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What changed in FRANKLIN ELECTRIC CO INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FRANKLIN ELECTRIC CO INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+108 added−118 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-22)

Top changes in FRANKLIN ELECTRIC CO INC's 2023 10-K

108 paragraphs added · 118 removed · 91 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe Company’s principal competitors in the specialty water products industry are Grundfos Management A/S, Pentair, Inc. and Xylem, Inc. 2022 Water Systems research and development expenditures were primarily related to the following activities: • Electronic variable frequency drives and controls for Pump and HVAC applications, including enhancements of mobile application capabilities for SubDrive Connect and Cerus X-Drive and development of standard panels to support HES (High Efficiency Systems) motors • Development of new standard electric skid pump package designs and electronic variable frequency drive skid packages for mining and municipal dewatering markets • Greywater pumping equipment, including the development of 60Hz electrical submersible pumps from the acquisition of Minetuff and the expansion of grinder pumps for the Brazil market • Submersible and surface pumps for residential, commercial, municipal, and agricultural applications including the development of a standard global 4” pump family, developing a new cast stainless submersible turbine line, and upgrading the performance of line shaft turbine product offerings • Submersible motor technology development, including the introduction of energy efficient permanent magnet motors into submersible water pumping systems, substantially reducing energy usage in residential pumping applications, 4 pole motor designs for 8” and 10” diameter products, and 4” Oil-filled motors • Water treatment products focused on component improvements and IOT enabled sensing systems Fueling Systems Segment Fueling Systems is a global leader in the production and marketing of fuel pumping systems, fuel containment systems and monitoring and control systems.
Biggest changeThe Company’s principal competitors in the specialty water products industry are Grundfos Management A/S, Pentair, Inc. and Xylem, Inc. 2023 Water Systems research and development expenditures were primarily related to the following activities: • Electronic variable frequency drives and controls for Pump and HVAC applications, including enhancements to include IOT capability for our drive and protection products and making our key platforms solar pumping capable • Development of integrated electronic pressure boosting systems for residential and commercial applications • Development of new standard electric skid pump package designs including the new "SmartPrime" variable frequency drive skid packages for mining and municipal dewatering markets • Greywater pumping equipment, including the development of 60Hz electrical submersible pumps from the acquisition of Minetuff and expansion of Non-Clog and grinder pumps for the Americas market • Submersible pumps for commercial, municipal, and agricultural applications including the development of a new cast stainless submersible turbine line, and upgrading the performance of the line shaft turbine product offering • Water treatment products focused on component performance improvements and IOT enabled sensing systems Fueling Systems Segment Fueling Systems is a global leader in the production and marketing of fuel pumping systems, fuel containment systems and monitoring and control systems.
Further information regarding its human capital details and initiatives can be found in the 2022 Franklin Electric Sustainability Report available for download on the Company's website. 6 Available Information The Company is a U.S. public reporting company under the Exchange Act and files reports, proxy statements and other information with the SEC, which can be accessed from the SEC's home page on the Internet at www.sec.gov .
Further information regarding its human capital details and initiatives can be found in the 2023 Franklin Electric Sustainability Report available for download on the Company's website. 6 Available Information The Company is a U.S. public reporting company under the Exchange Act and files reports, proxy statements and other information with the SEC, which can be accessed from the SEC's home page on the Internet at www.sec.gov .
The Company also sells various groundwater equipment products to well installation contractors, including water pumping systems, through its 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 also sells various groundwater equipment products to well installation contractors, including water pumping systems, 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.
Raw Materials The principal raw materials used in the manufacture of the Company’s products are coil and bar steel, stainless steel, copper wire and aluminum ingot. Major components are electric motors, capacitors, motor protectors, forgings, gray iron castings, plastic resins and bearings. Most of these raw materials are available from multiple sources in the U.S. and world markets.
Raw Materials The principal raw materials used in the manufacture of the Company’s products are coil and bar steel, stainless steel, copper wire and aluminum ingot. Major components are electric motors, electrical components, motor protectors, forgings, gray iron castings, plastic resins and bearings. Most of these raw materials are available from multiple sources in the U.S. and world markets.
The Company believes that availability of fuel and energy is adequate to satisfy current and projected overall operations unless interrupted by government direction, allocation or other disruption. Major Customers No single customer accounted for over 10 percent of net sales in 2022, 2021, or 2020.
The Company believes that availability of fuel and energy is adequate to satisfy current and projected overall operations unless interrupted by government direction, allocation or other disruption. Major Customers No single customer accounted for over 10 percent of net sales in 2023, 2022, or 2021.
Franklin Electric’s Key Factors for Success While maintaining a culture of safety and lean principles, Franklin Electric promises to deliver quality, availability, service, innovation, and cost in every encounter the Company has with stakeholders, including direct or indirect customers, employees, shareholders, and suppliers.
Franklin Electric’s Key Factors for Success While maintaining a culture of safety and lean principles, Franklin Electric strives to deliver quality, availability, service, innovation, and cost in every encounter the Company has with stakeholders, including direct or indirect customers, employees, shareholders, and suppliers.
All backlog orders are expected to be filled in 2023. The Company’s sales in the first quarter are generally less than its sales in other quarters due to less water well drilling and overall product sales during the winter months in the Northern hemisphere.
All backlog orders are expected to be filled in 2024. The Company’s sales in the first quarter are generally less than its sales in other quarters due to less water well drilling and overall product sales during the winter months in the Northern hemisphere.
The Company has not experienced any material costs in connection with environmental compliance, and does not believe that such compliance will have any material effect upon the financial position, results of operations, cash flows or competitive position of the Company. Human Capital Resources As of December 31, 2022, the Company had approximately 6,500 employees.
The Company has not experienced any material costs in connection with environmental compliance, and does not believe that such compliance will have any material effect upon the financial position, results of operations, cash flows or competitive position of the Company. Human Capital Resources As of December 31, 2023, the Company had approximately 6,400 employees.
Headwater Companies deliver quality products and leading brands to the industry, providing contractors with the availability and service they demand to meet their application challenges. The Distribution segment operates within the U.S. professional groundwater market.
Headwater Companies deliver quality products and leading brands to the industry, providing contractors with the products and services they demand to meet their application challenges. The Distribution segment operates within the U.S. professional groundwater market.
No single customer accounted for over 10 percent of gross accounts receivable in 2022 and 2021.
No single customer accounted for over 10 percent of gross accounts receivable in 2023 and 2022.
With 2022 revenue of over $2.0 billion, the Company 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.
With 2023 revenue of approximately $2.1 billion, the Company 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.
Water Systems contributed about 55 percent of the Company’s total revenue in 2022. Significant portions of segment revenue come from selling groundwater and surface pumps, motors, and controls for residential and commercial buildings, as well as agricultural sales which are more seasonal and subject to commodity price changes.
Water Systems products are sold in highly competitive markets. Water Systems contributed about 60 percent of the Company’s total revenue in 2023. Significant portions of segment revenue come from selling groundwater and surface pumps, motors, and controls for residential and commercial buildings, as well as agricultural sales which are more seasonal and subject to commodity price changes.
Highlights of the Distribution Segment geographic growth through acquisitions in the last three years are as follows: • 2020 - Acquired Gicon Pumps & Equipment, Inc., a professional groundwater distributor operating in the south • 2021 - Acquired Blake Group Holdings, Inc., a professional groundwater distributor operating in the northeast 5 Information Regarding All Reportable Segments Research and Development The Company incurred research and development expenses as follows: (In millions) 2022 2021 2020 Research and development expenses $ 16.7 $ 17.3 $ 21.7 Expenses incurred were for activities related to the development of new products, improvement of existing products and manufacturing methods and other applied research and development.
