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 JuneSeptember 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-362
FRANKLIN ELECTRIC CO., INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Indiana | | 35-0827455 |
(State or other jurisdiction of 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.
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).
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).
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 | | July 26,October 25, 2023 |
$0.10 | | 46,260,81746,128,126 shares |
FRANKLIN ELECTRIC CO., INC.
TABLE OF CONTENTS
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PART I. | FINANCIAL INFORMATION | | Number |
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Item 1. | | | |
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Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
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PART II. | OTHER INFORMATION | | |
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Item 1. | | | |
Item 1A. | | | |
Item 2. | | | |
Item 5. | | | |
Item 6. | | | |
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | | Second Quarter Ended | | Six Months Ended | | Third Quarter Ended | | Nine Months Ended |
(In thousands, except per share amounts) | (In thousands, except per share amounts) | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | (In thousands, except per share amounts) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Net sales | Net sales | $ | 569,181 | | | $ | 551,138 | | | $ | 1,053,732 | | | $ | 1,002,608 | | Net sales | $ | 538,431 | | | $ | 551,672 | | | $ | 1,592,163 | | | $ | 1,554,280 | |
Cost of sales | Cost of sales | 380,700 | | | 361,850 | | | 702,986 | | | 667,986 | | Cost of sales | 352,178 | | | 361,077 | | | 1,055,164 | | | 1,029,063 | |
Gross profit | Gross profit | 188,481 | | | 189,288 | | | 350,746 | | | 334,622 | | Gross profit | 186,253 | | | 190,595 | | | 536,999 | | | 525,217 | |
Selling, general, and administrative expenses | Selling, general, and administrative expenses | 107,429 | | | 108,313 | | | 216,964 | | | 212,986 | | Selling, general, and administrative expenses | 107,687 | | | 109,366 | | | 324,651 | | | 322,352 | |
Restructuring (income)/expense | 149 | | | (7) | | | 273 | | | 713 | | |
Restructuring expense | | Restructuring expense | 462 | | | 1,185 | | | 735 | | | 1,898 | |
Operating income | Operating income | 80,903 | | | 80,982 | | | 133,509 | | | 120,923 | | Operating income | 78,104 | | | 80,044 | | | 211,613 | | | 200,967 | |
Interest expense | Interest expense | (4,178) | | | (2,932) | | | (7,325) | | | (4,426) | | Interest expense | (2,984) | | | (3,066) | | | (10,309) | | | (7,492) | |
Other income/(expense), net | Other income/(expense), net | 1,179 | | | (1,159) | | | 1,588 | | | (1,537) | | Other income/(expense), net | 277 | | | (1,250) | | | 1,865 | | | (2,787) | |
Foreign exchange expense | Foreign exchange expense | (3,571) | | | (329) | | | (5,615) | | | (914) | | Foreign exchange expense | (2,483) | | | (3,376) | | | (8,098) | | | (4,290) | |
Income before income taxes | Income before income taxes | 74,333 | | | 76,562 | | | 122,157 | | | 114,046 | | Income before income taxes | 72,914 | | | 72,352 | | | 195,071 | | | 186,398 | |
Income tax expense | Income tax expense | 14,173 | | | 16,799 | | | 24,421 | | | 24,164 | | Income tax expense | 14,746 | | | 13,380 | | | 39,167 | | | 37,544 | |
Net income | Net income | $ | 60,160 | | | $ | 59,763 | | | $ | 97,736 | | | $ | 89,882 | | Net income | $ | 58,168 | | | $ | 58,972 | | | $ | 155,904 | | | $ | 148,854 | |
Less: Net income attributable to noncontrolling interests | Less: Net income attributable to noncontrolling interests | (560) | | | (399) | | | (811) | | | (753) | | Less: Net income attributable to noncontrolling interests | (370) | | | (348) | | | (1,181) | | | (1,101) | |
Net income attributable to Franklin Electric Co., Inc. | Net income attributable to Franklin Electric Co., Inc. | $ | 59,600 | | | $ | 59,364 | | | $ | 96,925 | | | $ | 89,129 | | Net income attributable to Franklin Electric Co., Inc. | $ | 57,798 | | | $ | 58,624 | | | $ | 154,723 | | | $ | 147,753 | |
Earnings per share: | Earnings per share: | | | | | | | | Earnings per share: | | | | | | | |
Basic | Basic | $ | 1.29 | | | $ | 1.27 | | | $ | 2.09 | | | $ | 1.91 | | Basic | $ | 1.25 | | | $ | 1.26 | | | $ | 3.34 | | | $ | 3.17 | |
Diluted | Diluted | $ | 1.27 | | | $ | 1.26 | | | $ | 2.06 | | | $ | 1.89 | | Diluted | $ | 1.23 | | | $ | 1.24 | | | $ | 3.29 | | | $ | 3.13 | |
See Notes to Condensed Consolidated Financial Statements.
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Unaudited)
| | | Second Quarter Ended | | Six Months Ended | | Third Quarter Ended | | Nine Months Ended |
(In thousands) | (In thousands) | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | (In thousands) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Net income | Net income | $ | 60,160 | | | $ | 59,763 | | | $ | 97,736 | | | $ | 89,882 | | Net income | $ | 58,168 | | | $ | 58,972 | | | $ | 155,904 | | | $ | 148,854 | |
Other comprehensive income/(loss), before tax: | Other comprehensive income/(loss), before tax: | | Other comprehensive income/(loss), before tax: | |
Foreign currency translation adjustments | Foreign currency translation adjustments | 4,495 | | | (19,505) | | | 10,989 | | | (10,913) | | Foreign currency translation adjustments | (10,851) | | | (16,046) | | | 138 | | | (26,959) | |
Employee benefit plan activity | Employee benefit plan activity | 555 | | | 1,184 | | | 1,110 | | | 2,376 | | Employee benefit plan activity | 513 | | | 1,656 | | | 1,623 | | | 4,032 | |
Other comprehensive income/(loss) | Other comprehensive income/(loss) | 5,050 | | | (18,321) | | | 12,099 | | | (8,537) | | Other comprehensive income/(loss) | (10,338) | | | (14,390) | | | 1,761 | | | (22,927) | |
Income tax expense related to items of other comprehensive income/(loss) | Income tax expense related to items of other comprehensive income/(loss) | (139) | | | (260) | | | (277) | | | (520) | | Income tax expense related to items of other comprehensive income/(loss) | (128) | | | (379) | | | (405) | | | (899) | |
Other comprehensive income/(loss), net of tax | Other comprehensive income/(loss), net of tax | 4,911 | | | (18,581) | | | 11,822 | | | (9,057) | | Other comprehensive income/(loss), net of tax | (10,466) | | | (14,769) | | | 1,356 | | | (23,826) | |
Comprehensive income | Comprehensive income | 65,071 | | | 41,182 | | | 109,558 | | | 80,825 | | Comprehensive income | 47,702 | | | 44,203 | | | 157,260 | | | 125,028 | |
Less: Comprehensive income attributable to noncontrolling interests | Less: Comprehensive income attributable to noncontrolling interests | (573) | | | (312) | | | (847) | | | (628) | | Less: Comprehensive income attributable to noncontrolling interests | (294) | | | (226) | | | (1,141) | | | (854) | |
Comprehensive income attributable to Franklin Electric Co., Inc. | Comprehensive income attributable to Franklin Electric Co., Inc. | $ | 64,498 | | | $ | 40,870 | | | $ | 108,711 | | | $ | 80,197 | | Comprehensive income attributable to Franklin Electric Co., Inc. | $ | 47,408 | | | $ | 43,977 | | | $ | 156,119 | | | $ | 124,174 | |
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) | June 30, 2023 | | December 31, 2022 | (In thousands, except per share amounts) | September 30, 2023 | | December 31, 2022 |
| ASSETS | ASSETS | | | ASSETS | | |
Current assets: | Current assets: | | | Current assets: | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 53,227 | | | $ | 45,790 | | Cash and cash equivalents | $ | 62,507 | | | $ | 45,790 | |
Receivables, less allowances of $3,942 and $4,211, respectively | 299,485 | | | 230,404 | | |
Receivables, less allowances of $4,026 and $4,211, respectively | | Receivables, less allowances of $4,026 and $4,211, respectively | 252,315 | | | 230,404 | |
Inventories: | Inventories: | | Inventories: | |
Raw material | Raw material | 194,336 | | | 196,876 | | Raw material | 192,536 | | | 196,876 | |
Work-in-process | Work-in-process | 30,597 | | | 30,276 | | Work-in-process | 29,764 | | | 30,276 | |
Finished goods | Finished goods | 349,709 | | | 317,828 | | Finished goods | 321,240 | | | 317,828 | |
Total inventories | Total inventories | 574,642 | | | 544,980 | | Total inventories | 543,540 | | | 544,980 | |
Other current assets | Other current assets | 39,036 | | | 36,916 | | Other current assets | 41,136 | | | 36,916 | |
Total current assets | Total current assets | 966,390 | | | 858,090 | | Total current assets | 899,498 | | | 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 | 165,670 | | | 159,253 | | Land and buildings | 163,638 | | | 159,253 | |
Machinery and equipment | Machinery and equipment | 308,593 | | | 297,496 | | Machinery and equipment | 304,301 | | | 297,496 | |
Furniture and fixtures | Furniture and fixtures | 54,725 | | | 50,264 | | Furniture and fixtures | 53,946 | | | 50,264 | |
Other | Other | 56,334 | | | 50,249 | | Other | 59,777 | | | 50,249 | |
Property, plant, and equipment, gross | Property, plant, and equipment, gross | 585,322 | | | 557,262 | | Property, plant, and equipment, gross | 581,662 | | | 557,262 | |
Less: Allowance for depreciation | Less: Allowance for depreciation | (360,858) | | | (342,108) | | Less: Allowance for depreciation | (359,267) | | | (342,108) | |
Property, plant, and equipment, net | Property, plant, and equipment, net | 224,464 | | | 215,154 | | Property, plant, and equipment, net | 222,395 | | | 215,154 | |
Lease right-of-use assets, net | Lease right-of-use assets, net | 44,160 | | | 48,948 | | Lease right-of-use assets, net | 42,307 | | | 48,948 | |
Deferred income taxes | Deferred income taxes | 7,140 | | | 6,778 | | Deferred income taxes | 6,781 | | | 6,778 | |
Intangible assets, net | Intangible assets, net | 223,997 | | | 231,275 | | Intangible assets, net | 218,614 | | | 231,275 | |
Goodwill | Goodwill | 330,297 | | | 328,046 | | Goodwill | 328,792 | | | 328,046 | |
Other assets | Other assets | 6,633 | | | 5,910 | | Other assets | 6,909 | | | 5,910 | |
Total assets | Total assets | $ | 1,803,081 | | | $ | 1,694,201 | | Total assets | $ | 1,725,296 | | | $ | 1,694,201 | |
| | | June 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
Current liabilities: | Current liabilities: | | | Current liabilities: | | |
Accounts payable | Accounts payable | $ | 161,266 | | | $ | 139,266 | | Accounts payable | $ | 170,862 | | | $ | 139,266 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 95,079 | | | 120,555 | | Accrued expenses and other current liabilities | 99,171 | | | 120,555 | |
