685 $ 832,145 $ (49,982) $ (167,474) $ 2,709 $ 925,724 $ (146)

2116

13. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

Changes in accumulated other comprehensive income/(loss) by component for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and September 30, 2021,~~ are summarized below:


(In millions)	(In millions)	Foreign Currency Translation Adjustments		Pension and Post-Retirement Plan Benefit Adjustments (2)				Total		(In millions)	Foreign Currency Translation Adjustments				Pension and Post-Retirement Plan Benefit Adjustments (2)			Total
For the nine months ended September 30, 2022:
For the three months ended March 31, 2023:										For the three months ended March 31, 2023:	Foreign Currency Translation Adjustments				Pension and Post-Retirement Plan Benefit Adjustments (2)			Total
Balance as of December 31, 2022										Balance as of December 31, 2022

Other comprehensive income/(loss) before reclassifications										Other comprehensive income/(loss) before reclassifications	6.5						—			6.5
Amounts reclassified from accumulated other comprehensive income/(loss) (1)										Amounts reclassified from accumulated other comprehensive income/(loss) (1)	—				0.3			0.3
Net other comprehensive income/(loss)										Net other comprehensive income/(loss)	6.5				0.3			6.8

Balance as of March 31, 2023										Balance as of March 31, 2023	$	(184.8)			$	(39.8)		$	(224.6)

For the three months ended March 31, 2022:										For the three months ended March 31, 2022:
Balance as of December 31, 2021	Balance as of December 31, 2021	$	(179.6)			$	(49.0)					$	(228.6)	Balance as of December 31, 2021	$	(179.6)		$	(49.0)		$	(228.6)

Other comprehensive income/(loss) before reclassifications	Other comprehensive income/(loss) before reclassifications	(26.7)		—				(26.7)		Other comprehensive income/(loss) before reclassifications	8.7				—			8.7
Amounts reclassified from accumulated other comprehensive income/(loss) (1)	Amounts reclassified from accumulated other comprehensive income/(loss) (1)	—		3.1				3.1		Amounts reclassified from accumulated other comprehensive income/(loss) (1)	—				0.9			0.9
Net other comprehensive income/(loss)	Net other comprehensive income/(loss)	(26.7)		3.1				(23.6)		Net other comprehensive income/(loss)	8.7				0.9			9.6

Balance as of September 30, 2022		$	(206.3)	$	(45.9)			$	(252.2)

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

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

Balance as of September 30, 2021		$	(167.5)	$	(49.9)			$	(217.4)
Balance as of March 31, 2022										Balance as of March 31, 2022	$	(170.9)			$	(48.1)		$	(219.0)

(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 ~~$0.9~~$0.1 million and ~~$0.7~~$0.3 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and September 30, 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 Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2022. 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.

2217

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


		Third Quarter Ended				Nine Months Ended					First Quarter Ended
(In millions)	(In millions)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021		(In millions)	March 31, 2023		March 31, 2022
		Net sales									Net sales
Water Systems	Water Systems									Water Systems
External sales	External sales									External sales
United States & Canada	United States & Canada	$	158.9	$	134.8	$	452.0	$	333.1	United States & Canada	$	159.4	$	134.7
Latin America	Latin America	41.3		36.5		120.9		102.9		Latin America	40.3		37.9
Europe, Middle East & Africa	Europe, Middle East & Africa	46.0		46.9		146.7		142.7		Europe, Middle East & Africa	50.4		51.0
Asia Pacific	Asia Pacific	22.1		19.6		66.8		59.9		Asia Pacific	18.8		20.5
Intersegment sales	Intersegment sales									Intersegment sales
United States & Canada	United States & Canada	24.8		22.9		89.8		66.9		United States & Canada	37.7		28.5
Total sales	Total sales	293.1		260.7		876.2		705.5		Total sales	306.6		272.6
Distribution	Distribution									Distribution
External sales	External sales									External sales
United States & Canada	United States & Canada	193.2		140.2		519.2		380.7		United States & Canada	143.0		134.9
Intersegment sales	Intersegment sales	—		—		—		—		Intersegment sales	—		—
Total sales	Total sales	193.2		140.2		519.2		380.7		Total sales	143.0		134.9
Fueling Systems	Fueling Systems									Fueling Systems
External sales	External sales									External sales
United States & Canada	United States & Canada	66.5		58.9		182.5		146.6		United States & Canada	54.0		51.9
All other	All other	23.7		22.1		66.2		63.4		All other	18.7		20.6
Intersegment sales	Intersegment sales	—		—		—		—		Intersegment sales	—		—
Total sales	Total sales	90.2		81.0		248.7		210.0		Total sales	72.7		72.5

Intersegment Eliminations/Other	Intersegment Eliminations/Other	(24.8)		(22.9)		(89.8)		(66.9)		Intersegment Eliminations/Other	(37.7)		(28.5)
Consolidated	Consolidated	$	551.7	$	459.0	$	1,554.3	$	1,229.3	Consolidated	$	484.6	$	451.5

		Third Quarter Ended				Nine Months Ended					First Quarter Ended
		September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021			March 31, 2023		March 31, 2022
		Operating income/(loss)									Operating income/(loss)
Water Systems	Water Systems	$	45.5	$	36.8	$	127.7	$	102.7	Water Systems	$	49.0	$	33.2
Distribution	Distribution	19.0		12.3		51.7		30.3		Distribution	4.7		9.4
Fueling Systems	Fueling Systems	28.6		23.9		72.4		57.3		Fueling Systems	20.8		17.7
Intersegment Eliminations/Other	Intersegment Eliminations/Other	(13.1)		(16.4)		(50.8)		(48.3)		Intersegment Eliminations/Other	(21.9)		(20.4)
Consolidated	Consolidated	$	80.0	$	56.6	$	201.0	$	142.0	Consolidated	$	52.6	$	39.9


