10-Q 1 fele-20220331.htm 10-Q fele-20220331
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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 March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
fele-20220331_g1.jpg
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 valueFELENASDAQ 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.
YesNo
  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).
Yes
No

1


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 FilerNon-Accelerated FilerSmaller 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).
YesNo

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 April 29, 2022
$0.10 46,313,320 shares




2


FRANKLIN ELECTRIC CO., INC.
TABLE OF CONTENTS
Page
PART I.FINANCIAL INFORMATIONNumber
Item 1.
Item 2.
Item 3.
Item 4.
 
PART II.OTHER INFORMATION 
Item 1.
Item 1A.
Item 2.
Item 6.
 



 

3


PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
First Quarter Ended
(In thousands, except per share amounts)March 31, 2022March 31, 2021
Net sales$451,470 $333,046 
Cost of sales306,136 217,500 
Gross profit145,334 115,546 
Selling, general, and administrative expenses104,673 81,603 
Restructuring expense720 152 
Operating income39,941 33,791 
Interest expense(1,494)(1,090)
Other income/(expense), net(378)(100)
Foreign exchange income/(expense)(585)(57)
Income before income taxes37,484 32,544 
Income tax expense7,365 4,381 
Net income$30,119 $28,163 
Less: Net (income)/expense attributable to noncontrolling interests(354)(283)
Net income attributable to Franklin Electric Co., Inc.$29,765 $27,880 
Income per share:
Basic$0.64 $0.60 
Diluted$0.63 $0.59 

See Notes to Condensed Consolidated Financial Statements.
4








FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Unaudited)
First Quarter Ended
(In thousands)March 31, 2022March 31, 2021
Net income$30,119 $28,163 
Other comprehensive income/(loss), before tax:
     Foreign currency translation adjustments8,592 (11,514)
     Employee benefit plan activity1,192 1,116 
Other comprehensive income/(loss)9,784 (10,398)
Income tax expense related to items of other comprehensive income/(loss)(260)(232)
Other comprehensive income/(loss), net of tax9,524 (10,630)
Comprehensive income39,643 17,533 
Less: Comprehensive income/(loss) attributable to noncontrolling interests316 218 
Comprehensive income attributable to Franklin Electric Co., Inc.$39,327 $17,315 


See Notes to Condensed Consolidated Financial Statements.
































5









FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)March 31, 2022December 31, 2021
ASSETS 
Current assets: 
Cash and cash equivalents$38,581 $40,536 
Receivables, less allowances of $4,430 and $3,975, respectively
229,736 196,173 
Inventories:
Raw material184,332 166,918 
Work-in-process31,961 24,725 
Finished goods311,574 258,332 
Total inventories527,867 449,975 
Other current assets37,401 37,963 
Total current assets833,585 724,647 
Property, plant, and equipment, at cost: 
Land and buildings157,510 154,544 
Machinery and equipment297,634 296,078 
Furniture and fixtures45,836 44,324 
Other44,982 40,231 
Property, plant, and equipment, gross545,962 535,177 
Less: Allowance for depreciation(331,772)(324,523)
Property, plant, and equipment, net214,190 210,654 
Right-of-use asset, net46,458 48,379 
Deferred income taxes7,675 7,675 
Intangible assets, net247,127 249,691 
Goodwill329,388 329,630 
Other assets4,766 4,489 
Total assets$1,683,189 $1,575,165 