Highlights of the Distribution Segment geographic growth through acquisitions in the last three years are as follows: • 2021 - Acquired Blake Group Holdings, Inc., a professional groundwater distributor operating in the northeast • 2023 - Acquired substantially all of the assets of LCA Pump, LLC, which operates Water Works Pump, a professional groundwater distributor operating in the midwest Information Regarding All Reportable Segments Research and Development The Company incurred research and development expenses as follows: 5 (In millions) 2023 2022 2021 Research and development expenses $ 17.7 $ 16.7 $ 17.3 Expenses incurred were for activities related to the development of new products, improvement of existing products and manufacturing methods and other applied research and development.
Backlog The dollar amount of backlog by segment was as follows: (In millions) February 6, 2023 February 10, 2022 Water Systems $ 228.2 $ 205.9 Fueling Systems 43.9 58.4 Distribution 22.8 22.1 Consolidated $ 294.9 $ 286.4 The backlog is composed of written orders at prices adjustable on a price-at-the-time-of-shipment basis for products, primarily standard catalog items.
Backlog The dollar amount of backlog by segment was as follows: (In millions) February 7, 2024 February 6, 2023 Water Systems $ 120.2 $ 228.2 Fueling Systems 16.9 43.9 Distribution 23.5 22.8 Consolidated $ 160.6 $ 294.9 The backlog is composed of written orders at prices adjustable on a price-at-the-time-of-shipment basis for products, primarily standard catalog items.
In the last three years, the Company acquired Waterite, Inc.; Puronics, Inc.; New Aqua, LLC; and B&R Industries, Inc. expanding its portfolio to include water treatment systems and acquired Minetuff Dewatering Pumps Australia Pty Ltd expanding its industrial dewatering product line. Water Systems products are sold in highly competitive markets.
In the last three years, the Company acquired substantially all of the assets of Action Manufacturing & Supply, Inc. and all of the ownership interest of Puronics, Inc.; New Aqua, LLC; and B&R Industries, Inc. expanding its portfolio to include water treatment systems and acquired Minetuff Dewatering Pumps Australia Pty Ltd expanding its industrial dewatering product line.
The Fueling Systems segment designs, manufactures and sells pumps, pipe, sumps, fittings, vapor recovery components, electronic controls, monitoring devices and related parts and equipment primarily for use in fueling system applications. Fueling Systems offers a complete array of components between the tank and the dispenser, including submersible pumps, station hardware, piping, sumps, vapor recovery, corrosion control systems and electronic controls.
The Fueling 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 fueling system applications.
The segment serves other energy markets such as power reliability systems and includes intelligent electronic devices that are designed for online monitoring for the power utility, hydroelectric, and telecommunication and data center infrastructure. Fueling Systems products are sold in highly competitive markets.
Fueling Systems takes steps to ensure its products are installed and maintained properly through robust global certification tools for their third-party contractors. The segment serves other energy markets such as power reliability systems and includes intelligent electronic devices that are designed for online monitoring for the power utility, hydroelectric, rail, and telecommunication and data center infrastructure.
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, the Company views those markets 4 as an opportunity. The Company has had 6 to 9 percent compounded annual sales growth in developing regions in recent years.
The Water Systems segment generates approximately 25 to 30 percent of its revenue in developing 4 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.
Water Systems competes in each of its targeted markets based on product design, quality of products and services, performance, availability and price.
Fueling Systems products are sold in highly competitive markets. The Company believes there is growth opportunity in developing markets. Fueling Systems competes in each of its targeted markets based on product design, quality, performance, availability and price.
The Company’s principal competitors in the petroleum equipment industry are Vontier Corporation, formerly a part of Fortive Corporation, and Dover Corporation. 2022 Fueling Systems research and development expenditures were primarily related to the following activities: • Developed and launched new distribution transformer monitor • Developed new vapor flow meter for Chinese vapor recovery monitoring regulation • Developed and launched UNITE, server software to collect data from battery monitoring, battery testers, NexPhase, and distribution monitoring • Developed Press-Fit Connector for Cabletight electrical conduit • Developed testable termination fitting for APT fueling piping system • Developed and launched NexPhase Electric Vehicle Switchgear • Developed car wash monitor of detergent liquids at car wash stations • Developed new hybrid wired battery monitoring system Distribution Segment The Distribution segment is operated as a collection of wholly owned leading groundwater distributors known as the Headwater Companies.
The Company’s principal competitors in the petroleum equipment industry are Vontier Corporation, formerly a part of Fortive Corporation, and Dover Corporation. 2023 Fueling Systems research and development expenditures were primarily related to the following activities: • Developed and launched On-Prem, server software to collect data from battery monitoring, battery testers, and distribution monitoring, tailored to the U.S. railroad market • Developed OM3 TripCoil transformer monitoring instrument • Developed and launched EVO-Edge, a carwash fluids monitoring system • Developed and launched Hybrid Battery Control Unit (HBCU), with wireless (WiFi) connectivity • Developed CVM fuel dispensing and monitoring control system • Developed EV-Controls NexPhase 600 & 800, electric vehicle charger switchgear Distribution Segment The Distribution segment is operated as a collection of wholly owned leading groundwater distributors known as the Headwater Companies.
Rising vehicle use is leading to more investment in fueling stations, which, in turn, leads to increased demand for the Company’s Fueling Systems products. The Company believes there is growth opportunity in developing markets. Fueling Systems competes in each of its targeted markets based on product design, quality of products and services, performance, availability and value.
The Company has had 6 to 9 percent compounded annual sales growth in developing regions in recent years. Water Systems competes in each of its targeted markets based on product design, quality, performance, availability and price.
The Fueling Systems segment growth has been sustained by a commitment to protecting human health and the environment while delivering the lowest total cost of ownership. Fueling Systems takes steps to ensure its products are installed and maintained properly through robust global certification tools for their third-party contractors.
Fueling Systems offers a complete array of components between the tank and the dispenser, including submersible pumps, motors, station hardware, piping, sumps, vapor recovery, corrosion control systems and electronic controls and monitoring. The Fueling Systems segment growth has been sustained by a commitment to protecting human health and the environment while delivering the lowest total cost of ownership.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe Company has significant operations outside the United States, including Europe, South Africa, Brazil, Mexico, India, China, Turkey, Canada and Argentina. Further, the Company obtains raw materials and finished goods from foreign suppliers. Accordingly, the Company’s business is subject to political, economic, and other risks that are inherent in operating a multinational business.
Biggest changeRisks Related to the Business The Company is exposed to political, economic and other risks that arise from operating a multinational business. The Company has significant operations outside the United States, including Europe, South Africa, Brazil, Mexico, India, China, Turkey, Canada and Argentina. Further, the Company obtains raw materials and finished goods from foreign suppliers.
The Company experiences seasonal demand in a number of markets within the Water Systems segment. End-user demand in primary markets follows warm weather trends and is at seasonal highs from April to August in the Northern Hemisphere. Demand for residential and agricultural water systems are also affected by weather-related disasters including heavy flooding and drought.
The Company experiences seasonal demand in a number of markets within the Water Systems segment. End-user demand in primary markets 9 follows warm weather trends and is at seasonal highs from April to August in the Northern Hemisphere. Demand for residential and agricultural water systems are also affected by weather-related disasters including heavy flooding and drought.
The recognition of an impairment of a significant portion of the Company’s 9 goodwill or intangible assets could have a material adverse impact on the Company’s results of operations and financial condition. The Company’s business may be adversely affected by the seasonality of sales and weather conditions.
The recognition of an impairment of a significant portion of the Company’s goodwill or intangible assets could have a material adverse impact on the Company’s results of operations and financial condition. The Company’s business may be adversely affected by the seasonality of sales and weather conditions.
To the extent that these mitigating strategies are not successful, foreign currency rate fluctuations can have a material adverse impact on the Company’s international operations or on the business as a whole. In the second quarter of 2022, the Company concluded that Turkey represents a hyperinflationary economy as its projected three-year cumulative inflation rate exceeds 100 percent.