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		Total assets					Total assets
Water Systems	Water Systems	$	1,016.6	$	894.4	Water Systems	$	1,055.9	$	1,017.5
Distribution	Distribution	373.4		363.0		Distribution	423.0		360.4
Fueling Systems	Fueling Systems	276.7		273.6		Fueling Systems	273.1		269.1
Other	Other	48.3		44.2		Other	51.4		47.2
Consolidated	Consolidated	$	1,715.0	$	1,575.2	Consolidated	$	1,803.4	$	1,694.2

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. In May 2022, the subject-matter expert issued its final report, which indicates that total damages incurred by Esso amounted to approximately 9.5 million Euro. It is the Company’s ~~continuing~~ position that its products were not the cause of any alleged damage. The ~~Company's~~Company submitted its response to the expert's final report ~~is due~~ in ~~January 2023, at which time the French court will determine whether the merits of the claim warrant additional proceedings.~~February 2023. 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 30, 2022,~~March 31, 2023, the Company had ~~$13.9~~$13.2 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~~three months ended ~~September 30, 2022,~~March 31, 2023, are as follows:


(In millions)
Balance as of December 31, ~~2021~~2022	$	~~10.5~~11.2
Accruals related to product warranties	~~8.3~~3.4
Additions related to acquisitions	—
Reductions for payments made	~~(6.9)~~(3.3)
Balance as of ~~September 30, 2022~~March 31, 2023	$	~~11.9~~11.3

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 in effect at the inception of 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 third quarter and nine months ended September 30, 2022 are as follows:~~

Third Quarter Ended Nine Months Ended
Lease Cost (in millions): September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Operating lease cost $ 4.3 $ 3.5 $ 12.9 $ 9.2
Short-term lease cost 0.1 0.1 0.2 0.5
Other Information:
Weighted-average remaining lease term 4.3 years 4.1 years
Weighted-average discount rate 3.7 % 4.1 %

~~As of September 30, 2022, the Company has approximately $2.3 million of additional ROU assets related to leases that have not yet commenced, but create future lease obligations.~~

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

(In millions) 2022 2023 2024 2025 2026 Thereafter
Future Minimum Rental Payments $ 4.5 $ 15.5 $ 10.6 $ 7.3 $ 5.7 $ 8.4

~~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 one 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.

~~The assumptions used for the Black-Scholes model to determine the fair value of options granted during the nine months ended September 30, 2022 and September 30, 2021 are as follows:~~
September 30, 2022 September 30, 2021
Risk-free interest rate 1.87 % 0.66 %
Dividend yield 0.93 % 0.96 %
Volatility factor 33.88 % 34.98 %
Expected term 5.5 years 5.5 years

~~A summary of the Company’s outstanding stock option activity and related information for the nine months ended September 30, 2022 is as follows:~~
(Shares in thousands) September 30, 2022

Stock Options
Shares Weighted-Average Exercise Price
Outstanding at beginning of period 1,043 $ 49.21
Granted 110 83.90
Exercised (82) 43.43
Forfeited (20) 73.76
Expired (3) $ 73.14
Outstanding at end of period 1,048 $ 52.77
Expected to vest after applying forfeiture rate 1,046 $ 52.73
Vested and exercisable at end of period 815 $ 46.45

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

~~Weighted-Average Remaining Contractual Term~~

~~Aggregate Intrinsic Value (000's)~~

~~Outstanding at end of period~~

~~5.52 years~~

~~30,556~~

~~Expected to vest after applying forfeiture rate~~

~~5.51 years~~

~~30,550~~

~~Vested and exercisable at end of period~~

~~4.63 years~~

~~28,747~~

~~The total intrinsic value of options exercised during the nine months ended September 30, 2022 and September 30, 2021 was $3.3 million and $15.1 million, respectively.~~

As of September 30, 2022, there was $1.1 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 1.63 years.

~~Stock/Stock Unit Awards:~~

~~A summary of the Company’s restricted stock/stock unit award activity and related information for the nine months ended September 30, 2022 is as follows:~~
(Shares in thousands) September 30, 2022
Restricted Stock/Stock Unit Awards
Shares Weighted-Average Grant-
Date Fair Value
Non-vested at beginning of period 348 $ 58.20
Awarded 121 81.16
Vested (180) 50.58
Forfeited (26) 70.12
Non-vested at end of period 263 $ 72.85

As of September 30, 2022, there was $10.7 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 1.40 years.

2619

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

~~Third~~First Quarter ~~2022~~2023 vs. ~~Third~~First Quarter ~~2021~~2022

OVERVIEW

~~Sales~~Net sales in the ~~third~~first quarter of ~~2022~~2023 increased 7 percent from the ~~third~~first quarter of last year. The sales increase was ~~led~~primarily due to higher sales across all three segments, achieved by ~~increases from~~ price ~~acquisitions,~~realization and ~~volume.~~volume, partially offset by the negative impact of foreign currency translation. The Company's consolidated gross profit was ~~$190.6~~$162.3 million for the ~~third~~first quarter of ~~2022,~~2023, an increase of ~~$27.5~~$17.0 million ~~or about 17 percent~~ from the prior year’s ~~third~~first quarter. ~~Earnings~~The gross profit as a percent of net sales was 33.5 percent in the first quarter of 2023 compared to 32.2 percent during the first quarter of 2022. For the first quarter of 2023, diluted earnings per share inwere $0.79, an increase of $0.16 from the ~~third~~first quarter of 2022 ~~were up compared to the same period last year by about 27 percent.~~diluted earnings per share of $0.63.

