Franklin Electric(FELE) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Unaudited condensed consolidated financial statements for Q2 and six months ended June 30, 2025 and 2024, with detailed notes Condensed Consolidated Statements of Income Unaudited condensed consolidated statements of income for Q2 and six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Income (Unaudited) - Key Figures (in thousands) | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | 6 Months 2025 (in thousands) | 6 Months 2024 (in thousands) | | :----------------------------------- | :------ | :------ | :------------ | :------------ | | Net sales | $587,434 | $543,258 | $1,042,681 | $1,004,158 | | Gross profit | $211,826 | $199,797 | $375,729 | $363,377 | | Operating income | $88,141 | $79,149 | $132,242 | $127,085 | | Income before income taxes | $80,624 | $76,921 | $122,476 | $119,235 | | Net income | $60,563 | $59,331 | $91,937 | $92,423 | | Net income attributable to Franklin Electric Co., Inc. | $60,140 | $59,099 | $91,102 | $92,058 | | Basic EPS | $1.32 | $1.28 | $1.99 | $1.99 | | Diluted EPS | $1.31 | $1.26 | $1.97 | $1.97 | Condensed Consolidated Statements of Comprehensive Income/(Loss) Unaudited condensed consolidated statements of comprehensive income/(loss) for Q2 and six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) - Key Figures (in thousands) | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | 6 Months 2025 (in thousands) | 6 Months 2024 (in thousands) | | :------------------------------------------------ | :------ | :------ | :------------ | :------------ | | Net income | $60,563 | $59,331 | $91,937 | $92,423 | | Other comprehensive income/(loss), net of tax | $26,364 | $(9,865) | $39,723 | $(16,647) | | Comprehensive income | $86,927 | $49,466 | $131,660 | $75,776 | | Comprehensive income attributable to Franklin Electric Co., Inc. | $86,278 | $49,249 | $130,698 | $75,467 | Condensed Consolidated Balance Sheets Unaudited condensed consolidated balance sheets as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets (Unaudited) - Key Figures (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :------------ | :---------------- | | ASSETS | | | | Cash and cash equivalents | $104,592 | $220,540 | | Total current assets | $1,036,440 | $964,191 | | Property, plant, and equipment, net | $241,232 | $223,566 | | Intangible assets, net | $257,490 | $212,973 | | Goodwill | $395,999 | $338,501 | | Total assets | $2,017,912 | $1,820,606 | | LIABILITIES AND EQUITY | | | | Total current liabilities | $604,117 | $433,727 | | Long-term debt | $14,511 | $11,622 | | Total equity | $1,265,062 | $1,268,610 | | Total liabilities and equity | $2,017,912 | $1,820,606 | Condensed Consolidated Statements of Cash Flows Unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Cash Flows (Unaudited) - Key Figures (in thousands) for Six Months Ended June 30 | Metric | 2025 (in thousands) | 2024 (in thousands) | | :----------------------------------- | :----- | :----- | | Net cash flows from operating activities | $31,997 | $35,003 | | Net cash flows from investing activities | $(127,321) | $(20,157) | | Net cash flows from financing activities | $(22,112) | $(38,738) | | Net change in cash and cash equivalents | $(115,948) | $(26,859) | | Cash and cash equivalents at end of period | $104,592 | $58,104 | Notes to Condensed Consolidated Financial Statements (Unaudited) Detailed notes to the unaudited condensed consolidated financial statements, explaining accounting policies and events Note 1. Condensed Consolidated Financial Statements Unaudited interim financial statements prepared under GAAP are not indicative of full fiscal year results - Interim financial statements are unaudited and prepared under GAAP for interim financial information, with certain disclosures condensed or omitted[29] - Management confirms all necessary accounting entries and adjustments have been made for fair presentation[29] - Operating results for the second quarter and six months ended June 30, 2025, are not necessarily indicative of the full fiscal year 2025[29] Note 2. Acquisitions Details Q1 2025 acquisitions of Barnes de Colombia S.A. and PumpEng Pty Ltd, included in Water Systems segment - In March 2025, the Company acquired Barnes de Colombia S.A. for $96.6 million cash, net of cash acquired, a leading manufacturer and distributor of industrial and commercial pumps in Colombia[30] - In February 2025, the Company acquired PumpEng Pty Ltd (Australia) for approximately $15.0 million, specializing