6








March 31, 2022December 31, 2021
LIABILITIES AND EQUITY 
Current liabilities: 
Accounts payable$190,488 $164,758 
Accrued expenses and other current liabilities87,292 115,408 
Current lease liability15,188 15,320 
Income taxes3,774 2,547 
Current maturities of long-term debt and short-term borrowings194,846 97,981 
Total current liabilities491,588 396,014 
Long-term debt89,933 90,535 
Long-term lease liability31,140 32,937 
Income taxes payable non-current11,610 11,610 
Deferred income taxes29,828 28,162 
Employee benefit plans39,926 40,696 
Other long-term liabilities24,999 26,568 
Commitments and contingencies (see Note 15)  
Redeemable noncontrolling interest106 (19)
Shareholders' equity:
Common stock (65,000 shares authorized, $.10 par value) outstanding (46,354 and 46,483, respectively)
4,635 4,648 
Additional capital314,935 310,617 
Retained earnings861,156 859,817 
Accumulated other comprehensive loss(219,019)(228,581)
Total shareholders' equity961,707 946,501 
Noncontrolling interest2,352 2,161 
Total equity964,059 948,662 
Total liabilities and equity$1,683,189 $1,575,165 

See Notes to Condensed Consolidated Financial Statements.


7








FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
(In thousands)March 31, 2022March 31, 2021
Cash flows from operating activities: 
Net income$30,119 $28,163 
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization12,078 9,574 
Non-cash lease expense4,181 3,068 
Share-based compensation3,985 4,190 
Deferred income taxes1,268 90 
(Gain)/Loss on disposals of plant and equipment620 212 
Foreign exchange (income)/expense585 57 
Changes in assets and liabilities, net of acquisitions:
Receivables(34,119)(24,196)
Inventory(74,690)(14,327)
Accounts payable and accrued expenses(2,753)(298)
Operating leases(4,181)(3,068)
Income taxes2,654 3,220 
Employee benefit plans343 118 
Other, net(1,401)(1,421)
Net cash flows from operating activities(61,311)5,382 
Cash flows from investing activities:
Additions to property, plant, and equipment(9,456)(6,744)
Proceeds from sale of property, plant, and equipment  
Cash paid for acquisitions, net of cash acquired553 70 
Other, net 3 
Net cash flows from investing activities(8,903)(6,671)
Cash flows from financing activities:
Proceeds from issuance of debt198,556 693 
Repayment of debt(101,705)(1,150)
Proceeds from issuance of common stock343 5,083 
Purchases of common stock(19,319)(4,849)
Dividends paid(9,130)(8,143)
Net cash flows from financing activities68,745 (8,366)
Effect of exchange rate changes on cash(486)(2,801)
Net change in cash and equivalents(1,955)(12,456)
Cash and equivalents at beginning of period40,536 130,787 
Cash and equivalents at end of period$38,581 $118,331 
8








Three Months Ended
(In thousands)March 31, 2022March 31, 2021
Cash paid for income taxes, net of refunds$3,610 $2,295 
Cash paid for interest$2,330 $2,013 
Non-cash items: 
Additions to property, plant, and equipment, not yet paid$749 $811 
Right-of-Use Assets obtained in exchange for new operating lease liabilities$1,962 $4,615 

See Notes to Condensed Consolidated Financial Statements.
 
9








FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated balance sheet as of December 31, 2021, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of March 31, 2022, and for the first quarters ended March 31, 2022 and March 31, 2021 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 first quarter ended March 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. 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, 2021.

2. ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 reduces the number of accounting models for various convertible instruments and reduces form-over-substance-based accounting conclusions for the derivatives scope exception for contracts in an entity’s own equity. The FASB also updated Earnings Per Share (“EPS”) guidance under Topic 260 by requiring an entity to consider the potential effect of share settlement in the diluted EPS calculation for instruments that may be settled in cash or shares as well as other amendments. ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2021 with early adoption permitted but no earlier than fiscal years beginning after December 15, 2020. The guidance should be adopted at the beginning of a fiscal year. ASU 2020-06 should be applied on either a retrospective or modified retrospective basis. The Company adopted the standard effective January 1, 2022 using the modified retrospective approach, and it did not have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

Accounting Standards Issued But Not Yet Adopted
In October 2021, the FASB issued 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 is still determining the date of adoption for this ASU, but does not anticipate the adoption to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