Current lease liability | Current lease liability | 13,624 | | | 15,959 | | Current lease liability | 13,311 | | | 15,959 | |
Income taxes | Income taxes | 2,867 | | | 3,233 | | Income taxes | 4,225 | | | 3,233 | |
Current maturities of long-term debt and short-term borrowings | Current maturities of long-term debt and short-term borrowings | 159,841 | | | 126,756 | | Current maturities of long-term debt and short-term borrowings | 40,351 | | | 126,756 | |
Total current liabilities | Total current liabilities | 432,677 | | | 405,769 | | Total current liabilities | 327,920 | | | 405,769 | |
Long-term debt | Long-term debt | 88,680 | | | 89,271 | | Long-term debt | 88,036 | | | 89,271 | |
Long-term lease liability | Long-term lease liability | 29,513 | | | 32,858 | | Long-term lease liability | 27,877 | | | 32,858 | |
Income taxes payable non-current | Income taxes payable non-current | 4,837 | | | 8,707 | | Income taxes payable non-current | 4,837 | | | 8,707 | |
Deferred income taxes | Deferred income taxes | 32,434 | | | 29,744 | | Deferred income taxes | 32,252 | | | 29,744 | |
Employee benefit plans | Employee benefit plans | 32,628 | | | 31,889 | | Employee benefit plans | 31,897 | | | 31,889 | |
Other long-term liabilities | Other long-term liabilities | 31,910 | | | 25,209 | | Other long-term liabilities | 28,835 | | | 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 | 901 | | | 620 | | Redeemable noncontrolling interest | 1,035 | | | 620 | |
| Shareholders' equity: | Shareholders' equity: | | Shareholders' equity: | |
Common stock (65,000 shares authorized, $.10 par value) outstanding (46,257 and 46,193, respectively) | 4,626 | | | 4,619 | | |
Common stock (65,000 shares authorized, $.10 par value) outstanding (46,208 and 46,193, respectively) | | Common stock (65,000 shares authorized, $.10 par value) outstanding (46,208 and 46,193, respectively) | 4,621 | | | 4,619 | |
Additional capital | Additional capital | 340,812 | | | 325,426 | | Additional capital | 342,850 | | | 325,426 | |
Retained earnings | Retained earnings | 1,020,883 | | | 969,261 | | Retained earnings | 1,063,007 | | | 969,261 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (219,662) | | | (231,448) | | Accumulated other comprehensive loss | (230,052) | | | (231,448) | |
Total shareholders' equity | Total shareholders' equity | 1,146,659 | | | 1,067,858 | | Total shareholders' equity | 1,180,426 | | | 1,067,858 | |
Noncontrolling interest | Noncontrolling interest | 2,842 | | | 2,276 | | Noncontrolling interest | 2,181 | | | 2,276 | |
Total equity | Total equity | 1,149,501 | | | 1,070,134 | | Total equity | 1,182,607 | | | 1,070,134 | |
Total liabilities and equity | Total liabilities and equity | $ | 1,803,081 | | | $ | 1,694,201 | | Total liabilities and equity | $ | 1,725,296 | | | $ | 1,694,201 | |
See Notes to Condensed Consolidated Financial Statements.
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) | | | Six Months Ended | | Nine Months Ended |
(In thousands) | (In thousands) | June 30, 2023 | | June 30, 2022 | (In thousands) | September 30, 2023 | | September 30, 2022 |
| Cash flows from operating activities: | Cash flows from operating activities: | | | Cash flows from operating activities: | | |
Net income | Net income | $ | 97,736 | | | $ | 89,882 | | Net income | $ | 155,904 | | | $ | 148,854 | |
Adjustments to reconcile net income to net cash flows from operating activities: | Adjustments to reconcile net income to net cash flows from operating activities: | | Adjustments to reconcile net income to net cash flows from operating activities: | |
Depreciation and amortization | Depreciation and amortization | 26,259 | | | 24,521 | | Depreciation and amortization | 39,582 | | | 37,067 | |
Non-cash lease expense | Non-cash lease expense | 8,523 | | | 8,526 | | Non-cash lease expense | 12,664 | | | 12,939 | |
Share-based compensation | Share-based compensation | 6,410 | | | 6,322 | | Share-based compensation | 8,449 | | | 8,940 | |
| Deferred income taxes | Deferred income taxes | 1,924 | | | 2,004 | | Deferred income taxes | 2,305 | | | 3,783 | |
Loss on disposals of plant and equipment | Loss on disposals of plant and equipment | 357 | | | 721 | | Loss on disposals of plant and equipment | 491 | | | 1,087 | |
Foreign exchange expense | Foreign exchange expense | 5,615 | | | 914 | | Foreign exchange expense | 8,098 | | | 4,290 | |
Changes in assets and liabilities, net of acquisitions: | Changes in assets and liabilities, net of acquisitions: | | Changes in assets and liabilities, net of acquisitions: | |
Receivables | Receivables | (70,725) | | | (93,063) | | Receivables | (20,427) | | | (73,995) | |
Inventory | Inventory | (24,125) | | | (123,817) | | Inventory | 2,537 | | | (122,150) | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | (3,880) | | | 29,969 | | Accounts payable and accrued expenses | 4,376 | | | 1,881 | |
Operating leases | Operating leases | (8,706) | | | (8,526) | | Operating leases | (12,847) | | | (12,939) | |
Income taxes | Income taxes | (6,691) | | | (1,891) | | Income taxes | (2,667) | | | (3,604) | |
Income taxes-U.S. Tax Cuts and Jobs Act | Income taxes-U.S. Tax Cuts and Jobs Act | (2,902) | | | (355) | | Income taxes-U.S. Tax Cuts and Jobs Act | (2,902) | | | (355) | |
Employee benefit plans | Employee benefit plans | 831 | | | 826 | | Employee benefit plans | 603 | | | 1,544 | |
Other, net | Other, net | 12,400 | | | 1,426 | | Other, net | 2,463 | | | (182) | |
Net cash flows from operating activities | Net cash flows from operating activities | 43,026 | | | (62,541) | | Net cash flows from operating activities | 198,629 | | | 7,160 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Additions to property, plant, and equipment | Additions to property, plant, and equipment | (20,241) | | | (20,084) | | Additions to property, plant, and equipment | (30,155) | | | (29,327) | |
Proceeds from sale of property, plant, and equipment | Proceeds from sale of property, plant, and equipment | — | | | 6 | | Proceeds from sale of property, plant, and equipment | — | | | 6 | |
Cash paid for acquisitions, net of cash acquired | Cash paid for acquisitions, net of cash acquired | (6,641) | | | (1,365) | | Cash paid for acquisitions, net of cash acquired | (6,641) | | | (1,576) | |
| Other, net | Other, net | 2 | | | (8) | | Other, net | 26 | | | 9 | |
Net cash flows from investing activities | Net cash flows from investing activities | (26,880) | | | (21,451) | | Net cash flows from investing activities | (36,770) | | | (30,888) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Proceeds from issuance of debt | Proceeds from issuance of debt | 294,650 | | | 341,810 | | Proceeds from issuance of debt | 381,789 | | | 434,548 | |
Repayments of debt | Repayments of debt | (262,479) | | | (215,538) | | Repayments of debt | (469,442) | | | (350,869) | |
Proceeds from issuance of common stock | Proceeds from issuance of common stock | 9,010 | | | 1,916 | | Proceeds from issuance of common stock | 9,010 | | | 3,584 | |
Purchases of common stock | Purchases of common stock | (25,541) | | | (30,644) | | Purchases of common stock | (29,888) | | | (30,731) | |
Dividends paid | Dividends paid | (20,872) | | | (18,205) | | Dividends paid | (31,315) | | | (27,293) | |
| Deferred payments for acquisitions | Deferred payments for acquisitions | (186) | | | — | | Deferred payments for acquisitions | (448) | | | — | |
Net cash flows from financing activities | Net cash flows from financing activities | (5,418) | | | 79,339 | | Net cash flows from financing activities | (140,294) | | | 29,239 | |
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (3,291) | | | (2,658) | | Effect of exchange rate changes on cash and cash equivalents | (4,848) | | | (6,524) | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | 7,437 | | | (7,311) | | Net change in cash and cash equivalents | 16,717 | | | (1,013) | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 45,790 | | | 40,536 | | Cash and cash equivalents at beginning of period | 45,790 | | | 40,536 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 53,227 | | | $ | 33,225 | | Cash and cash equivalents at end of period | $ | 62,507 | | | $ | 39,523 | |
| | 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 | $ | 540 | | | $ | 571 | | Additions to property, plant, and equipment, not yet paid | $ | 519 | | | $ | 483 | |
Right-of-Use Assets obtained in exchange for new operating lease liabilities | Right-of-Use Assets obtained in exchange for new operating lease liabilities | $ | 3,090 | | | $ | 8,359 | | Right-of-Use Assets obtained in exchange for new operating lease liabilities | $ | 5,685 | | | $ | 13,745 | |
Payable to sellers of acquired entities | Payable to sellers of acquired entities | $ | 644 | | | $ | — | | Payable to sellers of acquired entities | $ | 382 | | | $ | — | |
Non-cash investment to acquire property in lieu of cash payment for products provided | Non-cash investment to acquire property in lieu of cash payment for products provided | $ | 419 | | | $ | — | | Non-cash investment to acquire property in lieu of cash payment for products provided | $ | 419 | | | $ | — | |
| Accrued dividends payable to noncontrolling interest | | Accrued dividends payable to noncontrolling interest | $ | 821 | | | $ | — | |
Payable for share repurchases | | Payable for share repurchases | $ | 890 | | | $ | — | |
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. | | |
Note 2. | | |
Note 3. | | |
Note 4. | | |
Note 5. | | |
Note 6. | | |
Note 7. | | |
Note 8. | | |
Note 9. | | |
Note 10. | | |
Note 11. | | |
Note 12. | | |
Note 13. | | |
Note 14. | | |
Note 15. | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated balance sheet as of December 31, 2022, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of JuneSeptember 30, 2023, and for the secondthird quarters and sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022 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 secondthird quarter and sixnine months ended JuneSeptember 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 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, 2022.
2. ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Standards
In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 adopted this ASU on January 1, 2023, and it did not 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 applied prospectively. The Company adopted this ASU on January 1, 2023, and it did not have a material impact on the Company's consolidated financial position, results of operations, or cash flows, as the Company has no amounts outstanding under its current supplier finance programs.program.