in submersible pumps for the mining sector[35] - Both acquisitions are included in the Water Systems segment, with preliminary valuations allocating significant amounts to goodwill and other intangible assets[33][36] - Barnes contributed $15.0 million to net sales for the six months ended June 30, 2025, with an insignificant impact on net income[34] Note 3. Goodwill and Other Intangible Assets Intangible assets totaled $257.5 million and goodwill increased to $396.0 million due to recent acquisitions Intangible Assets (excluding goodwill) (in millions) | Category | June 30, 2025 (Net, in millions) | December 31, 2024 (Net, in millions) | | :---------------------- | :------------------ | :-------------------- | | Amortizing intangibles | $214.8 | $171.4 | | Non-amortizing intangibles (Trade names) | $42.6 | $41.6 | | Total intangibles | $257.4 | $213.0 | Note: Net amounts derived from Gross Carrying Amount less Accumulated Amortization Amortization Expense (in millions) | Period | 2025 (in millions) | 2024 (in millions) | | :---------------------- | :----- | :----- | | Second Quarter Ended June 30 | $6.0 | $4.7 | | Six Months Ended June 30 | $11.1 | $9.5 | Change in Goodwill by Segment (in millions) for Six Months Ended June 30, 2025 | Segment | Balance Dec 31, 2024 (in millions) | Acquisitions (in millions) | Adjustments (in millions) | FX Translation (in millions) | Balance June 30, 2025 (in millions) | | :-------------- | :------------------- | :----------- | :---------- | :------------- | :-------------------- | | Water Systems | $217.6 | $52.7 | $0.1 | $4.4 | $274.8 | | Energy Systems | $70.3 | — | — | $0.3 | $70.6 | | Distribution | $50.6 | — | — | — | $50.6 | | Consolidated | $338.5 | $52.7 | $0.1 | $4.7 | $396.0 | Note 4. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities decreased to $100.7 million as of June 30, 2025 Accrued Expenses and Other Current Liabilities (in millions) | Category | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------------------- | :------------ | :---------------- | | Salaries, wages, and commissions | $43.3 | $49.0 | | Product warranty costs | $8.9 | $9.0 | | Insurance | $2.8 | $2.4 | | Employee benefits | $15.6 | $19.9 | | Other | $30.1 | $39.5 | | Total | $100.7 | $119.8 | Note 5. Debt Total debt increased significantly to $284.7 million, with a new $525.0 million Credit Agreement Debt Composition (in millions) | Category | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :------------------------------------------ | :------------ | :---------------- | | New York Life Agreement | $75.0 | $75.0 | | Credit Agreement | $186.0 | $41.4 | | Tax increment financing debt | $12.2 | $12.8 | | Foreign subsidiary debt | $11.5 | $0.3 | | Less: unamortized debt issuance costs | — | $(0.1) | | Total Debt | $284.7 | $129.4 | | Less: current maturities | $(270.2) | $(117.8) | | Long-term debt | $14.5 | $11.6 | - On May 14, 2025, the Company entered into the Fifth Amended and Restated Credit Agreement, extending the maturity date to May 14, 2030, and increasing the potential aggregate commitments by $175.0 million to a total of $525.0 million[43] - As of June 30, 2025, the Company had $186.0 million outstanding borrowings under the Credit Agreement with a weighted-average interest rate of 4.3%, and $159.4 million of available capacity[44] Note 6. Commitments and Contingencies Outlines legal proceedings, including a 9.5 million Euro claim in France, and stable product warranty accrual - The Company is involved in a legal proceeding in France concerning alleged issues with underground piping connections, with total damages estimated at approximately 9.5 million Euro; the Company maintains its products were not the cause of damage[47] - Management believes other various 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[48] Warranty Accrual (in millions) for Six Months Ended June 30, 2025 | Metric | Amount (in millions) | | :-------------------------------- | :----- | | Balance as of December 31, 2024 | $9.0 | | Accruals related to product warranties | $5.4 | | Reductions for payments made | $(5.5) | | Balance as of June 30, 2025 | $8.9 | Note 7. Equity Roll Forward Total equity decreased slightly to $1,265.1 million, impacted by net income, dividends, and share repurchases Equity Roll Forward (in thousands) for Six Months Ended June 30, 2025 | Metric | Common Stock (in thousands) | Additional Paid-in Capital (in thousands) | Retained Earnings (in thousands) | Accumulated Other Comprehensive Income/(Loss) (in