Company Quick10K Filing
Franklin Electric
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 47 $2,134
10-Q 2019-11-05 Quarter: 2019-09-30
10-Q 2019-07-30 Quarter: 2019-06-30
10-Q 2019-04-30 Quarter: 2019-03-31
10-K 2019-02-28 Annual: 2018-12-31
10-Q 2018-11-02 Quarter: 2018-09-30
10-Q 2018-07-31 Quarter: 2018-06-30
10-Q 2018-05-08 Quarter: 2018-03-31
10-K 2018-02-27 Annual: 2017-12-31
10-Q 2017-10-31 Quarter: 2017-09-30
10-Q 2017-08-01 Quarter: 2017-06-30
10-Q 2017-05-02 Quarter: 2017-03-31
10-K 2017-03-01 Annual: 2016-12-31
10-Q 2016-11-01 Quarter: 2016-10-01
10-Q 2016-08-02 Quarter: 2016-07-02
10-Q 2016-05-10 Quarter: 2016-04-02
10-K 2016-03-02 Annual: 2016-01-02
10-Q 2015-11-03 Quarter: 2015-10-03
10-Q 2015-08-04 Quarter: 2015-07-04
10-Q 2015-05-06 Quarter: 2015-04-04
10-K 2015-03-04 Annual: 2015-01-03
10-Q 2014-11-06 Quarter: 2014-09-27
10-Q 2014-08-07 Quarter: 2014-06-28
10-Q 2014-05-08 Quarter: 2014-03-29
10-K 2014-02-26 Annual: 2013-12-28
10-Q 2013-11-07 Quarter: 2013-09-28
10-Q 2013-08-08 Quarter: 2013-06-29
10-Q 2013-05-09 Quarter: 2013-03-30
10-K 2013-02-27 Annual: 2012-12-29
10-Q 2012-11-08 Quarter: 2012-09-29
10-Q 2012-08-08 Quarter: 2012-06-30
10-Q 2012-05-10 Quarter: 2012-03-31
10-K 2012-02-29 Annual: 2011-12-31
10-Q 2011-11-08 Quarter: 2011-10-01
10-Q 2011-08-09 Quarter: 2011-07-02
10-Q 2011-05-12 Quarter: 2011-04-02
10-K 2011-03-02 Annual: 2011-01-01
10-Q 2010-11-08 Quarter: 2010-10-02
10-Q 2010-08-09 Quarter: 2010-07-03
10-Q 2010-05-07 Quarter: 2010-04-03
10-K 2010-03-03 Annual: 2010-03-03
8-K 2020-02-18 Earnings, Exhibits
8-K 2020-01-27 Officers, Amend Bylaw, Exhibits
8-K 2019-11-04 Regulation FD, Exhibits
8-K 2019-10-29 Earnings, Exhibits
8-K 2019-08-01 Regulation FD, Exhibits
8-K 2019-07-23 Earnings, Exhibits
8-K 2019-05-07 Amend Bylaw, Exhibits
8-K 2019-05-03 Shareholder Vote
8-K 2019-05-03 Regulation FD, Exhibits
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-02-19 Earnings, Exhibits
8-K 2019-01-07 Officers
8-K 2019-01-02 Regulation FD, Exhibits
8-K 2018-11-06 Regulation FD, Exhibits
8-K 2018-10-26 Earnings, Exhibits
8-K 2018-10-01 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-07-03 Regulation FD, Exhibits
8-K 2018-07-02 Regulation FD, Exhibits
8-K 2018-05-07 Shareholder Vote
8-K 2018-05-04 Regulation FD, Exhibits
8-K 2018-05-01 Earnings, Exhibits
8-K 2018-04-03 Regulation FD, Exhibits
8-K 2018-02-20 Earnings, Exhibits
8-K 2018-01-03 Regulation FD, Exhibits
FELE 2019-09-30
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 a2019q3form10qex311.htm
EX-31.2 a2019q3form10qex312.htm
EX-32.1 a2019q3form10qex321.htm
EX-32.2 a2019q3form10qex322.htm