3. ACQUISITIONS
2023
During the first quarter ended March 31, 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 Hydropompe S.r.l. ("Hydropompe"). Hydropompe is a pump manufacturer with a focus in dewatering and sewage products. The combined, all-cash purchase price for both acquisitions in the first quarter of 2023 was $8.7 million after purchase price adjustments based on the level of working capital acquired. The fair value of the assets acquired and liabilities assumed for both acquisitions is preliminary as of JuneSeptember 30, 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.
Transaction costs were expensed as incurred under the guidance of FASB Accounting Standards Codification Topic 805, Business Combinations and were insignificant for all periods presented.
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 JuneSeptember 30, 2023 and December 31, 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) | June 30, 2023 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | (In millions) | September 30, 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 | $ | 11.7 | | $ | 11.7 | | $ | — | | $ | — | | Cash equivalents | $ | 13.2 | | $ | 13.2 | | $ | — | | $ | — | |
Share swap transaction | 0.9 | | 0.9 | | — | | — | | |
| Forward currency contracts | | Forward currency contracts | 0.3 | | — | | 0.3 | | — | |
Total assets | Total assets | $ | 12.6 | | $ | 12.6 | | $ | — | | $ | — | | Total assets | $ | 13.5 | | $ | 13.2 | | $ | 0.3 | | $ | — | |
| Liabilities: | Liabilities: | | Liabilities: | |
Share swap transaction | | Share swap transaction | $ | 1.0 | | $ | 1.0 | | $ | — | | $ | — | |
| Forward currency contracts | $ | 0.1 | | $ | — | | $ | 0.1 | | $ | — | | |
Total liabilities | Total liabilities | $ | 0.1 | | $ | — | | $ | 0.1 | | $ | — | | Total liabilities | $ | 1.0 | | $ | 1.0 | | $ | — | | $ | — | |
| | | December 31, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 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: | | Assets: | |
Cash equivalents | Cash equivalents | $ | 7.9 | | $ | 7.9 | | $ | — | | $ | — | | Cash equivalents | $ | 7.9 | | $ | 7.9 | | $ | — | | $ | — | |
| Total assets | Total assets | $ | 7.9 | | $ | 7.9 | | $ | — | | $ | — | | Total assets | $ | 7.9 | | $ | 7.9 | | $ | — | | $ | — | |
| Liabilities: | Liabilities: | | Liabilities: | |
Share swap transaction | Share swap transaction | $ | 0.1 | | $ | 0.1 | | $ | — | | $ | — | | Share swap transaction | $ | 0.1 | | $ | 0.1 | | $ | — | | $ | — | |
| Total liabilities | Total liabilities | $ | 0.1 | | $ | 0.1 | | $ | — | | $ | — | | Total liabilities | $ | 0.1 | | $ | 0.1 | | $ | — | | $ | — | |
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.
Total debt, including current maturities, have carrying amounts of $248.5$128.4 million and $216.1 million and estimated fair values of $244.9$125.1 million and $213.2 million as of JuneSeptember 30, 2023 and December 31, 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 JuneSeptember 30, 2023 and December 31, 2022, respectively, the swap had a notional value based on 240,000 shares and 225,000 shares. For the secondthird quarter and sixnine months ended JuneSeptember 30, 2023, changes in the fair value of the swap resulted in a gainloss of $1.7$3.6 million and a gain of $4.7$1.1 million, respectively. For the secondthird quarter and sixnine months ended JuneSeptember 30, 2022, changes in the fair value of the swap resulted in a lossgain of $2.1$1.8 million and a loss of $4.6$2.8 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 JuneSeptember 30, 2023 and December 31, 2022, respectively, the Company had a notional amount of $27.9$29.0 million and $10.3 million in forward currency contracts outstanding and the related fair value of those contracts was not material. For the secondthird quarter and sixnine months ended JuneSeptember 30, 2023, changes in the fair value of the forward currency contracts resulted in gains of $0.6$0.0 million and $1.6 million, respectively. For the secondthird quarter and sixnine months ended JuneSeptember 30, 2022, changes in the fair value of the forward currency contracts resulted in gains of $0.5$0.4 million and $0.3$0.7 million, respectively. These gains are recorded in the Company's condensed consolidated statements of income within the "Foreign exchange expense" line.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying amounts of the Company’s intangible assets, excluding goodwill, are as follows: | (In millions) | (In millions) | | June 30, 2023 | | December 31, 2022 | (In millions) | | September 30, 2023 | | December 31, 2022 |
| | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Definite-lived intangibles: | Definite-lived intangibles: | | | | | | | | | Definite-lived intangibles: | | | | | | | | |
Customer relationships | Customer relationships | | 252.2 | | | (108.8) | | | 251.6 | | | (101.5) | | Customer relationships | | $ | 250.6 | | | $ | (111.4) | | | $ | 251.6 | | | $ | (101.5) | |
Patents | Patents | | $ | 7.3 | | | $ | (7.3) | | | $ | 7.3 | | | $ | (7.3) | | Patents | | 7.3 | | | (7.3) | | | 7.3 | | | (7.3) | |
Technology | Technology | | 7.5 | | | (7.4) | | | 7.5 | | | (7.4) | | Technology | | 7.5 | | | (7.5) | | | 7.5 | | | (7.4) | |
Trade names | Trade names | | 41.7 | | | (4.8) | | | $ | 41.8 | | | (3.7) | | Trade names | | 41.6 | | | (5.3) | | | 41.8 | | | (3.7) | |
Other | Other | | 3.4 | | | (2.8) | | | 3.4 | | | (2.7) | | Other | | 3.3 | | | (2.8) | | | 3.4 | | | (2.7) | |
Total | Total | | $ | 312.1 | | | $ | (131.1) | | | $ | 311.6 | | | $ | (122.6) | | Total | | $ | 310.3 | | | $ | (134.3) | | | $ | 311.6 | | | $ | (122.6) | |
Indefinite-lived intangibles: | Indefinite-lived intangibles: | | | | | | | | | Indefinite-lived intangibles: | | | | | | | | |
Trade names | Trade names | | 43.0 | | | — | | | 42.3 | | | — | | Trade names | | 42.6 | | | — | | | 42.3 | | | — | |
Total intangibles | Total intangibles | | $ | 355.1 | | | $ | (131.1) | | | $ | 353.9 | | | $ | (122.6) | | Total intangibles | | $ | 352.9 | | | $ | (134.3) | | | $ | 353.9 | | | $ | (122.6) | |
Amortization expense related to intangible assets for the secondthird quarters ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022 was $4.3$4.2 million and $4.4$4.2 million, respectively, and for the sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022 was $8.5$12.7 million and $8.7$12.9 million, respectively.
The change in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2023 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | |
| | Water Systems | | Fueling Systems | | Distribution | | Consolidated |
Balance as of December 31, 2022 | | $ | 211.9 | | | $ | 70.3 | | | $ | 45.8 | | | $ | 328.0 | |
Acquisitions | | 1.0 | | | — | | | — | | | 1.0 | |
| | | | | | | | |
Foreign currency translation | | 1.1 | | | 0.2 | | | — | | | 1.3 | |
Balance as of June 30, 2023 | | $ | 214.0 | | | $ | 70.5 | | | $ | 45.8 | | | $ | 330.3 | |
The change in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2023 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | |
| | Water Systems | | Fueling Systems | | Distribution | | Consolidated |
Balance as of December 31, 2022 | | $ | 211.9 | | | $ | 70.3 | | | $ | 45.8 | | | $ | 328.0 | |
Acquisitions | | 1.0 | | | — | | | — | | | 1.0 | |
| | | | | | | | |
Foreign currency translation | | (0.2) | | | — | | | — | | | (0.2) | |
Balance as of September 30, 2023 | | $ | 212.7 | | | $ | 70.3 | | | $ | 45.8 | | | $ | 328.8 | |
7. EMPLOYEE BENEFIT PLANS
The following table sets forth the aggregated net periodic benefit cost for all pension plans for the secondthird quarters and sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022:
| (In millions) | (In millions) | Pension Benefits | (In millions) | Pension Benefits |
| | Second Quarter Ended | | Six Months Ended | | Third Quarter Ended | | Nine Months Ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
Service cost | Service cost | $ | 0.2 | | | $ | 0.2 | | | $ | 0.3 | | | $ | 0.4 | | Service cost | $ | 0.2 | | | $ | 0.1 | | | $ | 0.5 | | | $ | 0.5 | |
Interest cost | Interest cost | 1.8 | | | 0.8 | | | 3.3 | | | 1.6 | | Interest cost | 1.7 | | | 0.9 | | | 5.0 | | | 2.5 | |
Expected return on assets | Expected return on assets | (1.8) | | | (1.5) | | | (3.6) | | | (3.0) | | Expected return on assets | (1.8) | | | (1.7) | | | (5.4) | | | (4.7) | |
Amortization of: | Amortization of: | | Amortization of: | |
Prior service cost | Prior service cost | — | | | — | | | — | | | — | | Prior service cost | 0.5 | | | 1.5 | | | 1.6 | | | 3.9 | |
Actuarial loss | Actuarial loss | 0.5 | | | 1.2 | | | 1.1 | | | 2.4 | | Actuarial loss | — | | | — | | | — | | | — | |
Settlement cost | Settlement cost | — | | | — | | | — | | | — | | Settlement cost | — | | | — | | | — | | | — | |
Net periodic benefit cost | Net periodic benefit cost | $ | 0.7 | | | $ | 0.7 | | | $ | 1.1 | | | $ | 1.4 | | Net periodic benefit cost | $ | 0.6 | | | $ | 0.8 | | | $ | 1.7 | | | $ | 2.2 | |
The following table sets forth the aggregated net periodic benefit cost for the other post-retirement benefit plan for the secondthird quarters and sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022:
| (In millions) | (In millions) | Other Benefits | (In millions) | Other Benefits |
| | Second Quarter Ended | | Six Months Ended | | Third Quarter Ended | | Nine Months Ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
Service cost | Service cost | $ | — | | | $ | — | | | $ | — | | | $ | — | | Service cost | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Interest cost | Interest cost | — | | | — | | | 0.1 | | | 0.1 | | Interest cost | 0.1 | | | — | | | 0.2 | | | 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 | — | | | — | | | — | | | — | | Prior service cost | — | | | 0.1 | | | — | | | 0.1 | |
Actuarial loss | Actuarial loss | — | | | — | | | — | | | — | | Actuarial loss | — | | | — | | | — | | | — | |
Settlement cost | Settlement cost | — | | | — | | | — | | | — | | Settlement cost | — | | | — | | | — | | | — | |
Net periodic benefit cost | Net periodic benefit cost | $ | — | | | $ | — | | | $ | 0.1 | | | $ | 0.1 | | Net periodic benefit cost | $ | 0.1 | | | $ | 0.1 | | | $ | 0.2 | | | $ | 0.2 | |
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of:
| (In millions) | (In millions) | | June 30, 2023 | | December 31, 2022 | (In millions) | | September 30, 2023 | | December 31, 2022 |
| Salaries, wages, and commissions | Salaries, wages, and commissions | | 40.3 | | | 57.9 | | Salaries, wages, and commissions | | $ | 46.2 | | | $ | 57.9 | |
Product warranty costs | Product warranty costs | | 10.7 | | | 11.2 | | Product warranty costs | | 10.3 | | | 11.2 | |
Insurance | Insurance | | 3.0 | | | 1.7 | | Insurance | | 1.9 | | | 1.7 | |
Employee benefits | Employee benefits | | 8.9 | | | 13.5 | | Employee benefits | | 11.7 | | | 13.5 | |
Other | Other | | 32.2 | | | 36.3 | | Other | | 29.1 | | | 36.3 | |
Total | Total | | 95.1 | | | 120.6 | | Total | | $ | 99.2 | | | $ | 120.6 | |
9. INCOME TAXES
The Company’s effective tax rate for both the six-monthnine-month period ended JuneSeptember 30, 2023 and September 30, 2022 was 20.0 percent as compared to 21.2 percent for the six-month period ended June 30, 2022.20.1 percent. The effective tax rate differs from the U.S. statutory rate of 21 percent primarily due to the recognition of the U.S. foreign-derived intangible income (FDII) provisions, partially offset by state taxes, and certain discrete events including excess tax benefits from share-based compensation. For the secondthird quarter of 2023, the effective tax rate was 19.120.2 percent compared to 21.918.5 percent for the secondthird quarter of 2022.
