FRANKLIN ELECTRIC CO INC

Franklin Electric Co., Inc. designs, manufactures and distributes water and fuel pumping systems, composed primarily of submersible motors, pumps, electronic controls, water treatment systems, and related parts and equipment. The Company's water pumping systems move fresh and wastewater for the residential, agricultural and other industrial end markets. The Company also sells various groundwater equipment products to well installation contractors, through its and third-party distribution branches located in the U.S. With a growing global footprint, the Company has also evolved into a top supplier of submersible fueling systems at gas stations, making pumps, pipes, electronic controls and monitoring devices. The Company's products are sold worldwide by its employee sales force and independent manufacturing representatives.

The market for the Company's products is highly competitive and includes diversified accounts by size and type. The Company's principal competitors in the specialty water products industry are Grundfos Management A/S, Pentair, Inc. and Xylem, Inc. The Company's principal competitors in the petroleum equipment industry are Vontier Corporation and Dover Corporation. The Company believes that consistency of product quality, timeliness of delivery, service, and continued product innovation, as well as price, are principal factors considered by customers in selecting suppliers.

The Company generates revenue through the design, manufacture and distribution of water and fuel pumping systems. Revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company typically ships products Free on Board (FOB) shipping point at which point control of the products passes to the customers. The Company considers the performance obligation satisfied and recognizes revenue at a point in time, the time of shipment. The Company's products may include routine assurance-type warranties which do not qualify as separate performance obligations. The Company records net sales after discounts at the time of sale based on specific discount programs in effect, related historical data, and experience. No single customer accounted for over 10 percent of net sales in 2025, 2024, or 2023.

The Water Systems segment is a global leader in the production and marketing of water pumping systems and is a technical leader in submersible motors, pumps, drives, electronic controls, water treatment systems, and monitoring devices. The Water Systems segment designs, manufactures and sells motors, pumps, drives, electronic controls, monitoring devices, and related parts and equipment primarily for use in groundwater, water transfer and wastewater. Water Systems contributed about 60 percent of the Company's total revenue in 2025. The Water Systems segment generates approximately 25 to 30 percent of its revenue in developing markets. The Company has had 6 to 9 percent compounded annual sales growth in developing regions in recent years. Water Systems net sales in 2025 were $1,256.4 million ¹, compared to $1,184.0 million ² in 2024. Water Systems operating income in 2025 was $207.2 million ³, compared to $197.9 million ⁴ in 2024. The 2025 operating income margin was 16.5 percent ⁵, a decrease of 20 basis points from 16.7 percent ⁶ in 2024.

The Energy Systems segment is a global leader in the production and marketing of fuel pumping systems, fuel containment systems and monitoring and control systems. The Energy Systems segment designs, manufactures and sells pumps, motors, pipe, sumps, fittings, vapor recovery components, electronic controls, monitoring devices and related parts and equipment primarily for use in energy system applications. Energy Systems net sales in 2025 were $299.0 million ⁷, compared to $273.7 million ⁸ in 2024. Energy Systems operating income in 2025 was $99.1 million ⁹, compared to $93.6 million ¹⁰ in 2024. The 2025 operating income margin was 33.1 percent ¹¹, a decrease of 110 basis points from 34.2 percent ¹² in 2024. The Distribution segment is operated as a collection of wholly owned leading groundwater distributors known as the Headwater Companies. The Distribution segment operates within the U.S. professional groundwater market. Distribution net sales in 2025 were $700.7 million ¹³, compared to $685.5 million ¹⁴ in 2024. Distribution operating income in 2025 was $39.8 million ¹⁵, compared to $24.3 million ¹⁶ in 2024. The 2025 operating income margin was 5.7 percent ¹⁷, an increase of 210 basis points from 3.5 percent ¹⁸ in 2024.

In the first quarter of 2025, the Company acquired Barnes de Colombia S.A. ("Barnes"), a leading manufacturer and distributor of industrial and commercial pumps based in Colombia, for total upfront cash consideration of $96.8 million ¹⁹, net of cash acquired. Also in the first quarter of 2025, the Company acquired PumpEng Pty Ltd ("PumpEng"), an Australia-based company that specializes in the design, manufacture and service of submersible pumps for the mining sector, for a purchase price of AUD 24.0 million ²⁰ (approximately $15.0 million ²¹). Acquisitions contributed $48.9 million ²² in incremental net sales in 2025. In 2025, the Company completed the process of settling the Franklin Electric Co., Inc. Pension Plan and a partial settlement of the Franklin Electric Co. Restoration plan resulting in a pre-tax pension settlement charge of $54.9 million ²³ related to actuarial losses previously recorded in Accumulated Other Comprehensive Loss. The Company repurchased 350,000 ²⁴ shares for approximately $34.3 million ²⁵ under its share repurchase plan during the fourth quarter of 2025. On September 26, 2025, the Company issued and sold $75.0 million ²⁶ of fixed rate senior notes due September 26, 2032 under the New York Life Agreement and $50.0 million ²⁷ of fixed rate senior notes due September 26, 2032 under the Prudential Agreement.

