FRANKLIN ELECTRIC CO INC

Previous wording

Net sales in the first quarter of 2024 were $460.9 million, a decrease of $23.7 million or 5 percent compared to 2023 first quarter sales of $484.6 million primarily due to lower volumes in Water Systems and Fueling Systems. Sales were negatively impacted by changes in foreign exchange rates, principally due to the strengthening of the U.S. Dollar relative to the Argentine Peso and Turkish Lira. However, the Company increases prices in the local currency to offset the impact of currency devaluation in the Argentina and Turkey hyperinflationary economies. As a result, the net impact of foreign currency exchange rates on net sales was not significant in the first quarter of 2024 compared to the same period in the prior year.

Current wording

Net sales in the second quarter and first six months of 2024 were $543.3 million and $1.0 billion, respectively, and decreased 5 percent as compared to the prior-year periods. Sales were negatively impacted by changes in foreign exchange rates, principally due to the strengthening of the U.S. Dollar relative to the Argentine Peso and Turkish Lira. However, the Company increases prices in the local currency to offset the impact of currency devaluation in the Argentina and Turkey hyperinflationary economies. As a result, the net negative impact of foreign currency exchange rates on net sales was 1 percent in the second quarter and first six months of 2024 compared to the same periods in the prior year.

Previous wording

There were no restructuring expenses in the first quarter of 2024 and $0.1 million in the first quarter of 2023.

Current wording

There were no restructuring expenses in the second quarter and first six months of 2024, and $0.1 million and $0.3 million in the second quarter and first six months of 2023, respectively. Restructuring expenses were primarily from continued miscellaneous manufacturing realignment activities, branch closings and consolidations.

Previous wording

Fueling Systems operating income was $18.8 million in the first quarter of 2024, a decrease of $2.0 million compared to the first quarter of 2023. Operating income decreased in Fueling Systems primarily due to lower sales. The first quarter operating income margin was 30.3 percent, an increase of 170 basis points from 28.6 percent in the first quarter of 2023. Operating income margin increased primarily due to price realization, overall cost management including lower freight costs and a favorable product sales mix shift.

Current wording

Fueling Systems operating income in the second quarter and first six months of 2024 was $26.0 million and $44.8 million, respectively, decreases of $0.7 million and $2.7 million, respectively, as compared to the prior-year periods. The decreases were primarily due to lower sales. The second quarter operating income margin was 35.6 percent, an increase of 240 basis points from 33.2 percent in the second quarter of 2023. The first six months of 2024 operating income margin was 33.1 percent, an increase of 210 basis points from 31.0 percent in the first six months of 2023. Operating income margin increased primarily due to price realization and cost management.

Previous wording

Distribution operating income was $1.8 million in the first quarter of 2024, a decrease of $2.9 million compared to the first quarter of 2023. The first quarter operating income margin was 1.2 percent, a decrease of 210 basis points from 3.3 percent in the first quarter of 2023. Operating income and operating income margin decreased primarily due to unfavorable pricing of commodity-based products sold through the business.

Current wording

Distribution operating income in the second quarter and first six months of 2024 was $9.8 million and $11.7 million, respectively, decreases of $8.0 million and $10.8 million, respectively, as compared to the prior-year periods. The second quarter operating income margin was 5.1 percent, a decrease of 410 basis points from 9.2 percent in the second quarter of 2023. The first six months of 2024 operating income margin was 3.5 percent, a decrease of 320 basis points from 6.7 percent in the first six months of 2023. Operating income and operating income margin decreased primarily due to the negative impact on sales from wet weather across much of the United States, decreases in pricing of commodity-based products sold through the business and increased SG&A costs.

Previous wording

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 first quarter of 2024 compared to the first quarter of 2023 was favorable $1.6 million. 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 decreased $0.5 million compared to the prior year.

Current wording

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 second quarter and first six months of 2024 compared to the prior-year periods of 2023 was an unfavorable $2.9 million and $1.4 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 $1.7 million and $1.2 million, respectively, compared to the prior-year periods, primarily due to higher compensation and professional fees.

Previous wording

Foreign currency-based transactions produced an expense for the first quarter of 2024 of $4.9 million, primarily due to the Argentinian Peso relative to the U.S. dollar. The expense in 2023 was primarily due to transaction losses associated with the Argentine Peso and Mexican Peso relative to the U.S. dollar. 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.