thousands) | Noncontrolling Interest (in thousands) | Total Equity (in thousands) | | :----------------------------------- | :----------- | :------------------------- | :---------------- | :-------------------------------------------- | :---------------------- | :----------- | | Balance as of December 31, 2024 | $4,571 | $363,956 | $1,151,575 | $(254,003) | $2,511 | $1,268,610 | | Net Income | — | — | $91,102 | — | $600 | $91,702 | | Dividends on common stock | — | — | $(24,359) | — | — | $(24,359) | | Common stock issued | $14 | $11,513 | — | — | — | $11,527 | | Common stock repurchased | $(147) | — | $(129,911) | — | — | $(130,058) | | Share-based compensation | $10 | $7,959 | — | — | — | $7,969 | | Currency translation adjustment | — | — | — | $38,975 | $75 | $39,050 | | Pension and other post retirement plans, net of taxes | — | — | — | $621 | — | $621 | | Balance as of June 30, 2025 | $4,448 | $383,428 | $1,088,407 | $(214,407) | $3,186 | $1,265,062 | Note 8. Accumulated Other Comprehensive Income/(Loss) Accumulated other comprehensive loss improved to $(214.4) million due to positive foreign currency translation Changes in Accumulated Other Comprehensive Income/(Loss) (in millions) for Six Months Ended June 30, 2025 | Component | Foreign Currency Translation Adjustments (in millions) | Pension and Post-Retirement Plan Benefit Adjustments (in millions) | Total (in millions) | | :------------------------------------------------ | :------------------------------------- | :--------------------------------------------------- | :---- | | Balance as of December 31, 2024 | $(215.0) | $(39.0) | $(254.0) | | Other comprehensive income/(loss) before reclassifications | $39.0 | — | $39.0 | | Amounts reclassified from accumulated other comprehensive income/(loss) | — | $0.6 | $0.6 | | Net other comprehensive income/(loss) | $39.0 | $0.6 | $39.6 | | Balance as of June 30, 2025 | $(176.0) | $(38.4) | $(214.4) | Note 9. Employee Benefit Plans Net periodic benefit cost for pension plans decreased, while other post-retirement benefit plan costs remained stable Aggregated Net Periodic Benefit Cost for Pension Plans (in millions) | Metric | Q2 2025 (in millions) | Q2 2024 (in millions) | 6 Months 2025 (in millions) | 6 Months 2024 (in millions) | | :---------------------- | :------ | :------ | :------------ | :------------ | | Service cost | $0.1 | $0.2 | $0.1 | $0.3 | | Interest cost | $1.5 | $1.6 | $2.9 | $3.1 | | Expected return on assets | $(1.6) | $(1.9) | $(3.2) | $(3.8) | | Amortization of actuarial loss | $0.4 | $0.6 | $0.8 | $1.2 | | Net periodic benefit cost | $0.4 | $0.5 | $0.6 | $0.8 | Aggregated Net Periodic Benefit Cost for Other Post-Retirement Benefit Plan (in millions) | Metric | Q2 2025 (in millions) | Q2 2024 (in millions) | 6 Months 2025 (in millions) | 6 Months 2024 (in millions) | | :---------------------- | :------ | :------ | :------------ | :------------ | | Interest cost | — | — | $0.1 | $0.1 | | Net periodic benefit cost | — | — | $0.1 | $0.1 | Note 10. Income Taxes Effective tax rate increased to 24.9% due to foreign earnings mix, reduced FDII benefit, and discrete events Effective Tax Rate | Period | 2025 | 2024 | | :---------------------- | :----- | :----- | | Second Quarter Ended June 30 | 24.9% | 22.9% | | Six Months Ended June 30 | 24.9% | 22.5% | - The increase in the effective tax rate was primarily due to a less favorable mix of foreign earnings, a decreased benefit from the U.S. foreign-derived intangible income (FDII) provision, and less favorable discrete events related to share-based compensation[58] - The Company is evaluating the impact of the One Big Beautiful Bill Act (OBBB), signed in July 2025, which includes tax reform provisions such as elective R&D deduction, 100% bonus depreciation, and favorable rates on foreign-derived income, potentially affecting future effective tax rates and deferred tax assets[59] Note 11. Earnings Per Share Diluted EPS increased to $1.31 in Q2 2025, remaining flat at $1.97 for the six months ended June 30, 2025 Earnings Per Share (in millions, except per share amounts) | Metric | Q2 2025 (in millions) | Q2 2024 (in millions) | 6 Months 2025 (in millions) | 6 Months 2024 (in millions) | | :----------------------------------- | :------ | :------ | :------------ | :------------ | | Net income available to common shareholders | $59.9 | $58.9 | $90.8 | $91.8 | | Basic weighted average common shares outstanding | 45.4 | 46.0 | 45.6 | 46.0 | | Diluted weighted average common shares outstanding | 45.9 | 46.6 | 46.1 | 