To the extent that these mitigating strategies are not successful, foreign currency rate fluctuations can have a material adverse impact on the Company’s international operations or on the business as a whole. In the second quarter of 2022, the Company concluded that Turkey represents a hyperinflationary economy as its three-year cumulative inflation rate exceeded 100 percent.
As a result, all gains and losses resulting from the remeasurement of the financial results of operations and other transactional foreign exchange gains and losses would be reflected in earnings, which could result in volatility within the Company’s earnings, rather than as a component of the Company’s comprehensive income within 8 stockholders’ equity.
As a result, 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, rather than as a component of the Company’s comprehensive income within shareholders’ equity.
One of the Company’s continuing strategies is to increase revenues and expand market share through acquisitions that will provide complementary Water and Fueling Systems products, add to the Company’s global reach, or both.
The Company’s acquisition strategy entails expense, integration risks, and other risks that could affect the Company’s earnings and financial condition. One of the Company’s continuing strategies is to increase revenues and expand market share 8 through acquisitions that will provide complementary Water and Fueling Systems products, add to the Company’s global reach, or both.
Turkey becoming a hyperinflationary economy may have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. The Company’s acquisition strategy entails expense, integration risks, and other risks that could affect the Company’s earnings and financial condition.
Turkey and Argentina becoming hyperinflationary economies has had a material 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.
Removed
The Organization for Economic Co-operation and Development (the “OECD”), an international association comprised of 38 countries, including the United States, has issued proposals that change long-standing tax principles including on a global minimum tax initiative.
Added
On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive.
Removed
On December 12, 2022, the European Union member states agreed to implement the OECD’s Pillar 2 global corporate minimum tax rate of 15 percent on companies with revenues of at least $790 million, which would go into effect in 2024. Other countries are also actively considering changes to their tax laws to adopt certain parts of the OECD’s proposals.
Added
A significant number of other countries are expected to also implement similar legislation with varying effective dates in the future. The Company does not expect Pillar 2 to have a material impact on its income tax liability, provision for income taxes, or effective tax rate.
Removed
If these proposals are implemented in the countries where the Company operates, it may materially impact our income tax liability, provision for income taxes and effective tax rate. The Inflation Reduction Act signed on August 16, 2022, enacted a new excise tax under Section 4501 on certain repurchases of corporate stock.
Added
Accordingly, the Company’s business is subject to political, economic, and other risks that are inherent in operating a multinational business.
Removed
The Tax applies to repurchases of stock net of issuances after December 31, 2022. The estimated impact to the Company could be material if the Company decides to increase share repurchases. Risks Related to the Business The Company is exposed to political, economic and other risks that arise from operating a multinational business.
Added
The Company also remeasures its financial statements for its Argentina operations in accordance with the highly inflationary accounting rules.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeBesides the owned corporate facility, the Company considers the following to be principal properties: Location / Segment Purpose Own/Lease Santa Catarina, Brazil / Water & Fueling Manufacturing/Distribution/Sales Own Sao Paulo, Brazil / Water & Fueling Manufacturing/Distribution/Sales Own Jiangsu Province, China / Water & Fueling Manufacturing Own Brno, Czech Republic / Water Manufacturing Own Vicenza, Italy / Water Manufacturing Own Nuevo Leon, Mexico / Water & Fueling Manufacturing Own Edenvale, South Africa / Water Manufacturing Own Izmir, Turkey / Water Manufacturing/Distribution/Sales/R&D Own Indiana, United States / Water Manufacturing/Distribution/Sales Lease Montana, United States / Distribution Distribution Own North Carolina, United States / Distribution Distribution Own Oklahoma, United States / Water Manufacturing Own Oregon, United States / Water Manufacturing/Distribution/Sales/R&D Lease Wisconsin, United States / Fueling Manufacturing/Distribution/Sales/R&D Own The Company also owns and leases other smaller facilities which serve as manufacturing locations and distribution warehouses.
Biggest changeBesides the owned corporate facility, the Company considers the following to be principal properties: Location / Segment Purpose Own/Lease Santa Catarina, Brazil / Water & Fueling Manufacturing/Distribution/Sales Own Sao Paulo, Brazil / Water & Fueling Manufacturing/Distribution/Sales Own Jiangsu Province, China / Water & Fueling Manufacturing Own Brno, Czech Republic / Water Manufacturing Own Vicenza, Italy / Water Manufacturing Own Nuevo Leon, Mexico / Water & Fueling Manufacturing Own Edenvale, South Africa / Water Manufacturing Own Izmir, Turkey / Water & Fueling Manufacturing/Distribution/Sales/R&D Own Indiana, United States / Water Manufacturing/Distribution/Sales Lease Montana, United States / Distribution Distribution Own North Carolina, United States / Distribution Distribution Own Oklahoma, United States / Water Manufacturing Own Oregon, United States / Water Manufacturing/Distribution/Sales/R&D Lease Wisconsin, United States / Fueling Manufacturing/Distribution/Sales/R&D Own The Company also owns and leases other smaller facilities which serve as manufacturing locations and distribution warehouses.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn the opinion of management, based on current knowledge of the facts and after discussion with counsel, other claims and legal actions can be defended or resolved without a material effect on the Company’s financial position, results of operations, and net cash flows. 11 INFORMATION ABOUT OUR EXECUTIVE OFFICERS Current executive officers of the Company, their ages, current position, and business experience during at least the past five years as of December 31, 2022, are as follows: Name Age Position Held Period Holding Position Gregg C.
Biggest changeIn the opinion of management, based on current knowledge of the facts and after discussion with counsel, other claims and legal actions can be defended or resolved without a material effect on the Company’s financial position, results of operations, and net cash flows.
Removed
Sengstack 64 Chairperson of the Board and Chief Executive Officer 2015 - present Jeffery L. Taylor 56 Vice President, Chief Financial Officer 2021 - present Chief Financial Officer, Blue Bird Corporation 2020 - 2021 Senior Vice President and Chief Financial Officer, Wabash National Corporation 2014 - 2020 Brent L.
Removed
Spikes 51 Vice President, Global Manufacturing 2022 - present Vice President, Global Water Engineering 2020 - 2022 Vice President, Manufacturing & Manufacturing Engineering 2019 - 2020 Director, Manufacturing & Manufacturing Engineering 2018 - 2019 Director, Advanced Manufacturing 2014 - 2018 DeLancey W.
Removed
Davis 57 Vice President and President, Headwater Companies 2017 - present Vice President and President, North America Water Systems 2012 - 2017 Donald P. Kenney 62 Vice President and President, Global Water 2019 - present Vice President and President, North America Water Systems 2017 - 2019 Vice President and President, Energy Systems 2014 - 2017 Jay J.
Removed
Walsh 53 Vice President and President, Fueling Systems 2019 - present President, Fueling Systems 2017 - 2019 Executive Vice President, Fueling Systems 2013 - 2017 Jonathan M.
Removed
Grandon 47 Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary 2016 - present Kenneth Keene 59 Vice President, Global Supply 2022 - present Vice President, EMEA Manufacturing 2021 - 2022 Vice President, Global Sourcing 2018 - 2021 Vice President, Sales - US 2014 - 2018 All executive officers are elected annually by the Board of Directors at the Board meeting held in conjunction with the annual meeting of shareholders.