3. ACQUISITIONS
During the fourth quarter ended December 31, 2021, the Company acquired 100 percent of the ownership interests of B&R Industries, Inc. ("B&R"), a water treatment equipment provider located in Mesa, Arizona, for a cash purchase price of $16.2 million after purchase price adjustments based on the level of working capital acquired. B&R will be included as part of the Water Systems segment of the Company. The Company also acquired, in a separate transaction, 100 percent of the ownership interests of Blake Group Holdings, Inc. ("Blake"), a professional groundwater distributor operating in the northeast United States for a cash purchase price of $28.6 million after purchase price adjustments based on the level of working capital acquired. Blake will be included as part of the Distribution segment of the Company. The fair value of the assets acquired and liabilities assumed for both acquisitions is preliminary as of March 31, 2022.

During the third quarter ended September 30, 2021, the Company acquired 100 percent of the ownership interests of Minetuff Dewatering Pumps Australia Pty Ltd for a cash purchase price of $13.7 million after purchase price adjustments based on the level of working capital acquired. Minetuff manufactures and sells submersible pumps, spare parts, and accessories to the mining industry and will expand the Company’s existing product offerings and channel access in the Water Systems segment. The fair value of the assets acquired and liabilities assumed for the acquisition is preliminary as of March 31, 2022.

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During the second quarter ended June 30, 2021, the Company acquired, in separate transactions, 100 percent of the ownership interests of Puronics, Inc. and its wholly owned subsidiaries, headquartered in Livermore, California, and 100 percent of the ownership interests of New Aqua, LLC and its wholly owned subsidiaries, headquartered in Indianapolis, Indiana. Both Puronics and New Aqua are water treatment equipment providers and will be included as a part of the Water Systems segment of the Company. In a separate transaction during the second quarter ended June 30, 2021, the Company acquired all of the assets of Power Integrity Services, LLC, a North Carolina-based company, which will be included in the Fueling Systems segment of the Company.

In another separate transaction during the second quarter ended June 30, 2021, the Company acquired all of the assets of Atlantic Turbine Pump, LLC, a Georgia-based company, which will be included in the Distribution segment of the Company. The Company recorded estimated fair values that exceed the acquisition price by $0.4 million, representing a bargain purchase gain due to favorable market conditions within the "Other income/(expense), net" line in the consolidated statements of income for the year ended December 31, 2021.

The combined, all-cash purchase price for all acquisitions in the second quarter was $185.5 million after purchase price adjustments based on the level of working capital acquired. The fair value of the assets acquired and liabilities assumed for all acquisitions are preliminary as of March 31, 2022.

The identifiable intangible assets recognized in the separate transactions in 2021, were $131.9 million, and consist primarily of customer relationships and trade names from New Aqua of $93.7 million, which will be amortized using the straight-line method over 12 - 20 years.

The goodwill of $65.4 million resulting from the acquisitions in 2021 consists primarily of expanded geographical presence and product channel expansion. Goodwill deductible for tax purposes is $61.6 million from the acquisitions in 2021. Goodwill was recorded in the Water Systems and Fueling Systems segments.

The preliminary purchase price assigned to the major identifiable assets and liabilities for all acquisitions in 2021 on an aggregated basis is as follows:
(In millions)
Assets:
Inventory$34.4 
Intangible assets131.9
Goodwill65.4
Other assets39.3
Total assets271.0
Liabilities26.6
Less: Bargain purchase gain0.4
Total consideration paid$244.0 

For all acquisitions in 2021, consolidated revenue for the first quarter ended March 31, 2021 was $45.3 million, which would be incremental to the Company's revenue had the acquisitions occurred on the first day of 2021. Consolidated revenue for the first quarter ended March 31, 2022 was $48.2 million. The Company has not presented separate results of operations since closing or combined pro forma financial information of the Company and the acquired interest since the beginning of 2021, as the results of operations for all acquisitions is immaterial.