RESULTS OF OPERATIONS

Net Sales

Net sales in the ~~third~~first quarter of ~~2022~~2023 were ~~$551.7~~$484.6 million, an increase of ~~$92.7~~$33.1 million or ~~about 20~~7 percent compared to ~~2021 third~~2022 first quarter sales of ~~$459.0 million. Acquisition related sales were $28.3~~$451.5 million. Sales ~~revenue~~ decreased ~~by $24.9~~$15.0 million or ~~about 5~~3 percent in the ~~third~~first quarter of ~~2022~~2023 due to foreign currency translation.


		Net Sales							Net Sales
(In millions)	(In millions)	Q3 2022		Q3 2021		2022 v 2021		(In millions)	Q1 2023		Q1 2022		2023 v 2022
Water Systems	Water Systems	$	293.1	$	260.7	$	32.4	Water Systems	$	306.6	$	272.6	$	34.0
Fueling Systems	Fueling Systems	90.2		81.0		9.2		Fueling Systems	72.7		72.5		0.2
Distribution	Distribution	193.2		140.2		53.0		Distribution	143.0		134.9		8.1
Eliminations/Other	Eliminations/Other	(24.8)		(22.9)		(1.9)		Eliminations/Other	(37.7)		(28.5)		(9.2)
Consolidated	Consolidated	$	551.7	$	459.0	$	92.7	Consolidated	$	484.6	$	451.5	$	33.1

Net Sales-Water Systems

Water Systems sales were ~~$293.1~~$306.6 million in the ~~third~~first quarter ~~2022,~~of 2023, an increase of ~~$32.4~~$34.0 million ~~versus~~or 12 percent compared to the ~~third quarter 2021 sales of $260.7 million. In the third~~first quarter of 2022 sales ~~from businesses acquired since~~of $272.6 million. This sales growth was primarily due to price and volume, which increased due to strong end market demand. Partially offsetting the ~~third quarter of 2021 were $6.6 million. Water Systems~~increase, sales decreased ~~by $23.2~~$14.2 million or ~~about 9~~5 percent ~~in the quarter~~ due to foreign currency translation. ~~Water Systems sales, excluding acquisitions and the impact of foreign currency translation, were up about 19 percent compared to the third quarter 2021.~~

Water Systems sales in the U.S. and Canada ~~were up overall by 16~~increased 21 percent compared to the ~~third quarter 2021. In the third~~first quarter of ~~2022,~~2022. Foreign currency translation decreased sales ~~from businesses acquired since the third quarter~~by 1 percent. Sales of ~~2021 were $5.6 million. In the U.S. and Canada, Water Systems organic~~large dewatering equipment increased 144 percent, sales ~~increased by 13 percent. Sales~~ of groundwater pumping equipment increased ~~by about 12~~6 percent and sales of ~~dewatering~~all other surface pumping equipment ~~were up about 70~~increased 7 percent ~~both~~compared to the first quarter of 2022, due to strong end market demand. Sales of surface pumping equipment increased by about 4 percent versus the third quarter 2021, as supply constraints with certain utility pumps and lower overall sales of sump pumps limited their growth rate.

Water Systems sales in markets outside the U.S. and Canada ~~increased by 6 percent~~were flat overall. Foreign currency translation decreased sales ~~by $22.4 million or about 22 percent in the quarter.In the third quarter of 2022, sales from businesses acquired since the third quarter of 2021 were $1.0 million.~~12 percent. Outside the U.S. and Canada, ~~Water Systems organic~~excluding the impact of foreign currency translation, sales ~~increased by 27 percent, driven by higher sales~~increases in ~~all three major geographic regions of the world; Europe, the Middle East~~EMEA and ~~Africa,~~ Latin America ~~and~~more than offset sales declines in the Asia Pacific markets.

Net Sales-Fueling Systems

Fueling Systems sales were ~~$90.2~~$72.7 million in the ~~third~~first quarter ~~2022,~~of 2023, an increase of ~~$9.2~~$0.2 million ~~versus~~or less than 1 percent compared to the ~~third quarter 2021 sales of $81.0 million. In the third~~first quarter of 2022 sales of $72.5 million. This sales growth was primarily due to price and volume, which increased due to strong end market demand. Partially offsetting the increase, Fueling Systems sales decreased ~~by $1.7~~$0.8 million or ~~about 2~~1 percent in the quarter due to foreign currency translation. ~~Fueling Systems organic sales increased about 13 percent compared to the third quarter of 2021.~~

Fueling Systems sales in the U.S. and Canada increased ~~by about 11~~4 percent compared to the ~~third~~first quarter ~~2021.~~of 2022. The increase was ~~due to higher demand across most product groups.~~primarily in Fuel Management and Pumping Systems. Outside the U.S. and Canada, Fueling Systems ~~revenues were up, with~~ sales ~~growth~~decreased 10 percent, due primarily to the divestiture of the above ground storage tank business in ~~India~~2022 and ~~EMEA more than offsetting weak~~lower sales in ~~Asia and Latin America.China sales were about $2 million in the third quarter of 2022 compared to about $4 million in the third quarter of 2021.~~China.

Net Sales - Distribution

Distribution sales were ~~$193.2~~$143.0 million in the ~~third~~first quarter ~~2022, versus third~~of 2023, an increase of $8.1 million or 6 percent compared to the first quarter ~~2021~~of 2022 sales of ~~$140.2~~$134.9 million. ~~In the third~~The Distribution segment sales growth was primarily due to price and volume.

2720

quarter of 2022, sales from businesses acquired since the third quarter of 2021 were $21.7 million. The Distribution segment organic sales increased about 22 percent compared to the third quarter of 2021. Revenue growth was driven by pricing and strong demand in all regions and product categories.

Cost of Sales

Cost of sales as a ~~percent~~percentage of net sales for the ~~third quarter~~first quarters of 2023 and 2022 ~~and 2021~~ was ~~65.5~~66.5 percent and ~~64.5~~67.8 percent, respectively. Correspondingly, ~~the~~ gross profit margin ~~as a~~increased to 33.5 percent ~~of net sales was 34.5 percent in the third quarter of 2022 compared to 35.5 percent in the third quarter of 2021.~~from 32.2 percent. The gross profit margin was down 100 basis points, as realized pricing actions are more than offsetting inflationary cost increases. However, supply disruptions are causing unfavorable absorption variances and higher inbound freight.~~The Company's~~Company’s consolidated gross profit was ~~$190.6~~$162.3 million for the ~~third~~first quarter of 2023, an increase of $17.0 million from the first quarter of 2022 ~~an increase of $27.5 million from the~~ gross profit of ~~$163.1 million in the third quarter of 2021.~~$145.3 million. The gross profit margin increase was primarily due to price realization, cost management and operating leverage on higher sales.

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

~~Selling, general, and administrative (SG&A)~~SG&A expenses were ~~$109.4~~$109.5 million in the ~~third~~first quarter of ~~2022~~2023 compared to ~~$106.4~~$104.7 million in the ~~third~~first quarter of ~~the prior year. SG&A expenses from acquired businesses were about $6 million. Excluding acquisitions, SG&A expenses were lower by $3 million or less than 3 percent.~~2022. The increase was primarily due to higher spending in marketing, selling and engineering to support sales growth. SG&A costs as a percent of ~~Net Sales were below 2021.~~net sales decreased to 22.6 percent in the first quarter of 2023 from 23.2 percent in the first quarter of 2022.

Restructuring Expenses

Restructuring expenses ~~for the third quarter of 2022~~ were ~~$1.2 million, across all three segments: Fueling $0.6 million, Water $0.5 million and Distribution~~ $0.1 million and ~~all related to miscellaneous manufacturing~~$0.7 million in first quarters of 2023 and ~~branch realignment activities.~~2022, respectively. Restructuring expenses ~~for the third quarter of 2021~~ were ~~$0.1 million,~~ primarily ~~in the Water segment and related to~~from continued miscellaneous manufacturing realignment ~~activities.~~activities, branch closings and consolidations.

Operating Income

Operating income was ~~$80.0~~$52.6 million in the ~~third~~first quarter of ~~2022, up $23.4~~2023, an increase of $12.7 million or 4132 percent from ~~$56.6~~$39.9 million in the ~~third~~first quarter of ~~2021.~~2022.


		Operating income (loss)							Operating income (loss)
(In millions)	(In millions)	Q3 2022		Q3 2021		2022 v 2021		(In millions)	Q1 2023		Q1 2022		2023 v 2022
Water Systems	Water Systems	$	45.5	$	36.8	$	8.7	Water Systems	$	49.0	$	33.2	$	15.8
Fueling Systems	Fueling Systems	28.6		23.9		4.7		Fueling Systems	20.8		17.7		3.1
Distribution	Distribution	19.0		12.3		6.7		Distribution	4.7		9.4		(4.7)
Eliminations/Other	Eliminations/Other	(13.1)		(16.4)		3.3		Eliminations/Other	(21.9)		(20.4)		(1.5)
Consolidated	Consolidated	$	80.0	$	56.6	$	23.4	Consolidated	$	52.6	$	39.9	$	12.7

Operating Income-Water Systems

Water Systems operating income was ~~$45.5~~$49.0 million in the ~~third~~first quarter ~~2022, up $8.7~~of 2023, an increase of $15.8 million compared to ~~$36.8 million~~the first quarter of 2022. Operating income increased in ~~the third quarter 2021. The increase in operating income was~~Water Systems primarily due to higher ~~sales revenues.~~sales. The ~~third~~first quarter ~~of 2022~~ operating income margin was ~~15.5~~16.0 percent, ~~versus 14.1~~an increase of 380 basis points from 12.2 percent ~~of net sales~~ in the ~~third~~first quarter ~~of 2021. The increase in operating~~2022. Operating income margin ~~was~~increased primarily due to price realization, cost management and operating leverage on higher ~~sales volumes and cost controls in SG&A spending.~~sales.

Operating Income-Fueling Systems

Fueling Systems operating income was ~~$28.6~~$20.8 million in the ~~third~~first quarter of ~~2022, up $4.7~~2023, an increase of $3.1 million compared to ~~$23.9 million in~~ the ~~third~~first quarter of 2021. The increase in operating income was primarily due to higher sales revenues. The third quarter of 2022 operating income margin was 31.7 percent versus 29.5 percent of net sales in the third quarter of 2021.2022. Operating income ~~margin in the third quarter~~ increased in Fueling Systems primarily due to ~~leverage on higher sales volumes,~~a favorable product and geographic mix of net sales. The first quarter operating income margin was 28.6 percent, an increase of 420 basis points from 24.4 percent in the first quarter of 2022. Operating income margin increased primarily due to price realization and a favorable product and geographic sales mix ~~shifts and cost controls in SG&A.~~shift.

Operating Income-Distribution

Distribution operating income was ~~$19.0~~$4.7 million in the ~~third~~first quarter of ~~2022 and~~2023, a decrease of $4.7 million compared to the ~~third~~first quarter of 2022. The first quarter operating income margin was ~~9.8 percent. Distribution operating income was $12.3 million~~3.3 percent, a decrease of 370 basis points from 7.0 percent in the ~~third~~first quarter of ~~2021~~2022. Operating income and ~~the third quarter~~ operating income margin ~~was 8.8 percent. Distribution’s operating income was higher in the third quarter due to higher sales volumes. The increase in operating income margin was~~decreased primarily due to ~~revenue~~unfavorable pricing of commodity-based products sold through the business and higher operating expenses as the business invested in future growth ~~and operating leverage.~~

with 6 recently added new branch locations.

Operating Income-Eliminations/Other

Operating income-Eliminations/Other is composed primarily of ~~inter-segment~~intersegment sales and profit eliminations and unallocated general and administrative expenses. The ~~inter-segment~~intersegment profit elimination impact in the ~~third~~first quarter of 2023 compared to the first quarter of 2022 ~~compared to the third quarter of 2021~~ was ~~a positive impact of $2.3 million on operating income.~~an unfavorable $0.7 million. The ~~inter-segment~~intersegment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in the consolidated financial results until such time as the transferred product is sold from the Distribution segment to its end third party customer. ~~Unallocated general~~General and administrative expenses ~~were lower by $1.0 million or about 6 percent, primarily due to cost controls in SG&A and lower variable compensation expense.~~

~~Interest Expense~~

~~Interest expense for the third quarter of 2022 and 2021 was $3.1 million and $1.4 million, respectively, primarily as a result of higher debt levels and~~ increased ~~interest rates.~~

~~Other Income or Expense~~

Other income or expense was a loss of $1.3 million and a gain of $2.1 million in the third quarter of 2022 and 2021, respectively. Included in other income or expense in the third quarter of 2022 was a loss of $1.1 million related to a settlement of an indirect tax dispute. 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.

~~Foreign Exchange~~

Foreign currency-based transactions produced a loss for the third quarter of 2022 of $3.4 million, primarily due to the Turkish lira and Argentinian peso. Foreign currency-based transactions produced a loss for the third quarter of 2021 of $0.4 million.

~~Income Taxes~~

The provision for income taxes in the third quarter of 2022 and 2021 was $13.4 million and $10.4 million, respectively. The effective tax rate for the third quarter of 2022 was about 19 percent and, before the impact of discrete events, was about 20 percent. The effective tax rate for the third quarter of 2021 was about 18 percent and, before the impact of discrete events, was about 20 percent. The increase in the effective tax rate was primarily a result of smaller net favorable discrete events recorded in the third quarter of 2022 compared to the third quarter of 2021. The tax rate as a percentage of pre-tax earnings for the full year 2022 is projected to be about 21 percent, compared to the full year 2021 tax rate of about 21 percent, both before discrete adjustments.

~~Net Income~~

~~Net income for the third quarter of 2022 was $59.0~~$0.8 million compared to the prior year, ~~third quarter net income of $46.5 million. Net income attributable~~in part due to Franklin Electric Co., Inc. for the third quarter of 2022 was $58.6 million, or $1.24 per diluted share, compared to the prior year third quarter net income attributable to Franklin Electric Co., Inc. of $46.2 million or $0.98 per diluted share.higher software, professional fees and travel expenses.

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

~~OVERVIEW~~

Sales in the first nine months of 2022 were up from the same period last year. The sales increase was primarily from price, acquisitions, and higher volumes. The impact of foreign currency translation decreased sales by about 5 percent. The Company's consolidated gross profit was $525.2 million for the first nine months of 2022, an increase of $94.3 million or about 22 percent from the first nine months of 2021. Earnings in the first nine months of 2022 were up from the same period last year.

~~RESULTS OF OPERATIONS~~

~~Net Sales~~

Net sales in the first nine months of 2022 were $1,554.3 million, an increase of $325.0 million or about 26 percent compared to 2021 first nine months sales of $1,229.3 million. The incremental impact of sales from acquired businesses was $110.9 million. Sales revenue decreased by $57.4 million or about 5 percent in the first nine months of 2022 due to foreign currency translation.

Net Sales
(In millions) YTD September 30, 2022 YTD September 30, 2021 2022 v 2021
Water Systems $ 876.2 $ 705.5 $ 170.7
Fueling Systems 248.7 210.0 38.7
Distribution 519.2 380.7 138.5
Eliminations/Other (89.8) (66.9) (22.9)
Consolidated $ 1,554.3 $ 1,229.3 $ 325.0

2921

~~Net Sales-Water Systems~~Interest Expense

~~Water Systems sales were $876.2 million~~Interest expense increased in the first ~~nine months 2022, an increase~~quarter of ~~$170.7~~2023 to $3.1 million ~~or about 24 percent versus the first nine months of 2021. The incremental impact of sales~~ from acquired businesses was $55.3 million. Foreign currency translation changes decreased sales $53.5 million, or about 8 percent, compared to sales in the first nine months of 2021. The Water Systems sales change in the first nine months of 2022, excluding acquisitions and foreign currency translation, was an increase of $168.9 million or about 24 percent.