The decreaseincrease in the effective tax rates for the secondthird quarter and first six months of 2023 compared to the comparable periodsperiod in the prior year was a result of moreless favorable discrete events in 2023, primarily2023. 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 excess tax benefits from share-based compensation.
10. DEBT
Debt consisted of the following: | (In millions) | (In millions) | | June 30, 2023 | | December 31, 2022 | (In millions) | | September 30, 2023 | | December 31, 2022 |
| New York Life Agreement | New York Life Agreement | | 75.0 | | | 75.0 | | New York Life Agreement | | $ | 75.0 | | | $ | 75.0 | |
Credit Agreement | Credit Agreement | | 158.3 | | | 122.8 | | Credit Agreement | | 39.0 | | | 122.8 | |
Tax increment financing debt | Tax increment financing debt | | 14.7 | | | 15.3 | | Tax increment financing debt | | 14.1 | | | 15.3 | |
| Foreign subsidiary debt | Foreign subsidiary debt | | 0.6 | | | 3.1 | | Foreign subsidiary debt | | 0.4 | | | 3.1 | |
Other | | — | | | — | | |
| Less: unamortized debt issuance costs | Less: unamortized debt issuance costs | | (0.1) | | | (0.1) | | Less: unamortized debt issuance costs | | (0.1) | | | (0.1) | |
| | $ | 248.5 | | | $ | 216.1 | | | $ | 128.4 | | | $ | 216.1 | |
Less: current maturities | Less: current maturities | | (159.8) | | | (126.8) | | Less: current maturities | | (40.4) | | | (126.8) | |
Long-term debt | Long-term debt | | $ | 88.7 | | | 89.3 | Long-term debt | | $ | 88.0 | | | $ | 89.3 | |
Credit Agreement
As of JuneSeptember 30, 2023, the Company had $158.3$39.0 million outstanding borrowings with a weighted-average interest rate of 5.96.3 percent, $3.6 million in letters of credit outstanding, and $188.1$307.4 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 $223.2 million of available capacity under its credit agreement.
The Company also has overdraft lines of credit for certain subsidiaries with various expiration dates. The aggregate maximum borrowing capacity of these overdraft lines of credits is $20.3$18.1 million. As of JuneSeptember 30, 2023, there were $0.1 millionno outstanding borrowings and $20.2$18.1 million of available capacity under these lines of credit. As of December 31, 2022, there were $22.0 million overdraft lines of credit with $2.7 million of outstanding borrowings and $19.3 million of available capacity under these lines of 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.
The following table sets forth the computation of basic and diluted earnings per share: | | | Second Quarter Ended | | Six Months Ended | | Third Quarter Ended | | Nine Months Ended |
(In millions, except per share amounts) | (In millions, except per share amounts) | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | (In millions, except per share amounts) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
Numerator: | Numerator: | | | | | | | | Numerator: | | | | | | | |
Net income attributable to Franklin Electric Co., Inc. | Net income attributable to Franklin Electric Co., Inc. | $ | 59.6 | | | $ | 59.4 | | | $ | 96.9 | | | $ | 89.1 | | Net income attributable to Franklin Electric Co., Inc. | $ | 57.8 | | | $ | 58.6 | | | $ | 154.7 | | | $ | 147.8 | |
Less: Earnings allocated to participating securities | Less: Earnings allocated to participating securities | 0.2 | | | 0.2 | | | 0.3 | | | 0.4 | | Less: Earnings allocated to participating securities | 0.2 | | | 0.2 | | | 0.5 | | | 0.6 | |
Net income available to common shareholders | Net income available to common shareholders | $ | 59.4 | | | $ | 59.2 | | | $ | 96.6 | | | $ | 88.7 | | Net income available to common shareholders | $ | 57.6 | | | $ | 58.4 | | | $ | 154.2 | | | $ | 147.2 | |
Denominator: | Denominator: | | | | | | | | Denominator: | | | | | | | |
Basic weighted average common shares outstanding | Basic weighted average common shares outstanding | 46.2 | | | 46.3 | | | 46.2 | | | 46.4 | | Basic weighted average common shares outstanding | 46.2 | | | 46.3 | | | 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 | | | 0.6 | | | 0.7 | | | 0.7 | | Non-participating employee stock options, performance awards, and deferred shares to non-employee directors | 0.7 | | | 0.7 | | | 0.7 | | | 0.7 | |
Diluted weighted average common shares outstanding | Diluted weighted average common shares outstanding | 46.9 | | | 46.9 | | | 46.9 | | | 47.1 | | Diluted weighted average common shares outstanding | 46.9 | | | 47.0 | | | 46.9 | | | 47.1 | |
Basic earnings per share | Basic earnings per share | $ | 1.29 | | | $ | 1.27 | | | $ | 2.09 | | | $ | 1.91 | | Basic earnings per share | $ | 1.25 | | | $ | 1.26 | | | $ | 3.34 | | | $ | 3.17 | |
Diluted earnings per share | Diluted earnings per share | $ | 1.27 | | | $ | 1.26 | | | $ | 2.06 | | | $ | 1.89 | | Diluted earnings per share | $ | 1.23 | | | $ | 1.24 | | | $ | 3.29 | | | $ | 3.13 | |
There were 0.1 million and 0.10.0 million stock options outstanding for the secondthird quarters ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022, and 0.1 million and 0.1 million stock options outstanding for the sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022, respectively, that were excluded from the computation of diluted earnings per share, as their inclusion would be anti-dilutive.
12. EQUITY ROLL FORWARD
The schedules below set forth equity changes in the secondthird quarters and sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022:
| (In thousands) | (In thousands) | Common Stock | | Additional Paid in Capital | | Retained Earnings | | | Accumulated Other Comprehensive Income/(Loss) | | Noncontrolling Interest | | Total Equity | | Redeemable Noncontrolling Interest | (In thousands) | Common Stock | | Additional Paid in Capital | | Retained Earnings | | | Accumulated Other Comprehensive Income/(Loss) | | Noncontrolling Interest | | Total Equity | | Redeemable Noncontrolling Interest |
Balance as of March 31, 2023 | $ | 4,614 | | | $ | 332,263 | | | $ | 980,114 | | | | $ | (224,560) | | | $ | 2,537 | | | $ | 1,094,968 | | | $ | 633 | | |
Balance as of June 30, 2023 | | Balance as of June 30, 2023 | $ | 4,626 | | | $ | 340,812 | | | $ | 1,020,883 | | | | $ | (219,662) | | | $ | 2,842 | | | $ | 1,149,501 | | | $ | 901 | |
Net income | Net income | — | | | — | | | 59,600 | | | | — | | | 292 | | | 59,892 | | | 268 | | Net income | — | | | — | | | 57,798 | | | | — | | | 234 | | | 58,032 | | | 136 | |
Dividends on common stock ($0.225/share) | Dividends on common stock ($0.225/share) | — | | | — | | | (10,432) | | | | — | | | — | | | (10,432) | | | — | | Dividends on common stock ($0.225/share) | — | | | — | | | (10,443) | | | | — | | | — | | | (10,443) | | | — | |
Common stock issued | 15 | | | 6,057 | | | — | | | | — | | | — | | | 6,072 | | | — | | |
| Common stock repurchased | Common stock repurchased | (9) | | | — | | | (8,399) | | | | — | | | — | | | (8,408) | | | — | | Common stock repurchased | (6) | | | — | | | (5,231) | | | | — | | | — | | | (5,237) | | | — | |
Share-based compensation | Share-based compensation | 6 | | | 2,492 | | | — | | | | — | | | — | | | 2,498 | | | — | | Share-based compensation | 1 | | | 2,038 | | | — | | | | — | | | — | | | 2,039 | | | — | |
| Dividend to noncontrolling interest | | Dividend to noncontrolling interest | — | | | — | | | — | | | | — | | | (821) | | | (821) | | | — | |
| Currency translation adjustment | Currency translation adjustment | — | | | — | | | — | | | | 4,482 | | | 13 | | | 4,495 | | | — | | Currency translation adjustment | — | | | — | | | — | | | | (10,775) | | | (74) | | | (10,849) | | | (2) | |
Pension and other post retirement plans, net of taxes | Pension and other post retirement plans, net of taxes | — | | | — | | | — | | | | 416 | | | — | | | 416 | | | — | | Pension and other post retirement plans, net of taxes | — | | | — | | | — | | | | 385 | | | — | | | 385 | | | — | |
Balance as of June 30, 2023 | $ | 4,626 | | | $ | 340,812 | | | $ | 1,020,883 | | | | $ | (219,662) | | | $ | 2,842 | | | $ | 1,149,501 | | | $ | 901 | | |
Balance as of September 30, 2023 | | Balance as of September 30, 2023 | $ | 4,621 | | | $ | 342,850 | | | $ | 1,063,007 | | | | $ | (230,052) | | | $ | 2,181 | | | $ | 1,182,607 | | | $ | 1,035 | |
| (In thousands) | (In thousands) | Common Stock | | Additional Paid in Capital | | Retained Earnings | | | Accumulated Other Comprehensive Income/(Loss) | | Noncontrolling Interest | | Total Equity | | Redeemable Noncontrolling Interest | (In thousands) | Common Stock | | Additional Paid in Capital | | Retained Earnings | | | Accumulated Other Comprehensive Income/(Loss) | | Noncontrolling Interest | | Total Equity | | Redeemable Noncontrolling Interest |
Balance as of March 31, 2022 | $ | 4,635 | | | $ | 314,935 | | | $ | 861,156 | | | | $ | (219,019) | | | $ | 2,352 | | | $ | 964,059 | | | $ | 106 | | |
Balance as of June 30, 2022 | | Balance as of June 30, 2022 | $ | 4,628 | | | $ | 318,837 | | | $ | 900,135 | | | | $ | (237,513) | | | $ | 2,486 | | | $ | 988,573 | | | $ | 284 | |
Net income | Net income | — | | | — | | | 59,364 | | | | — | | | 229 | | | 59,593 | | | 170 | | Net income | — | | | — | | | 58,624 | | | | — | | | 180 | | | 58,804 | | | 168 | |
Dividends on common stock ($0.195/share) | Dividends on common stock ($0.195/share) | — | | | — | | | (9,076) | | | | — | | | — | | | (9,076) | | | — | | Dividends on common stock ($0.195/share) | — | | | — | | | (9,088) | | | | — | | | — | | | (9,088) | | | — | |
Common stock issued | Common stock issued | 3 | | | 1,570 | | | — | | | | — | | | — | | | 1,573 | | | — | | Common stock issued | 4 | | | 1,664 | | | — | | | | — | | | — | | | 1,668 | | | — | |