Transaction costs were expensed as incurred under the guidance of FASB Accounting Standards Codification Topic 805, Business Combinations. There were $0.2 million and $0.1 million of transaction costs included in the "Selling, general, and administrative expenses" line of the Company's condensed consolidated statements of income for the first quarter ended March 31, 2022 and March 31, 2021, respectively.

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
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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 March 31, 2022 and December 31, 2021, the assets and liabilities measured at fair value on a recurring basis were as set forth in the table below:
 
 
 
(In millions)
March 31, 2022Quoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents$7.2 $7.2 $ $ 
Share swap transaction    
Forward currency contracts assets0.1  0.1  
Total assets$7.3 $7.2 $0.1 $ 
Liabilities:
Forward currency contracts liabilities$0.2 $ $0.2 $ 
Total liabilities$0.2 $ $0.2 $ 
December 31, 2021Quoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents$5.3 $5.3 $ $ 
Share swap transaction0.6 0.6   
Total assets$5.9 $5.9 $ $ 

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.

The Company has no assets or liabilities measured on a recurring basis classified as Level 3.

Total debt, including current maturities, have carrying amounts of $284.7 million and $188.5 million and estimated fair values of $287.1 million and $196.1 million as of March 31, 2022 and December 31, 2021, 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 March 31, 2022, the swap had a notional value based on 210,000 shares. For the first quarter ended
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March 31, 2022 and March 31, 2021, the swap resulted in a loss of $2.4 million and a gain of $2.7 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. For the first quarter ended March 31, 2022, the forward currency contracts resulted in a loss of $0.2 million and is recorded in the Company's condensed consolidated statements of income within the "Foreign exchange income/(expense)" line.

6. GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying amounts of the Company’s intangible assets are as follows:
(In millions)March 31, 2022December 31, 2021
 Gross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Amortizing intangibles:    
Customer relationships256.2 (92.7)255.1 (88.8)
Patents$7.3 $(7.3)$7.3 $(7.3)
Technology7.5 (7.4)7.5 (7.3)
Trade names42.2 (2.1)$42.1 (1.5)
Other2.8 (2.7)2.8 (2.7)
Total$316.0 $(112.2)$314.8 $(107.6)
Unamortizing intangibles:    
Trade names43.3 — 42.5 — 
Total intangibles$359.3 $(112.2)$357.3 $(107.6)
 
Amortization expense related to intangible assets for the first quarters ended March 31, 2022 and March 31, 2021 was $4.3 million and $2.5 million, respectively.

Amortization expense for each of the five succeeding years is projected as follows:
(In millions)20222023202420252026
$17.1 $17.0 $16.9 $16.0 $15.1 

The change in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2022, is as follows:
(In millions)
Water SystemsFueling SystemsDistributionConsolidated
Balance as of December 31, 2021$213.9 $70.7 $45.0 $329.6 
Acquisitions    
Adjustments to prior year acquisitions  (0.5)(0.5)
Foreign currency translation0.4 (0.1) 0.3 
Balance as of March 31, 2022$214.3 $70.6 $44.5 $329.4 



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7. EMPLOYEE BENEFIT PLANS
Defined Benefit Plans - As of March 31, 2022, the Company maintained two domestic pension plans and three German pension plans. The Company used a December 31, 2021 measurement date for these plans. One of the Company's domestic pension plans covers one active management employee, while the other domestic plan covers all eligible employees. Both domestic plans were frozen as of December 31, 2011. The two domestic and three German plans collectively comprise the 'Pension Benefits' disclosure caption.

Other Benefits - The Company's other post-retirement benefit plan provides health and life insurance to domestic employees hired prior to 1992.