Current wording

Foreign currency-based transactions produced an expense of $0.4 million and $5.3 million in the second quarter and first six months of 2024, respectively, and an expense of $3.6 million and $5.6 million in the second quarter and first six months of 2023, respectively. The expense in 2024 was primarily due to transaction losses associated with the Argentine Peso and Turkish Lira relative to the U.S. dollar. 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 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.

Previous wording

The provision for income taxes in the first quarters of 2024 and 2023 was $9.2 million and $10.2 million, respectively. The effective tax rate for the first quarters of 2024 and 2023 was 22 percent and 21 percent, respectively. The increase in the effective tax rate was due to an increase in the rate on foreign earnings with the implementation of the European Union’s Pillar Two Directive.

Current wording

The provision for income taxes in the second quarter and first six months of 2024 was $17.6 million and $26.8 million, respectively, and $14.2 million and $24.4 million in the second quarter and first six months of 2023, respectively. The effective tax rate for the second quarter and first six months of 2024 was 22.9 percent and 22.5 percent, respectively, and 19.1 percent and 20.0 percent in the second quarter and the first six months of 2023, respectively. The increase in the effective tax rates for the second quarter and first six months of 2024 compared to the comparable periods in the prior year was a result of less favorable discrete events in 2024, primarily related to excess tax benefits from share-based compensation, in addition to an increase in the rate on foreign earnings with the implementation of European Union’s Pillar Two Directive.

Previous wording

As of March 31, 2024, the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 13, 2026. As of March 31, 2024, the Company had $323.5 million borrowing capacity under its credit agreement as $3.5 million in letters of commercial and standby letters of credit were outstanding and undrawn and $23.0 million in revolver borrowings were drawn and outstanding, which were primarily used for funding working capital requirements.

Current wording

As of June 30, 2024, the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 13, 2026. As of June 30, 2024, the Company had $305.5 million borrowing capacity under its credit agreement as $3.5 million in letters of commercial and standby letters of credit were outstanding and undrawn and $41.0 million in revolver borrowings were drawn and outstanding, which were primarily used for funding working capital requirements.

Previous wording

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 March 31, 2024. The Company also has other long-term debt borrowings outstanding as of March 31, 2024. See Note 10 - Debt included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, 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, 2023.

Current wording

The Company also has other long-term debt borrowings outstanding as of June 30, 2024. See Note 10 - Debt included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, 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, 2023.

Previous wording

At March 31, 2024, the Company had $59.6 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.

Current wording

At June 30, 2024, the Company had $53.0 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.

Previous wording

The following table summarizes significant sources and uses of cash and cash equivalents for the first three months of 2024 and 2023.

Current wording

The following table summarizes significant sources and uses of cash and cash equivalents for the first six months of 2024 and 2023.

Previous wording

Net cash used by operating activities was $1.4 million for the three months ended March 31, 2024 compared to $12.0 million used by operating activities for the three months ended March 31, 2023. The change in operating cash flow was primarily due to continued actions to improve working capital including inventory reductions.

Current wording

Net cash provided by operating activities was $35.0 million for the six months ended June 30, 2024 compared to $43.0 million provided by operating activities for the six months ended June 30, 2023. The change in operating cash flow was primarily due to lower earnings, partially offset by continued actions to improve working capital.

Previous wording

Net cash used in investing activities was $10.2 million for the three months ended March 31, 2024 compared to $14.6 million used in investing activities for the three months ended March 31, 2023. The change in investing cash flow was primarily attributable to decreased acquisition activity in the first three months of 2024.

Current wording

Net cash used in investing activities was $20.2 million for the six months ended June 30, 2024 compared to $26.9 million used in investing activities for the six months ended June 30, 2023. The change in investing cash flow was primarily attributable to decreased acquisition activity in the first six months of 2024.

Previous wording

Net cash used by financing activities was $6.3 million for the three months ended March 31, 2024 compared to $33.1 million provided by financing activities for the three months ended March 31, 2023. The change in financing cash flow was primarily attributable to reduced borrowings under the Company's revolving credit facility in 2024 compared to 2023.

Current wording

Net cash used in financing activities was $38.7 million for the six months ended June 30, 2024 compared to $5.4 million used in financing activities for the six months ended June 30, 2023. The change in financing cash flow was primarily due to increased share repurchase activity and higher dividends in 2024 compared to 2023, partially offset by lower proceeds from option exercises and lower net borrowings under the Company's credit facility.