Common stock repurchased | Common stock repurchased | (15) | | | — | | | (11,309) | | | | — | | | — | | | (11,324) | | | — | | Common stock repurchased | — | | | — | | | (87) | | | | — | | | — | | | (87) | | | — | |
Share-based compensation | Share-based compensation | 5 | | | 2,332 | | | — | | | | — | | | — | | | 2,337 | | | — | | Share-based compensation | — | | | 2,618 | | | — | | | | — | | | — | | | 2,618 | | | — | |
| Currency translation adjustment | Currency translation adjustment | — | | | — | | | — | | | | (19,418) | | | (95) | | | (19,513) | | | 8 | | Currency translation adjustment | — | | | — | | | — | | | | (15,924) | | | (125) | | | (16,049) | | | 3 | |
Pension and other post retirement plans, net of taxes | Pension and other post retirement plans, net of taxes | — | | | — | | | — | | | | 924 | | | — | | | 924 | | | — | | Pension and other post retirement plans, net of taxes | — | | | — | | | — | | | | 1,277 | | | — | | | 1,277 | | | — | |
Balance as of June 30, 2022 | $ | 4,628 | | | $ | 318,837 | | | $ | 900,135 | | | | $ | (237,513) | | | $ | 2,486 | | | $ | 988,573 | | | $ | 284 | | |
Balance as of September 30, 2022 | | Balance as of September 30, 2022 | $ | 4,632 | | | $ | 323,119 | | | $ | 949,584 | | | | $ | (252,160) | | | $ | 2,541 | | | $ | 1,027,716 | | | $ | 455 | |
| (In thousands) | (In thousands) | Common Stock | | Additional Paid in Capital | | Retained Earnings | | | Accumulated Other Comprehensive Income/(Loss) | | Noncontrolling Interest | | Total Equity | | Redeemable Noncontrolling Interest | (In thousands) | Common Stock | | Additional Paid in Capital | | Retained Earnings | | | Accumulated Other Comprehensive Income/(Loss) | | Noncontrolling Interest | | Total Equity | | Redeemable Noncontrolling Interest |
Balance as of December 31, 2022 | Balance as of December 31, 2022 | $ | 4,619 | | | $ | 325,426 | | | $ | 969,261 | | | | $ | (231,448) | | | $ | 2,276 | | | $ | 1,070,134 | | | $ | 620 | | Balance as of December 31, 2022 | $ | 4,619 | | | $ | 325,426 | | | $ | 969,261 | | | | $ | (231,448) | | | $ | 2,276 | | | $ | 1,070,134 | | | $ | 620 | |
Net Income | Net Income | — | | | — | | | 96,925 | | | | — | | | 530 | | | 97,455 | | | 281 | | Net Income | — | | | — | | | 154,723 | | | | — | | | 764 | | | 155,487 | | | 417 | |
Dividends on common stock ($0.450/share) | — | | | — | | | (20,872) | | | | — | | | — | | | (20,872) | | | — | | |
Dividends on common stock ($0.675/share) | | Dividends on common stock ($0.675/share) | — | | | — | | | (31,315) | | | | — | | | — | | | (31,315) | | | — | |
Common stock issued | | Common stock issued | 22 | | | 8,988 | | | — | | | | — | | | — | | | 9,010 | | | — | |
Common stock repurchased | | Common stock repurchased | (33) | | | — | | | (29,662) | | | | — | | | — | | | (29,695) | | | — | |
Share-based compensation | | Share-based compensation | 13 | | | 8,436 | | | — | | | | — | | | — | | | 8,449 | | | — | |
Dividend to noncontrolling interest | | Dividend to noncontrolling interest | — | | | — | | | — | | | | — | | | (821) | | | (821) | | | — | |
| Currency translation adjustment | | Currency translation adjustment | — | | | — | | | — | | | | 178 | | | (38) | | | 140 | | | (2) | |
Pension and other post retirement plans, net of taxes | | Pension and other post retirement plans, net of taxes | — | | | — | | | — | | | | 1,218 | | | — | | | 1,218 | | | — | |
Balance as of September 30, 2023 | | Balance as of September 30, 2023 | $ | 4,621 | | | $ | 342,850 | | | $ | 1,063,007 | | | | $ | (230,052) | | | $ | 2,181 | | | $ | 1,182,607 | | | $ | 1,035 | |
| (In thousands) | | (In thousands) | Common Stock | | Additional Paid in Capital | | Retained Earnings | | | Accumulated Other Comprehensive Income/(Loss) | | 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 | | | | $ | (228,581) | | | $ | 2,161 | | | $ | 948,662 | | | $ | (19) | |
Net Income | | Net Income | — | | | — | | | 147,753 | | | | — | | | 644 | | | 148,397 | | | 457 | |
Dividends on common stock ($0.585/share) | | Dividends on common stock ($0.585/share) | — | | | — | | | (27,293) | | | | — | | | — | | | (27,293) | | | — | |
Common stock issued | Common stock issued | 22 | | | 8,988 | | | — | | | | — | | | — | | | 9,010 | | | — | | Common stock issued | 8 | | | 3,576 | | | — | | | | — | | | — | | | 3,584 | | | — | |
Common stock repurchased | Common stock repurchased | (27) | | | — | | | (24,431) | | | | — | | | — | | | (24,458) | | | — | | Common stock repurchased | (38) | | | — | | | (30,693) | | | | — | | | — | | | (30,731) | | | — | |
Share-based compensation | Share-based compensation | 12 | | | 6,398 | | | — | | | | — | | | — | | | 6,410 | | | — | | Share-based compensation | 14 | | | 8,926 | | | — | | | | — | | | — | | | 8,940 | | | — | |
| Currency translation adjustment | Currency translation adjustment | — | | | — | | | — | | | | 10,953 | | | 36 | | | 10,989 | | | — | | Currency translation adjustment | — | | | — | | | — | | | | (26,712) | | | (264) | | | (26,976) | | | 17 | |
Pension and other post retirement plans, net of taxes | Pension and other post retirement plans, net of taxes | — | | | — | | | — | | | | 833 | | | — | | | 833 | | | — | | Pension and other post retirement plans, net of taxes | — | | | — | | | — | | | | 3,133 | | | — | | | 3,133 | | | — | |
Balance as of June 30, 2023 | $ | 4,626 | | | $ | 340,812 | | | $ | 1,020,883 | | | | $ | (219,662) | | | $ | 2,842 | | | $ | 1,149,501 | | | $ | 901 | | |
Balance as of September 30, 2022 | | Balance as of September 30, 2022 | $ | 4,632 | | | $ | 323,119 | | | $ | 949,584 | | | | $ | (252,160) | | | $ | 2,541 | | | $ | 1,027,716 | | | $ | 455 | |
| (In thousands) | Common Stock | | Additional Paid in Capital | | Retained Earnings | | | Accumulated Other Comprehensive Income/(Loss) | | Noncontrolling Interest | | Total Equity | | Redeemable Noncontrolling Interest | |
Balance as of December 31, 2021 | $ | 4,648 | | | $ | 310,617 | | | $ | 859,817 | | | | $ | (228,581) | | | $ | 2,161 | | | $ | 948,662 | | | $ | (19) | | |
Net Income | — | | | — | | | 89,129 | | | | — | | | 464 | | | 89,593 | | | 289 | | |
Dividends on common stock ($0.390/share) | — | | | — | | | (18,205) | | | | — | | | — | | | (18,205) | | | — | | |
Common stock issued | 4 | | | 1,912 | | | — | | | | — | | | — | | | 1,916 | | | — | | |
Common stock repurchased | (38) | | | — | | | (30,606) | | | | — | | | — | | | (30,644) | | | — | | |
Share-based compensation | 14 | | | 6,308 | | | — | | | | — | | | — | | | 6,322 | | | — | | |
| Currency translation adjustment | — | | | — | | | — | | | | (10,788) | | | (139) | | | (10,927) | | | 14 | | |
Pension and other post retirement plans, net of taxes | — | | | — | | | — | | | | 1,856 | | | — | | | 1,856 | | | — | | |
Balance as of June 30, 2022 | $ | 4,628 | | | $ | 318,837 | | | $ | 900,135 | | | | $ | (237,513) | | | $ | 2,486 | | | $ | 988,573 | | | $ | 284 | | |
|
13. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
Changes in accumulated other comprehensive income/(loss) by component for the sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022, 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 six months ended June 30, 2023: | | |
For the nine months ended September 30, 2023: | | For the nine months ended September 30, 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 | $ | (191.3) | | | $ | (40.1) | | | $ | (231.4) | | Balance as of December 31, 2022 | |
| Other comprehensive income/(loss) before reclassifications | Other comprehensive income/(loss) before reclassifications | 10.9 | | | — | | | 10.9 | | Other comprehensive income/(loss) before reclassifications | 0.2 | | | — | | | 0.2 | |
Amounts reclassified from accumulated other comprehensive income/(loss) (1) | Amounts reclassified from accumulated other comprehensive income/(loss) (1) | — | | | 0.8 | | | 0.8 | | Amounts reclassified from accumulated other comprehensive income/(loss) (1) | — | | | 1.2 | | | 1.2 | |
Net other comprehensive income/(loss) | Net other comprehensive income/(loss) | 10.9 | | | 0.8 | | | 11.7 | | Net other comprehensive income/(loss) | 0.2 | | | 1.2 | | | 1.4 | |
| Balance as of June 30, 2023 | $ | (180.4) | | | $ | (39.3) | | | $ | (219.7) | | |
Balance as of September 30, 2023 | | Balance as of September 30, 2023 | $ | (191.1) | | | $ | (38.9) | | | $ | (230.0) | |
| For the six months ended June 30, 2022: | | |
For the nine months ended September 30, 2022: | | For the nine months ended September 30, 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 | (10.7) | | | — | | | (10.7) | | Other comprehensive income/(loss) before reclassifications | (26.7) | | | — | | | (26.7) | |
Amounts reclassified from accumulated other comprehensive income/(loss) (1) | Amounts reclassified from accumulated other comprehensive income/(loss) (1) | — | | | 1.8 | | | 1.8 | | Amounts reclassified from accumulated other comprehensive income/(loss) (1) | — | | | 3.1 | | | 3.1 | |
Net other comprehensive income/(loss) | Net other comprehensive income/(loss) | (10.7) | | | 1.8 | | | (8.9) | | Net other comprehensive income/(loss) | (26.7) | | | 3.1 | | | (23.6) | |
| Balance as of June 30, 2022 | $ | (190.3) | | | $ | (47.2) | | | $ | (237.5) | | |
Balance as of September 30, 2022 | | Balance as of September 30, 2022 | $ | (206.3) | | | $ | (45.9) | | | $ | (252.2) | |
(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 $0.3$0.4 million and $0.5$0.9 million for the sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022, 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 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.