Water Systems sales in the U.S. and Canada increased by about 35 percent compared to the first nine months of 2021. The incremental impact of sales from acquired businesses was $50.6 million. Sales revenue decreased by $1.5 million in the first ~~nine months~~quarter of 2022 due to foreign currency translation. In the first nine months of 2022, Sales of groundwater pumping equipment increased by about 30 percent and sales of all surface pumping equipment increased by about 22 percent versus the first nine months of 2021, due to strong end market demand and pricing.

Water Systems sales in markets outside the U.S. and Canada increased by about 9 percent compared to the first nine months of 2021. The incremental impact of sales from acquired businesses was $4.7 million. Sales revenue decreased by $51.9 million or 17 percent in the first nine months of 2022 due to foreign currency translation. The change in the first nine months of 2022, excluding acquisitions and foreign currency translation, was an increase of about 25 percent. Sales grew organically in all major markets; Latin America, EMENA, and Asia Pacific.

~~Net Sales-Fueling Systems~~

Fueling Systems sales were $248.7 million in the first nine months of 2022, an increase of $38.7 million or about 18 percent from the first nine months of 2021. Foreign currency translation changes decreased sales $3.9 million or about 2 percent compared to sales in the first nine months of 2021. The Fueling Systems sales change in the first nine months of 2022, excluding foreign currency translation, was an increase of $42.6 million or about 20 percent.

Fueling Systems sales in the U.S. and Canada increased by about 25 percent during the first nine months of 2022, the increase was due to higher demand across all product lines. Outside the U.S. and Canada, Fueling Systems revenues were up, with sales growth in India more than offsetting weak sales in China.~~China sales were about $5 million in the first nine months of 2022 compared to the first nine months of 2021 Fueling Systems China sales of about $9 million.~~

~~Net Sales - Distribution~~

Distribution sales were $519.2 million in the first nine months of 2022, versus the first nine months of 2021 sales of $380.7 million. The incremental impact of sales from acquired businesses was $55.6 million. Distribution segment organic sales increased about 22 percent compared to the first nine months of 2021. Revenue growth was driven by pricing and 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 of 2022 and 2021 was 66.2 percent and 64.9 percent, respectively. Correspondingly, the gross profit margin was 33.8 percent and 35.1 percent, respectively. The gross profit margin decline was primarily a result of realized pricing actions more than offsetting inflationary cost increases, however, supply disruptions are causing unfavorable absorption variances and higher inbound freight.The Company's consolidated gross profit was $525.2 million for the first nine months of 2022, up $94.3 million from the gross profit of $430.9 million in the first nine months of 2021. The gross profit increase was primarily due to higher ~~sales.~~

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

Selling, general, and administrative expenses were $322.4 million in the first nine months of 2022 and increased by $33.9 million compared to $288.5 million in the first nine months of last year. SG&A expenses from acquired businesses were $26 million. Excluding acquisitions, SG&A expenses were higher by $7.9 million or 3 percent versus the prior year. SG&A costs as a percent of Net Sales were below 2021.

~~Restructuring Expenses~~

Restructuring expenses for the first nine months of 2022 were $1.9 million. Restructuring expenses were $1.1 million in the Water segment, $0.6 in the Fueling segment and $0.2 million in Distribution segments. Restructuring expenses were primarily from continued miscellaneous manufacturing realignment activities and branch closings and consolidations in the Distribution segment. Restructuring expenses for the first nine months of 2021 were $0.4 million. Restructuring expenses were $0.3 million in the Water segment and $0.1 million in Distribution segments. Restructuring expenses were primarily from continued miscellaneous manufacturing realignment activities and branch closings and consolidations in the Distribution segment.

~~Operating Income~~

~~Operating income was $201.0 million in the first nine months of 2022, up $59.0 million or 42 percent from $142.0 million in~~

~~the first nine months of 2021.~~

Operating income (loss)
(In millions) YTD September 30, 2022 YTD September 30, 2021 2022 v 2021
Water Systems $ 127.7 $ 102.7 $ 25.0
Fueling Systems 72.4 57.3 15.1
Distribution 51.7 30.3 21.4
Eliminations/Other (50.8) (48.3) (2.5)
Consolidated $ 201.0 $ 142.0 $ 59.0

~~Operating Income-Water Systems~~

Water Systems operating income was $127.7 million in the first nine months of 2022 compared to $102.7 million in the first nine months of 2021, an increase of 24 percent. Operating income increased in Water Systems primarily due to higher sales volumes and SG&A cost controls. The first nine months operating income margin was 14.6 percent compared to the first nine months of 2021 operating income margin of 14.6 percent.

~~Operating Income-Fueling Systems~~

Fueling Systems operating income was $72.4 million in the first nine months of 2022 compared to $57.3 million in the first nine months of 2021. Operating income increased in Fueling Systems primarily due to higher sales volumes. The first nine months operating income margin was 29.1 percent compared to 27.3 percent of net sales in the first nine months of 2021. Operating income margin increased in Fueling Systems primarily due to operating leverage on higher sales, favorable product and geographic sales mix shifts.

~~Operating Income-Distribution~~

Distribution operating income was $51.7 million in the first nine months of 2022 and operating income margin was 10.0 percent. Distribution operating income was $30.3 million in the first nine months of 2021 and operating income margin was 8.0 percent. Distribution’s operating income in the first nine months was higher in due to higher sales volumes. The increase in operating income margin was primarily due to revenue growth and operating leverage.

~~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 of 2022 decreased operating income about $2.6 million versus the impact in the first nine months of 2021. 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 general and administrative expenses were lower by $0.1 million to last year in the first nine months.

~~Interest Expense~~

~~Interest expense for the first nine months of 2022 and 2021 was $7.5 million and $3.8 million, respectively, primarily as a result of higher~~outstanding debt levels and ~~increase~~higher interest rates.