Removed
All executive officers hold office until their successors are duly elected or until their death, resignation or removal by the Board. 12 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod Total Number of Shares Repurchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares that may yet to be Repurchased October 1 - October 31 — $ — — 422,942 November 1 - November 30 — $ — — 422,942 December 1 - December 31 134,835 $ 80.40 134,835 288,107 Total 134,835 $ 80.40 134,835 288,107 Stock Performance Graph The following graph compares the Company’s cumulative total shareholder return (Common Stock price appreciation plus dividends, on a reinvested basis) over the last five fiscal years with the Guggenheim S&P Global Water Index and the Russell 2000 Index. 13 Hypothetical $100 invested on December 31, 2017 (fiscal year-end 2017) in Fra nklin Electric common stock (FELE), Guggenheim S&P Global Water Index, and Russell 2000 Index, assuming reinvestment of dividends: YE 2017 2018 2019 2020 2021 2022 FELE $ 100 $ 94 $ 125 $ 151 $ 206 $ 176 Guggenheim S&P Global Water 100 90 119 135 175 137 Russell 2000 100 89 110 130 148 118 14
Biggest changePeriod Total Number of Shares Repurchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares that may yet to be Repurchased October 1 - October 31 80,000 $ 85.55 80,000 980,792 November 1 - November 30 56,718 $ 88.42 56,718 924,074 December 1 - December 31 7,419 $ 93.85 7,419 916,655 Total 144,137 $ 87.11 144,137 916,655 Stock Performance Graph The following graph compares the Company’s cumulative total shareholder return (Common Stock price appreciation plus dividends, on a reinvested basis) over the last five fiscal years with the Guggenheim S&P Global Water Index and the Russell 2000 Index. 13 Hypothetical $100 invested on December 31, 2018 (fiscal year-end 2018) in Fra nklin Electric common stock (FELE), Guggenheim S&P Global Water Index, and Russell 2000 Index, assuming reinvestment of dividends: YE 2018 2019 2020 2021 2022 2023 FELE $ 100 $ 134 $ 161 $ 221 $ 188 $ 202 Guggenheim S&P Global Water 100 132 150 195 152 176 Russell 2000 100 124 146 166 132 155 14
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES The number of shareholders of record as of February 6, 2023 was 608. The Company’s stock is traded on the NASDAQ Global Select Market under the symbol FELE.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES The number of shareholders of record as of February 7, 2024 was 591. The Company’s stock is traded on the NASDAQ Global Select Market under the symbol FELE.
Dividends paid per common share as quoted by the NASDAQ Global Select Market for 2022 and 2021 were as follows: Dividends per Share 2022 2021 1st Quarter $ .1950 $ .1750 2nd Quarter .1950 .1750 3rd Quarter .1950 .1750 4th Quarter .1950 .1750 The Company has increased dividend payments on an annual basis for 30 consecutive years.
Dividends paid per common share as quoted by the NASDAQ Global Select Market for 2023 and 2022 were as follows: Dividends per Share 2023 2022 1st Quarter $ .225 $ .195 2nd Quarter $ .225 $ .195 3rd Quarter $ .225 $ .195 4th Quarter $ .225 $ .195 The Company has increased dividend payments on an annual basis for 31 consecutive years.
The Company repurchased 134,835 shares for approximately $10.8 million under this plan during the fourth quarter of 2022. The maximum number of shares that may still be purchased under this plan as of December 31, 2022 is 288,107.
The Company repurchased 144,137 shares for approximately $12.6 million under this plan during the fourth quarter of 2023. The maximum number of shares that may still be purchased under this plan as of December 31, 2023 is 916,655.
In February 2023, the Company’s Board of Directors approved a plan to increase the number of shares remaining for repurchase by an additional 1,000,000 shares. After giving effect to the February 2023 approval and share repurchase activity in 2023, the maximum number of shares that may still be purchased under this plan as of February 22, 2023 is 1,215,872.
In February 2023, the Company’s Board of Directors approved a plan to increase the number of shares remaining for repurchase by an additional 1,000,000 shares. The authorization was in addition to the 215,872 shares that remained available for repurchase as of February 16, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe impact of foreign currency translation decreased sales by about 5 percent. The Company's consolidated gross profit was $691.4 million for 2022, an increase of $115.3 million, or about 20 percent, from 2021. Net income attributable to the Company was $187.3 million, an increase of $33.5 million, or about 22 percent, from 2021 .
Biggest changeThe sales increase in 2023 was primarily due to price realization, partially offset by the negative impact of foreign currency translation and lower volumes. The Company's consolidated gross profit was $697.0 million for 2023, an increase of $5.6 million from the prior year.
Actual results may differ materially from those forward-looking statements as a result of 20 various factors, including general economic and currency conditions, various conditions specific to the Company’s business and industry, new housing starts, weather conditions, epidemics and pandemics, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases, raw material costs, technology factors, integration of acquisitions, litigation, government and regulatory actions, the Company’s accounting policies, and other risks, all as described in Item 1A and Exhibit 99.1 of this Form 10-K.
Actual results may differ materially from those forward-looking statements as a result of various factors, including general economic and currency conditions, various conditions specific to the Company’s business and industry, new housing starts, weather conditions, epidemics and pandemics, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases, raw material costs, technology factors, integration of acquisitions, litigation, government and regulatory actions, the Company’s accounting policies, and other risks, all as described in Item 1A and Exhibit 99.1 of this Form 10-K.
Estimates are based on historical experience and on other 18 assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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, 2022, the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 13, 2026.
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, 2023, the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 13, 2026.
There were no material changes to estimates or methodologies used to develop those estimates in 2022. The Company’s critical accounting estimates are identified below: Inventory Valuation The Company uses certain estimates and judgments to value inventory. Inventory is recorded at the lower of cost or net realizable value. The Company reviews its inventories for excess or obsolete products or components.
There were no material changes to estimates or methodologies used to develop those estimates in 2023. The Company’s critical accounting estimates are identified below: Inventory Valuation The Company uses certain estimates and judgments to value inventory. Inventory is recorded at the lower of cost or net realizable value. The Company reviews its inventories for excess or obsolete products or components.
The acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values. The Company utilizes management estimates and an independent third-party valuation firm to assist in determining the fair values of assets acquired, including intangible assets, and liabilities assumed. The identifiable intangible assets acquired typically include customer relationships and trade names.
The acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values. The Company utilizes management estimates and may use an independent third-party valuation firm to assist in determining the fair values of assets acquired, including intangible assets, and liabilities assumed. The identifiable intangible assets acquired typically include customer relationships and trade names.
CAPITAL RESOURCES AND LIQUIDITY Sources of Liquidity The Company's primary sources of liquidity are cash on hand, cash flows from operations, revolving credit agreements, and long-term debt funds available. The Company believes its capital resources and liquidity position at December 31, 2022 is adequate to meet projected needs for the foreseeable future.
CAPITAL RESOURCES AND LIQUIDITY Sources of Liquidity The Company's primary sources of liquidity are cash on hand, cash flows from operations, revolving credit agreements, and long-term debt funds available. The Company believes its capital resources and liquidity position at December 31, 2023 is adequate to meet projected needs for the foreseeable future.
In addition, the Company maintains an uncommitted and unsecured private shelf agreement with NYL Investors LLC, an affiliate of New York Life, and each of the undersigned holders of Notes (the "New York Life Agreement") with a remaining borrowing capacity of $125.0 million as of December 31, 2022. The New York Life Agreement matures on July 30, 2024.
In addition, the Company maintains an uncommitted and unsecured private shelf agreement with NYL Investors LLC, an affiliate of New York Life, and each of the undersigned holders of Notes (the "New York Life Agreement") with a remaining borrowing capacity of $125.0 million as of December 31, 2023. The New York Life Agreement matures on July 30, 2024.
The Company also has unrecognized tax benefits, none of which are included in the table above. The unrecognized tax benefits of approximately $0.9 million have been recorded as liabilities and the Company is uncertain as to if or when such amounts may be settled.
