FRANKLIN ELECTRIC CO INCFELE
FRANKLIN ELECTRIC CO INC Income Taxes Disclosure
INCOME TAXES
Income before income taxes consisted of the following:
| (In millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Domestic | $ | 108.9 | $ | 169.5 | $ | 163.9 | ||||||||||||||
| Foreign | 85.8 | 62.3 | 78.3 | |||||||||||||||||
| $ | 194.7 | $ | 231.8 | $ | 242.2 | |||||||||||||||
The income tax provision/(benefit) consisted of the following:
| (In millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | 22.0 | $ | 42.5 | $ | 27.0 | ||||||||||||||
| Foreign | 25.5 | 17.3 | 14.9 | |||||||||||||||||
| State | 6.1 | 10.0 | 7.2 | |||||||||||||||||
| Total current | 53.6 | 69.8 | 49.1 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | (2.5) | (16.0) | (1.1) | |||||||||||||||||
| Foreign | (3.8) | (0.8) | (0.3) | |||||||||||||||||
| State | (1.3) | (2.8) | (0.2) | |||||||||||||||||
| Total deferred | $ | (7.6) | $ | (19.6) | $ | (1.6) | ||||||||||||||
| $ | 46.0 | $ | 50.2 | $ | 47.5 | |||||||||||||||
The table below provides the updated requirements of ASU 2023-09 for 2025.
A reconciliation of the tax provision for continuing operations at the U.S. statutory rate to the effective income tax expense rate as reported is as follows:
| (In millions) | 2025(a) | |||||||||||||
| Amount | Percent | |||||||||||||
| U.S. Federal Statutory Tax Rate | $ | 40.9 | 21.0 | % | ||||||||||
| U.S. State and Local Income Taxes, Net of Federal Income Tax Effect (a) | 3.4 | 1.7 | ||||||||||||
| Foreign Tax Effects | ||||||||||||||
| Netherlands | ||||||||||||||
| Exemption of Foreign Business Profits | (7.2) | (3.7) | ||||||||||||
| Pillar Two Global Minimum Tax | 2.9 | 1.5 | ||||||||||||
| Other | 1.3 | 0.6 | ||||||||||||
| Other foreign jurisdictions | 7.3 | 3.7 | ||||||||||||
| Effect of Cross-Border under U.S. Tax Laws | ||||||||||||||
| Foreign-derived intangible income | (4.0) | (2.1) | ||||||||||||
| Other | (0.3) | (0.1) | ||||||||||||
| U.S. Nontaxable or Nondeductible Items | ||||||||||||||
| Nondeductible officer's compensation | 2.5 | 1.3 | ||||||||||||
| Other | 0.1 | 0.1 | ||||||||||||
| Other U.S. Adjustments | (0.9) | (0.4) | ||||||||||||
| Effective Tax Rate | $ | 46.0 | 23.6 | % | ||||||||||
(a) The following jurisdictions made up the majority (greater than 50 percent) of the tax effect in this category:
2025 - California, Texas, Florida, Michigan, Pennsylvania, Illinois, and New York;
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the reconciliation of the tax provision for continuing operations at the U.S. statutory rate to the effective income tax expense rate as reported is as follows.
| 2024 | 2023 | |||||||||||||
| U.S. Federal statutory rate | 21.0 | % | 21.0 | % | ||||||||||
| State income taxes, net of federal benefit | 2.3 | 2.3 | ||||||||||||
| Foreign operations | 1.0 | (0.7) | ||||||||||||
| R&D tax credits | (0.6) | (0.4) | ||||||||||||
| Uncertain tax position adjustments | 0.2 | (0.1) | ||||||||||||
| Valuation allowance on state and foreign deferred tax | 0.2 | (0.2) | ||||||||||||
| Share-based compensation | (0.8) | (1.0) | ||||||||||||
| Other items | 0.9 | (0.1) | ||||||||||||
| Foreign Derived Intangible Income | (3.5) | (2.4) | ||||||||||||
| Nondeductible officer's compensation | 1.0 | 1.2 | ||||||||||||
| Effective tax rate | 21.7 | % | 19.6 | % | ||||||||||
The effective tax rate differs from the U.S. statutory rate of 21 percent primarily due to U.S. state taxes, foreign earnings taxed at rates higher than the U.S. statutory rate, U.S. state taxes, Pillar Two Global Minimum Tax, and nondeductible officer’s compensation, which were partially offset by an object exemption of foreign business profits in the Netherlands, the recognition of the U.S. foreign-derived intangible income (FDII) provisions, certain incentives, and discrete events.