Other Income or Expense

Other income or expense was ~~a loss of $2.8 million and a gain of 1.5 million, respectively~~income in the first ~~nine months~~quarter of ~~2022~~2023 of $0.4 million and ~~2021. Included~~an expense of $0.4 million in ~~other income or expense in 2022 was a loss~~the first quarter of ~~$2.1 million related to a settlement of an indirect tax dispute.Included in other income or expense in 2021 was a gain of $2.5 million related to a settlement of an indirect tax dispute.~~

2022.

Foreign Exchange

Foreign ~~currency–based~~currency-based transactions produced ~~a loss~~an expense for the first ~~nine months~~quarter of ~~2022~~2023 of ~~$4.3~~$2.0 million, primarily ~~from the Turkish lira and Argentinian peso. Foreign currency–based transactions produced a loss for the first nine months of 2021 of $1.7 million, primarily from~~due to the Argentinian ~~peso.~~and Mexican Peso relative to the U.S. dollar. The expense in 2022 was primarily due to transaction losses associated with the Argentine Peso and Turkish Lira. The Company reports the results of its subsidiaries in Argentina and Turkey using highly inflationary accounting, which requires that the functional currency of the entity be changed to the reporting currency of its parent.

Income Taxes

The provision for income taxes in the first ~~nine months~~quarters of 2023 and 2022 ~~and 2021~~ was ~~$37.5~~$10.2 million and ~~$24.0~~$7.4 million, respectively. The effective tax rate for the first ~~nine months~~quarters of 2023 and 2022 was 21 percent and 20 percent, ~~and, before the~~respectively. The impact of discrete events ~~was about 21 percent. The~~had a positive impact on the effective tax rate of 1 percent in ~~the first nine months of 2021 was about 17 percent~~both 2023 and ~~before the impact of discrete events, was about 20 percent.~~2022. The increase in the effective tax rate was primarily a result of a smaller net favorable discrete events

recorded in the first ~~nine months~~quarter of ~~2022~~2023 compared to the first ~~nine months~~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 2022 is projected to be about 21 percent, compared to the full year 2021 tax rate of about 21 percent, both before discrete adjustments.2022.

Net Income

Net income for the first ~~nine months~~quarter of ~~2022~~2023 was ~~$148.9~~$37.6 million compared to ~~2021~~the prior year first ~~nine months~~quarter net income of ~~$114.0~~$30.1 million. Net income attributable to Franklin Electric Co., Inc. for the first ~~nine months~~quarter of ~~2022~~2023 was ~~$147.8~~$37.3 million, or ~~$3.13~~$0.79 per diluted share, compared to ~~2021~~the prior year first ~~nine months~~quarter net income attributable to Franklin Electric Co., Inc. of ~~$113.2~~$29.8 million, or ~~$2.40~~$0.63 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 30, 2022~~March 31, 2023 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 30, 2022~~March 31, 2023 the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 13, 2026. As of ~~September 30, 2022,~~March 31, 2023, the Company had ~~$171.8~~$163.9 million borrowing capacity under ~~the Credit Agreement~~its credit agreement as ~~$4.0~~$3.6 million in letters of commercial and standby letters of credit were outstanding and undrawn and ~~$174.2~~$182.5 million in revolver borrowings were drawn and outstanding, which were primarily used for funding 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 30, 2022.~~March 31, 2023. The Company also has other long-term debt borrowings outstanding as of ~~September 30, 2022.~~March 31, 2023. See Note 10 - Debt included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, for additional ~~specifics~~information regarding these obligations and future ~~maturities.~~maturities as well as Note 10 - Debt of this current quarterly report for changes to these agreements since December 31, 2022.

At ~~September 30, 2022,~~March 31, 2023, the Company had ~~$36.1~~$50.1 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 the majority of 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 months of 2022 and 2021.~~

(in millions) 2022 2021
Net cash flows from operating activities $ 7.2 $ 93.9
Net cash flows from investing activities (30.9) (213.4)
Net cash flows from financing activities 29.2 68.2
Impact of exchange rates on cash and cash equivalents (6.5) (3.5)
Change in cash and cash equivalents $ (1.0) $ (54.8)

~~Cash Flows from Operating Activities~~

~~2022 vs. 2021~~

Net cash provided by operating activities was $7.2 million for the nine months ended September 30, 2022 compared to $93.9 million provided by operating activities for the nine months ended September 30, 2021. The decrease in cash provided 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.

~~Cash Flows from Investing Activities~~

~~2022 vs. 2021~~

Net cash used in investing activities was $30.9 million for the nine months ended September 30, 2022 compared to $213.4 million used in investing activities for the nine months ended September 30, 2021. The decrease in cash used in investing activities was attributable to decreased acquisition activity in 2022.

~~Cash Flows from Financing Activities~~

3222

~~2022~~Cash Flows

The following table summarizes significant sources and uses of cash and cash equivalents for the first three months of 2023 and 2022.


(in millions)	2023		2022
Net cash flows from operating activities	$	(12.0)	$	(61.3)
Net cash flows from investing activities	(14.6)		(8.9)
Net cash flows from financing activities	33.1		68.7
Impact of exchange rates on cash and cash equivalents	(0.4)		(0.5)
Change in cash and cash equivalents	$	6.1	$	(2.0)

Cash Flows from Operating Activities

2023 vs. ~~2021~~2022

Net cash used by operating activities was $12.0 million for the three months ended March 31, 2023 compared to $61.3 million used by operating activities for the three months ended March 31, 2022. The decrease in cash used by operating activities was primarily due to decreased working capital requirements.