The Company also has unrecognized tax benefits, none of which are included in the table above. The unrecognized tax benefits of approximately $0.8 million have been recorded as liabilities and the Company is uncertain as to if or when such amounts may be settled.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Discussion of the year-over-year comparison of changes in the Company's financial condition and results of operation as of and for the fiscal years ended December 31, 2021 and December 31, 2020 can be found in Part II, Item 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Discussion of the year-over-year comparison of changes in the Company's financial condition and results of operation as of and for the fiscal years ended December 31, 2022 and December 31, 2021 can be found in Part II, Item 7.
Certain of these projected interest payments may differ in the future based on interest rates or other factors or events. The projected interest payments only pertain to obligations and agreements outstanding at December 31, 2022.
Certain of these projected interest payments may differ in the future based on interest rates or other factors or events. The projected interest payments only pertain to obligations and agreements outstanding at December 31, 2023.
The Company has pension and other post-retirement benefit obligations not included in the table above which will result in estimated future payments of approximately $0.8 million in 2023.
The Company has pension and other post-retirement benefit obligations not included in the table above which will result in estimated future payments of approximately $0.8 million in 2024.
A change in the discount rate selected by the Company of 25 basis points would result in a change of about $0.1 million to employee benefit expense and a change of about $3.7 million of liability. The Company consults with actuaries and investment advisors in making its determination of the expected long-term rate of return on plan assets.
A change in the discount rate selected by the Company of 25 basis points would result in a change of about $0.1 million to employee benefit expense and a change of about $2.4 million of liability. The Company consults with actuaries and investment advisors in making its determination of the expected long-term rate of return on plan assets.
In addition, due to the timing of funding in future periods being uncertain and dependent on future movements in interest rates, investment returns, changes in laws and regulations and other variables, the table above excludes the non-current liability of $24.9 million for cash outflows related to the Company's pension plans.
In addition, due to the timing of funding in future periods being uncertain and dependent on future movements in interest rates, investment returns, changes in laws and regulations and other variables, the table above excludes the non-current liability of $29.5 million for cash outflows related to the Company's pension plans.
The Company also has other long-term debt borrowings outstanding as of December 31, 2022. See Note 10 - Debt for additional specifics regarding these obligations and future maturities. At December 31, 2022, the Company had $43.4 million of cash and cash equivalents held in foreign jurisdictions, which the Company intends to use to fund foreign operations.
The Company also has other long-term debt borrowings outstanding as of December 31, 2023. See Note 10 - Debt for additional specifics regarding these obligations and future maturities. At December 31, 2023, the Company had $69.6 million of cash and cash equivalents held in foreign jurisdictions, which the Company intends to use to fund foreign operations.
The effective tax rate for 2022 both before and after the impact of discrete events was about 20 percent. The effective tax rate for 2021 was about 18 percent and, before the impact of discrete events, was about 21 percent.
The effective tax rate for 2023 was about 20 percent and before the impact of discrete events was about 21 percent. The effective tax rate for 2022 both before and after the impact of discrete events was about 20 percent.
Using input from these consultations such as long-term investment sector expected returns, the correlations and standard deviations thereof, and the plan asset allocation, the Company will use an expected long-term rate of return on plan assets of 5.70 percent in measuring net periodic cost for 2023.
Using input from these consultations such as long-term investment sector expected returns, the correlations and standard deviations thereof, and the plan asset allocation, the Company will use an expected long-term rate of return on plan assets of 6.20 percent in measuring net periodic cost for 2024.
Goodwill included on the balance sheet as of the year ended December 31, 2022 was $328.0 million. 19 During the fourth quarter of 2022, the Company completed its annual impairment test of goodwill and indefinite-lived trade names and determined the fair value of all intangibles were substantially in excess of the respective carrying values.
Goodwill included on the balance sheet as of the year ended December 31, 2023 was $342.4 million. During the fourth quarter of 2023, the Company completed its annual impairment test of goodwill and indefinite-lived trade names and determined the fair value of all intangibles were substantially in excess of the respective carrying values.
Further, an extended downturn in the economy may impact certain components of the operating segments more significantly and could result in changes to the aggregation assumptions and impairment determination.
Further, an extended downturn in the economy may impact certain components of the operating segments more significantly and could result in an impairment determination.
Market conditions have caused the weighted-average discount rate to move from 2.68 percent last year to 5.15 percent this year for the domestic pension plans and from 2.57 percent last year to 5.08 percent this year for the postretirement health and life insurance plan.
Market conditions have caused the weighted-average discount rate to move from 5.15 percent last year to 4.90 percent this year for the domestic pension plans and from 5.08 percent last year to 4.88 percent this year for the postretirement health and life insurance plan.
The Company reports the results of its subsidiaries in Argentina and Turkey using highly inflationary accounting, which requires that the functional currency of the entity be changed to the reporting currency of its parent. Income Taxes The provision for income taxes in 2022 and 2021 was $46.4 million and $34.7 million, respectively.
The Company reports the results of its subsidiaries in Argentina and Turkey using highly inflationary accounting, which requires that the functional currency of the entity be changed to the reporting currency of its parent. Income Taxes The provision for income taxes in 2023 and 2022 were $47.5 million and $46.4 million, respectively.
A 10 percent decrease in the fair value estimates used in the impairment tests would not have changed this determination. The sensitivity analysis required the use of numerous subjective assumptions, which, if actual experience varies, could result in material differences in the requirements for impairment charges.
A 10 percent decrease in the estimated fair value of any of these intangible assets would not have changed this determination. The sensitivity analysis required the use of numerous subjective assumptions, which, if actual experience varies, could result in material differences in the requirements for impairment charges.
"Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. 2022 vs. 2021 OVERVIEW Net sales in 2022 increased 23 percent compared to the prior year. The sales increase was primarily due to price and acquisitions.
"Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. 2023 vs. 2022 OVERVIEW Net sales in 2023 increased 1 percent compared to the prior year.
As of December 31, 2022, the Company had $223.2 million borrowing capacity under the Credit Agreement as $4.0 million in letters of commercial and standby letters of credit were outstanding and undrawn and $122.8 million in revolver borrowings were drawn and outstanding, which were primarily used for funding working capital requirements.
As of December 31, 2023, the Company had $335.4 million borrowing capacity under the Credit Agreement as $3.6 million in letters of commercial and standby letters of credit were outstanding and undrawn and $11.0 million in revolver borrowings were drawn and outstanding, which were primarily used for funding working capital requirements.
FACTORS THAT MAY AFFECT FUTURE RESULTS This annual report on Form 10-K contains certain forward-looking information, such as 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.
A change in the long-term rate of return selected by the Company of 25 basis points would result in a change of about $0.3 million of employee benefit expense. 20 FACTORS THAT MAY AFFECT FUTURE RESULTS This annual report on Form 10-K contains certain forward-looking information, such as 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.
The payment schedule for these contractual obligations is as follows: (In millions) More than Total 2023 2024-2025 2026-2027 5 years Debt $ 216.2 $ 126.8 $ 77.8 $ 2.9 $ 8.7 Debt interest 19.9 9.4 8.2 1.3 1.0 Operating leases 52.9 17.1 20.5 10.6 4.7 Purchase obligations 12.8 12.8 — — — Income Taxes-U.S.
The payment schedule for these contractual obligations is as follows: (In millions) More than Total 2024 2025-2026 2027-2028 5 years Debt $ 100.6 $ 12.4 $ 78.1 $ 2.8 $ 7.3 Debt interest 13.8 7.6 4.8 0.7 0.7 Operating leases 61.9 19.5 26.6 12.3 3.5 Purchase obligations 11.1 11.0 0.1 — — Income Taxes-U.S.