46.6 | | Basic earnings per share | $1.32 | $1.28 | $1.99 | $1.99 | | Diluted earnings per share | $1.31 | $1.26 | $1.97 | $1.97 | - The Company calculates basic and diluted earnings per common share using the two-class method, allocating net earnings to common stock and participating securities (share-based payment awards)[60] Note 12. Financial Instruments Explains the use of share swap transactions and forward currency contracts to mitigate market risks - The Company uses share swap transactions to mitigate exposure to fluctuations in its stock price related to non-employee directors' deferred compensation stock program[64] Impact of Share Swap Transaction (in millions) | Period | Q2 2025 Loss (in millions) | 6 Months 2025 Loss (in millions) | Q2 2024 Loss (in millions) | 6 Months 2024 Loss (in millions) | | :---------------------- | :----------- | :----------------- | :----------- | :----------------- | | Changes in fair value | $1.6 | $2.8 | $2.9 | $0.8 | - The Company enters into forward currency contracts to reduce exposure to foreign currency exchange rate volatility, not for hedge accounting[65] Impact of Forward Currency Contracts (in millions) | Period | Q2 2025 Gain (in millions) | 6 Months 2025 Gain (in millions) | Q2 2024 Loss (in millions) | 6 Months 2024 Loss (in millions) | | :---------------------- | :----------- | :----------------- | :----------- | :----------------- | | Changes in fair value | $6.8 | $11.2 | $0.9 | $0.3 | Note 13. Fair Value Measurements Details fair value measurements for assets and liabilities, including cash equivalents, share swaps, and debt - Fair value is defined as the exchange price for an asset or liability in an orderly transaction between market participants[66] - The fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[67] Assets and Liabilities Measured at Fair Value (in millions) as of June 30, 2025 | Category | Total (in millions) | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | | :---------------------- | :---- | :------ | :------ | :------ | | Assets: | | | | | | Cash equivalents | $9.6 | $9.6 | — | — | | Share swap transaction | $0.4 | $0.4 | — | — | | Forward currency contracts | $0.2 | — | $0.2 | — | | Total assets | $10.2 | $10.0 | $0.2 | — | | Liabilities: | | | | | | Forward currency contracts | $0.4 | — | $0.4 | — | | Total liabilities | $0.4 | — | $0.4 | — | - Total debt had carrying amounts of $284.7 million and estimated fair values of $283.7 million as of June 30, 2025, classified as Level 2 due to estimates based on rates for similar debt[69] Note 14. Segment and Geographic Information Net sales and operating income by Water Systems, Distribution, and Energy Systems segments for Q2 and six months - The Company's business consists of Water Systems, Distribution, and Energy Systems segments, with performance evaluated based on sales and operating income[70][72] Consolidated Net Sales by Segment (in millions) | Segment | Q2 2025 (in millions) | Q2 2024 (in millions) | 6 Months 2025 (in millions) | 6 Months 2024 (in millions) | | :-------------- | :------ | :------ | :------------ | :------------ | | Water Systems | $309.9 | $279.7 | $556.5 | $531.5 | | Distribution | $200.0 | $190.5 | $341.9 | $337.5 | | Energy Systems | $77.5 | $73.1 | $144.3 | $135.2 | | Total Consolidated Sales | $587.4 | $543.3 | $1,042.7 | $1,004.2 | Segment Operating Income (in millions) | Segment | Q2 2025 (in millions) | Q2 2024 (in millions) | 6 Months 2025 (in millions) | 6 Months 2024 (in millions) | | :-------------- | :------ | :------ | :------------ | :------------ | | Water Systems | $61.8 | $62.3 | $105.3 | $109.5 | | Distribution | $16.1 | $9.8 | $18.2 | $11.7 | | Energy Systems | $29.1 | $26.0 | $51.0 | $44.7 | | Consolidated Operating Income | $88.1 | $79.1 | $132.2 | $127.1 | - Water Systems operating income and margin decreased due to incremental acquisition expenses and an unfavorable product and geographic sales mix shift[103] - Energy Systems operating income and margin increased due to higher sales, price realization, cost management, and a favorable product sales mix shift[104] - Distribution operating income and margin increased due to higher sales and reduced SG&A expenses from cost actions implemented in 2024[105] Note 15. Subsequent Event Details the July 2025 Pension Plan termination, involving lump sum payments and a $60 million non-cash settlement charge - In July 2025, the Company began terminating the Franklin Electric Co., Inc. Pension Plan, making $59.9 million in lump sum payments and