Cash Flows from Investing Activities

2023 vs. 2022

Net cash used in investing activities was $14.6 million for the three months ended March 31, 2023 compared to $8.9 million used in investing activities for the three months ended March 31, 2022. The increase in cash used in investing activities was attributable to increased acquisition activity in the first quarter of 2023.

Cash Flows from Financing Activities

2023 vs. 2022

Net cash provided by financing activities was ~~$29.2~~$33.1 million for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~$68.2~~$68.7 million provided by financing activities for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The decrease in cash provided by financing activities was attributable to ~~increased common stock repurchases slightly offset by~~ decreased net proceeds from ~~debt and common stock issuances.~~debt.

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, ~~2021,~~2022, 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~~first quarter ended ~~September 30, 2022.~~March 31, 2023. 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, ~~2021.~~2022.

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.

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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 Condensed 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, ~~2021 with the exception of the update to the following risk factor.~~2022. 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. In February 2023, the Company’s Board of Directors approved a plan to increase the number of shares remaining for repurchase by an additional 1,000,000 shares. The authorization was in addition to the 215,872 shares that remained available for repurchase as of February 16, 2023. The Company repurchased ~~972~~162,235 shares for approximately ~~$0.1~~$14.1 million under the plan during the ~~third~~first quarter of ~~2022.~~2023. The maximum number of shares that may still be purchased under this plan as of ~~September 30, 2022~~March 31, 2023 is ~~422,942.~~1,125,872.

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 31 972 69.80 972 422,942
August 1 - August 31 — — — 422,942
September 1 - September 30 — — — 422,942
Total 972 69.80 972 422,942


Period	Total Number of Shares Repurchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares that may yet to be Repurchased
January 1 - January 31	72,235	82.25	72,235	1,215,872
February 1 - February 28	—	—	—	1,215,872
March 1 - March 31	90,000	90.39	90,000	1,125,872
Total	162,235	86.76	162,235	1,125,872

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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 Kenneth Keene (incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q filed on August 2, 2022)~~
~~10.2~~			~~Employment Security Agreement between the Company and Brent Spikes (incorporated by reference to Exhibit 10.2 of the Company's Form 10-Q filed on August 2, 2022)~~
~~10.3~~			Form of Confidentiality and Non-Compete Agreement between the Company and 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)*
~~10.4~~			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 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 30, 2022,~~March 31, 2023, formatted in Inline eXtensible Business Reporting Language (Inline XBRL): (i) Condensed Consolidated Statements of Income for the ~~third~~first quarter ended March 31, 2023 and ~~nine months ended September 30,~~ 2022 ~~and 2021~~ (ii) Condensed Consolidated Statements of Comprehensive Income/(Loss) for the ~~third~~first quarter ended March 31, 2023 and ~~nine months ended September 30,~~ 2022, ~~and 2021,~~ (iii) Condensed Consolidated Balance Sheets as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, (iv) Condensed Consolidated Statement of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 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)

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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 1, 2022~~May 5, 2023	By	/s/ Gregg C. Sengstack
		Gregg C. Sengstack, Chairperson and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~November 1, 2022~~May 5, 2023	By	/s/ Jeffery L. Taylor
		Jeffery L. Taylor, Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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(In millions)	Total		Year 1		Year 2		Year 3		Year 4		Year 5		More Than 5 Years
Debt	$	269.0	$	179.6	$	1.4	$	76.4	$	1.5	$	1.4	$	8.7


	Third Quarter Ended				Nine Months Ended
Lease Cost (in millions):	September 30, 2022		September 30, 2021		September 30, 2022			September 30, 2021
Operating lease cost	$	4.3	$	3.5	$	12.9		$	9.2
Short-term lease cost	0.1		0.1		0.2			0.5

Other Information:
Weighted-average remaining lease term					4.3 years			4.1 years
Weighted-average discount rate					3.7		%	4.1		%


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

Volatility factor	33.88	%	34.98	%

Expected term	5.5 years		5.5 years


(Shares in thousands)	September 30, 2022
Stock Options	Shares	Weighted-Average Exercise Price
Outstanding at beginning of period	1,043	$	49.21
Granted	110	83.90
Exercised	(82)	43.43
Forfeited	(20)	73.76
Expired	(3)	$	73.14
Outstanding at end of period	1,048	$	52.77
Expected to vest after applying forfeiture rate	1,046	$	52.73
Vested and exercisable at end of period	815	$	46.45


(Shares in thousands)	September 30, 2022
Restricted Stock/Stock Unit Awards	Shares	Weighted-Average Grant- Date Fair Value
Non-vested at beginning of period	348	$	58.20
Awarded	121	81.16
Vested	(180)	50.58
Forfeited	(26)	70.12
Non-vested at end of period	263	$	72.85


	Net Sales
(In millions)	YTD September 30, 2022		YTD September 30, 2021		2022 v 2021
Water Systems	$	876.2	$	705.5	$	170.7
Fueling Systems	248.7		210.0		38.7
Distribution	519.2		380.7		138.5
Eliminations/Other	(89.8)		(66.9)		(22.9)
Consolidated	$	1,554.3	$	1,229.3	$	325.0


(in millions)	2022		2021
Net cash flows from operating activities	$	7.2	$	93.9
Net cash flows from investing activities	(30.9)		(213.4)
Net cash flows from financing activities	29.2		68.2
Impact of exchange rates on cash and cash equivalents	(6.5)		(3.5)
Change in cash and cash equivalents	$	(1.0)	$	(54.8)