ACCOUNTING PRONOUNCEMENTS For information regarding recent accounting pronouncements, refer to Note 2 - Accounting Pronouncements , in the Notes to Consolidated Financial Statements in the sections entitled ""Adoption of New Accounting Standards" and "Accounting Standards Issued But Not Yet Adopted", included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Related to the unrecognized tax benefits, the Company has also recorded a liability for potential penalties and interest of $0.1 million. 18 ACCOUNTING PRONOUNCEMENTS For information regarding recent accounting pronouncements, refer to Note 2 - Accounting Pronouncements , in the Notes to Consolidated Financial Statements in the sections entitled ""Adoption of New Accounting Standards" and "Accounting Standards Issued But Not Yet Adopted", included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
In compliance with FASB ASC Topic 350, goodwill is not amortized. Goodwill is tested at the reporting unit level for impairment annually or more frequently as warranted by triggering events that indicate potential impairment. Reporting units are operating segments or one level below, known as components, which can be aggregated for testing purposes.
In compliance with FASB ASC Topic 350, goodwill is not amortized. Goodwill is tested at the reporting unit level for impairment annually or more frequently as warranted by triggering events that indicate potential impairment.
Tax Cuts and Jobs Act transition tax $ 11.6 $ 2.9 $ 8.7 $ — $ — $ 313.4 $ 169.0 $ 115.2 $ 14.8 $ 14.4 Interest payments on debt obligations are calculated for future periods using interest rates in effect at the end of 2022.
Tax Cuts and Jobs Act transition tax $ 8.7 $ 3.9 $ 4.8 $ — $ — $ 196.1 $ 54.4 $ 114.4 $ 15.8 $ 11.5 Interest payments on debt obligations are calculated for future periods using interest rates in effect at the end of 2023.
Net income attributable to Franklin Electric Co., Inc. for 2022 was $187.3 million, or $3.97 per diluted share, compared to 2021 net income attributable to Franklin Electric Co., Inc. of $153.9 million, or $3.25 per diluted share.
Net Income Net income for 2023 was $194.7 million compared to 2022 net income of $188.8 million. Net income attributable to Franklin Electric Co., Inc. for 2023 was $193.3 million, or $4.11 per diluted share, compared to 2022 net income attributable to Franklin Electric Co., Inc. of $187.3 million, or $3.97 per diluted share.
The Company is required to record an impairment if these assumptions and estimates change whereby the fair value of the reporting units is below their associated carrying values.
These cash flows consider factors regarding expected future operating income and historical trends, as well as the effects of demand and competition. The Company is required to record an impairment if these assumptions and estimates change whereby the fair value of the reporting units is below their associated carrying values.
The inter-segment profit elimination impact in 2022 decreased operating income by about $3.0 million more compared to 2021. The inter-segment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in the consolidated financial results until the transferred product is sold from the Distribution segment to its third-party customer.
The intersegment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in the consolidated financial results until such time as the transferred product is sold from the Distribution segment to its end third party customer. General and administrative expenses increased $1.0 million, compared to the prior year.
Operating income increased in Water Systems primarily due to higher sales volumes and SG&A cost controls. The 2022 operating income margin was 14.9 percent compared to 2021 operating income margin of 14.4 percent of net sales. Operating income margin increased in Water Systems primarily due to operating leverage on higher sales.
The 2023 operating income margin was 16.3 percent compared to 2022 operating income margin of 14.9 percent of net sales. Operating income margin increased in Water Systems primarily due to price realization and operating leverage on higher sales. Operating Income-Fueling Systems Fueling Systems operating income decreased $4.1 million in 2023, as compared to the prior-year period.
Cash Flows The following table summarizes significant sources and uses of cash and cash equivalents: (in thousands) 2022 2021 Cash flows from operating activities $ 101.7 $ 129.8 Cash flows from investing activities $ (43.1) $ (264.8) Cash flows from financing activities $ (48.5) $ 50.9 Impact of exchange rates on cash and cash equivalents $ (4.9) $ (6.1) Change in cash and cash equivalents $ 5.2 $ (90.2) 17 Cash Flows from Operating Activities 2022 vs 2021 Net cash provided by operating activities was $101.7 million for 2022 compared to $129.8 million for 2021.
There is currently no need to repatriate these funds in order to meet domestic funding obligations or scheduled cash distributions. 17 Cash Flows The following table summarizes significant sources and uses of cash and cash equivalents: (in millions) 2023 2022 Cash flows from operating activities $ 315.7 $ 101.7 Cash flows from investing activities $ (74.3) $ (43.1) Cash flows from financing activities $ (192.2) $ (48.5) Impact of exchange rates on cash and cash equivalents $ (10.0) $ (4.9) Change in cash and cash equivalents $ 39.2 $ 5.2 Cash Flows from Operating Activities 2023 vs 2022 Net cash provided by operating activities was $315.7 million for 2023 compared to $101.7 million for 2022.
The tax rate was lower than the statutory rate of 21 percent primarily due to the recognition of the U.S. deduction for Foreign Derived Intangible Income, certain incentives, and discrete events.
The effective tax rate differs from the U.S. statutory rate of 21 percent primarily due to the recognition of the U.S. foreign-derived intangible income (FDII) provisions, foreign earnings taxed at rates below the U.S. statutory rate, certain incentives, and discrete events partially offset by state taxes.
The decrease in cash provided by operating activities was primarily due to increased working capital requirements in support of higher revenues. Cash Flows from Investing Activities 2022 vs. 2021 Net cash used in investing activities was $43.1 million in 2022 compared to $264.8 million in 2021. The decrease was primarily attributable to decreased acquisition activity in 2022.
Cash Flows from Investing Activities 2023 vs. 2022 Net cash used in investing activities was $74.3 million in 2023 compared to $43.1 million in 2022. The increase was primarily attributable to increased acquisition activity in 2023.
Additionally, higher travel and advertising expenses were partially offset by lower variable performance-based compensation expenses. SG&A costs as a percent of net sales decreased to 21.1 percent in 2022 from 23.2 percent in 2021. Restructuring Expenses Restructuring expenses were $2.2 million and $0.6 million in 2022 and 2021, respectively.
SG&A expenses increased by less than 1 percent in 2023 primarily due to higher compensation costs, partially offset by lower advertising and marketing expenses . The SG&A expenses ratio was 21.0 percent and 21.1 percent in 2023 and 2022, respectively. Restructuring Expenses Restructuring expenses were $1.1 million and $2.2 million in 2023 and 2022, respectively.
Market conditions have caused the expected long-term rate or return to increase from 4.50 percent as used in measuring net periodic cost for 2022. A change in the long-term rate of return selected by the Company of 25 basis points would result in a change of about $0.3 million of employee benefit expense.
Market conditions have caused the expected long-term rate or return to increase from 5.70 percent as used in measuring net periodic cost for 2023.
Restructuring expenses were primarily from continued miscellaneous manufacturing realignment activities and branch closings and consolidations in the Distribution and Water Systems segments. Operating Income Operating income was $257.2 million in 2022, up $68.0 million, or 36 percent, from $189.2 million in 2021.
Restructuring expenses were primarily from continued miscellaneous manufacturing realignment activities, branch closings and consolidations. Operating Income Operating income increased 2 percent in 2023, as compared to the prior year.
Foreign Exchange Foreign exchange was a loss of $7.2 million and $2.3 million in 2022 and 2021, respectively. The increase in 2022 was primarily due to transaction losses associated with the Argentine Peso and Turkish Lira.
The expense in 2023 was primarily due to transaction losses associated with the Turkish Lira, A rgentine and Mexican Peso relative to the U.S. dollar. The expense in 2022 was primarily due to transaction losses associated with the Argentine Peso and Turkish Lira.
In assessing the recoverability of goodwill, the Company determines the fair value of its reporting units by utilizing a combination of both the market value and income approaches. The market value approach compares the reporting units’ current and projected financial results to entities of similar size and industry to determine the market value of the reporting unit.
The market value approach compares the reporting units’ current and projected financial results to entities of similar size and industry to determine the market value of the reporting unit. The income approach utilizes assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets.