The following table sets forth the aggregated net periodic benefit cost for all pension plans for the first quarters ended March 31, 2022 and March 31, 2021:
(In millions)Pension Benefits
First Quarter Ended
 March 31, 2022March 31, 2021
Service cost$0.2 $0.2 
Interest cost0.8 0.7 
Expected return on assets(1.5)(1.4)
Amortization of:
Prior service cost  
Actuarial loss1.2 1.0 
Settlement cost  
Net periodic benefit cost$0.7 $0.5 

In the three months ended March 31, 2022, the Company made contributions of $0.1 million to the funded plans. The amount of contributions to be made to the plans during the calendar year 2022 will be finalized by September 15, 2022, based upon the funding level requirements identified and year-end valuation performed at December 31, 2021.

The following table sets forth the aggregated net periodic benefit cost for the other post-retirement benefit plan for the first quarters ended March 31, 2022 and March 31, 2021:
(In millions)Other Benefits
First Quarter Ended
March 31, 2022March 31, 2021
Service cost$ $ 
Interest cost0.1  
Expected return on assets  
Amortization of:
Prior service cost  
Actuarial loss 0.1 
Settlement cost  
Net periodic benefit cost$0.1 $0.1 










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8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of:
(In millions)March 31, 2022December 31, 2021
Salaries, wages, and commissions39.6 62.3 
Product warranty costs10.6 10.5 
Insurance1.8 2.3 
Employee benefits5.7 11.9 
Other29.6 28.4 
Total87.3 115.4 

9. INCOME TAXES
The Company’s effective tax rate from continuing operations for the three month period ended March 31, 2022 was 19.7 percent as compared to 13.5 percent for the three month period ended March 31, 2021. The effective tax rate is lower than the U.S. statutory rate of 21 percent primarily due to the recognition of the U.S. foreign-derived intangible income (FDII) provisions and certain discrete events including excess tax benefits from share-based compensation partially offset by state taxes.

The increase in the effective tax rate was primarily a result of less favorable discrete events recorded in the three month period ended March 31, 2022, as compared to the three month period ended March 31, 2021.

10. DEBT
Debt consisted of the following:
(In millions)March 31, 2022December 31, 2021
New York Life Agreement75.0 75.0 
Credit Agreement191.8 96.6 
Tax increment financing debt15.9 16.5 
Foreign subsidiary debt2.2 0.5 
Other 0.1 
Less: unamortized debt issuance costs(0.2)(0.2)
$284.7 $188.5 
Less: current maturities(194.8)(98.0)
Long-term debt$89.9 90.5

Debt outstanding, excluding unamortized debt issuance costs, at March 31, 2022 matures as follows:
(In millions) TotalYear 1Year 2Year 3Year 4Year 5More Than 5 Years
Debt$284.9 $194.8 $1.4 $1.4 $76.4 $1.5 $9.4 

Prudential Agreement
The Company maintains the Fourth Amended and Restated Note Purchase and Private Shelf Agreement (the "Prudential Agreement") with PGIM, Inc. and its affiliates, which was renewed on July 30, 2021 and expires on July 30, 2024. The Prudential Agreement has an initial borrowing capacity of $150.0 million. As of March 31, 2022, the Company had no notes issued and  $150.0 million borrowing capacity available under the Prudential Agreement.

Project Bonds
The Company, Allen County, Indiana and certain institutional investors maintain a Bond Purchase and Loan Agreement. Under the agreement, Allen County, Indiana issued a series of Project Bonds entitled “Taxable Economic Development Bonds, Series 2012 (Franklin Electric Co., Inc. Project)." The aggregate principal amount of the Project Bonds that were issued, authenticated, and are now outstanding thereunder was limited to $25.0 million. These Project Bonds ("Tax increment financing debt") bear interest at 3.6 percent per annum. Interest and principal balance of the Project Bonds are due and payable by the Company directly to the institutional investors in aggregate semi-annual installments commencing on July 10, 2013, and concluding on January 10, 2033.
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New York Life Agreement
The Company maintains an uncommitted and unsecured private shelf agreement with NYL Investors LLC and its affiliates (the "New York Life Agreement"), which was renewed on July 30, 2021 and expires on July 30, 2024. The New York Life Agreement has a maximum aggregate borrowing capacity of $200.0 million. On September 26, 2018, the Company issued and sold $75.0 million of fixed rate senior notes due September 26, 2025. These senior notes bear an interest rate of 4.04 percent with interest-only payments due semi-annually. The proceeds from the issuance of the notes were used to pay off existing variable interest rate indebtedness. As of March 31, 2022, there was $125.0 million remaining borrowing capacity under the New York Life Agreement.

