FRANKLIN ELECTRIC CO INC

10. INCOME TAXES

The Company’s effective tax rate for the three-month period ended March 31, 2025 was 25.0 percent as compared to 21.8 percent for the three-month period ended March 31, 2024. The effective tax rate differs from the U.S. statutory rate of 21 percent primarily due to U.S state taxes and foreign earnings taxed at rates higher than the U.S. statutory rate partially offset by the recognition of the U.S. foreign-derived intangible income (FDII) provisions.

The increase in the effective tax rate for the first quarter of 2025 compared to the comparable period in the prior year was primarily due to an increase in foreign earnings taxed at rates higher than the U.S. statutory rate, a decreased benefit in the U.S. foreign-derived intangible income (FDII) provision related to a prior year prepayment of inventory from foreign subsidiaries, and less favorable discrete events in 2025, primarily related to excess tax benefits from share-based compensation.

During the first quarter of 2025, the Company recorded additional unrecognized tax benefits of $1.8 million. This amount is associated with uncertain tax positions taken by newly acquired companies in tax years prior to the acquisition of these companies. The stock purchase agreement related to the acquisition provides the Company the right to recover tax liabilities related to pre-acquisition tax years from the sellers and has accordingly recognized an indemnification receivable.