The 2022 operating income margin was 8.2 percent compared to 7.2 percent of net sales in 2021. The increase in operating income margin was primarily due to sales growth and operating leverage. Operating Income-Eliminations/Other Operating income-Eliminations/Other is composed primarily of inter-segment sales and profit eliminations and unallocated general and administrative expenses.
Operating income and operating income margin decreased primarily due to unfavorable pricing of commodity-based products sold through the business. Operating Income-Eliminations/Other 16 Operating income-eliminations/other is composed primarily of intersegment sales and profit eliminations and unallocated general and administrative expenses. The intersegment profit elimination impact in 2023 compared to 2022 was a favorable $6.2 million.
Water Systems sales in markets outside the U.S. and Canada increased by about 7 percent compared to 2021. The incremental impact to sales from acquired businesses was $4.7 million. Sales decreased by $68.7 million, or 17 percent, in 2022 due to foreign currency translation.
Water Systems sales in markets outside the U.S. and Canada increased 3 percent in 2023, as compared to the prior year. Sales decreased 11 percent in 2023 due to the negative impact from foreign exchange rates, as compared to prior year.
Interest Expense Interest expense increased in 2022 to $11.5 million from $5.2 million in 2021 primarily due to higher outstanding debt levels and higher interest rates. 16 Other Income or Expense Other income or expense was a loss of $3.2 million in 2022 compared to income of $8.0 million in 2021.
Interest Expense Interest expense was $11.8 million in 2023 and $11.5 million in 2022, respectively. The increase in 2023 was primarily driven by higher interest rates, partially offset by lower average borrowings in 2023. Other Income or Expense Other income (expense), net was a benefit of $3.7 million in 2023 and an expense of $3.2 million in 2022.
Excluding the impact of acquisitions and foreign currency translation, sales increased in all major markets; EMEA, Latin America, and Asia Pacific. Net Sales-Fueling Systems Fueling Systems sales were $334.1 million in 2022, an increase of $45.0 million, or about 16 percent, from 2021. Foreign currency translation changes decreased sales $5.4 million, or about 2 percent, compared to 2021.
In 2023 excluding the impact of foreign currency translation, sales increases in EMEA and Latin America more than offset sales declines in the Asia Pacific markets. Net Sales-Fueling Systems Fueling Systems sales decreased 11 percent in 2023, as compared to the prior year.
Operating income (loss) (In millions) 2022 2021 2022 v 2021 Water Systems $ 172.3 $ 139.1 $ 33.2 Fueling Systems 96.8 79.5 17.3 Distribution 54.5 35.9 18.6 Eliminations/Other (66.4) (65.3) (1.1) Consolidated $ 257.2 $ 189.2 $ 68.0 Operating Income-Water Systems Water Systems operating income was $172.3 million in 2022 compared to $139.1 million in 2021, an increase of 24 percent.
Operating income (loss) (In millions) 2023 2022 2023 v 2022 Water Systems $ 196.6 $ 172.3 $ 24.3 Fueling Systems 92.7 96.8 (4.1) Distribution 34.3 54.5 (20.2) Eliminations/Other (61.2) (66.4) 5.2 Consolidated $ 262.4 $ 257.2 $ 5.2 Operating Income-Water Systems Water Systems operating income increased $24.3 million in 2023, as compared to the prior-year period, primarily due to price realization and cost management, including lower freight costs.
Net Sales (In millions) 2022 2021 2022 v 2021 Water Systems $ 1,157.5 $ 963.6 $ 193.9 Fueling Systems 334.1 289.1 45.0 Distribution 668.1 497.6 170.5 Eliminations/Other (116.0) (88.4) (27.6) Consolidated $ 2,043.7 $ 1,661.9 $ 381.8 Net Sales-Water Systems Water Systems sales were $1,157.5 million in 2022, an increase of $193.9 million, or about 20 percent, versus 2021.
RESULTS OF OPERATIONS Net Sales Net Sales (In millions) 2023 2022 2023 v 2022 Water Systems $ 1,203.7 $ 1,157.5 $ 46.2 Fueling Systems 296.5 334.1 (37.6) Distribution 673.3 668.1 5.2 Eliminations/Other (108.4) (116.0) 7.6 Consolidated $ 2,065.1 $ 2,043.7 $ 21.4 Net sales increased 1 percent in 2023 compared to the prior year.
Operating Income-Fueling Systems Fueling Systems operating income was $96.8 million in 2022 compared to $79.5 million in 2021, an increase of 22 percent. Operating income increased in Fueling Systems primarily due to higher sales volumes. The 2022 operating income margin was 29.0 percent compared to 27.5 percent of net sales in 2021.
Operating income decreased in Fueling Systems primarily due to lower sales volumes, partially offset by a favorable product and geographic mix of net sales and disciplined cost management. The 2023 operating income margin was 31.3 percent compared to 29.0 percent of net sales in 2022.
Cash Flows from Financing Activities 2022 vs. 2021 Net cash used by financing activities was $48.5 million in 2022 compared to $50.9 million provided by financing activities in 2021. The change in financing cash flows was attributable to decreased net proceeds from debt and common stock issuances, increased stock repurchases, higher dividend payments and deferred payments related to acquisitions.
Cash Flows from Financing Activities 2023 vs. 2022 Net cash used by financing activities was $192.2 million in 2023 compared to $48.5 million in 2022. The change in financing cash flow was primarily attributable to net borrowings under the Company's revolving credit facility in 2022 compared to net repayments in 2023.
Operating income margin increased in Fueling Systems primarily due to operating leverage on higher sales. Operating Income-Distribution Distribution operating income was $54.5 million in 2022 compared to $35.9 million in 2021, an increase of 52 percent. Operating income increased in Distribution due to higher sales volumes.
Operating income margin increased in Fueling Systems primarily due to price realization, a favorable product and geographic sales mix shift and disciplined cost management. Operating Income-Distribution Distribution operating income decreased $20.2 million in 2023, as compared to the prior-year period. The 2023 operating income margin was 5.1 percent compared to 8.2 percent of net sales in 2022.
Removed
RESULTS OF OPERATIONS Net Sales Net sales in 2022 were $2,043.7 million, an increase of $381.8 million, or about 23 percent, compared to 2021 sales of $1,661.9 million. The incremental impact to sales from acquired businesses was $131.9 million. Sales decreased by $77.1 million, or about 5 percent, in 2022 due to foreign currency translation.
Added
Diluted earnings per share was $4.11 for 2023, an increase of $0.14 or 4 percent from the prior year.
Removed
The incremental impact to sales from acquired businesses was $58.8 million. Foreign currency translation changes decreased sales $71.7 million, or about 7 percent, compared to 2021. Water Systems sales in the U.S. and Canada increased by about 30 percent compared to 2021. The incremental impact to sales from acquired businesses was $54.1 million.
Added
Foreign currency unfavorably impacted net sales by 3 percentage points during 2023, principally due to the strengthening of the U.S. Dollar relative to the Turkish Lira and Argentine Peso. Net Sales-Water Systems Water Systems sales increased 4 percent in 2023, as compared to the prior year. This sales growth was primarily due to price realization.
Removed
Sales decreased by $3.0 million in 2022 due to foreign currency translation. In 2022, sales of groundwater pumping equipment increased by about 22 percent and sales of all surface pumping equipment increased by about 23 percent versus 2021, due to strong end market demand and pricing.
Added
Partially offsetting the increase, sales decreased 5 percent in 2023 due to the negative impact from foreign exchange rates, as compared to prior year. Water Systems sales in the U.S. and Canada increased 4 percent in 2023, as compared to the prior year.
Removed
Fueling Systems sales in the U.S. and Canada increased by about 22 percent during 2022, primarily due to pricing actions and higher demand across all product lines. Outside the U.S. and Canada, Fueling Systems sales increased with sales growth in India more than offsetting lower sales in China.
