Franklin Electric(FELE) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Franklin Electric Co., Inc. Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Franklin Electric Co., Inc., including statements of income, comprehensive income, balance sheets, and cash flows, along with detailed notes explaining accounting policies, acquisitions, financial instruments, and segment information for the second quarter and six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Income This section provides a summary of the company's revenues, expenses, and net income for the specified periods Condensed Consolidated Statements of Income (In thousands) | Metric (In thousands) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :-------------------- | :------ | :------ | :------------ | :------------ | | Net sales | $569,181 | $551,138 | $1,053,732 | $1,002,608 | | Gross profit | $188,481 | $189,288 | $350,746 | $334,622 | | Operating income | $80,903 | $80,982 | $133,509 | $120,923 | | Net income | $60,160 | $59,763 | $97,736 | $89,882 | | Net income attributable to Franklin Electric Co., Inc. | $59,600 | $59,364 | $96,925 | $89,129 | | Basic EPS | $1.29 | $1.27 | $2.09 | $1.91 | | Diluted EPS | $1.27 | $1.26 | $2.06 | $1.89 | Condensed Consolidated Statements of Comprehensive Income/(Loss) This section details the company's comprehensive income, including net income and other comprehensive income or loss components Condensed Consolidated Statements of Comprehensive Income/(Loss) (In thousands) | Metric (In thousands) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :-------------------- | :------ | :------ | :------------ | :------------ | | Net income | $60,160 | $59,763 | $97,736 | $89,882 | | Other comprehensive income/(loss), net of tax | $4,911 | $(18,581) | $11,822 | $(9,057) | | Comprehensive income | $65,071 | $41,182 | $109,558 | $80,825 | | Comprehensive income attributable to Franklin Electric Co., Inc. | $64,498 | $40,870 | $108,711 | $80,197 | - Foreign currency translation adjustments significantly impacted other comprehensive income, moving from a $(19,505) thousand loss in Q2 2022 to a $4,495 thousand gain in Q2 2023, and from a $(10,913) thousand loss in 6 months 2022 to a $10,989 thousand gain in 6 months 2023[17] Condensed Consolidated Balance Sheets This section presents a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (In thousands) | Metric (In thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Total assets | $1,803,081 | $1,694,201 | | Total current assets | $966,390 | $858,090 | | Total liabilities | $653,970 | $598,468 | | Total equity | $1,149,501 | $1,070,134 | - Total assets increased by $108.88 million (6.4%) from December 31, 2022, to June 30, 2023, driven by increases in receivables and inventories[20] Condensed Consolidated Statements of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities Cash Flow Activities (In thousands) | Cash Flow Activity (In thousands) | 6 Months 2023 | 6 Months 2022 | | :-------------------------------- | :------------ | :------------ | | Net cash flows from operating activities | $43,026 | $(62,541) | | Net cash flows from investing activities | $(26,880) | $(21,451) | | Net cash flows from financing activities | $(5,418) | $79,339 | | Net change in cash and cash equivalents | $7,437 | $(7,311) | | Cash and cash equivalents at end of period | $53,227 | $33,225 | - Net cash flows from operating activities significantly improved, moving from a $(62,541) thousand outflow in the first six months of 2022 to a $43,026 thousand inflow in the same period of 2023[24] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Condensed Consolidated Financial Statements This note clarifies the basis of presentation and nature of the interim financial statements - The interim financial statements are unaudited and prepared in accordance with GAAP for interim financial information, with certain disclosures condensed or omitted[30] - Operating results for the second quarter and six months ended June 30, 2023, are not necessarily indicative of the full fiscal year's results[30] Note 2. Accounting Pronouncements This note discusses recently adopted accounting standards and their impact on the financial statements - The Company adopted ASU 2021-08 (Business Combinations) and ASU 2022-04 (Supplier Finance Programs) on January 1, 2023[31][32] - Neither ASU had a material impact on the Company's consolidated financial position, results of operations, or cash flows[31][32] Note 3. Acquisitions This note provides details on business acquisitions completed during the reporting period - In Q1 2023, the Company acquired Phil-Good Products, Inc. (injection molded plastics) and Hydropompe S.r.l. (pump manufacturer)[33] - The combined all-cash purchase price for both acquisitions