Significant components of the Company’s deferred tax assets and liabilities were as follows:
| (In millions) | 2025 | 2024 | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Accrued expenses and reserves | $ | 16.7 | $ | 15.5 | ||||||||||
| Compensation and employee benefits | 11.9 | 16.0 | ||||||||||||
| Intercompany prepayments (FDII related) | 14.9 | 16.9 | ||||||||||||
| Net operating losses, tax credit carryforwards, and other | 10.3 | 11.8 | ||||||||||||
| Lease liability | 16.8 | 15.7 | ||||||||||||
| Research and development expenditures, net | 4.5 | 7.4 | ||||||||||||
| Valuation allowance on state and foreign deferred tax | (4.4) | (4.4) | ||||||||||||
| Total deferred tax assets | 70.7 | 78.9 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Accelerated depreciation on fixed assets | 17.3 | 15.6 | ||||||||||||
| Amortization of intangibles | 68.7 | 49.2 | ||||||||||||
| Lease right-of-use asset, net | 16.8 | 15.7 | ||||||||||||
| Other items | 0.6 | 0.4 | ||||||||||||
| Total deferred tax liabilities | 103.4 | 80.9 | ||||||||||||
| Net deferred tax liabilities | $ | (32.7) | $ | (2.0) | ||||||||||
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss for certain foreign income tax purposes incurred over the 3-year period ended December 31, 2025. Such objective evidence limits the ability to consider other subjective evidence, such as the Company's projections for future growth.
On the basis of this evaluation, as of December 31, 2025, a valuation allowance of $4.4 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The Company has foreign income tax net operating loss (“NOL”) and credit carryforwards of $6.5 million and U.S. state income tax credit carryforwards of $3.8 million, which will expire on various dates as follows:
| (In millions) | |||||
| 2026-2029 | $ | 3.2 | |||
| 2030-2034 | 1.6 | ||||
| 2035-2039 | 0.6 | ||||
| 2040-2045 | 0.3 | ||||
| Unlimited | 4.6 | ||||
| $ | 10.3 | ||||
The Company believes that it is more likely than not that the benefit from certain foreign NOL carryforwards as well as certain U.S. state credit carryforwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $3.2 million on the deferred tax assets related to these foreign NOL carryforwards and a valuation allowance of $1.2 million on the deferred tax assets related to these U.S. state credit carryforwards.
As of December 31, 2025, the Company has estimated accumulated undistributed earnings generated by the Company's foreign subsidiaries of approximately $656.4 million. Any taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of its foreign investments would generally be limited to foreign and U.S. state taxes. The Company intends, however, to indefinitely reinvest these earnings and expects future U.S. cash generation to be sufficient to meet future U.S. cash needs. The Company, therefore, has not recorded a deferred tax liability of approximately $7.5 million.
As of the beginning of 2025, the Company had gross unrecognized tax benefits of $1.3 million, excluding accrued interest and penalties. The unrecognized tax benefits increased due to uncertain tax positions identified for the current and prior years based on evaluations made during 2025, which were offset by statute expirations. The Company had gross unrecognized tax benefits, excluding accrued interest and penalties, of $3.0 million as of December 31, 2025.
During the first quarter of 2025, the Company recorded additional unrecognized tax benefits (excluding accrued interest and penalties) of $1.5 million. This amount is associated with uncertain tax positions taken by newly acquired companies in tax years prior to the acquisition of these companies. The stock purchase agreement related to the acquisition provides the Company the right to recover tax liabilities related to pre-acquisition tax years from the sellers and has accordingly recognized an indemnification receivable.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2025, 2024, and 2023 (excluding interest and penalties) is as follows:
| (In millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Beginning balance | $ | 1.3 | $ | 0.8 | $ | 0.9 | ||||||||||||||
| Additions for tax positions of the current year | 0.3 | 0.6 | 0.3 | |||||||||||||||||
| Additions for tax positions of prior years | 1.5 | 0.2 | — | |||||||||||||||||
| Statute expirations | (0.1) | (0.3) | (0.4) | |||||||||||||||||
| Ending balance | $ | 3.0 | $ | 1.3 | $ | 0.8 | ||||||||||||||
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company has accrued interest and penalties as of December 31, 2025, December 31, 2024, and December 31, 2023 of approximately $1.1 million, $0.1 million, and $0.1 million, respectively.
The Company is subject to taxation in the United States and various U.S. state and foreign jurisdictions. With few exceptions, as of December 31, 2025, the Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2022 and is no longer subject to foreign or U.S. state income tax examinations by tax authorities for years before 2020.
Total cash paid for income taxes, net of refunds are as follows:
| (In millions) | 2025 | |||||||
| Federal | $ | 43.8 | ||||||
| State | 9.2 | |||||||
| Foreign | 23.7 | |||||||
| Total | $ | 76.7 | ||||||
Income taxes paid (net of refunds) exceeded 5 percent of total income taxes paid (net of refunds) in the following jurisdictions:
| (In millions) | 2025 | |||||||
| Federal | ||||||||
| United States | $ | 43.8 | ||||||
| Foreign | ||||||||
| Brazil | $ | 4.7 | ||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 20, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Feb 25, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Feb 27, 2018 | |
| 2016 | Mar 1, 2017 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.