Added
Sales decreased less than 1 percent in 2023 due to the negative impact from foreign exchange rates, as compared to prior year. In 2023, sales of large dewatering equipment increased 63 percent, sales of groundwater pumping equipment decreased 10 percent and sales of all other surface pumping equipment decreased 1 percent compared to 2022.
Removed
China sales were about $7 million in 2022 compared to about $12 million in 2021. Net Sales-Distribution Distribution sales were $668.1 million in 2022, an increase of $170.5 million, or about 34 percent, from 2021. The incremental impact to sales from acquired businesses was $73.1 million.
Added
This sales decline was primarily due to lower volumes driven by customer inventory destocking as well as higher interest rates, labor constraints, and permitting delays causing some new station build plans to move into 2024. Fueling Systems sales in the U.S. and Canada decreased 9 percent in 2023, as compared to the prior year.
Removed
Sales growth was driven by acquisitions, pricing and broad-based demand in all regions and product categories. 15 Cost of Sales Cost of sales as a percent of net sales for 2022 and 2021 was 66.2 percent and 65.3 percent, respectively. Correspondingly, the gross profit margin was 33.8 percent and 34.7 percent, respectively.
Added
The decrease was primarily in dispensing and piping equipment.
Removed
The gross profit margin decline was primarily a result of supply disruptions causing unfavorable absorption variances and higher inbound freight that was partially offset by realized pricing actions that more than offset inflationary cost increases. The Company's consolidated gross profit was $691.4 million for 2022, up $115.3 million from the gross profit of $576.1 million in 2021.
Added
Outside the U.S. and Canada, Fueling Systems sales decreased 19 percent in 2023, as compared to the prior year, due primarily to the divestiture of the above ground storage tank business in 2022 and lower sales in China. 15 Net Sales-Distribution Distribution sales increased 1 percentage point in 2023, as compared to the prior year.
Removed
The gross profit increase was primarily due to higher sales. Selling, General and Administrative (“SG&A”) SG&A expenses were $432.1 million in 2022 and increased $45.8 million compared to $386.3 million in the prior year. The increase was primarily due to incremental expenses from acquired businesses of $31 million.
Added
The Distribution segment sales increase was primarily due to higher volumes, partially offset by lower commodity-driven pricing.
Removed
Additionally, unallocated general and administrative expenses decreased $1.9 million compared to last year.
Added
Gross Profit and Expense Ratios Fiscal Year (In Millions) 2023 % of Net Sales 2022 % of Net Sales Gross Profit $ 697.0 33.8 % $ 691.4 33.8 % Selling, General and Administrative Expense 433.5 21.0 % 432.1 21.1 % Gross Profit The gross profit margin ratio was 33.8 percent in 2023 and 2022.
Removed
Included in other income or expense in 2022 was a loss of $2.1 million related to a settlement of an indirect tax dispute. Other income or expense in 2021 included a bargain purchase gain of $6.5 million and a gain of $2.5 million related to a settlement of an indirect tax dispute.
Added
The gross profit margin was favorably impacted in 2023 by price realization, product mix and lower freight costs in Water Systems and Fueling, partially offset by margin compression from unfavorable pricing of commodity-based products sold through the Distribution business. Selling, General and Administrative (“SG&A”) SG&A expenses were $433.5 million in 2023 compared to $432.1 million in 2022.
Removed
The increase in the effective tax rate in 2022 was primarily a result of smaller net favorable discrete events recorded in 2022 compared to 2021, primarily related to excess tax benefits from share-based compensation. Net Income Net income for 2022 was $188.8 million compared to 2021 net income of $155.0 million.
Added
The favorable benefit in 2023 was due to higher interest income as a result of favorable interest rates and lower benefit costs related to the Company’s employee benefit plans. Foreign Exchange Foreign currency-based transactions produced an expense of $12.1 million in 2023 and $7.2 million in 2022, respectively.
Removed
There is currently no need to repatriate these funds in order to meet domestic funding obligations or scheduled cash distributions.
Added
The increase in cash provided by operating activities was primarily due to actions the Company took to improve working capital including inventory reductions as its supply chain resiliency and lead times improved during the back half of the year.
Removed
Related to the unrecognized tax benefits, the Company has also recorded a liability for potential penalties and interest of $0.2 million.
Added
Reporting units are operating segments or one level below, known as components, which can be aggregated for testing purposes. 19 In assessing the recoverability of goodwill, the Company determines the fair value of its reporting units by utilizing a combination of both the market value and income approaches.
Removed
The Company’s goodwill is allocated to the Global Water Systems, Fueling Systems and Distribution reporting units. As the Company’s business model evolves, management will continue to evaluate its reporting units and review the aggregation criteria.
Removed
The income approach utilizes assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. These cash flows consider factors regarding expected future operating income and historical trends, as well as the effects of demand and competition.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe impact of a 10 percent movement in foreign exchange rates would not have a material impact on the Company's consolidated financial position, results of operations, or cash flows. Interest Rate Risk The results of operations are exposed to changes in interest rates primarily with respect to borrowings under the Company’s revolving credit agreement (the “Credit Agreement”).
Biggest changeInterest Rate Risk The results of operations are exposed to changes in interest rates primarily with respect to borrowings under the Company’s revolving credit agreement (the “Credit Agreement”).
The Company estimates that a hypothetical increase of 100 basis points in interest rates would have increased interest expense by $1.0 million during 2022. The Company also has exposure to changes in interest rates in the form of the fair value of outstanding fixed rate debt fluctuating in response to changing interest rates.
The Company estimates that a hypothetical increase of 100 basis points in interest rates would have increased interest expense by $0.7 million during 2023. The Company also has exposure to changes in interest rates in the form of the fair value of outstanding fixed rate debt fluctuating in response to changing interest rates.
Based on the 2022 use of commodities, the Company estimates that a hypothetical 10 percent adverse movement in prices for raw metal commodities would result in about a 1 percent decrease of gross margin as a percent of net sales. 21
Based on the 2023 use of commodities, the Company estimates that a hypothetical 10 percent adverse movement in prices for raw metal commodities would result in less than 1 percent decrease of gross margin as a percent of net sales. 21
Borrowings in EUR under the Credit Agreement may be made either at (i) a Euro Interbank Offer Rate (EURIBOR) Term Benchmark plus an applicable margin or (ii) an alternative base rate as defined in the Credit Agreement. The Company had $122.8 borrowings at year-end 2022 under the Credit Agreement.
Borrowings in EUR under the Credit Agreement may be made either at (i) a Euro Interbank Offer Rate (EURIBOR) Term Benchmark plus an applicable margin or (ii) an alternative base rate as defined in the Credit Agreement. The Company had $11.0 million borrowings at year-end 2023 under the Credit Agreement.
Based on the 2022 mix of foreign currencies, the Company estimates that a hypothetical strengthening of the US Dollar by about 2 percent would have reduced the Company’s 2022 sales by about 1 percent. In addition, as of December 31, 2022, the Company had a notional amount of $10.3 million in forward currency contracts outstanding.
Based on the 2023 mix of foreign currencies, the Company estimates that a hypothetical strengthening of the US Dollar by about 2 percent would have reduced the Company’s 2023 sales by less than 1 percent.
Removed
One-week and two-month USD LIBOR tenors were phased out by the Intercontinental Exchange Benchmark Administration effective December 31, 2021. All other US LIBOR tenors are scheduled to cease after June 30, 2023.
Removed
The United States, using the analysis performed by the ARRC (Alternative Reference Rates Committee), elected the Secured Overnight Financing Rate (“SOFR”) as a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury Securities. The New York Fed commenced publishing the SOFR rate daily beginning April 3, 2018.

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