was $8.7 million[33] - The results of operations for both acquisitions are immaterial and not presented separately[33] Note 4. Fair Value Measurements This note describes the methodologies and hierarchy used for fair value measurements of financial instruments - Fair value measurements are categorized into a three-level hierarchy based on input observability (Level 1: quoted prices in active markets, Level 2: significant observable inputs, Level 3: significant unobservable inputs)[36] Fair Value Measurements (In millions) | (In millions) | June 30, 2023 (Level 1) | June 30, 2023 (Level 2) | Dec 31, 2022 (Level 1) | Dec 31, 2022 (Level 2) | | :------------ | :---------------------- | :---------------------- | :--------------------- | :--------------------- | | Cash equivalents | $11.7 | — | $7.9 | — | | Share swap transaction | $0.9 | — | $0.1 | — | | Forward currency contracts | — | $0.1 | — | — | | Total debt (estimated fair value) | N/A | $244.9 | N/A | $213.2 | Note 5. Financial Instruments This note explains the company's use of financial instruments, including derivatives, for risk management - The Company uses share swap transactions to mitigate exposure to stock price fluctuations for its non-employee directors' deferred compensation stock program[39] - Changes in the fair value of the share swap resulted in a $1.7 million gain for Q2 2023 and a $4.7 million gain for the six months ended June 30, 2023, largely offsetting deferred compensation liability changes[41] - Forward currency contracts are used to reduce foreign currency exchange rate volatility, with notional amounts of $27.9 million outstanding as of June 30, 2023[42] Note 6. Goodwill and Other Intangible Assets This note provides information on the carrying amounts and changes in goodwill and other intangible assets Intangible Assets (In millions) | Intangible Asset (In millions) | June 30, 2023 Gross Carrying Amount | June 30, 2023 Accumulated Amortization | Dec 31, 2022 Gross Carrying Amount | Dec 31, 2022 Accumulated Amortization | | :----------------------------- | :---------------------------------- | :------------------------------------- | :--------------------------------- | :------------------------------------ | | Definite-lived intangibles | $312.1 | $(131.1) | $311.6 | $(122.6) | | Indefinite-lived intangibles (Trade names) | $43.0 | — | $42.3 | — | | Total intangibles | $355.1 | $(131.1) | $353.9 | $(122.6) | Goodwill by Segment (In millions) | Goodwill by Segment (In millions) | Balance as of Dec 31, 2022 | Acquisitions | Foreign currency translation | Balance as of June 30, 2023 | | :-------------------------------- | :------------------------- | :----------- | :--------------------------- | :-------------------------- | | Water Systems | $211.9 | $1.0 | $1.1 | $214.0 | | Fueling Systems | $70.3 | — | $0.2 | $70.5 | | Distribution | $45.8 | — | — | $45.8 | | Consolidated | $328.0 | $1.0 | $1.3 | $330.3 | - Amortization expense for intangible assets was $4.3 million for Q2 2023 and $8.5 million for the six months ended June 30, 2023[43] Note 7. Employee Benefit Plans This note details the net periodic benefit costs associated with the company's pension and post-retirement plans Net Periodic Benefit Cost (In millions) | Net Periodic Benefit Cost (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :------------------------------------ | :------ | :------ | :------------ | :------------ | | Pension Benefits | $0.7 | $0.7 | $1.1 | $1.4 |\ | Other Post-Retirement Benefits | $0.0 | $0.0 | $0.1 | $0.1 | Note 8. Accrued Expenses and Other Current Liabilities This note provides a breakdown of various accrued expenses and other current liabilities Accrued Expenses (In millions) | Accrued Expenses (In millions) | June 30, 2023 | December 31, 2022 | | :----------------------------- | :------------ | :---------------- | | Salaries, wages, and commissions | $40.3 | $57.9 | | Product warranty costs | $10.7 | $11.2 | | Insurance | $3.0 | $1.7 | | Employee benefits | $8.9 | $13.5 | | Other | $32.2 | $36.3 | | Total | $95.1 | $120.6 | Note 9. Income Taxes This note explains the company's income tax expense and effective tax rates for the reporting periods Effective Tax Rate | Effective Tax Rate | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :----------------- | :------ | :------ | :------------ | :------------ | | Effective Tax Rate | 19.1% | 21.9% | 20.0% | 21.2% | - The decrease in effective tax rates for both the second quarter and first six months of 2023 was primarily due to more favorable discrete events, specifically excess tax benefits from share-based compensation[49] Note 10. Debt This note provides details on the company's outstanding debt, including credit agreements and maturities Debt Components (In millions) | Debt