transferring $30 million in obligations to an insurance company[81] - Management estimates a one-time non-cash pre-tax pension settlement charge of approximately $60 million in Q3 2025 due to actuarial losses[81] - The plan's over-funded status means no cash or asset contributions from the Company, with remaining surplus assets expected to fund 401(k) plan employer contributions[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial performance for Q2 and six months ended June 30, 2025 Overview Highlights increased net sales and gross profit, with diluted EPS up in Q2 but flat for six months - Net sales increased 8% in Q2 2025 and 4% in the first six months of 2025 compared to prior-year periods, driven by higher volumes, price realization, and recent acquisitions, partially offset by negative foreign currency translation[86] - Consolidated gross profit increased 6% in Q2 2025 and 3% in the first six months of 2025[86] - Diluted EPS increased by $0.05 to $1.31 in Q2 2025 and remained unchanged at $1.97 for the first six months of 2025[86] Results of Operations Analyzes key financial performance metrics including net sales, gross profit, operating expenses, and net income Net Sales Consolidated net sales grew 8% in Q2 and 4% for six months, driven by acquisitions, volumes, and price realization Consolidated Net Sales (in millions) | Period | 2025 (in millions) | 2024 (in millions) | Change (2025 vs 2024, in millions) | | :---------------------- | :----- | :----- | :-------------------- | | Second Quarter | $587.4 | $543.3 | $44.1 (8% increase) | | Six Months | $1,042.7 | $1,004.2 | $38.5 (4% increase) | - Sales were negatively impacted by foreign exchange rates (less than 1% in Q2, 1% in six months), partly due to the strengthening of the U.S. Dollar against the Argentine Peso and Turkish Lira, though price increases in local currency offset some devaluation[87] - Water Systems net sales increased 8% in Q2 and 4% in the first six months, driven by acquisitions (5% and 3% incremental sales impact, respectively), favorable volumes, and price realization[90] - Energy Systems net sales increased 6% in Q2 and 7% in the first six months, primarily due to price realization and favorable volumes[93] - Distribution net sales increased 5% in Q2 and 1% in the first six months, due to favorable volumes partly offset by commodity pricing declines[95] Gross Profit and Expenses Ratios Gross profit margin decreased slightly to 36.1% in Q2 and 36.0% for six months due to unfavorable sales mix Gross Profit and Gross Profit Margin | Period | Gross Profit (in millions) | Gross Profit Margin | | :---------------------- | :----------------------- | :------------------ | | Q2 2025 | $211.8 | 36.1% | | Q2 2024 | $199.8 | 36.8% | | 6 Months 2025 | $375.7 | 36.0% | | 6 Months 2024 | $363.4 | 36.2% | - The gross profit margin was unfavorably impacted by an unfavorable product and geographic sales mix shift in Water Systems[98] Selling, General, and Administrative ("SG&A") SG&A expenses increased due to compensation and acquisitions, but the expense ratio improved to 21.0% in Q2 Selling, General, and Administrative Expenses (SG&A) | Period | SG&A (in millions) | SG&A % of Net Sales | | :---------------------- | :----------------- | :------------------ | | Q2 2025 | $123.5 | 21.0% | | Q2 2024 | $120.6 | 22.2% | | 6 Months 2025 | $243.2 | 23.3% | | 6 Months 2024 | $236.3 | 23.5% | - SG&A expenses increased due to higher employee compensation costs (including executive leadership transitions) and incremental expenses from recent acquisitions[99] Restructuring Expenses Incurred $0.2 million in Q2 2025 and $0.3 million for six months in restructuring expenses for manufacturing realignment Restructuring Expenses (in millions) | Period | 2025 (in millions) | 2024 (in millions) | | :---------------------- | :----- | :----- | | Second Quarter | $0.2 | — | | Six Months | $0.3 | — | - Restructuring expenses were primarily from continued miscellaneous manufacturing realignment activities[100] Operating Income Consolidated operating income increased 11% in Q2 and 4% for six months, driven by Energy Systems and Distribution Consolidated Operating Income (in millions) | Period | 2025 (in millions) | 2024 (in millions) | Change (2025 vs 2024, in millions) | | :---------------------- | :----- | :----- | :-------------------- | | Second Quarter | $88.1 | $79.1 | $9.0 (11% increase) | | Six Months | $132.2 | $127.1 | $5.1 (4% increase) | - Water Systems operating income decreased by $0.5 million in Q2 and $4.2 million for the six months, with margins declining due to acquisition expenses and unfavorable sales mix[103] - Energy Systems operating income increased by $3.1 million in Q2 and $6.2 million for the six months, with margins improving due to higher sales, price realization, cost management, and favorable product mix[104] - Distribution operating income increased by $6.3 million in Q2 and $6.5 million for the six months, with margins improving due to higher sales and reduced SG&A expenses[105] Interest Expense Interest expense increased to $2.8 million in Q2 and $4.6 million for six months due to higher outstanding debt Interest Expense (in millions) | Period | 2025 (in millions) | 2024 (in millions) | | :---------------------- | :----- | :----- | | Second Quarter | $2.8 | $2.0 | | Six Months | $4.6 | $3.4 | - The increase in interest expense was primarily driven by a higher average amount of outstanding debt[107] Other Income, Net Reports a net loss of $(0.2) million in Q2 2025 and a net gain of $0.7 million for the six months Other Income (Expense), Net (in millions) | Period | 2025 (in millions) | 2024 (in millions) | | :---------------------- | :----- | :----- | | Second Quarter | $(0.2) | $0.2 | | Six Months | $0.7 | $0.9 | Foreign Exchange Foreign exchange expense increased to $4.5 million in Q2 and $5.8 million for six months due to Argentine Peso and Turkish Lira Foreign Exchange Expense, Net (in millions) | Period | 2025 (in millions) | 2024 (in millions) | | :---------------------- | :----- | :----- | | Second Quarter | $4.5 | $0.4 | | Six Months | $5.8 | $5.3 | - The expenses are primarily due to transaction losses associated with the Argentine Peso and Turkish Lira relative to the U.S. dollar, as the Company reports results from subsidiaries in these hyperinflationary economies using highly inflationary accounting[109] Income Taxes Income tax expense increased, with the effective tax rate rising to 24.9% due to foreign earnings mix and reduced FDII benefit Income Tax Expense (in millions) | Period | 2025 (in millions) | 2024 (in millions) | | :---------------------- | :----- | :----- | | Second Quarter | $20.1 | $17.6 | | Six Months | $30.5 | $26.8 | Effective Tax Rate | Period | 2025 | 2024 | | :---------------------- | :----- | :----- | | Second Quarter | 24.9% | 22.9% | | Six Months | 24.9% | 22.5% | - The increase in the effective tax rate was due to a mix of foreign earnings taxed at different rates than the U.S. statutory rate, a decreased benefit from the U.S. foreign-derived intangible income (FDII) provision, and less favorable discrete events[110] Net Income Net income attributable to Franklin Electric increased to $60.1 million in Q2 2025, but slightly decreased for six months Net Income Attributable to Franklin Electric Co., Inc. (in millions, except per share amounts) | Period | Net Income (in millions) | Diluted EPS | | :---------------------- | :--------- | :---------- | | Q2 2025 | $60.1 | $1.31 | | Q2 2024 | $59.1 | $1.26 | | 6 Months 2025 | $91.1 | $1.97 | | 6 Months 2024 | $92.1 | $1.97 | Capital Resources and Liquidity Discusses the Company's liquidity sources, including cash, operating cash flows, and credit facilities, and their sufficiency for future needs Sources of Liquidity Liquidity supported by cash, operating cash flows, a $350.0 million revolving credit facility, and $175.0 million NYL borrowing capacity - Primary liquidity sources are cash on hand, cash flows from operations, revolving credit agreements, and long-term debt funds[112] - As of June 30, 2025, the Company had a $350.0 million revolving credit facility maturing May 14, 2030, with $159.4 million available capacity[113] - A private shelf agreement with NYL Investors LLC has a remaining borrowing capacity of $175.0 million as of June 30, 2025, maturing May 15, 2027[114] - The Company held $97.6 million of cash and cash equivalents in foreign jurisdictions, intended for foreign operations, with no current intent to repatriate the majority for domestic funding[116] Cash Flows Operating cash flow decreased, investing cash flow increased due to acquisitions, and financing cash flow decreased due to higher net debt borrowings Summary of Cash Flows (in millions) for Six Months Ended June 30 | Metric | 2025 (in millions) | 2024 (in millions) | | :------------------------------------------ | :----- | :----- | | Net cash flows from operating activities | $32.0 | $35.0 | | Net cash flows from investing activities | $(127.3) | $(20.2) | | Net cash flows from