Credit Agreement
The Company maintains the Fourth Amended and Restated Credit Agreement (the "Credit Agreement”). The Credit Agreement was renewed on May 13, 2021, has a maturity date of May 13, 2026, and commitment amount of $250.0 million. The Credit Agreement provides that the Borrowers may request an increase in the aggregate commitments by up to $125.0 million subject to agreement of the lenders (not to exceed a total commitment of $375.0 million). Under the Credit Agreement, the Borrowers are required to pay certain fees, including a facility fee of 0.100% to 0.275% (depending on the Company's leverage ratio) of the aggregate commitment, which fee is payable quarterly in arrears. Loans may be made either at (i) a Eurocurrency rate based on LIBOR plus an applicable margin of 0.85% to 1.88% (depending on the Company's leverage ratio) or (ii) an alternative base rate as defined in the Credit Agreement.

As of March 31, 2022, the Company had $191.8 million outstanding borrowings, $4.0 million in letters of credit outstanding, and $54.2 million of available capacity under the Credit Agreement.

The Company also has lines of credit for certain subsidiaries with various expiration dates. The aggregate maximum borrowing capacity of these overdraft lines of credits is $20.2 million. As of March 31, 2022, there were $1.8 million outstanding borrowings and $18.4 million of available capacity under these lines of credit.

Covenants
The Company’s credit agreements contain customary financial covenants. The Company’s most significant agreements and restrictive covenants are in the New York Life Agreement, the Project Bonds, the Prudential Agreement, and the Credit Agreement; each containing both affirmative and negative covenants. The affirmative covenants relate to financial statements, notices of material events, conduct of business, inspection of property, maintenance of insurance, compliance with laws and most favored lender obligations. The negative covenants include limitations on loans, advances and investments, and the granting of liens by the Company or its subsidiaries, as well as prohibitions on certain consolidations, mergers, sales and transfers of assets. The covenants also include financial requirements including a maximum leverage ratio of 3.50 to 1.00 and a minimum interest coverage ratio of 3.00 to 1.00. Cross default is applicable with the Prudential Agreement, the Project Bonds, the New York Life Agreement, and the Credit Agreement but only if the Company is defaulting on an obligation exceeding $10.0 million. The Company was in compliance with all financial covenants as of March 31, 2022.

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.

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The following table sets forth the computation of basic and diluted earnings per share:
First Quarter Ended
(In millions, except per share amounts)March 31, 2022March 31, 2021
Numerator:  
Net income attributable to Franklin Electric Co., Inc.$29.8 $27.9 
Less: Earnings allocated to participating securities0.1 0.2 
Net income available to common shareholders$29.7 $27.7 
Denominator:  
Basic weighted average common shares outstanding46.4 46.3 
Effect of dilutive securities:  
Non-participating employee stock options, performance awards, and deferred shares to non-employee directors0.7 0.6 
Diluted weighted average common shares outstanding47.1 46.9 
Basic earnings per share$0.64 $0.60 
Diluted earnings per share$0.63 $0.59 