Component (In millions) | June 30, 2023 | December 31, 2022 | | :--------------------------- | :------------ | :---------------- | | New York Life Agreement | $75.0 | $75.0 | | Credit Agreement | $158.3 | $122.8 | | Tax increment financing debt | $14.7 | $15.3 | | Foreign subsidiary debt | $0.6 | $3.1 | | Total Debt | $248.5 | $216.1 | | Less: current maturities | $(159.8) | $(126.8) | | Long-term debt | $88.7 | $89.3 | - As of June 30, 2023, the Company had $158.3 million outstanding borrowings under its Credit Agreement with a weighted-average interest rate of 5.9%, and $188.1 million of available capacity[51] Note 11. Earnings Per Share This note presents the calculation of basic and diluted earnings per share Earnings Per Share Metrics (In millions, except per share) | EPS Metric (In millions, except per share) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :----------------------------------------- | :------ | :------ | :------------ | :------------ | | Net income available to common shareholders | $59.4 | $59.2 | $96.6 | $88.7 | | Basic weighted average common shares outstanding | 46.2 | 46.3 | 46.2 | 46.4 | | Diluted weighted average common shares outstanding | 46.9 | 46.9 | 46.9 | 47.1 | | Basic earnings per share | $1.29 | $1.27 | $2.09 | $1.91 | | Diluted earnings per share | $1.27 | $1.26 | $2.06 | $1.89 | Note 12. Equity Roll Forward This note details the changes in each component of shareholders' equity over the reporting period Equity Roll Forward (In thousands) | Equity Component (In thousands) | Balance as of Dec 31, 2022 | Net Income | Dividends | Common Stock Issued | Common Stock Repurchased | Share-based Compensation | Currency Translation Adjustment | Pension & Other Post Retirement Plans, net of taxes | Balance as of June 30, 2023 | | :------------------------------ | :------------------------- | :--------- | :-------- | :------------------ | :----------------------- | :----------------------- | :------------------------------ | :-------------------------------------------------- | :-------------------------- | | Common Stock | $4,619 | — | — | $22 | $(27) | $12 | — | — | $4,626 | | Additional Paid in Capital | $325,426 | — | — | $8,988 | — | $6,398 | — | — | $340,812 | | Retained Earnings | $969,261 | $96,925 | $(20,872) | — | $(24,431) | — | — | — | $1,020,883 | | Accumulated Other Comprehensive Loss | $(231,448) | — | — | — | — | — | $10,953 | $833 | $(219,662) | | Noncontrolling Interest | $2,276 | $530 | — | — | — | — | $36 | — | $2,842 | | Total Equity | $1,070,134 | $97,455 | $(20,872) | $9,010 | $(24,458) | $6,410 | $10,989 | $833 | $1,149,501 | Note 13. Accumulated Other Comprehensive Income/(Loss) This note provides a breakdown of the components of accumulated other comprehensive income or loss Accumulated Other Comprehensive Income/(Loss) Components (In millions) | Component (In millions) | Balance as of Dec 31, 2022 | Other comprehensive income/(loss) before reclassifications | Amounts reclassified from accumulated other comprehensive income/(loss) | Net other comprehensive income/(loss) | Balance as of June 30, 2023 | | :---------------------- | :------------------------- | :------------------------------------------------------- | :-------------------------------------------------------------------- | :------------------------------------ | :-------------------------- | | Foreign Currency Translation Adjustments | $(191.3) | $10.9 | — | $10.9 | $(180.4) | | Pension and Post-Retirement Plan Benefit Adjustments | $(40.1) | — | $0.8 | $0.8 | $(39.3) | | Total | $(231.4) | $10.9 | $0.8 | $11.7 | $(219.7) | Note 14. Segment and Geographic Information This note presents financial data disaggregated by the company's operating segments and geographic regions Segment Net Sales (In millions) | Segment (In millions) | Q2 2023 Net Sales | Q2 2022 Net Sales | 6 Months 2023 Net Sales | 6 Months 2022 Net Sales | | :-------------------- | :---------------- | :---------------- | :---------------------- | :---------------------- | | Water Systems | $321.7 | $310.5 | $628.3 | $583.1 | | Distribution | $193.1 | $191.1 | $336.1 | $326.0 | | Fueling Systems | $80.4 | $86.0 | $153.1 | $158.5 | | Consolidated | $569.1 | $551.1 | $1,053.7 | $1,002.6 | Segment Operating Income (In millions) | Segment (In millions) | Q2 2023 Operating Income | Q2 2022 Operating Income | 6 Months 2023 Operating Income | 6 Months 2022 Operating Income | | :-------------------- | :----------------------- | :----------------------- | :----------------------------- | :----------------------------- | | Water Systems | $50.8 | $49.0 | $99.8 | $82.2 | | Distribution | $17.8 | $23.3 | $22.5 | $32.7 | | Fueling Systems | $26.7 | $26.1 | $47.5 | $43.8 | | Consolidated | $80.9 | $81.0 | $133.5 | $120.9 | Segment Total Assets (In millions) | Segment (In millions) | June 30, 2023 Total Assets | December 31, 2022 Total Assets | | :-------------------- | :------------------------- | :----------------------------- | | Water Systems | $1,058.6 | $1,017.5 | | Distribution | $412.4 | $360.4 | | Fueling Systems | $276.6 | $269.1 | | Consolidated | $1,803.1 | $1,694.2 | Note 15. Commitments and Contingencies This note discloses the company's legal proceedings, warranty accruals, and other significant commitments - The Company is involved in a legal proceeding regarding alleged issues with underground piping connections in French filling stations, with total damages estimated at approximately 9.5 million Euro[65] - Management believes other claims and legal actions can be resolved without a material effect on financial position, results of operations, or cash flows[66] Warranty Accrual (In millions) | Warranty Accrual (In millions) | Amount | | :----------------------------- | :----- | | Balance as of December 31, 2022 | $11.2 | | Accruals related to product warranties | $6.4 | | Reductions for payments made | $(6.9) | | Balance as of June 30, 2023 | $10.7 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance for the second quarter and first six months of 2023, discussing net sales, gross profit, operating expenses, and segment-specific results. It also covers capital resources, liquidity, cash flow changes, and factors that may affect future results Overview This section provides a high-level summary of the company's financial performance and key highlights for the reporting period - Net sales increased 3% in Q2 2023 and 5% in the first six months of 2023 compared to prior-year periods, primarily due to price realization and volume, partially offset by negative foreign currency impact[69] - Diluted EPS increased to $1.27 for Q2 2023 (up $0.01) and $2.06 for the first six months of 2023 (up $0.17)[69] Results of Operations This section analyzes the company's financial performance, including net sales, gross profit, and operating expenses, across different segments Net Sales This section analyzes the company's revenue performance by segment, highlighting key drivers and impacts Segment Net Sales (In millions) | Segment (In millions) | Q2 2023 Net Sales | Q2 2022 Net Sales | Change (2023 vs 2022) | | :-------------------- | :---------------- | :---------------- | :-------------------- | | Water Systems | $321.7 | $310.5 | $11.2 | | Fueling Systems | $80.4 | $86.0 | $(5.6) | | Distribution | $193.1 | $191.1 | $2.0 | | Consolidated | $569.1 | $551.1 | $18.0 | Segment Net Sales (In millions) | Segment (In millions) | YTD June 30, 2023 Net Sales | YTD June 30, 2022 Net Sales | Change (2023 vs 2022) | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Water Systems | $628.3 | $583.1 | $45.2 | | Fueling Systems | $153.1 | $158.5 | $(5.4) | | Distribution | $336.1 | $326.0 | $10.1 | | Consolidated | $1,053.7 | $1,002.6 | $51.1 | - Foreign currency unfavorably impacted consolidated net sales by 2 percentage points in Q2 2023 and 3 percentage points in the first six months of 2023, mainly due to the strengthening U.S. Dollar against the Turkish Lira and Argentine Peso[70] - Water Systems net sales increased 4% in Q2 and 8% in the first six months of 2023, driven by price and volume, despite negative foreign exchange impacts and unfavorable weather conditions[71] - Fueling Systems net sales decreased 7% in Q2 and 3% in the first six months of 2023, primarily due to lower volumes and the divestiture of the above-ground storage tank business in 2022[73] - Distribution net sales increased 1% in Q2 and 3% in the first six months of 2023, driven by price and volume, but negatively impacted by wet weather, declining commodity prices, and customer inventory normalization[74] Gross Profit and Expenses Ratios This section examines the company's gross profit margins and key expense ratios relative to net sales Gross Profit and SG&A Expense Ratios (In millions) | Metric (In millions) | Q2 2023 | Q2 2023 % of Net Sales | Q2 2022 | Q2 2022 % of Net Sales | | :------------------- | :------ | :--------------------- | :------ | :--------------------- | | Gross Profit | $188.5 | 33.1% | $189.3 | 34.3% | | SG&A Expense | $107.4 | 18.9% | $108.3 | 19.7% | Gross Profit and SG&A Expense Ratios (In millions) | Metric (In millions) | 6 Months 2023 | 6 Months 2023 % of Net Sales | 6 Months 2022 | 6 Months 2022 % of Net Sales | | :------------------- | :------------ | :--------------------------- | :------------ | :--------------------------- | | Gross Profit | $350.7 | 33.3% | $334.6 | 33.4% | | SG&A Expense | $217.0 | 20.6% | $213.0 | 21.2% | - Gross profit margin decreased in Q2 2023 due to wet weather and margin compression from unfavorable commodity pricing in the