financing activities | $(22.1) | $(38.7) | | Impact of exchange rates on cash and cash equivalents | $1.5 | $(3.0) | | Change in cash and cash equivalents | $(115.9) | $(26.9) | - The change in operating cash flow was primarily attributable to changes in working capital[119] - The change in investing cash flow was primarily attributable to the Barnes and PumpEng acquisitions in the first six months of 2025[120] - The change in financing cash flow was primarily due to higher net borrowings under the Company's credit facility in 2025 compared to 2024, partially offset by increased repurchases of Company stock[121] Factors That May Affect Future Results Outlines forward-looking statements and potential risks from economic conditions, market demand, competition, supply, and regulatory actions - Forward-looking statements involve risks and uncertainties, and actual results may differ materially due to factors such as economic and currency conditions, market demand, competitive factors, supply constraints, raw material costs, and integration of acquisitions[122] - Government and regulatory actions, including changes in tariffs and their impact on financial results, are significant risk factors[122] - The Company does not assume any obligation to update any forward-looking information, except as required by law[122] Item 3. Quantitative and Qualitative Disclosures About Market Risk No significant changes in the Company's exposure to market risk during Q2 ended June 30, 2025 - No significant changes in the Company's exposure to market risk during the second quarter ended June 30, 2025[124] Item 4. Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The Company's disclosure controls and procedures were effective as of June 30, 2025, based on evaluation by management, including the CEO and CFO[125] - No material changes in the Company's internal control over financial reporting were identified during the last fiscal quarter[126] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is defending various legal claims, including a material proceeding in France, not expected to materially affect financials - The Company is defending various claims and legal actions, including a material legal proceeding in France (refer to Note 6)[129] - Management believes 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[129] Item 1A. Risk Factors No material changes to risk factors, except for increased risks related to foreign trade policies and tariffs - No material changes to risk factors, other than those related to changes in foreign trade policies and tariffs[130] - Significant trade policy and tariff actions by the U.S. government have increased raw material and component costs and created uncertainty, potentially having a material adverse effect on financial statements[131] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Board approved additional share repurchases, with 1,384,849 shares repurchased in Q2 2025 for $120.3 million - In June 2025, the Board of Directors approved an additional 1,200,000 shares for repurchase, bringing the total available for repurchase to 1,126,635 shares as of June 30, 2025[132] Issuer Repurchases of Equity Securities (Q2 2025) | 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 | 143,891 | $87.93 | 143,891 | 1,167,593 | | May 1 - May 31 | 40,958 | $86.34 | 40,958 | 1,126,635 | | June 1 - June 30 | 1,200,000 | $86.78 | 1,200,000 | 1,126,635 | | Total | 1,384,849 | $86.89 | 1,384,849 | 1,126,635 | Item 5. Other Information No Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during Q2 2025 - 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 fiscal quarter ended June 30, 2025[134] Item 6. Exhibits Lists all exhibits filed with Form 10-Q, including corporate governance documents, employment agreements, and financial information - Exhibits include corporate governance documents (Articles of Incorporation, Bylaws), employment-related agreements (Promotion Letter, Retirement Agreements, Employment Security Agreements, Confidentiality and Non-Compete Agreements), and the Fifth Amended and Restated Credit Agreement[135] - Also included are a Share Repurchase Agreement, CEO and CFO certifications under Sarbanes-Oxley Act, and financial information in Inline XBRL format[135] Signatures Report duly signed by Joseph A. Ruzynski, CEO, and Jennifer A. Wolfenbarger, CFO, on July 31, 2025 - The report is signed by Joseph A. Ruzynski, Chief Executive Officer, and Jennifer A. Wolfenbarger, Vice President and Chief Financial Officer, on July 31, 2025[138]