Financial information by reportable business segment is included in the following summary: | | | Second Quarter Ended | | Six Months Ended | | Third Quarter Ended | | Nine Months Ended |
(In millions) | (In millions) | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | (In millions) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| | Net sales | | Net sales |
Water Systems | Water Systems | | Water Systems | |
External sales | External sales | | External sales | |
United States & Canada | United States & Canada | $ | 176.8 | | | $ | 158.4 | | | $ | 336.2 | | | $ | 293.1 | | United States & Canada | $ | 157.7 | | | $ | 158.9 | | | $ | 494.0 | | | $ | 452.0 | |
Latin America | Latin America | 42.0 | | | 41.7 | | | 82.3 | | | 79.6 | | Latin America | 45.5 | | | 41.3 | | | 127.8 | | | 120.9 | |
Europe, Middle East & Africa | Europe, Middle East & Africa | 54.6 | | | 49.7 | | | 105.0 | | | 100.7 | | Europe, Middle East & Africa | 48.7 | | | 46.0 | | | 153.7 | | | 146.7 | |
Asia Pacific | Asia Pacific | 22.2 | | | 24.2 | | | 41.0 | | | 44.7 | | Asia Pacific | 19.6 | | | 22.1 | | | 60.6 | | | 66.8 | |
Intersegment sales | Intersegment sales | | Intersegment sales | |
United States & Canada | United States & Canada | 26.1 | | | 36.5 | | | 63.8 | | | 65.0 | | United States & Canada | 24.3 | | | 24.8 | | | 88.0 | | | 89.8 | |
Total sales | Total sales | 321.7 | | | 310.5 | | | 628.3 | | | 583.1 | | Total sales | 295.8 | | | 293.1 | | | 924.1 | | | 876.2 | |
Distribution | Distribution | | Distribution | |
External sales | External sales | | External sales | |
United States & Canada | United States & Canada | 193.1 | | | 191.1 | | | 336.1 | | | 326.0 | | United States & Canada | 189.2 | | | 193.2 | | | 525.3 | | | 519.2 | |
Intersegment sales | Intersegment sales | — | | | — | | | — | | | — | | Intersegment sales | — | | | — | | | — | | | — | |
Total sales | Total sales | 193.1 | | | 191.1 | | | 336.1 | | | 326.0 | | Total sales | 189.2 | | | 193.2 | | | 525.3 | | | 519.2 | |
Fueling Systems | Fueling Systems | | Fueling Systems | |
External sales | External sales | | External sales | |
United States & Canada | United States & Canada | 60.4 | | | 64.2 | | | 114.4 | | | 116.0 | | United States & Canada | 58.5 | | | 66.5 | | | 172.8 | | | 182.5 | |
All other | All other | 20.0 | | | 21.8 | | | 38.7 | | | 42.5 | | All other | 19.2 | | | 23.7 | | | 58.0 | | | 66.2 | |
Intersegment sales | Intersegment sales | — | | | — | | | — | | | — | | Intersegment sales | — | | | — | | | — | | | — | |
Total sales | Total sales | 80.4 | | | 86.0 | | | 153.1 | | | 158.5 | | Total sales | 77.7 | | | 90.2 | | | 230.8 | | | 248.7 | |
| Intersegment Eliminations/Other | Intersegment Eliminations/Other | (26.1) | | | (36.5) | | | (63.8) | | | (65.0) | | Intersegment Eliminations/Other | (24.3) | | | (24.8) | | | (88.0) | | | (89.8) | |
Consolidated | Consolidated | $ | 569.1 | | | $ | 551.1 | | | $ | 1,053.7 | | | $ | 1,002.6 | | Consolidated | $ | 538.4 | | | $ | 551.7 | | | $ | 1,592.2 | | | $ | 1,554.3 | |
| | | Second Quarter Ended | | Six Months Ended | | Third Quarter Ended | | Nine Months Ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| | Operating income/(loss) | | Operating income/(loss) |
Water Systems | Water Systems | $ | 50.8 | | | $ | 49.0 | | | $ | 99.8 | | | $ | 82.2 | | Water Systems | $ | 52.7 | | | $ | 45.5 | | | $ | 152.5 | | | $ | 127.7 | |
Distribution | Distribution | 17.8 | | | 23.3 | | | 22.5 | | | 32.7 | | Distribution | 10.7 | | | 19.0 | | | 33.2 | | | 51.7 | |
Fueling Systems | Fueling Systems | 26.7 | | | 26.1 | | | 47.5 | | | 43.8 | | Fueling Systems | 25.8 | | | 28.6 | | | 73.3 | | | 72.4 | |
Intersegment Eliminations/Other | Intersegment Eliminations/Other | (14.4) | | | (17.4) | | | (36.3) | | | (37.8) | | Intersegment Eliminations/Other | (11.1) | | | (13.1) | | | (47.4) | | | (50.8) | |
Consolidated | Consolidated | $ | 80.9 | | | $ | 81.0 | | | $ | 133.5 | | | $ | 120.9 | | Consolidated | $ | 78.1 | | | $ | 80.0 | | | $ | 211.6 | | | $ | 201.0 | |
| | | June 30, 2023 | | December 31, 2022 | | | September 30, 2023 | | December 31, 2022 | |
| | Total assets | | | Total assets | |
Water Systems | Water Systems | $ | 1,058.6 | | | $ | 1,017.5 | | | Water Systems | $ | 1,033.4 | | | $ | 1,017.5 | | |
Distribution | Distribution | 412.4 | | | 360.4 | | | Distribution | 375.6 | | | 360.4 | | |
Fueling Systems | Fueling Systems | 276.6 | | | 269.1 | | | Fueling Systems | 268.1 | | | 269.1 | | |
Other | Other | 55.5 | | | 47.2 | | | Other | 48.2 | | | 47.2 | | |
Consolidated | Consolidated | $ | 1,803.1 | | | $ | 1,694.2 | | | Consolidated | $ | 1,725.3 | | | $ | 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 position that its products were not the cause of any alleged damage. The Company submitted its response to the expert's final report in 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 JuneSeptember 30, 2023, the Company had $11.1$9.6 million of commitments primarily for capital expenditures and purchase of raw materials to be used in production.
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 sixnine months ended JuneSeptember 30, 2023, are as follows:
| | | | | | | | |
(In millions) | | |
Balance as of December 31, 2022 | | $ | 11.2 | |
Accruals related to product warranties | | 6.49.4 | |
| | |
Reductions for payments made | | (6.9)(10.3) | |
Balance as of JuneSeptember 30, 2023 | | $ | 10.710.3 | |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SecondThird Quarter and Year-to-Date 2023 vs. Second Quarter 2022
OVERVIEW
Net sales in the secondthird quarter and first sixnine months of 2023 increased 3decreased 2 percent and 5increased 2 percent, respectively, from the prior-year periods. The sales decrease in the third quarter was primarily due to lower volumes and the negative impact of foreign currency translation, partially offset by price realization. The sales increase in the first nine months was primarily due to price realization, and volume, partially offset by the negative impact of foreign currency translation. The Company's consolidated gross profit was $188.5$186.3 million and $350.7$537.0 million, respectively, for the secondthird quarter and first sixnine months of 2023, a decrease of $0.8$4.3 million and an increase of $16.1$11.8 million, respectively, from the prior-year periods. Diluted earnings per share was $1.27$1.23 and $2.06,$3.29, respectively, for the secondthird quarter and first sixnine months of 2023, increasesa decrease of $0.01 and $0.17,an increase $0.16, respectively, from the prior-year periods.
RESULTS OF OPERATIONS
Net Sales
| | | Net Sales | | Net Sales |
(In millions) | (In millions) | Q2 2023 | | Q2 2022 | | 2023 v 2022 | (In millions) | Q3 2023 | | Q3 2022 | | 2023 v 2022 |
Water Systems | Water Systems | $ | 321.7 | | | $ | 310.5 | | | $ | 11.2 | | Water Systems | $ | 295.8 | | | $ | 293.1 | | | $ | 2.7 | |
Fueling Systems | Fueling Systems | 80.4 | | | 86.0 | | | (5.6) | | Fueling Systems | 77.7 | | | 90.2 | | | (12.5) | |
Distribution | Distribution | 193.1 | | | 191.1 | | | 2.0 | | Distribution | 189.2 | | | 193.2 | | | (4.0) | |
Eliminations/Other | Eliminations/Other | (26.1) | | | (36.5) | | | 10.4 | | Eliminations/Other | (24.3) | | | (24.8) | | | 0.5 | |
Consolidated | Consolidated | $ | 569.1 | | | $ | 551.1 | | | $ | 18.0 | | Consolidated | $ | 538.4 | | | $ | 551.7 | | | $ | (13.3) | |
| | | Net Sales | | Net Sales |
(In millions) | (In millions) | YTD June 30, 2023 | | YTD June 30, 2022 | | 2023 v 2022 | (In millions) | YTD September 30, 2023 | | YTD September 30, 2022 | | 2023 v 2022 |
Water Systems | Water Systems | 628.3 | | | $ | 583.1 | | | $ | 45.2 | | Water Systems | $ | 924.1 | | | $ | 876.2 | | | $ | 47.9 | |
Fueling Systems | Fueling Systems | 153.1 | | | 158.5 | | | (5.4) | | Fueling Systems | 230.8 | | | 248.7 | | | (17.9) | |
Distribution | Distribution | 336.1 | | | 326.0 | | | 10.1 | | Distribution | 525.3 | | | 519.2 | | | 6.1 | |
Eliminations/Other | Eliminations/Other | (63.8) | | | (65.0) | | | 1.2 | | Eliminations/Other | (88.0) | | | (89.8) | | | 1.8 | |
Consolidated | Consolidated | $ | 1,053.7 | | | $ | 1,002.6 | | | $ | 51.1 | | Consolidated | $ | 1,592.2 | | | $ | 1,554.3 | | | $ | 37.9 | |
Net sales increased 3decreased 2 percent in the secondthird quarter and 5increased 2 percent in the first sixnine months of 2023, as compared to the prior-year periods. Foreign currency unfavorably impacted net sales by 2 and 3 percentage points during the secondthird quarter and first sixnine months of 2023, respectively, compared to the prior-year periods, principally due to the strengthening of the U.S. Dollar relative to the Turkish Lira and Argentine Peso.