Net sales in 2025 were $2.1 billion ²⁸ and increased 5 percent ²⁹, as compared to the prior year. The sales increases were due to the incremental sales impact from recent acquisitions, price realization and higher volumes. The Company's consolidated gross profit was $755.9 million ³⁰ and $717.3 million ³¹, respectively, for 2025 and 2024, and increased 5 percent ³² from the prior year. The gross profit margin ratio was 35.5 percent ³³ in 2025 and 2024 ³⁴, respectively. Operating income in 2025 was $268.9 million ³⁵ and $243.6 million ³⁶ in 2024, an increase of 10 percent ³⁷, as compared to the prior year. Net income for 2025 was $148.7 million ³⁸ compared to 2024 net income of $181.6 million ³⁹. Net income attributable to Franklin Electric Co., Inc. for 2025 was $147.1 million ⁴⁰, or $3.22 ⁴¹ per diluted share, compared to 2024 net income attributable to Franklin Electric Co., Inc. of $180.3 million ⁴², or $3.86 ⁴³ per diluted share. Diluted earnings per share for 2025 was negatively impacted by the pension settlement charge of $41.5 million ⁴⁴ net of tax benefit ($54.9 million ⁴⁵ gross of tax benefit).

The Company believes there is growth opportunity in developing markets. The Water Systems segment generates approximately 25 to 30 percent of its revenue in developing markets, which often lack municipal water systems. As those countries install water systems and further develop with an expanding middle class or improving quality of living, the Company views those markets as an opportunity. The Company has had 6 to 9 percent compounded annual sales growth in developing regions in recent years. The Energy Systems segment also believes there is growth opportunity in developing markets.

The Company's key factors for success include geographic expansion and product line extensions, leveraging its global platform and competency in system design. The Company is continuing its rationalization of manufacturing capacity between all existing manufacturing facilities and the manufacturing complexes in lower cost regions. The Company's research and development activities in 2025 included development of new integrated pressure boosting systems for residential and commercial applications, electronic variable frequency drives and controls for pump applications including enhancements to include remote communication and IOT capability, dewatering pumping equipment including expansion of electrical submersible pump lines, vertical pumping systems for residential applications including integrated designs of pump, motor, and controls, and submersible pumps for commercial, municipal, and agricultural applications. Energy Systems research and development activities included development of 220V and 380V Guardian variable frequency drives, wireless sensor for humidity monitoring and underground tank desiccant system, new fiberglass tank sump and cover, Optimizer3 Trip Signature Monitor for continuous monitoring of substation circuit breakers, and EVO LLD (line leak detection).

The Company's gross profit margin ratio was 35.5 percent ⁴⁶ in 2025 and 2024 ⁴⁷, respectively. Gross profit has remained consistent with prior year primarily due to pricing and volume increases offset by increased costs related to tariffs. The SG&A expenses ratio was 22.8 percent ⁴⁸ and 23.3 percent ⁴⁹ in 2025 and 2024, respectively. There were $0.7 million ⁵⁰ and $3.5 million ⁵¹ in restructuring expenses in 2025 and 2024, respectively, primarily from various manufacturing realignment activities.

The Company expects that ongoing requirements for operations, capital expenditures, pension obligations, dividends, share repurchases, and debt service will be adequately funded from cash on hand, operations, and existing credit agreements. As of December 31, 2025, the Company had a $350.0 million ⁵² revolving credit facility. The facility is scheduled to mature on May 14, 2030. As of December 31, 2025, the Company had $313.6 million ⁵³ borrowing capacity under the Credit Agreement as $6.4 million ⁵⁴ in letters of commercial and standby letters of credit were outstanding and undrawn and $30.0 million ⁵⁵ in revolver borrowings were drawn or outstanding. The Company also 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. On May 15, 2024, the Company entered into Amendment No. 1 that increased the total available facility amount from lenders to $250.0 million ⁵⁶ from $200.0 million ⁵⁷. As of December 31, 2025, the remaining borrowing capacity on the New York Life Agreement was $175.0 million ⁵⁸. The Company also maintains an uncommitted and unsecured note purchase and private shelf agreement with PGIM, Inc. and its affiliates. On May 15, 2024, the Company entered into Amendment No. 1 that increased the total available facility amount from lenders to $250.0 million ⁵⁹ from $150.0 million ⁶⁰.