There were 0.1 million and 0.1 million stock options outstanding for the first quarters ended March 31, 2022 and March 31, 2021, respectively, that were excluded from the computation of diluted earnings per share, as their inclusion would be anti-dilutive.
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12. EQUITY ROLL FORWARD
The schedules below set forth equity changes in the first quarters ended March 31, 2022 and March 31, 2021:
(In thousands) Common StockAdditional Paid in CapitalRetained EarningsMinimum Pension LiabilityCumulative Translation AdjustmentNoncontrolling InterestTotal EquityRedeemable Noncontrolling Interest
Balance as of December 31, 2021$4,648 $310,617 $859,817 $(49,076)$(179,505)$2,161 $948,662 $(19)
Net income29,765 235 30,000 119 
Dividends on common stock ($0.195/share)
(9,129)(9,129)
Common stock issued1 342 343 
Common stock repurchased (23)(19,297)(19,320)
Share-based compensation9 3,976 3,985 
Currency translation adjustment8,630 (44)8,586 6 
Pension liability, net of tax932 932 
Balance as of March 31, 2022$4,635 $314,935 $861,156 $(48,144)$(170,875)$2,352 $964,059 $106 


(In thousands)Common StockAdditional Paid in CapitalRetained EarningsMinimum Pension LiabilityCumulative Translation AdjustmentNoncontrolling InterestTotal EquityRedeemable Noncontrolling Interest
Balance as of December 31, 2020$4,622 $283,420 $764,562 $(52,666)$(152,105)$2,116 $849,949 $(245)
Net Income27,880 207 28,087 76 
Dividends on common stock ($0.175/share)
(8,143)(8,143)
Common stock issued14 5,069 5,083 
Common stock repurchased(6)(4,843)(4,849)
Share-based compensation11 4,179 4,190 
Currency translation adjustment(11,449)(66)(11,515)1 
Pension liability, net of taxes884 884 
Balance as of March 31, 2021$4,641 $292,668 $779,456 $(51,782)$(163,554)$2,257 $863,686 $(168)










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13. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
Changes in accumulated other comprehensive income/(loss) by component for the three months ended March 31, 2022 and March 31, 2021, are summarized below:
(In millions)Foreign Currency Translation Adjustments
Pension and Post-Retirement Plan Benefit Adjustments (2)
Total
For the three months ended March 31, 2022:
Balance as of December 31, 2021$(179.6)$(49.0)$(228.6)
Other comprehensive income/(loss) before reclassifications8.7  8.7 
Amounts reclassified from accumulated other comprehensive income/(loss) (1)
 0.9 0.9 
Net other comprehensive income/(loss)8.7 0.9 9.6 
Balance as of March 31, 2022$(170.9)$(48.1)$(219.0)
For the three months ended March 31, 2021:
Balance as of December 31, 2020$(152.2)$(52.6)$(204.8)
Other comprehensive income/(loss) before reclassifications(11.4) (11.4)
Amounts reclassified from accumulated other comprehensive income/(loss) (1)

 0.9 0.9 
Net other comprehensive income/(loss)(11.4)0.9 (10.5)
Balance as of March 31, 2021$(163.6)$(51.7)$(215.3)

(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 million and $0.2 million for the three months ended March 31, 2022 and March 31, 2021, 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 Form 10-K. 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. 




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Financial information by reportable business segment is included in the following summary:
First Quarter Ended
(In millions)March 31, 2022March 31, 2021
Net sales
Water Systems
External sales
United States & Canada$134.7 $84.2 
Latin America37.9 31.7 
Europe, Middle East & Africa51.0 44.4 
Asia Pacific20.5 20.2 
Intersegment sales
United States & Canada28.5 17.1 
Total sales272.6 197.6 
Distribution
External sales
United States & Canada134.9 95.7 
Intersegment sales  
Total sales134.9 95.7 
Fueling Systems
External sales
United States & Canada51.9 37.7 
All other20.6 19.1 
Intersegment sales  
Total sales72.5 56.8 
Intersegment Eliminations/Other(28.5)(17.1)
Consolidated$451.5 $333.0 
First Quarter Ended
March 31, 2022March 31, 2021
Operating income/(loss)
Water Systems$33.2 $31.3 
Distribution9.4 2.0 
Fueling Systems17.7 14.9 
Intersegment Eliminations/Other(20.4)(14.4)
Consolidated$39.9