Distribution business[76] - SG&A expenses decreased in Q2 2023 due to lower advertising and marketing, but increased in the first half of 2023 due to higher compensation costs[77] Restructuring Expenses This section details the costs associated with the company's restructuring activities Restructuring Expenses (In millions) | Restructuring Expenses (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :----------------------------------- | :------ | :------ | :------------ | :------------ | | Restructuring (income)/expense | $0.1 | $(0.0) | $0.3 | $0.7 | - Restructuring expenses in 2023 were primarily from continued miscellaneous manufacturing realignment activities, branch closings, and consolidations[78] Operating Income This section analyzes the company's operating income performance by segment, including margin changes Segment Operating Income (In millions) | Segment (In millions) | Q2 2023 Operating Income | Q2 2022 Operating Income | Change (2023 vs 2022) | | :-------------------- | :----------------------- | :----------------------- | :-------------------- | | Water Systems | $50.8 | $49.0 | $1.8 | | Fueling Systems | $26.7 | $26.1 | $0.6 | | Distribution | $17.8 | $23.3 | $(5.5) | | Consolidated | $80.9 | $81.0 | $(0.1) | Segment Operating Income (In millions) | Segment (In millions) | YTD June 30, 2023 Operating Income | YTD June 30, 2022 Operating Income | Change (2023 vs 2022) | | :-------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | | Water Systems | $99.8 | $82.2 | $17.6 | | Fueling Systems | $47.5 | $43.8 | $3.7 | | Distribution | $22.5 | $32.7 | $(10.2) | | Consolidated | $133.5 | $120.9 | $12.6 | - Water Systems operating income increased due to higher sales, with its operating income margin increasing by 180 basis points in the first six months of 2023 to 15.9%[81] - Fueling Systems operating income increased due to a favorable product and geographic mix of net sales, with its operating income margin increasing by 340 basis points in the first six months of 2023 to 31.0%[82] - Distribution operating income decreased due to wet weather, unfavorable commodity pricing, and inventory destocking, with its operating income margin decreasing by 330 basis points in the first six months of 2023 to 6.7%[83] Interest Expense This section discusses the company's interest expenses and the factors influencing them Interest Expense (In millions) | Interest Expense (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :----------------------------- | :------ | :------ | :------------ | :------------ | | Interest expense | $(4.2) | $(2.9) | $(7.3) | $(4.4) | - The increase in interest expense for both periods was primarily driven by higher interest rates[85] Other Income or Expense This section reports on non-operating income and expenses, including miscellaneous items Other Income/(Expense), net (In millions) | Other Income/(Expense), net (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :---------------------------------------- | :------ | :------ | :------------ | :------------ | | Other income/(expense), net | $1.2 | $(1.2) | $1.6 | $(1.5) | Foreign Exchange This section details the impact of foreign currency fluctuations on the company's financial results Foreign Exchange Expense (In millions) | Foreign Exchange Expense (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :------------------------------------- | :------ | :------ | :------------ | :------------ | | Foreign exchange expense | $(3.6) | $(0.3) | $(5.6) | $(0.9) | - The significant increase in foreign exchange expense in 2023 was primarily due to transaction losses associated with the Turkish Lira, Argentine Peso, and Mexican Peso relative to the U.S. dollar[88] Income Taxes This section analyzes the company's income tax expense and effective tax rate Income Tax Metrics (In millions) | Income Tax Metric (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :------------------------------ | :------ | :------ | :------------ | :------------ | | Income tax expense | $14.2 | $16.8 | $24.4 | $24.2 | | Effective tax rate | 19.1% | 21.9% | 20.0% | 21.2% | - The decrease in effective tax rates for both periods in 2023 was due to more favorable discrete events, mainly excess tax benefits from share-based compensation[89] Net Income This section summarizes the company's overall profitability and earnings per share Net Income Metrics (In millions, except per share) | Net Income Metric (In millions, except per share) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :------------------------------------------------ | :------ | :------ | :------------ | :------------ | | Net income | $60.2 | $59.8 | $97.7 | $89.9 | | Net income attributable to Franklin Electric Co., Inc. | $59.6 | $59.4 | $96.9 | $89.1 | | Diluted EPS | $1.27 | $1.26 | $2.06 | $1.89 | Capital Resources and Liquidity This section discusses the company's financial resources and its ability to meet short-term and long-term obligations Sources of Liquidity This section identifies the primary means by which the company generates and accesses cash - Primary liquidity sources include cash on hand, cash flows from operations, revolving credit agreements, and long-term debt funds[91] - As of June 30, 2023, the Company had a $350.0 million revolving credit facility with $188.1 million available capacity[92] - The Company also maintains a private shelf agreement with NYL Investors LLC, with a remaining borrowing capacity of $125.0 million[93] - The Company held $45.9 million in cash and cash equivalents in foreign jurisdictions, intended for foreign operations[94] Cash Flows This section analyzes the company's cash generation and usage from operating, investing, and financing activities Cash Flow Activities (In millions) | Cash Flow Activity (In millions) | 6 Months 2023 | 6 Months 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 | | Change in cash and cash equivalents | $7.4 | $(7.3) | - Net cash provided by operating activities significantly improved to $43.0 million in the first six months of 2023, compared to $62.5 million used in the prior-year period, primarily due to decreased working capital requirements[98] - Net cash used in investing activities increased to $26.9 million in the first six months of 2023, mainly due to increased acquisition activity[99] - Net cash used by financing activities was $5.4 million in the first six months of 2023, a change from $79.3 million provided in the prior-year period, primarily due to decreased borrowings under the revolving credit facility[100] Factors That May Affect Future Results This section outlines potential risks and uncertainties that could influence the company's future financial performance - The report contains forward-looking statements subject to risks and uncertainties, including economic and currency conditions, market demand, competitive factors, supply constraints, raw material costs, and litigation[101] - Actual results may differ materially from forward-looking statements due to various factors detailed in the Company's SEC filings[101] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no significant changes in the Company's exposure to market risk during the second quarter ended June 30, 2023 - No significant changes in the Company's exposure to market risk occurred during the second quarter ended June 30, 2023[103] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023, and there have been no material changes to internal control over financial reporting - The Company's disclosure controls and procedures were effective as of June 30, 2023[104] - No changes in internal control over financial reporting materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting during the last fiscal quarter[105] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section refers to Note 15 for a description of material legal proceedings and states management's opinion that other claims and legal actions can be resolved without a material financial impact - Material legal proceedings are described in Note 15 to the Condensed Consolidated Financial Statements[108] - 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[108] Item 1A. Risk Factors This section confirms that there have been no material changes to the Company's risk factors as previously disclosed in its annual report on Form 10-K - 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[109] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchase program, including recent board approvals for additional shares and the number of shares repurchased during the second quarter of 2023 - In February 2023, the Board of Directors approved an increase of 1,000,000 shares for repurchase[110] - The Company repurchased 9,480 shares for approximately $0.9 million during the second quarter of 2023[110][111] - As of June 30, 2023, 1,116,392 shares remained available for repurchase under the plan[110][111] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including employment agreements, certifications, and the interactive data file - Exhibits include Employment Security Agreement, Confidentiality and Non-Compete Agreement, CEO and CFO Certifications (Sarbanes-Oxley Act), and the Cover Page Interactive Data File (Inline XBRL)[112] Signatures This section contains the duly authorized signatures of the registrant's principal executive officer and principal financial and accounting officer, certifying the report - The report is signed by Gregg C. Sengstack, Chairperson and Chief Executive Officer, and Jeffery L. Taylor, Vice President and Chief Financial Officer, on July 28, 2023[115]