Net Sales-Water Systems
Water Systems net sales increased 41 percent in the secondthird quarter and 85 percent in the first sixnine months of 2023, as compared to the prior-year periods. This sales growth was primarily due to price and volume, which increased due to strong end market demand.realization. Partially offsetting the increase, sales decreased 4 percent in both the secondthird quarter and 5 percent in the first sixnine months of 2023 due to the negative impact from foreign exchange rates, as compared to prior-year periods. While net sales increased in 2023, Water Systems sales were negatively impacted by unfavorable weather conditions and customer inventories trending to more normalized levels.
Water Systems net sales in the U.S. and Canada increased 4decreased 1 percent in the secondthird quarter and 12increased 7 percent in the first sixnine months of 2023, as compared to the prior-year periods. Sales decreased less than 1 percent in both the secondthird quarter and decreased 1 percent in first sixnine months of 2023 due to the negative impact from foreign exchange rates, as compared to prior-year periods. In the secondthird quarter of 2023, sales of large dewatering equipment increased 10232 percent, sales of groundwater pumping equipment decreased 169 percent and sales of all other surface pumping equipment were flatdecreased 4 percent compared to 2022. In the first halfnine months of 2023, sales of large dewatering equipment increased 12086 percent, sales of groundwater pumping equipment decreased 57 percent and sales of all other surface pumping equipment increased 61 percent compared to 2022.
Water Systems net sales in markets outside the U.S. and Canada increased 34 percent in the secondthird quarter and 12 percent in the first sixnine months of 2023, as compared to the prior-year periods. Sales decreased 10 percent in the second quarter and 11 percent in both the third quarter and first sixnine months of 2023 due to the negative impact from foreign exchange rates, as compared to prior-year periods. In both the secondthird quarter and first halfnine months of 2023, outside the U.S. and Canada, excluding the impact of foreign currency translation, sales increases in EMEA and Latin America more than offset sales declines in the Asia Pacific markets.
Net Sales-Fueling Systems
Fueling Systems net sales decreased 14 percent in the third quarter and 7 percent in the second quarter and 3 percent in the first sixnine months of 2023, as compared to the prior-year periods. This sales decline was primarily due to lower volumes. Sales decreased less than 1 percent in both the second quarter and first six months of 2023 due to the negative impact from foreign exchange rates, as compared to prior-year periods.
Fueling Systems net sales in the U.S. and Canada decreased 14 percent in the third quarter and 6 percent in the second quarter and 1 percent in the first sixnine months of 2023, as compared to the prior-year periods. The decrease was primarily in dispensing and piping. Outside the U.S. and Canada, Fueling Systems sales decreased 820 percent in the secondthird quarter and 913 percent in the first sixnine months of 2023, as compared to the prior-year periods, due primarily to the divestiture of the above ground storage tank business in 2022 and lower sales in China.
Net Sales - Distribution
Distribution net sales decreased 2 percent in the third quarter and increased 1 percent in the second quarter and 3 percent in the first sixnine months of 2023, as compared to the prior-year periods. The Distribution segment sales decline in the third quarter was primarily due to lower commodity driven pricing while the sales growth in the first nine months was primarily due to price realization and volume. While net sales increased in 2023, Distribution sales were negatively impacted by unfavorable weather conditions, commodity pricing continuing to decline and customer inventories trending to more normalized levels.higher volumes.
Gross Profit and Expenses Ratios
| | | Three months ended June 30, | | Three months ended September 30, |
(In Millions) | (In Millions) | 2023 | | % of Net Sales | | 2022 | | % of Net Sales | (In Millions) | 2023 | | % of Net Sales | | 2022 | | % of Net Sales |
Gross Profit | Gross Profit | $ | 188.5 | | | 33.1 | % | | $189.3 | | 34.3 | % | Gross Profit | $ | 186.3 | | | 34.6 | % | | $ | 190.6 | | | 34.5 | % |
Selling, General and Administrative Expense | Selling, General and Administrative Expense | 107.4 | | | 18.9 | % | | 108.3 | | | 19.7 | % | Selling, General and Administrative Expense | 107.7 | | | 20.0 | % | | 109.4 | | | 19.8 | % |
| | | Six months ended June 30, | | Nine Months Ended September 30, |
(In Millions) | (In Millions) | 2023 | | % of Net Sales | | 2022 | | % of Net Sales | (In Millions) | 2023 | | % of Net Sales | | 2022 | | % of Net Sales |
Gross Profit | Gross Profit | $ | 350.7 | | | 33.3 | % | | $ | 334.6 | | | 33.4 | % | Gross Profit | $ | 537.0 | | | 33.7 | % | | $ | 525.2 | | | 33.8 | % |
Selling, General and Administrative Expense | Selling, General and Administrative Expense | 217.0 | | | 20.6 | % | | 213.0 | | | 21.2 | % | Selling, General and Administrative Expense | 324.7 | | | 20.4 | % | | 322.4 | | | 20.7 | % |
Gross Profit
The gross profit margin ratio was 33.134.6 percent and 33.333.7 percent in the secondthird quarter and first sixnine months of 2023, respectively, and 34.334.5 percent and 33.433.8 percent in the secondthird quarter and first sixnine months of 2022, respectively. The gross profit margin was negativelyfavorably impacted in the secondthird quarter and first sixnine months of 2023 by wet weather across much of the United Statesprice realization, product mix and lower freight costs in Water Systems and Fueling, partially offset by margin compression from unfavorable pricing of commodity-based products sold through the Distribution business.
Selling, General, and Administrative ("SG&A")
SG&A expenses were $107.4$107.7 million in the secondthird quarter and $217.0$324.7 million in the first halfnine months of 2023 compared to $108.3$109.4 million in the secondthird quarter and $213.0$322.4 million in the first halfnine months of 2022. SG&A expenses decreased in the secondthird quarter of 2023 primarily due to lower advertising and marketingincentive-based compensation expenses. SG&A expenses increased by less than 1 percent in the first halfnine months of 2023 primarily due to higher compensation costs, partially offset by lower advertising and marketing expenses.expenses. The SG&A expenses ratio was 18.920.0 percent and 20.620.4 percent in the secondthird quarter and first sixnine months of 2023, respectively, and 19.719.8 percent and 21.220.7 percent in the secondthird quarter and first sixnine months of 2022, respectively.
Restructuring Expenses
Restructuring expenses were $0.1$0.5 million and $0.3$0.7 million in the secondthird quarter and first sixnine months of 2023, respectively, and nil$1.2 million and $0.7$1.9 million in the secondthird quarter and first sixnine months of 2022, respectively. Restructuring expenses were primarily from continued miscellaneous manufacturing realignment activities, branch closings and consolidations.
Operating Income
Operating income decreased less than 12 percent and increased 105 percent in the secondthird quarter and first sixnine months of 2023, as compared to the prior-year periods.
| | | Operating income (loss) | | Operating income (loss) |
(In millions) | (In millions) | | Q2 2023 | | Q2 2022 | | 2023 v 2022 | (In millions) | | Q3 2023 | | Q3 2022 | | 2023 v 2022 |
Water Systems | Water Systems | | $ | 50.8 | | | $ | 49.0 | | | $ | 1.8 | | Water Systems | | $ | 52.7 | | | $ | 45.5 | | | $ | 7.2 | |
Fueling Systems | Fueling Systems | | 26.7 | | | 26.1 | | | 0.6 | | Fueling Systems | | 25.8 | | | 28.6 | | | (2.8) | |
Distribution | Distribution | | 17.8 | | | 23.3 | | | (5.5) | | Distribution | | 10.7 | | | 19.0 | | | (8.3) | |
Eliminations/Other | Eliminations/Other | | (14.4) | | | (17.4) | | | 3.0 | | Eliminations/Other | | (11.1) | | | (13.1) | | | 2.0 | |
Consolidated | Consolidated | | $ | 80.9 | | | $ | 81.0 | | | $ | (0.1) | | Consolidated | | $ | 78.1 | | | $ | 80.0 | | | $ | (1.9) | |
| | | Operating income (loss) | | Operating income (loss) |
(In millions) | (In millions) | | YTD June 30, 2023 | | YTD June 30, 2022 | | 2023 v 2022 | (In millions) | | YTD September 30, 2023 | | YTD September 30, 2022 | | 2023 v 2022 |
Water Systems | Water Systems | | $ | 99.8 | | | $ | 82.2 | | | $ | 17.6 | | Water Systems | | $ | 152.5 | | | $ | 127.7 | | | $ | 24.8 | |
Fueling Systems | Fueling Systems | | 47.5 | | | 43.8 | | | 3.7 | | Fueling Systems | | 73.3 | | | 72.4 | | | 0.9 | |
Distribution | Distribution | | 22.5 | | | 32.7 | | | (10.2) | | Distribution | | 33.2 | | | 51.7 | | | (18.5) | |
Eliminations/Other | Eliminations/Other | | (36.3) | | | (37.8) | | | 1.5 | | Eliminations/Other | | (47.4) | | | (50.8) | | | 3.4 | |
Consolidated | Consolidated | | $ | 133.5 | | | $ | 120.9 | | | $ | 12.6 | | Consolidated | | $ | 211.6 | | | $ | 201.0 | | | $ | 10.6 | |
Operating Income-Water Systems
Water Systems operating income increased $1.8$7.2 million in the secondthird quarter and $17.6$24.8 million in the first sixnine months of 2023, as compared to the prior-year periods, primarily due to higher sales.price realization and cost management, including lower freight costs. The secondthird quarter operating income margin was 15.817.8 percent, unchangedan increase of 230 basis points from 15.5 percent in the secondthird quarter of 2022. The first sixnine months of 2023 operating income margin was 15.916.5 percent, an increase of 180190 basis points from 14.114.6 percent in the first six months of 2022. Operating income margin increased in the first half primarily due to price realization, cost management and operating leverage on higher sales.