The Company incurred research and development expenses of $20.0 million ⁶¹ in 2025, $21.5 million ⁶² in 2024, and $17.7 million ⁶³ in 2023. Capital expenditures were $45.0 million ⁶⁴ in 2025, $41.2 million ⁶⁵ in 2024, and $43.2 million ⁶⁶ in 2023. The Company repurchased 1,790,958 ⁶⁷ shares for $160.0 million ⁶⁸ in 2025. Dividends paid per common share were $0.265 ⁶⁹ per quarter in 2025 and $0.250 ⁷⁰ per quarter in 2024. The Company has increased dividend payments on an annual basis for 33 consecutive years. In June 2025, the Company's Board of Directors approved a plan to increase the number of shares remaining for repurchase by an additional 1,200,000 ⁷¹ shares. The maximum number of shares that may still be purchased under this plan as of December 31, 2025 is 776,635 ⁷².

The Company's results may be adversely affected by global macroeconomic supply and demand conditions related to the energy and mining industries. The energy and mining industries are users of the Company's products, including the coal, iron ore, gold, copper, oil, and natural gas industries. If demand or output in these industries declines, the demand for our products will generally decrease. The U.S. government recently implemented significant trade policy and tariff actions, including but not limited to tariffs on imported steel and aluminum products, multiple tariffs on certain imports from China, tariffs on certain imports from Canada and Mexico, and baseline tariffs on most imports from most other countries. These actions have increased the cost of certain raw materials and components and created significant uncertainty and potential risks for our business. Certain countries have announced retaliatory tariffs in response to such actions. While the future financial impact of these actions and potential additional tariff actions and retaliatory actions by the U.S. or other countries remain unknown, the impacts could have a material adverse effect on our financial statements in any particular reporting period.

The Company has significant operations outside the United States, including Europe, South Africa, Brazil, Mexico, India, China, Turkey, Canada and Argentina. The Company's business is subject to political, economic, and other risks that are inherent in operating a multinational business. Turkey and Argentina represent highly inflationary economies as their three-year cumulative inflation rate exceeded 100 percent. As a result, the Company remeasures the financial statements for the Company's Turkish and Argentinian operations in accordance with the highly inflationary accounting rules. All gains and losses resulting from the remeasurement of the financial results of operations and other transactional foreign exchange gains and losses are reflected in earnings, which have resulted in volatility within the Company's earnings. Turkey and Argentina being highly inflationary economies has had an adverse effect on the Company's consolidated results of operations and further inflation may have additional adverse effects on the Company's consolidated financial position, results of operations, or cash flows in future periods.

Reduced housing starts adversely affect demand for the Company's products, thereby reducing revenues and earnings. The Company's results may be adversely affected by global macroeconomic supply and demand conditions related to the energy and mining industries, including the coal, iron ore, gold, copper, oil, and natural gas industries. The U.S. government recently implemented significant trade policy and tariff actions, including tariffs on imported steel and aluminum products, multiple tariffs on certain imports from China, tariffs on certain imports from Canada and Mexico, and baseline tariffs on most imports from most other countries, which have increased the cost of certain raw materials and components and created significant uncertainty. Turkey and Argentina represent highly inflationary economies as their three-year cumulative inflation rate exceeded 100 percent, and the Company remeasures the financial statements for its Turkish and Argentinian operations in accordance with highly inflationary accounting rules, resulting in all gains and losses from remeasurement being reflected in earnings and causing volatility. The Company has significant goodwill and intangible assets, and if future operating performance at one or more of the Company's operating segments were to decline significantly below current levels, the Company could incur a non-cash impairment charge to operating earnings. The Company is dependent on a single or limited number of suppliers for some materials or components required in the manufacture of its products, and if any of those suppliers fail to meet their commitments, the Company may experience supply shortages that could result in its inability to meet customer requirements.

Management's discussion and analysis highlights that net sales in 2025 were $2.1 billion ⁷³ and increased 5 percent ⁷⁴, as compared to the prior year, due to incremental sales impact from recent acquisitions, price realization and higher volumes. Diluted earnings per share was $3.22 ⁷⁵ for 2025, a decrease of $0.64 ⁷⁶ from the prior year, negatively impacted by the pension settlement charge of $41.5 million ⁷⁷ net of tax benefit ($54.9 million ⁷⁸ gross of tax benefit). The Company believes its capital resources and liquidity position at December 31, 2025 is adequate to meet projected needs for the foreseeable future. The Company expects that ongoing requirements for operations, capital expenditures, pension obligations, dividends, share repurchases, and debt service will be adequately funded from cash on hand, operations, and existing credit agreements. The Company's forward-looking statements include statements about the Company's financial goals, acquisition strategies, financial expectations including anticipated revenue or expense levels, business prospects, market positioning, product development, manufacturing re-alignment, capital expenditures, tax benefits and expenses, and the effect of contingencies or changes in accounting policies.