Franklin Electric Earnings 2019-09-30

FELE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
GTLS 2,676 1,984 785 1,161 306 86 155 2,835 26% 18.3 4%
HSC 2,223 2,535 2,186 1,681 0 114 291 3,457 0% 11.9 4%
FELE 2,134 1,270 510 1,305 426 96 165 2,316 33% 14.1 8%
MDR 1,651 9,998 9,204 8,710 512 -2,925 -2,492 3,101 6% -1.2 -29%
MLI 1,632 1,417 813 2,483 367 94 195 2,017 15% 10.4 7%
DRQ 1,585 1,202 105 389 111 -90 -73 1,162 29% -15.9 -7%
DNOW 1,583 1,849 585 3,147 636 68 113 1,565 20% 13.8 4%
KALU 1,570 1,422 676 1,555 296 99 188 1,804 19% 9.6 7%
MWA 1,527 1,293 726 955 318 49 116 1,839 33% 15.9 4%
SNHY 1,431 1,060 502 565 217 62 131 1,764 38% 13.4 6%

Document
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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 September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
logoa08.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 value
 
FELE
 
NASDAQ
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.

Yes
No
  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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).


1


Yes
No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 Filer
Non-Accelerated Filer
Smaller 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).

Yes
No

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
 
November 1, 2019
$0.10
 
46,362,138 shares





2


FRANKLIN ELECTRIC CO., INC.
TABLE OF CONTENTS

 
 
 
Page
PART I.
FINANCIAL INFORMATION
 
Number
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
 
 
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)
 
Third Quarter Ended
 
Nine Months Ended
(In thousands, except per share amounts)
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
 
 
 
 
 
 
 
 
Net sales
$
348,416

 
$
341,866

 
$
994,471

 
$
981,466

Cost of sales
230,793

 
228,900

 
667,624

 
653,442

Gross profit
117,623

 
112,966

 
326,847

 
328,024

Selling, general, and administrative expenses
74,500

 
72,483

 
226,581

 
223,723

Restructuring expense
404

 
346

 
1,735

 
990

Operating income
42,719

 
40,137

 
98,531

 
103,311

Interest (expense)
(2,037
)
 
(2,443
)
 
(6,674
)
 
(7,477
)
Other (expense), net
(250
)
 
(422
)
 
(303
)
 
(581
)
Foreign exchange income/(expense)
2,082

 
(1,601
)
 
2,166

 
(3,151
)
Income before income taxes
42,514

 
35,671

 
93,720

 
92,102

Income tax expense
8,439

 
5,739

 
17,706

 
10,916

Net income
$
34,075

 
$
29,932

 
$
76,014

 
$
81,186

Less: Net (income)/loss attributable to noncontrolling interests
(168
)
 
74

 
(306
)
 
491

Net income attributable to Franklin Electric Co., Inc.
$
33,907

 
$
30,006

 
$
75,708

 
$
81,677

Income per share:
 
 
 
 
 
 
 
Basic
$
0.73

 
$
0.64

 
$
1.62

 
$
1.74

Diluted
$
0.72

 
$
0.63

 
$
1.61

 
$
1.72


See Notes to Condensed Consolidated Financial Statements.

4


FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Unaudited)
 
Third Quarter Ended
 
Nine Months Ended
(In thousands)
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
 
 
 
 
 
 
 
 
Net income
$
34,075

 
$
29,932

 
$
76,014

 
$
81,186

Other comprehensive income/(loss), before tax:
 
 
 
 
 
 
 
     Foreign currency translation adjustments
(13,659
)
 
(10,738
)
 
(15,107
)
 
(36,479
)
     Employee benefit plan activity
606

 
774

 
1,905

 
2,326

Other comprehensive (loss)
(13,053
)
 
(9,964
)
 
(13,202
)
 
(34,153
)
Income tax expense related to items of other comprehensive (loss)
(131
)
 
(176
)
 
(413
)
 
(529
)
Other comprehensive (loss), net of tax
(13,184
)
 
(10,140
)
 
(13,615
)
 
(34,682
)
Comprehensive income
20,891

 
19,792

 
62,399

 
46,504

Less: Comprehensive income/(loss) attributable to noncontrolling interests
131

 
(18
)
 
289

 
(394
)
Comprehensive income attributable to Franklin Electric Co., Inc.
$
20,760

 
$
19,810

 
$
62,110

 
$
46,898



See Notes to Condensed Consolidated Financial Statements.

5



FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 30, 2019
 
December 31, 2018
 
 
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
47,805

 
$
59,173

Receivables, less allowances of $3,788 and $4,394, respectively
198,052

 
172,899

Inventories:
 
 
 
Raw material
108,473

 
98,858

Work-in-process
22,263

 
18,649

Finished goods
203,074

 
196,542

Total inventories
333,810

 
314,049

Other current assets
37,900

 
33,758

Total current assets
617,567

 
579,879

 
 
 
 
Property, plant, and equipment, at cost:
 
 
 

Land and buildings
139,971

 
144,299

Machinery and equipment
267,746

 
269,484

Furniture and fixtures
42,497

 
49,426

Other
28,250

 
22,795

Property, plant, and equipment, gross
478,464

 
486,004

Less: Allowance for depreciation
(280,752
)
 
(278,940
)
Property, plant, and equipment, net
197,712

 
207,064

Right-of-Use Asset, net
24,822

 

Deferred income taxes
8,830

 
8,694

Intangible assets, net
132,665

 
135,052

Goodwill
253,385

 
248,748

Other assets
1,959

 
2,928

Total assets
$
1,236,940

 
$
1,182,365






6


 
September 30, 2019
 
December 31, 2018
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
94,531

 
$
76,652

Accrued expenses and other current liabilities
68,243

 
64,811

Current lease liability
8,337

 

Income taxes
5,337

 
2,419

Current maturities of long-term debt and short-term borrowings
80,797

 
111,975

Total current liabilities
257,245

 
255,857

Long-term debt
93,123

 
94,379

Long-term lease liability
16,487

 

Income taxes payable non-current
11,965

 
10,881

Deferred income taxes
27,925

 
28,949

Employee benefit plans
33,404

 
38,020

Other long-term liabilities
19,964

 
17,934

 
 
 
 
Commitments and contingencies (see Note 14)

 

 
 
 
 
Redeemable noncontrolling interest
(229
)
 
518

 
 
 
 
Shareholders' equity:
 
 
 
Common stock (65,000 shares authorized, $.10 par value) outstanding (46,363 and 46,326, respectively)
4,636

 
4,632

Additional capital
267,299

 
257,535

Retained earnings
699,876

 
654,724

Accumulated other comprehensive loss
(196,617
)
 
(183,019
)
Total shareholders' equity
775,194

 
733,872

Noncontrolling interest
1,862

 
1,955

Total equity
777,056

 
735,827

Total liabilities and equity
$
1,236,940

 
$
1,182,365


See Notes to Condensed Consolidated Financial Statements.



7


FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
(In thousands)
September 30, 2019
 
September 30, 2018
 
 
 
 
Cash flows from operating activities:
 
 
 

Net income
$
76,014

 
$
81,186

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
27,705

 
28,987

Non-cash lease expense
7,640

 

Share-based compensation
7,459

 
6,627

Deferred income taxes
(298
)
 
(4,755
)
Loss on disposals of plant and equipment
717

 
370

Foreign exchange (income)/expense
(2,166
)
 
3,151

Changes in assets and liabilities, net of acquisitions:
 
 
 
Receivables
(27,170
)
 
(30,853
)
Inventory
(19,841
)
 
(15,571
)
Accounts payable and accrued expenses
27,391

 
(6,094
)
Operating Leases
(7,637
)
 

Income taxes
6,447

 
2,000

Income taxes-U.S. Tax Cuts and Jobs Act

 
(7,026
)
Employee benefit plans
(1,863
)
 
(2,945
)
Other, net
(4,173
)
 
5,341

Net cash flows from operating activities
90,225

 
60,418

Cash flows from investing activities:
 
 
 
Additions to property, plant, and equipment
(15,591
)
 
(15,108
)
Proceeds from sale of property, plant, and equipment
866

 
432

Cash paid for acquisitions, net of cash acquired
(20,871
)
 
(42,085
)
Other, net
8

 
388

Net cash flows from investing activities
(35,588
)
 
(56,373
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of debt
195,321

 
199,874

Repayment of debt
(226,980
)
 
(208,077
)
Proceeds from issuance of common stock
2,331

 
8,747

Purchases of common stock
(10,301
)
 
(12,080
)
Dividends paid
(20,919
)
 
(16,960
)
Purchase of redeemable noncontrolling shares
(487
)
 

Net cash flows from financing activities
(61,035
)
 
(28,496
)
Effect of exchange rate changes on cash
(4,970
)
 
(1,609
)
Net change in cash and equivalents
(11,368
)
 
(26,060
)
Cash and equivalents at beginning of period
59,173

 
67,233

Cash and equivalents at end of period
$
47,805

 
$
41,173


8


 
Nine Months Ended
(In thousands)
September 30, 2019
 
September 30, 2018
 
 
 
 
Cash paid for income taxes, net of refunds
$
11,990

 
$
20,821

Cash paid for interest
$
7,793

 
$
7,842

 
 
 
 
Non-cash items:
 
 
 

Additions to property, plant, and equipment, not yet paid
$
260

 
$
124

Right-of-Use Assets obtained in exchange for new operating lease liabilities
$
3,410

 
$

Payable to sellers of acquired entities
$
875

 
$
3,181


See Notes to Condensed Consolidated Financial Statements.
 

9


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

 
 
Page Number
 
 
 
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Note 10.
Note 11.
Note 12.
Note 13.
Note 14.
Note 15.


10


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated balance sheet as of December 31, 2018, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of September 30, 2019, and for the third quarters and nine months ended September 30, 2019 and September 30, 2018 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 third quarter and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019. 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, 2018.

2. ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Standards
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license). The ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption and is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted. The Company prospectively adopted the standard in the third quarter of 2019, and it did not have a material impact on the consolidated financial position, results of operations, and cash flows.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU was issued following the enactment of the U.S. Tax Cuts and Jobs Act of 2017 ("Tax Act") and permits entities to elect a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The ASU is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and may be applied either at the beginning of the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Company adopted the standard effective January 1, 2019 and did not reclassify tax effects stranded in accumulated other comprehensive loss. As such, there is no impact on the Company’s consolidated financial position, results of operations, and cash flows as a result of the adoption of the ASU.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases found in Accounting Standards Codification (“ASC”) Topic 840. This ASU requires lessees to present right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements. ASU 2018-10 clarifies certain aspects of Topic 842, including the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments, among other things. ASU 2018-11 allows entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Additionally, ASU 2018-11 allows lessors to not separate non-lease components from the associated lease component if certain conditions are met. The guidance is to be applied using either the transition method prescribed in ASU 2018-11 or a modified retrospective approach at the beginning of the earliest comparative period in the financial statements.
The Company adopted the standard effective January 1, 2019 utilizing the optional transition method prescribed in ASU 2018-11. The Company utilized the transition practical expedients, per ASC 842-10-65-11, that are permitted with the new standard when elected as a package. The Company will also utilize other available practical expedients, including the election not to separate non-lease components and the election to use hindsight when determining the lease terms. Finally, the Company has made an accounting policy election to not present leases with an initial term of 12 months or less (short-term leases) on the balance sheet.

11


The Company has recorded on the Balance Sheet ROU assets and lease liabilities. The initial ROU asset at the implementation of the standard was approximately $26.3 million with a corresponding lease liability of the same amount. The Company segregated the lease liabilities between short term and long term based on the related contractual maturities. The Company has recognized the cash paid for lease liabilities in the Statement of Cash Flows. The Company did not have an adjustment to retained earnings as a result of the adoption of this standard. Additional disclosures regarding the Company’s leases can be found in Footnote 14 - Commitments and Contingencies.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as modified by subsequently issued ASUs 2015-14, 2016-08, 2016-10, 2016-12 and 2016-20 (collectively ASU 2014-09).  Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition (“Topic 605”), and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange for those goods or services. The Company made the accounting policy election allowed by ASC 606-10-32-2A to continue to present sales tax on a net basis, consistent with current guidance in ASC 605-45-15-2(e). The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method).  The Company adopted ASU 2014-09 during the first quarter ended March 31, 2018 utilizing the modified retrospective approach. The adoption of this ASU did not have a material impact to the Company’s condensed consolidated financial position, results of operations, or cash flow; however, the adoption of this ASU requires the Company to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company completed its assessment of the additional disclosure requirements with the following results:
Disaggregation of Revenue
The adoption of this ASU requires the Company to disaggregate revenue into categories to depict how the nature, timing, and uncertainty of revenue and cash flows are affected by economic factors. As evidenced in Footnote 13 Segment and Geographic Information, the Company’s business consists of the Water, Fueling, Distribution, and Other segments. The Other segment includes unallocated corporate expenses and intersegment eliminations. A reconciliation of disaggregated revenue to segment revenue as well as Water Segment revenue by geographical regions is provided in Footnote 13, consistent with how the Company evaluates financial performance.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC Topic 606. The Company typically sells its products to customers by purchase order, and does not have any additional performance obligations included in contracts to customers other than the shipment of products. The Company records net sales revenues after discounts at the time of sale based on specific discount programs in effect, related historical data, and experience. The Company typically ships products FOB shipping at which point control of the products passes to the customers. Any shipping and handling fees prior to shipment are considered activities required to fulfill the Company’s promise to transfer goods, and do not qualify as a separate performance obligation. Shipping and handling costs are recorded as a component of cost of sales. Additionally, the Company offers assurance-type warranties (vs. service warranties) which do not qualify as a separate performance obligation. Therefore, the Company allocates the transaction price based on a single performance obligation. The Company offers normal and customary trade terms to its customers, no significant part of which is of an extended nature. The Company considers the performance obligation satisfied and recognizes revenue at a point in time, the time of shipment. The Company does not generally allow for refunds or returns to customers and does not have outstanding performance obligations for contracts with original durations of greater than one year at the end of the reporting period.
Contract Costs
The Company does not have outstanding contracts with an original term greater than one year; therefore, the Company expenses costs to obtain a contract as incurred.

Accounting Standards Issued But Not Yet Adopted
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments remove disclosures that no longer are considered cost beneficial, including the estimated amounts in accumulated other

12


comprehensive income expected to be recognized as components of net periodic expense over the next fiscal year. The amendments clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant, including the reasons for significant gains and losses related to change in the benefit obligation for the period. The ASU should be applied retrospectively and is effective for interim and annual periods beginning after December 15, 2020. 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.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 removes step two from the goodwill impairment test and instead requires an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit's fair value. The ASU is effective on a prospective basis for interim and annual periods beginning after December 15, 2019 with early adoption permitted. 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 third quarter ended September 30, 2019, the Company acquired 100 percent of the ownership interests of First Sales, LLC, an Indiana manufacturer of water treatment and filtration equipment for the residential and commercial markets, which are sold through some of the sames channels as other Company products in the Water segment, for a purchase price of approximately $15.5 million after working capital adjustments. The operating results from the date of acquisition through September 30, 2019 were not material to the Company as a whole. Annual net sales are estimated to be less than two percent of consolidated net sales and the fair value of the acquired assets are estimated to be less than one percent of consolidated total assets. 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 2019, as the results of operations for this acquisition is immaterial. The fair value of the assets acquired and liabilities assumed are preliminary as of September 30, 2019.

During the second quarter ended June 30, 2019, the Company acquired the remaining interest in Pluga Pumps and Motors Private Limited, India, increasing the Company's ownership to 100 percent. The redemption of this interest was immaterial.
 
During the first quarter ended March 31, 2019, the Company acquired 100 percent of the ownership interests of Mt. Pleasant, Michigan-based Milan Supply Company ("Milan Supply"), for a purchase price of approximately $6.1 million after working capital adjustments. Milan Supply is a professional groundwater distributor operating six locations in the State of Michigan. Milan Supply is part of the Company’s Distribution Segment, which is a collection of professional groundwater equipment distributors. 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 2019, as the results of operations for this acquisition is immaterial. The fair value of the assets acquired and the liabilities assumed are preliminary as of September 30, 2019.

During the third quarter ended September 30, 2018, the Company acquired, in separate transactions, substantially all of the assets of Stationary Power Division ("SPD") of Midtronics, Inc., and 100 percent of the ownership interest in Industrias Rotor Pump S.A. ("Industrias Rotor Pump"). The fair value of the assets acquired and liabilities assumed for both acquisitions are considered final as of September 30, 2019 with a combined purchase price of $37 million. The acquisitions were not material individually or in the aggregate.

Transaction costs were expensed as incurred under the guidance of FASB Accounting Standards Codification Topic 805, Business Combinations. There were $0.0 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 third quarter and nine months ended September 30, 2019 respectively. There were $0.1 million and $0.3 million of transaction costs incurred in the third quarter and nine months ended September 30, 2018, 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 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:


13


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 September 30, 2019 and December 31, 2018, the assets measured at fair value on a recurring basis were as set forth in the table below:
 
 
 
(In millions)
September 30, 2019
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs (Level 3)
Cash equivalents
$
2.9

$
2.9

$

$

 
 
 
 
 
 
December 31, 2018
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Cash equivalents
$
2.5

$
2.5

$

$



The Company's Level 1 assets consist of cash equivalents which are generally comprised of foreign bank guaranteed certificates of deposit.

The Company has no assets measured on a recurring basis classified as Level 2 or Level 3.

Total debt, including current maturities, have carrying amounts of $173.9 million and $206.3 million and estimated fair values of $180.7 million and $205.0 million as of September 30, 2019 and December 31, 2018, 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 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 September 30, 2019, the swap had a notional value based on 255,000 shares. For the third quarter and nine months ended September 30, 2019, the swap resulted in a gains of $0.0 million and $1.0 million, respectively. For the third quarter and nine months ended September 30, 2018, the swap resulted in gains of $0.4 million and $0.1 million, respectively. Gains and losses resulting from the the swap were primarily 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.

6. GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying amounts of the Company’s intangible assets are as follows:

14


(In millions)
 
September 30, 2019
 
December 31, 2018
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
Amortizing intangibles:
 
 

 
 

 
 

 
 

Patents
 
$
7.4

 
$
(7.0
)
 
$
7.5

 
$
(6.9
)
Technology
 
7.5

 
(6.7
)
 
7.5

 
(6.4
)
Customer relationships
 
154.7

 
(69.0
)
 
151.0

 
(63.8
)
Other
 
3.9

 
(2.6
)
 
2.8

 
(2.5
)
Total
 
$
173.5

 
$
(85.3
)
 
$
168.8

 
$
(79.6
)
Unamortizing intangibles:
 
 
 
 
 
 
 
 
Trade names
 
44.5

 

 
45.9

 

Total intangibles
 
$
218.0

 
$
(85.3
)
 
$
214.7

 
$
(79.6
)

 
Amortization expense related to intangible assets for the third quarters ended September 30, 2019 and September 30, 2018 was $2.4 million and $2.2 million, and for the nine months ended September 30, 2019 and September 30, 2018, $7.0 million and $6.6 million respectively.

Amortization expense for each of the five succeeding years is projected as follows:
(In millions)
 
2019
 
2020
 
2021
 
2022
 
2023
 
 
$
9.3

 
$
9.3

 
$
9.0

 
$
8.8

 
$
8.6



The change in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2019, is as follows:
(In millions)
 
 
 
 
Water Systems
 
Fueling Systems
 
Distribution
 
Consolidated
Balance as of December 31, 2018
 
$
145.5

 
$
67.5

 
$
35.7

 
$
248.7

Acquisitions
 
4.9

 

 
1.8

 
6.7

Foreign currency translation
 
(1.9
)
 
(0.1
)
 

 
(2.0
)
Balance as of September 30, 2019
 
$
148.5

 
$
67.4

 
$
37.5

 
$
253.4



7. EMPLOYEE BENEFIT PLANS
Defined Benefit Plans - As of September 30, 2019, the Company maintained two domestic pension plans and three German pension plans. The Company used a December 31, 2018 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 (plan was 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 third quarters and nine months ended September 30, 2019 and September 30, 2018:

15


(In millions)
Pension Benefits
 
Third Quarter Ended
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
Service cost
$
0.2

 
$
0.2

 
$
0.6

 
$
0.6

Interest cost
1.5

 
1.4

 
4.5

 
4.1

Expected return on assets
(2.0
)
 
(2.1
)
 
(6.0
)
 
(6.4
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost

 

 

 

Actuarial loss
0.6

 
0.7

 
1.9

 
2.2

Settlement cost

 

 

 

Net periodic benefit cost
$
0.3

 
$
0.2

 
$
1.0

 
$
0.5

 
 
 
 
 
 
 
 


In the nine months ended September 30, 2019, the Company made contributions of $1.5 million to the funded plans. The amount of contributions to be made to the plans during the calendar year 2019 was finalized by September 15, 2019, based upon the funding level requirements identified and year-end valuation performed at December 31, 2018.

The following table sets forth the aggregated net periodic benefit cost for the other post-retirement benefit plan for the third quarters and nine months ended September 30, 2019 and September 30, 2018:
(In millions)
Other Benefits
 
Third Quarter Ended
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
Service cost
$

 
$

 
$

 
$

Interest cost
0.1

 
0.1

 
0.3

 
0.3

Expected return on assets

 

 

 

Amortization of:
 
 
 
 
 
 
 
Prior service cost

 

 

 

Actuarial loss

 

 

 
0.1

Settlement cost

 

 

 

Net periodic benefit cost
$
0.1

 
$
0.1

 
$
0.3

 
$
0.4

 
 
 
 
 
 
 
 



8. INCOME TAXES
The Company’s effective tax rate from continuing operations for the nine month period ended September 30, 2019 was 18.9 percent as compared to 11.9 percent for the nine month period ended September 30, 2018. The effective tax rate is lower than the U.S. statutory rate of 21 percent primarily due to foreign earnings taxed at rates below the U.S. statutory rate, the recognition of the U.S. foreign-derived intangible income (FDII) provisions, and certain discrete events including excess tax benefits from share-based compensation. For the third quarter of 2019 the effective tax rate was 19.8 percent as compared to 16.1 percent for the third quarter of 2018.

The increase in the effective tax rate for the nine months ended September 30, 2019, compared with the same period in 2018, was primarily a result of the release of a valuation allowance of $5.4 million related to state net operating losses and incentives during the first quarter of 2018.

                           
9. DEBT
Debt consisted of the following:

16


(In millions)
 
September 30, 2019
 
December 31, 2018
Prudential Agreement
 
$

 
$
30.0

Tax increment financing debt
 
18.7

 
19.8

New York Life Agreement
 
75.0

 
75.0

Credit Agreement
 
79.1

 
76.3

Financing Leases
 
0.1

 
0.1

Foreign subsidiary debt
 
1.1

 
5.4

Less: unamortized debt issuance costs
 
(0.1
)
 
(0.2
)
 
 
$
173.9

 
$
206.4

Less: current maturities
 
(80.8
)
 
(112.0
)
Long-term debt
 
$
93.1

 
$
94.4



Debt outstanding, excluding unamortized debt issuance costs, at September 30, 2019 matures as follows:
(In millions) 
 
Total
 
Year 1
 
Year 2
 
Year 3
 
Year 4
 
Year 5
 
More Than 5 Years
Debt
 
$
173.9

 
$
80.7

 
$
1.2

 
$
1.3

 
$
1.3

 
$
1.4

 
$
88.0

Financing Leases
 
0.1

 

 
0.1

 

 

 

 

 
 
$
174.0

 
$
80.7

 
$
1.3

 
$
1.3

 
$
1.3

 
$
1.4

 
$
88.0



Prudential Agreement
The Company maintains the Third Amended and Restated Note Purchase and Private Shelf Agreement (the "Prudential Agreement") with an initial borrowing capacity of $250.0 million. The Company paid the remaining principal balance of the previously issued notes during the second quarter of 2019. As of September 30, 2019, the Company has $150.0 million borrowing capacity available under the Prudential Agreement. There is no additional borrowing capacity resulting from principal payments made by the Company.

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 Notes ("Tax increment financing debt") bear interest at 3.6 percent per annum. Interest and principal balance of the Project Notes 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.

New York Life Agreement
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 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 September 30, 2019, there was $125.0 million remaining borrowing capacity under the New York Life Agreement.

Credit Agreement
The Company maintains the Third Amended and Restated Credit Agreement (the "Credit Agreement”). The Credit Agreement has a maturity date of October 28, 2021 and commitment amount of $300.0 million. The Credit Agreement provides that the Borrowers may request an increase in the aggregate commitments by up to $150.0 million (not to exceed a total commitment of $450.0 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 0.75% to 1.60% (depending on the Company's leverage ratio) or (ii) an alternative base rate as defined in the Credit Agreement.


17


As of September 30, 2019, the Company had $79.1 million in outstanding borrowings which were primarily used for working capital needs, the payment of existing indebtedness and acquisitions, $5.0 million in letters of credit outstanding, and $215.9 million of available capacity under the Credit Agreement.

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 1.00 to 3.50 and a minimum interest coverage ratio of 1.00 to 3.00. 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 September 30, 2019.

10. 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 nonforfeitable 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.

The following table sets forth the computation of basic and diluted earnings per share:
 
Third Quarter Ended
 
Nine Months Ended
(In millions, except per share amounts)
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
Numerator:
 
 
 
 
 
 
 
Net income attributable to Franklin Electric Co., Inc.
$
33.9

 
$
30.0

 
$
75.7

 
$
81.7

Less: Earnings allocated to participating securities
0.2

 
0.2

 
0.5

 
0.6

Net income available to common shareholders
$
33.7

 
$
29.8

 
$
75.2

 
$
81.1

Denominator:
 

 
 

 
 
 
 
Basic weighted average common shares outstanding
46.4

 
46.7

 
46.3

 
46.7

Effect of dilutive securities:
 

 
 

 
 
 
 
Non-participating employee stock options and performance awards
0.3

 
0.5

 
0.4

 
0.5

Diluted weighted average common shares outstanding
46.7

 
47.2

 
46.7

 
47.2

Basic earnings per share
$
0.73

 
$
0.64

 
$
1.62

 
$
1.74

Diluted earnings per share
$
0.72

 
$
0.63

 
$
1.61

 
$
1.72



There were 0.3 million and 0.2 million stock options outstanding for the third quarters ended September 30, 2019 and September 30, 2018, and 0.3 million and 0.2 million stock options outstanding for the nine months ended September 30, 2019 and September 30, 2018 respectively, that were excluded from the computation of diluted earnings per share, as their inclusion would be anti-dilutive.


18



11. EQUITY ROLL FORWARD
The schedules below set forth equity changes in the third quarters ended September 30, 2019 and September 30, 2018:
(In thousands)
Common Stock
 
Additional Paid in Capital
 
Retained Earnings
 
Minimum Pension Liability
 
Cumulative Translation Adjustment
 
Noncontrolling Interest
 
Total Equity
 
Redeemable Noncontrolling Interest
Balance as of June 30, 2019
$
4,632

 
$
264,533

 
$
673,493

 
$
(47,568
)
 
$
(135,902
)
 
$
1,714

 
$
760,902

 
$
(210
)
Net income

 

 
33,907

 

 

 
199

 
34,106

 
(31
)
Dividends on common stock ($0.1450/share)

 

 
(6,767
)
 

 

 

 
(6,767
)
 

Common stock issued
5

 
831

 

 

 

 

 
836

 

Common stock repurchased
(1
)
 

 
(757
)
 

 

 

 
(758
)
 

Share-based compensation

 
1,935

 

 

 

 

 
1,935

 

Noncontrolling dividend

 

 

 

 

 

 

 

Purchase of redeemable noncontrolling shares

 

 

 

 

 

 

 
(2
)
Currency translation adjustment

 

 

 

 
(13,622
)
 
(51
)
 
(13,673
)
 
14

Pension liability, net of tax