Operating Income-Fueling Systems
Fueling Systems operating income increased $0.6 million in the second quarter and $3.7 million in the first six months of 2023, as compared to the prior-year periods, primarily due to a favorable product and geographic mix of net sales. The second quarter operating income margin was 33.2 percent, an increase of 290 basis points from 30.3 percent in the second quarter of 2022. The first six months of 2023 operating income margin was 31.0 percent, an increase of 340 basis points from 27.6 percent in the first sixnine months of 2022. Operating income margin increased primarily due to price realization and a favorable product and geographic sales mix shift.cost management.
Operating Income-DistributionIncome-Fueling Systems
DistributionFueling Systems operating income decreased $5.5$2.8 million in the secondthird quarter and $10.2increased $0.9 million in the first sixnine months of 2023, as compared to the prior-year periods. The seconddecrease in operating income in the third quarter was primarily related to lower sales. The increase in operating income in the first nine months of 2023 was primarily due to a favorable product and geographic mix of net sales and disciplined cost management. The third quarter operating income margin was 9.233.2 percent, a decreasean increase of 300150 basis points from 12.231.7 percent in the secondthird quarter of 2022. The first sixnine months of 2023 operating income margin was 6.731.8 percent, an increase of 270 basis points from 29.1 percent in the first nine months of 2022. Operating income margin increased primarily due to price realization, a favorable product and geographic sales mix shift and disciplined cost management.
Operating Income-Distribution
Distribution operating income decreased $8.3 million in the third quarter and $18.5 million in the first nine months of 2023, as compared to the prior-year periods. The third quarter operating income margin was 5.7 percent, a decrease of 330410 basis points from 9.8 percent in the third quarter of 2022. The first nine months of 2023 operating income margin was 6.3 percent, a decrease of 370 basis points from 10.0 percent in the first sixnine months of 2022. Operating income and operating income margin decreased primarily due to lower sales as a result of wet weather across much of the United States and customer inventory destocking along with unfavorable pricing of commodity-based products sold through the business and inventory destocking.business.
Operating Income-Eliminations/Other
Operating income-Eliminations/Other is composed primarily of intersegment sales and profit eliminations and unallocated general and administrative expenses. The intersegment profit elimination impact in the secondthird quarter and first sixnine months of 2023 compared to the prior-year periods of 2022 was a favorable $4.0$0.6 million and $3.2$3.7 million, respectively. The intersegment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in the consolidated financial results until such time as the transferred product is sold from the Distribution segment to its end third party customer. General and administrative expenses increased $1.0decreased $1.4 million and $1.7increased $0.3 million, respectively, compared to the prior- year periods, in part due to higher compensation, software, professional fees and travel expenses.prior-year periods.
Interest Expense
Interest expense was $4.2 million and $7.3 million in the second quarter and first six months of 2023, respectively, and $2.9 million and $4.4 million in the second quarter and first six months of 2022, respectively. The increases in the second quarter and first six months of 2023 were primarily driven by higher interest rates.
Interest Expense
Interest expense was $3.0 million and $10.3 million in the third quarter and first nine months of 2023, respectively, and $3.1 million and $7.5 million in the third quarter and first nine months of 2022, respectively. The increase in the first nine months of 2023 was primarily driven by higher interest rates.
Other Income or Expense
Other (income) expense,income (expense), net was a gainbenefit of $1.2$0.3 million and $1.6$1.9 million in the secondthird quarter and first sixnine months of 2023, respectively, and an expense of $1.2$1.3 million and $1.5$2.8 million in the secondthird quarter and first sixnine months of 2022, respectively.
Foreign Exchange
Foreign currency-based transactions produced an expense of $3.6$2.5 million and $5.6$8.1 million in the secondthird quarter and first sixnine months of 2023, respectively, and an expense of $0.3$3.4 million and $0.9$4.3 million in the secondthird quarter and first sixnine months of 2022, respectively. The expense in 2023 was primarily due to transaction losses associated with the Turkish Lira, Argentine 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 secondthird quarter and first sixnine months of 2023 was $14.2$14.7 million and $24.4$39.2 million, respectively, and $16.8$13.4 million and $24.2$37.5 million in the secondthird quarter and first sixnine months of 2022, respectively. The effective tax rate for the secondthird quarter and first sixnine months of 2023 was 19.120.2 percent and 20.020.1 percent, respectively, and 21.918.5 percent and 21.220.1 percent in the secondthird quarter and the first sixnine months of 2022, respectively. The decreaseincrease in the effective tax ratesrate for the secondthird quarter and first six months of 2023 compared to the comparable periodsperiod in the prior year was a result of moreless favorable discrete events in 2023, primarily related to excess tax benefits from share-based compensation.2023.
Net Income
Net income in the secondthird quarter and first sixnine months of 2023 was $60.2$58.2 million and $97.7$155.9 million, respectively, and $59.8$59.0 million and $89.9$148.9 million in the secondthird quarter and first sixnine months of 2022, respectively.Net income attributable to Franklin Electric Co., Inc. in the secondthird quarter and first sixnine months of 2023 was $59.6$57.8 million and $96.9$154.7 million, respectively, or $1.27$1.23 and $2.06$3.29 per diluted share.Net income attributable to Franklin Electric Co., Inc. in the secondthird quarter and first sixnine months of 2022 was $59.4$58.6 million and $89.1$147.8 million, respectively, or $1.26$1.24 and $1.89$3.13 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 JuneSeptember 30, 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 JuneSeptember 30, 2023, the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 13, 2026. As of JuneSeptember 30, 2023, the Company had $188.1$307.4 million borrowing capacity under its credit agreement as $3.6 million in letters of commercial and standby letters of credit were outstanding and undrawn and $158.3$39.0 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 JuneSeptember 30, 2023. The Company also has other long-term debt borrowings outstanding as of JuneSeptember 30, 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 information regarding these obligations and future maturities as well as Note 10 - Debt of this current quarterly report for changes to these agreements since December 31, 2022.
At JuneSeptember 30, 2023, the Company had $45.9$54.9 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 six months of 2023 and 2022.
| | | | | | | | | | | | | | |
(in millions) | | 2023 | | 2022 |
Net cash flows from operating activities | | $ | 43.0 | | | $ | (62.5) | |
Net cash flows from investing activities | | (26.9) | | | (21.5) | |
Net cash flows from financing activities | | (5.4) | | | 79.3 | |
Impact of exchange rates on cash and cash equivalents | | (3.3) | | | (2.6) | |
Change in cash and cash equivalents | | $ | 7.4 | | | $ | (7.3) | |
Cash Flows
The following table summarizes significant sources and uses of cash and cash equivalents for the first nine months of 2023 and 2022.
| | | | | | | | | | | | | | |
(in millions) | | 2023 | | 2022 |
Net cash flows from operating activities | | $ | 198.6 | | | $ | 7.2 | |
Net cash flows from investing activities | | (36.8) | | | (30.9) | |
Net cash flows from financing activities | | (140.3) | | | 29.2 | |
Impact of exchange rates on cash and cash equivalents | | (4.8) | | | (6.5) | |
Change in cash and cash equivalents | | $ | 16.7 | | | $ | (1.0) | |
Cash Flows from Operating Activities
2023 vs. 2022
Net cash provided by operating activities was $43.0$198.6 million for the sixnine months ended JuneSeptember 30, 2023 compared to $62.5$7.2 million usedprovided by operating activities for the sixnine months ended JuneSeptember 30, 2022. The change in operating cash flow was primarily due to decreased working capital requirements.
Cash Flows from Investing Activities
2023 vs. 2022
Net cash used in investing activities was $26.9$36.8 million for the sixnine months ended JuneSeptember 30, 2023 compared to $21.5$30.9 million used in investing activities for the sixnine months ended JuneSeptember 30, 2022. The increase in cash used in investing activities was attributable to increased acquisition activity in the first sixnine months of 2023.
Cash Flows from Financing Activities
2023 vs. 2022
Net cash used by financing activities was $5.4$140.3 million for the sixnine months ended JuneSeptember 30, 2023 compared to $79.3$29.2 million provided by financing activities for the sixnine months ended JuneSeptember 30, 2022. The change in financing cash flow was primarily attributable to decreasednet borrowings under the Company's revolving credit facility.facility in 2022 compared to net repayments in 2023.
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, 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.
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 secondthird quarter ended JuneSeptember 30, 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, 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.
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, 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Issuer Repurchases of Equity Securities
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 9,48055,600 shares for approximately $0.9$5.0 million under the plan during the secondthird quarter of 2023. The maximum number of shares that may still be purchased under this plan as of JuneSeptember 30, 2023 is 1,116,392.1,060,792.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Repurchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plan | | Maximum Number of Shares that may yet to be Repurchased |
April 1 - April 30 | | — | | | — | | | — | | | 1,125,872 | |
May 1 - May 31 | | 8,941 | | | 90.88 | | | 8,941 | | | 1,116,931 | |
June 1 - June 30 | | 539 | | | 90.78 | | | 539 | | | 1,116,392 | |
Total | | 9,480 | | | 90.88 | | | 9,480 | | | 1,116,392 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | | — | | | — | | | — | | | 1,116,392 | |
August 1 - August 31 | | 10,600 | | | $ | 92.96 | | | 10,600 | | | 1,105,792 | |
September 1 - September 30 | | 45,000 | | | $ | 89.73 | | | 45,000 | | | 1,060,792 | |
Total | | 55,600 | | | $ | 90.34 | | | 55,600 | | | 1,060,792 | |
ITEM 5. OTHER INFORMATION
None of the Company’s directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended September 30, 2023.
ITEM 6. EXHIBITS
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3.1 | | |
3.2 | | |
10.1 | |
10.2 | |
10.3 | |
10.4 | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101 | | The following financial information from Franklin Electric Co., Inc.'s Quarterly Report on Form 10-Q for the quarter ended JuneSeptember 30, 2023, formatted in Inline eXtensible Business Reporting Language (Inline XBRL): (i) Condensed Consolidated Statements of Income for the secondthird quarter and sixnine months ended JuneSeptember 30, 2023 and 2022 (ii) Condensed Consolidated Statements of Comprehensive Income/(Loss) for the secondthird quarter and sixnine months ended JuneSeptember 30, 2023 and 2022, (iii) Condensed Consolidated Balance Sheets as of JuneSeptember 30, 2023, and December 31, 2022, (iv) Condensed Consolidated Statement of Cash Flows for the sixnine months ended JuneSeptember 30, 2023 and 2022, and (v) Notes to Condensed Consolidated Financial Statements (filed herewith) |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*Management Contract, Compensatory Plan or Arrangement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | | FRANKLIN ELECTRIC CO., INC. |
| | | Registrant |
| | | |
Date: July 28,October 27, 2023 | | By | /s/ Gregg C. Sengstack |
| | | Gregg C. Sengstack, Chairperson and Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
Date: July 28,October 27, 2023 | | By | /s/ Jeffery L. Taylor |
| | | Jeffery L. Taylor, Vice President and Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |