UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑ | |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
OR
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. |
Commission File Number
001-16191TENNANT COMPANY
(Exact name of registrant as specified in its charter)
Minnesota | 41-0572550 | |
State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization | Identification No.) |
10400 Clean Street
Eden Prairie, Minnesota 55344
(Address of principal executive offices)
(Zip Code)
763-540-1200
(Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
Common Stock, par value $0.375 per share | TNC | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None | |||||||||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. | ☑ | Yes | No | ||||||
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. | Yes | ☑ | No | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | ☑ | Yes | No | ||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | ☑ | ||||||||
Yes | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. | ||||||
Large accelerated filer | ☑ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | ||||
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. | ☑ | ||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | ☐ | Yes | ☑ | No | |
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2021, was $1,476,042,920.
As of January 28, 2022, there were 18,525,725 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its 20192022 annual meeting of shareholders (the “2019“2022 Proxy Statement”) are incorporated by reference in Part III.
Form 10–K
Table of Contents
2021
ANNUAL REPORT
Form 10–K
(Pursuant to Securities Exchange Act of 1934)
PART I
ITEM 1 – Business
General Development of Business
Founded in 1870 by George H. Tennant, Tennant Company ("the Company, we, us, or our"), headquartered in Eden Prairie, Minnesota, is a world leader in the design, manufacture and marketing of solutions that help create a cleaner, safer and healthier world. Tennant was incorporated as a Minnesota corporation incorporated in 1909 and began as a one-man woodworking business, evolvedeventually evolving into a successful wood flooring and wood products company, and eventuallyfinally into a manufacturer of floor cleaning equipment. Throughout its history, Tennantthe Company has remained focused on advancing our industry by aggressively pursuing new technologies and creating a culture that celebrates innovation.
Today, Tennantthe Company has 11 global manufacturing locations and operates in three geographic areas including the Americas, Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC). We aggregate our operating segments into one reportable segment that consists of the design, manufacture and sale and servicing of products used primarily in the maintenance of nonresidential surfaces. The Company is a recognized leader of the cleaning industry. We are passionate aboutcommitted to developing innovative and sustainable solutions that help our customers clean spaces more effectively addressing indoor and outdoor cleaning challenges. Tennant Company operates in three geographic business units including the Americas, Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC).
The Company is focused on achieving operating efficiencies as we continue to innovate and invest in our product portfolio to deliver value to our customers and drive profitable growth for our shareholders.
Principal Products, Markets and Distribution
The Company offers products and solutions consisting of mechanized cleaning equipment for both industrial and commercial use, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, specialty surface coatings,services, and business solutions such as financing, rental and leasing programs, and machine-to-machine asset management solutions.
The Company's products are used in many types of environments including: Retailretail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, parking lots and streets, and more. The Company markets its offerings under the following brands: Tennant
The Company's global field service network is the most extensive in the industry. We sell products directly in 15 countries and through distributors in more than 100 countries.
Raw Materials
Steel, metal alloys and resin are the primary raw materials used to manufacture our mechanized cleaning equipment. We purchase various goods, including component parts and services used in production, logistics and product development processes from third parties. In 2021, the coronavirus (“COVID-19”) pandemic caused imbalances within global supply markets. As markets re-opened and demand increased following COVID lockdowns, the Company experienced raw material price inflation and constrained supply of certain raw materials and component parts. The Company has not experienced any significant or unusual problems incontinues work to minimize the availabilityimpact of raw materials or other product components. price inflation and market supply challenges by employing local-for-local and region-for-region manufacturing and sourcing to allow us to manufacture our products closer to our customers. At the same time, our engineering teams are evaluating platform design to allow for available parts and to increase our sourcing flexibility. We expect price inflation and market supply challenges to continue which may negatively impact our financial results.
Intellectual Property
The Company has sole-source vendors for certain components. A disruptionowns a broad range of intellectual property rights in supply from such vendors may disruptboth the Company’s operations. However, the Company believes that it can find alternate sources in the event there isUnited States and a disruption in supply from such vendors.
Research and Development
Research and development expenses include scientific research costs such as salaries, prototypes, shop supplies, testing, technical information technology and administrative expenditures as well as an allocation of corporate costs. We conduct research and development activities to develop new products and to enhance the functionality, effectiveness, ease of use and reliability of our existing products. We believe that our research and development efforts have been, and continue to be, key drivers of our success in the marketplace.
Seasonality
Although the Company’s business is not seasonal in the traditional sense, the percentage of revenues in each quarter typically ranges from 22% to 28% of the total year. The first quarter tends to be at the low end of the range reflecting customers’ initial slow ramp up of capital purchases and the Company’s efforts to close out orders at the end of each year. The second and fourth quarters tend to be toward the high end of the range and the third quarter is typically in the middle of the range.
Major Customers
The Company sells itsa wide range of products to a wide varietydiversified base of customers nonearound the world and has no material concentration of which are of material importance in relationcredit risk or significant payment terms extended to the business as a whole. The customer base includes several governmental entities which generally have terms similar to other customers.
Competition
Public industry data concerning global market share is limited; however, through an assessment of validated third-party sources and sponsored third-party market studies, the Company is confident in its position as a world-leading manufacturer of floor maintenance and cleaning equipment. Several global competitors compete with Tennantthe Company in virtually every geography of the world. However, small regional competitors are also significant competitors who vary by country, vertical market, product category or channel. The Company competes primarily on the basis of offering a broad line of high-quality, innovative products supported by an extensive sales and service network in major markets.
Human Capital
Tennant Company has a historycommitment to our employees to foster a culture of developing innovative technologiesintegrity and stewardship. This guides our actions as we manage our business and holds us accountable to our colleagues to care for one another and work together to bring to market sustainable cleaning innovations that empower others to create a cleaner, safer, and healthier world. To that end, our executive leadership, as well as our Board of Directors, emphasize the importance of positive human capital management. The following are key human capital measures and objectives that the Company currently focuses on:
Ethics and Employee Safety
We prioritize the health and safety of all of our employees. In our manufacturing facilities, we have established safety teams that proactively identify areas of improvement and help to reinforce employee behaviors in order to reduce or eliminate incidents. In our manufacturing facilities, behavioral safety culture is committeda primary focus, with a specific growing emphasis on “near-miss” reporting and resolution. We define a near-miss event as a situation where no property was damaged, and no personal injury was sustained, but given a slight shift in time or position, damage and/or injury could have occurred. This focus has increased awareness to its innovation leadership positionpotential incidents at our facilities. In addition to our established safety programs, our teams have continued our enhanced COVID-19 safety protocols in our manufacturing, distribution and office facilities. The result is we continue to meet or exceed our safety metrics. Additionally, we have an experienced team of Enterprise Health and Safety professionals that provide onsite and corporate-level support to our global teams.
Diversity, Equity, and Inclusion
Tennant is proud to be an equal opportunity employer where we foster and maintain an ethical work environment free of discrimination. Employment decisions are made on the basis of individual skill, ability, reliability, productivity, and other factors important to performance. In 2021, we launched our Diversity Equity and Inclusion strategy with a vision to establish our worldwide diversity as a differentiator for our organization. We progressed work around diagnosing current state and establishing our baseline, putting in place executive oversight, communicating our strategy to our global workforce, starting leader education and initiating employee involvement through fulfilling its goal to annually invest 3% of annual sales to research and development. The Company’s innovation efforts are
Diversity in Governance
As of December 31, 2021, women represented 57% of our executive management team and 33% of our Board of Directors.
Gender Equitable Pay
In November 2021, Tennant Company performed its annual gender wage gap analysis to evaluate any gender differences in pay. Our results showed the median income for women working full time in the United States was reported to be 98.76% as compared to their male counterparts. In other words, women at Tennant were seen to be making 98.76 cents to every $1 men earned. To put this figure in context, Tennant’s wage gap findings were compared to the national average. According to the national statistics published by the Bureau of Labor Statistics (BLS) in 2020, women on average made 82.3% of the earnings made by males. The adjusted pay gap at Tennant was found to be 100.56% after controlling for variables such as managing labor costs, enhancing productivity,title, grade, and making cleaning processes more efficientwork location, which are legitimate and sustainable. Through core product development, partnershipsnon-discretionary reasons for pay difference. This analysis suggests there is no evidence of pay gap at Tennant Company.
The following table represents employees by gender and technology enablement we are creating new growth avenues for Tennant. These new avenues for growth go beyond cleaning equipment into business insights and service solutions.
Female | Male | Total | |||
Americas | 404 | 1,776 | 2,180 | ||
Europe, Middle East, Africa | 406 | 1,265 | 1,671 | ||
Asia Pacific | 156 | 256 | 412 | ||
Total | 966 | 3,297 | 4,263 |
Competitive Pay and Benefits
Our overall objective is to align executive compensation with our operating goals and the interests of our shareholders. We seek to offer a comprehensive compensation package that is competitive with those of similarly sized U.S. durable goods manufacturing companies. Our compensation programs take into account that an executive’s actual compensation level may be greater or less than targeted based on our annual and long-term financial performance against pre-established goals, the individual’s performance and the individual’s scope of responsibilities. Specifically, our compensation programs are designed to create a relationship between pay and performance by providing a strong link between our short- and long-term business goals and executive compensation, attract and retain high-caliber key executive officers who can create long-term financial success for the company and enhance shareholder return, motivate executive officers to achieve our goals by placing a significant portion of pay at risk, align the interests of executive officers with those of our shareholders by providing a significant portion of compensation in stock-based awards, and discourage risk-taking behavior that would likely have a material adverse effect on the company.
Tennant Company’s philosophy is to reward employees competitively for the work they perform so that we retain and attract new talent and remain competitive within our marketplace. As an employer we offer pay, benefits, recognition and well-being programs which are tailored for geographic location, statutory requirements and competitive practice as appropriate. We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location.
Talent
We believe attraction, development, engagement and retention of talent is key to achieving our organizational objectives. We focus on creating a high-performance culture, including our annual performance management process for all employees which aligns with our employee and leadership competency framework. In addition, we engage in annual talent conversations to help us identify, develop and deploy talent to achieve our objectives and address talent risks. We believe employee feedback is key to engagement and survey our employees twice a year and make improvements as necessary.
Available Information
The Company's internet address is www.tennantco.com. The Company makes available free of charge, through the Investor Relations website at investors.tennantco.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable when such material is filed electronically with, or furnished to, the Securities and Exchange Commission (“SEC”).
Information About Our Executive Officers of the Registrant
The list below identifies those persons designated as executive officers of the Company, including their age, positions held with the Company and their business experience during the past five or more years.
Barb Balinski, Senior Vice President, Innovation and Technology
Barb Balinski (58) joined the Company in 2018 as Vice President of Engineering and in March 2021, she was named SVP, Innovation and Technology, leading R&D, marketing, and IT functions for Tennant Company. Prior to joining Tennant, Barb held leadership positions of increasing responsibility with the engineering team for the Integrated Business Units at Whirlpool Corporation, a multinational manufacturer of home appliances, from 2005 to 2017, most recently as Director, Product Development, from 2013 to 2017. Prior to Whirlpool Corporation, she spent eleven years with Saturn Corporation, a subsidiary of General Motors.
Daniel E. Glusick, Senior Vice President, Global Operations
Daniel E. Glusick (49) joined the Company in November 2020 as Senior Vice President of Global Operations. Prior to joining Tennant, he was Senior Vice President of Operations at The Vollrath Company, a manufacturer of foodservice equipment and supplies, from June 2018 to October 2020. Prior to his time at The Vollrath Company, he held different roles with increasing responsibilities at Rexnord Industries, a machinery manufacturer, from 2008 to June 2018, leaving when he was VP of Engineering, Innovation and Rexnord Business System. Prior to Rexnord, Mr. Glusick also served for three years as Director, Global Manufacturing at Intermatic and for nine years he held various operations and supply chain leadership roles at Harley-Davidson.
David W. Huml, Senior Vice President EMEA, APAC, Global Marketing and Operations
David W. Huml (50)(53) has served the Company's President and Chief Executive Officer since March 2021, after serving as Chief Operating Officer from March 2020 to March 2021. Mr. Huml joined the Company in November 2014 as Senior Vice President, Global Marketing.Marketing and was named President and Chief Executive Officer March 1, 2021. In January 2016, he also assumed oversight for the Company's APAC business unit. Inunit, and in January 2017, he assumed oversight for the Company's EMEA business and in June 2018 he assumed responsibility for Global Operations.business. From 2006 to October 2014, he held various positions with Pentair plc, a global manufacturer of water and fluid solutions, valves and controls, equipment protection and thermal management products, most recently as Vice President, Applied Water Platform. From 1992 to 2006, he held various positions with Graco Inc., a designer, manufacturer and marketer of systems and equipment to move, measure, control, dispense and spray fluid and coating materials, including Worldwide Director of Marketing, Contractor Equipment Division.
Carol E. McKnight, Senior Vice President, Chief Administrative Officer
Carol E. McKnight (51)(54) joined the Company in June 2014 as Senior Vice President of Global Human Resources. In 2017, Carolshe was named SVPSenior Vice President and Chief Administrative Officer. Prior to joining Tennant,the Company, she was Vice President of Human Resources at ATK (Alliant Techsystems)Alliant Techsystems (ATK) where she held divisional
Kristin A. Stokes, Senior Vice President, General Counsel and Corporate Secretary
Kristin A. Stokes (49) has served as the Company in January 2019 asCompany's Senior Vice President, General Counsel and Corporate Secretary. Prior to joining Tennant, from 2017 to 2018, she was Vice President, Assistant General Counsel and Assistant Corporate Secretary for General Cable Corporation, a global manufacturersince December 2020. Ms. Stokes joined the Company's legal department in the development, design, manufacture, marketing and distributionApril 2008, serving in roles of copper, aluminum and fiber optic wire and cable products for use in the energy, industrial, construction, automotive, specialty and communications markets. From 2016 to 2017, she was Vice President of Law at Macy’s, Inc., and from 2006 to 2015, she held corporate leadership positions with Scripps Networks Interactive, Inc. (which was spun off from The E.W. Scripps Company in 2008), a developer of lifestyle-oriented content for linear and interactive video platformsincreasing responsibility, including television and the internet, most recently as Senior Vice President, Deputy General Counsel and Chief Compliance Officer from 2019 to 2020, and as Interim General Counsel and Corporate Secretary.
Fay West, Senior Vice President, and Chief Financial Officer
Fay West (52) joined the Company in December 2018April 2021 as Senior Vice President and Chief Financial Officer. Prior to joining Tennant, heshe was at General Mills, Inc, a global manufacturer and marketer of branded consumer foods, for over 26 years holding various finance and corporate leadership roles, most recently as Senior Vice President Global Treasurer.and Chief Financial Officer of SunCoke Energy, Inc., a raw material processing and handling company, from 2014 to 2021. Before joining SunCoke Energy, Inc., in 2011, as Vice President and Controller, she was Assistant Controller at United Continental Holdings, Inc. Prior to General Mills,that role, she served in several leadership roles at PepsiAmericas, Inc., heincluding Vice President of Accounting and Financial Reporting, and Director of Financial Reporting. Prior to joining PepsiAmericas, Inc., she was with PriceWaterhouseCoopers.
Richard H. Zay, Senior Vice President, The Americas and R&D
Richard H. Zay (48)(51) has served as the Company's Senior Vice President, Chief Commercial Officer since March 2021. Mr. Zay joined the Company in June 2010 as Vice President, Global Marketing and was named Senior Vice President, Global Marketing in October 2013. In 2014, he was named2013 and Senior Vice President of the Americas business unit for Tennant andthe Company in 2014. In 2018 he assumed responsibility for Tennant Research and Development as well. From 2006 to June 2010, he held various positions with Whirlpool Corporation, a manufacturer of major home appliances, most recently as General Manager, KitchenAid Brand. From 1993 to 2006, he held various positions with Maytag Corporation, including Vice President, Jenn-Air Brand, Director of Marketing, Maytag Brand, and Director of Cooking Category Management.
The following are significantrisk factors known to us that could materially adversely affect our business, financial condition or operating results.
Macroeconomic Risks
We may encounter financial difficulties if the United States or other global economies experience an additional or continued long-term economic downturn, decreasing the demand for our products and negatively affecting our sales growth.
Our product sales are sensitive to declines in capital spending by our customers. Decreased demand for our products could result in decreased revenues, profitability and cash flows and may impair our ability to maintain our operations and fund our obligations to others. In the event of a continued long-term economic downturn in the U.S. or other global economies, our revenues could decline to the point that we may have to take cost-saving measures, such as restructuring actions. In addition, other fixed costs would have to be reduced to a level that is in line with a lower level of sales. A long-term economic downturn that puts downward pressure on sales could also negatively affect investor perception relative to our publicly stated growth targets.
Uncertainty surrounding the impacts and duration of the COVID-19 pandemic.
The coronavirus ("COVID-19") pandemic continues to have a significant disruptive impact on global economies, supply chains and industrial production. We have effectively operatemanaged our Company could be adversely affected if we are unable to attractglobal operations throughout the pandemic, implementing rigorous protocols focused on the health and retain key personnel and other highly skilled employees, provide employee development opportunities and create effective succession planning strategies.
Our global operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk.
Due to the international scope of our operations, we are subject to a complex system of commercial, tax and trade regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade, tax compliance, data-privacy, labor and safety and anti-corruption, such asincluding the U.S. Foreign Corrupt Practices Act, and similar laws from other countries. Our numerous foreign subsidiaries and affiliates are governed by laws, rules and business practices that differ from those of the U.S., but because we are a U.S.-based company, oftentimes they are also subject to U.S. laws which can create a conflict. Despite our due diligence, there is a risk that we do not have adequate resources or comprehensive processes to stay current on changes in laws or regulations applicable to us worldwide and maintain compliance with those changes. Increased compliance requirements may lead to increased costs and erosion of desired profit margin. As a result, it is possible that the activities of these entities may not comply with U.S. laws or business practices or our Business Ethics Guide. Violations of the U.S. or local laws may result in severe criminal or civil sanctions, could disrupt our business, and result in an adverse effect on our reputation, business and
Industry Risks
We may be unable to take advantage of product pricing due to the competitive marketplace and increased price sensitivity.
Simplification of our customer product pricing is a key initiative to reduce the complexity in which we operate. The current competitive landscape, coupled with macroeconomic factors such as inflation, could impact our ability to achieve our pricing targets. These pressures, along with internal constraints, may limit our ability to sell our products at our expected prices and may result in a change to the mix of product offerings or where we have a competitive advantage. Increasing our prices in this competitive market, where customers are very price sensitive, could have an adverse effect on our financial condition or operating results.
We are subject to competitive risks associated with developing innovative products and technologies, including, but not limited to, our inability to expand as rapidly or aggressively in the global market as our competitors, our customers ceasing to pay for innovation and competitive challenges to our products, technology and the underlying intellectual property.
Our products are sold in competitive markets throughout the world. Competition is based on product features and design, brand recognition, reliability, durability, technology, breadth of product offerings, price, customer relationships and after-sale service. Although we believe that the performance and price characteristics of our products will produce competitive solutions for our customers’ needs, our products are generally priced higher than our competitors’ products. This is due to our dedication to innovation and continued investments in research and development. We believe that customers will pay for the innovations and quality in our products. However, it may be difficult for us to compete with lower priced products offered by our competitors and there can be no assurance that our customers will continue to choose our products over products offered by our competitors. If our products, markets and services are not competitive, we may experience a decline in sales volume, an increase in price discounting and a loss of market share, which would adversely impact our revenues, margin and the success of our operations.
Competitors may also initiate litigation to challenge the validity of our patents or claims, allege that we infringe upon their patents, violate our patents or they may use their resources to design comparable products that avoid infringing our patents. Regardless of whether such litigation is successful, such litigation could significantly increase our costs and divert management’s attention from the operation of our business, which could adversely affect our results of operations and financial condition.
Disruption in the availability of, quality, or increases in the cost of, raw materials and components that we purchase or labor required to manufacture our products could negatively impact our operating results or financial condition.
Our sales growth, expanding geographical footprint and continued use of sole-source vendors, coupled with suppliers’ potential credit issues, could lead to an increased risk of a breakdown in our supply chain. Our use of sole-source vendors creates a concentration risk. There is an increased risk of defects due to the highly configured nature of our purchased component parts that could result in quality issues, returns or production slowdowns. In addition, modularization may lead to more sole-sourced products, and as we seek to outsource the foregoing,design of certain key components, we risk loss of proprietary control and becoming more reliant on a sole source. There is also a risk that the European Union adopted a comprehensive General Data Privacy Regulation (the "GDPR") in May 2016 that has replaced the EU Data Protection Directivevendors we choose to supply our parts and related country-specific legislation. The GDPR became effective in May 2018. GDPR requires companies to satisfy new requirements regarding the handling of personal and sensitive data, including its use, protection and the ability of persons whose data is stored to correct or delete such data about themselves. Failureequipment fail to comply with GDPR requirements could result in penalties of up to 4% of worldwide revenue.
Global supplier production for various component parts, including semiconductors, is limited. We have experienced significant disruption of the usesupply of “conflict minerals” (commonly referredraw materials and component parts. We expect price inflation and market supply challenges to as tin, tantalum, tungstencontinue which may negatively impact our financial results.
We have and gold) whichmay continue to experience higher than normal wage inflation due to skilled labor shortages. In addition, we have incurred costs associated with tariffs on certain raw materials used in our manufacturing processes. The labor shortages and tariff costs have unfavorably impacted our gross profit margins and could continue to do so if actions we are mined fromtaking are not effective at offsetting these rising costs. Changes and uncertainties related to government fiscal and tax policies, including increased duties, tariffs, or other restrictions, could adversely affect demand for our products, the Democratic Republiccost of the Congo in products we manufacture or contractour ability to manufacture. These rulescost-effectively source raw materials, all of which could have requireda negative impact on our financial results.
Increasing cost pressures could negatively impact our ability to achieve our strategic objectives and will continueaffect our financial results.
We are dependent on key suppliers to require due diligencemake certain materials available at a contracted price. Labor, overhead, and disclosure efforts.material costs have increased and we may not be able to offset these increased manufacturing costs with a higher finished product price. We also may not be able to push those direct cost increases onto our customers in a timely manner given the competitive environment. A decline in demand for our products may have a direct impact on our ability to achieve better pricing through volume discounts.
We are subject to product liability claims and product quality issues that could adversely affect our operating results or financial condition.
Our business exposes us to potential product liability risks that are inherent in the design, manufacturing and distribution of our products. If products are used incorrectly by our customers, injury may result leading to product liability claims against us. Some of our products or product improvements may have defects or risks that we have not yet identified that may give rise to product quality issues, liability and warranty claims. Quality issues may also arise due to changes in parts or specifications with suppliers and/or changes in suppliers. If product liability claims are brought against us for damages that are in excess of our insurance coverage or for uninsured liabilities and it is determined we are liable, our business could be adversely impacted. Any losses we suffer from any liability claims, and the effect that any product liability litigation may have upon the reputation and marketability of our products, may have a negative impact on our business and operating results. We could experience a material design or manufacturing failure in our products, a quality system failure, other safety issues, or heightened regulatory scrutiny that could warrant a recall of some of our products. Any unforeseen product quality problems could result in loss of market share, reduced sales and higher warranty expense.
Operational Risks
Our ability to effectively operate our Company could be adversely affected if we are unable to attract and retain key personnel and other highly skilled employees, provide employee development opportunities and create effective succession planning strategies.
Our growth strategy, expanding global footprint, changing workforce demographics and increased improvements in technology and business processes designed to enhance the customer experience are putting increased pressure on human capital strategies designed to recruit, retain and develop top talent.
Our continued success will depend on, among other things, the skills and services of our executive officers and other key personnel. Our ability to attract and retain highly qualified managerial, technical, manufacturing, research, sales and marketing personnel also impacts our ability to effectively operate our business. As companies grow and increase their hiring activities, there is an inherent risk of increased employee turnover and the loss of valuable employees in key positions, especially in emerging markets. We believe the increased loss of key personnel within a concentrated region could adversely affect our sales growth.
In addition, there is a risk that we may not have adequate talent acquisition resources and employee development resources to support our future hiring needs and provide training and development opportunities to all employees. This, in turn, could impede our workforce from embracing change and leveraging the improvements we have made in technology and other business process enhancements.
We may not be able to generate sufficient cashdevelop or manage strategic planning and growth processes or the related operational plans to service alldeliver on our strategies and establish a broad organization alignment, thereby impairing our ability to achieve future performance expectations.
We are continuing to refine our global company strategy to guide our next phase of performance as our structure has become more complex due to recent acquisitions. We continue to consolidate and reallocate resources as part of our indebtedness,ongoing efforts to optimize our cost structure and to drive synergies and growth. Our operating results may be forcednegatively impacted if we are unable to take otherimplement new processes and manage organizational changes, which include changes to our go-to-market strategy, systems and processes; simultaneous focus on expense control and growth; and introduction of alternative cleaning methods. In addition, if we do not effectively realize and sustain the benefits that these transformations are designed to produce, we may not fully realize the anticipated savings of these actions or they may negatively impact our ability to satisfyserve our obligations undercustomers or meet our indebtedness, whichstrategic objectives.
We may not be successful.
We have many information technology systems that are important to the acquisitionoperation of IPC Cleaning S.p.A., we entered into a new senior credit facility and indenture, and issued debt totaling approximately $400,000,000 consisting of a $100,000,000 term loan and $300,000,000 of senior notes, which funded the acquisition and replaced our current debt facility. The new senior credit facility also includes a revolving facility in an amount up to $200,000,000. We cannot provide assurance that our business will generate sufficient cash flow from operationsand are in need of upgrading in order to meet alleffectively implement our debt service requirements,growth strategy. Given our greater emphasis on customer-facing technologies, we may not have adequate resources to pay dividends, to repurchase sharesupgrade our systems at the pace which the current business environment demands. Additionally, significantly upgrading and evolving the capabilities of our common stock,existing systems could lead to inefficient or ineffective use of our technology due to lack of training or expertise in these evolving technology systems. These factors, among other things, could lead to significant expenses, adversely impacting our results of operations and to fund our general corporate and capital requirements.
We may encounter risks to our IT infrastructure, such as access and security, that may not be adequately designed to protect critical data and systems from theft, corruption, unauthorized usage, viruses, sabotage or acquisitions or other purposes may be limited;
Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to IT systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company, its products and its customers. We seek to deploy comprehensive measures to deter, prevent, detect, react to and mitigate these threats, including identity and access controls, data protection, vulnerability assessments, continuous monitoring of our cash flow from operations to the paymentIT networks and systems and maintenance of principalbackup and interestprotective systems.
Despite these efforts, cybersecurity incidents, depending on our indebtedness;
We may be unable to conduct business if we experience a significant business interruption in our computer systems, manufacturing plants or distribution facilities for a significant period of time.
We rely on our computer systems, manufacturing plants and distribution facilities to efficiently operate our business. If we experience an interruption in the valuefunctionality in any of balance sheetthese items denominatedfor a significant period of time for any reason, we may not have adequate business continuity planning contingencies in foreign currencies as we translate them intoplace to allow us to continue our normal business operations on a long-term basis. In addition, the U.S. dollar reporting currency. We use derivativeincrease in customer-facing technology raises the risk of a lapse in business operations. Therefore, significant long-term interruption in our business could cause a decline in sales, an increase in expenses and could adversely impact our financial instrumentsresults.
Our ability to hedge our estimated transactional or translational exposure to certain foreign currency-denominated assets and liabilities as well as our foreign currency denominated revenue. While we actively manage the exposurehealth and safety of our foreign currency market riskglobal workforce may lead to increased business disruption and financial penalties.
We remain focused on the health and safety measures that impact our business from a manufacturing perspective. The Company had to adjust quickly to new working conditions as a result of the COVID-19 pandemic, including making enhancements as new health information was received. In the future, the Company may not adapt to new health crises quickly enough, resulting in a decrease in resource capacity and overall health and wellness of our workforce that could cause fines, reputational damage, or business disruptions. Also, there may be further enhancements and costs to the Company related to any new health guidelines and protocols. Our manufacturing teams monitor the effectiveness of our wellness and safety programs, while the Company continues to implement more tailored health initiatives for those working from home. Managing additional health guidelines and protocols for the health and safety of our employees may adversely affect our business, financial conditions or operating results.
We may consider acquisitions of suitable candidates to accomplish our growth objectives. We may not be able to successfully integrate the businesses we acquire to achieve operational efficiencies, including synergistic and other benefits of acquisition.
We may consider, as part of our growth strategy, supplementing our organic growth through acquisitions of complementary businesses or products. We have engaged in acquisitions in the normal coursepast and we may determine that future acquisitions may provide meaningful opportunities to grow our business and improve profitability. Acquisitions allow us to enhance the breadth of our product offerings and expand the market and geographic participation of our products and services.
However, our success in growing by acquisition is dependent upon identifying businesses to acquire, integrating the newly acquired businesses with our existing businesses and complying with the terms of our credit facilities. We may incur difficulties in the realignment and integration of business by utilizing various foreign exchange financial instruments, these instruments involve riskactivities when assimilating the operations and products of an acquired business or in realizing projected efficiencies, cost savings, revenue synergies and profit margins. Acquired businesses may not effectively limitachieve the levels of revenue, profit, productivity or otherwise perform as expected. We are also subject to incurring unanticipated liabilities and contingencies associated with an acquired entity that are not identified or fully understood in the due diligence process. Current or future acquisitions may not be successful or accretive to earnings if the acquired businesses do not achieve expected financial results.
In addition, we may record significant goodwill or other intangible assets in connection with an acquisition. We are required to perform impairment tests at least annually and whenever events indicate that the carrying value may not be recoverable from future cash flows. If we determine that any intangible asset values need to be written down to their fair values, this could result in a charge that may be material to our underlying exposure from foreign currency exchange rate fluctuationsoperating results and financial condition.
Inadequate funding or minimizeinsufficient innovation of new technologies may result in an inability to develop and commercialize new innovative products and services.
We strive to develop new and innovative products and services to differentiate ourselves in the effectsmarketplace. New product development relies heavily on our net earningsfinancial and resource investments in both the cash volatility associated with foreign currency exchange rate changes. Fluctuationsshort term and long term. If we fail to adequately fund product development projects or fund a project which ultimately does not gain the market acceptance we anticipated, we risk not meeting our customers' expectations, which could result in foreign currency exchange rates, particularly the strengtheningdecreased revenues, declines in margin and loss of the U.S. dollar against major currencies, could materially affect our financial results.
None.
The Company’s corporate offices are owned by the Company and are located in the Minneapolis, Minnesota, metropolitan area. Manufacturing facilities located in Minneapolis, Minnesota; Holland, Michigan; Chicago, Illinois; Uden, theThe Netherlands and the Italian cities of Venice, Cremona and Reggio Emilia and in the Province of Padua are owned by the Company. Manufacturing facilities located in Louisville, Kentucky; São Paulo, Brazil; Shanghai,Hefei, China, and another facility in the Province of Padua are leased to the Company. In addition, IPC Group (IPC) uses a dedicated, third-party plant in Germany that specially manufactures heavy–duty stainless steel scrubbers and sweepers to IPC designs. IPC also owns a minor tools and supplies assembly operation in China to service local customers. The facilities are in good operating condition, suitable for their respective uses and adequate for current needs.
Sales offices, warehouse and storage facilities are leased in various locations in the United States, Canada, Mexico, Portugal, Spain, Italy, Germany, France, theThe Netherlands, Belgium, Norway, the United Kingdom, Japan, China, India, Australia, New Zealand and Brazil. The Company’s facilities are in good operating condition, suitable for their respective uses and adequate for current needs.
Further information regarding the Company’s property and lease commitments is included in the Contractual Obligations section of Item 7 and in Note 1715 to the Consolidated Financial Statements.
There are no material pending legal proceedings other than ordinary routine litigation incidental to the Company’s business.
Not applicable.
ITEM 5 – Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
MARKET INFORMATION – Tennant's common stock is traded on the New York Stock Exchange, under the ticker symbol TNC. As of February 14, 2019,11, 2022, there were 312270 shareholders of record.
DIVIDEND INFORMATION – Cash dividends on Tennant’s common stock have been paid for 7477 consecutive years. Tennant’s annual cash dividend payout increased for the 47
DIVIDEND REINVESTMENT OR DIRECT DEPOSIT OPTIONS – Shareholders have the option of reinvesting quarterly dividends in additional shares of Company stock or having dividends deposited directly to a bank account. The Transfer Agent should be contacted for additional information.
TRANSFER AGENT AND REGISTRAR – Shareholders with a change of address or questions about their account may contact:
Equiniti Trust Company
Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0854
(800) 468-9716
Plan Category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | (b) Weighted-average exercise price of outstanding options, warrants and rights(2) | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||
Equity compensation plans approved by security holders | 1,313,569 | $47.47 | 761,382 | |||
Equity compensation plans not approved by security holders | — | — | — | |||
Total | 1,313,569 | $47.47 | 761,382 |
SHARE REPURCHASES – On October 31, 2016, the Board of Directors authorized the repurchase of an additional 1,000,000 shares of our common stock. This is in addition to the 392,892 shares remaining under our prior repurchase program. Share repurchases are made from time to time in the open market or through privately negotiated transactions, primarily to offsettransactions. During the dilutive effect of shares issued through our share-based compensation programs. As oftwelve months ended December 31, 2018, our 2017 Credit Agreement restricts2021, the payment of dividends or repurchasing of stock if, after giving effect to such payments and assuming no default exists or would result from such payment, our leverage ratio is greater than 2.50 to 1, in such case limiting such payments to an amount ranging from $50.0Company paid $15.0 million to $75.0 million during any fiscal year basedrepurchase 196,982 shares of its common stock. The most recent share repurchase program approved by the Board of Directors on October 31, 2016 authorized the repurchase of 1,000,000 shares of our leverage ratio after giving effectcommon stock. This is in addition to such payment. Our Senior Notes due 2025 also contain certain restrictions, which are generally less restrictive than those contained in the 2017 Credit Agreement.
For the Quarter Ended December 31, 2018 | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||
October 1–31, 2018 | 86 | $75.95 | — | 1,392,892 | |||
November 1–30, 2018 | 267 | 63.89 | — | 1,392,892 | |||
December 1–31, 2018 | 407 | 78.09 | — | 1,392,892 | |||
Total | 760 | $72.86 | — | 1,392,892 |
For the Quarter Ended | Total Number of Shares | Average Price Paid | Total Number of Shares Purchased as Part of Publicly Announced Plans or | Maximum Number of Shares that May Yet Be Purchased Under the Plans or | ||||||||
December 31, 2021 | Purchased(a) | Per Share | Programs | Programs | ||||||||
October 1–31, 2021 | 63,692 | $77.26 | 63,674 | 1,224,493 | ||||||||
November 1–30, 2021 | 31,173 | $82.97 | 31,079 | 1,193,414 | ||||||||
December 1–31, 2021 | 8,902 | $83.46 | — | 1,193,414 | ||||||||
Total | 103,767 | $79.51 | 94,753 | 1,193,414 |
| Includes |
STOCK PERFORMANCE GRAPH – The following graph compares the cumulative total shareholder return on Tennant’s common stock to two indices: S&P SmallCap 600 and MorningstarS&P 500 Industrials Sector.(Sector). The graph below compares the performance for the last five fiscal years, assuming an investment of $100 on December 31, 2013,2016, including the reinvestment of all dividends.
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | ||||||
Tennant Company | $100 | $108 | $85 | $109 | $113 | $82 | |||||
S&P SmallCap 600 | $100 | $106 | $104 | $102 | $115 | $105 | |||||
Morningstar Industrials Sector | $100 | $109 | $106 | $126 | $154 | $136 |
2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||||||||||||
Tennant Company | $ | 100 | $ | 103 | $ | 75 | $ | 114 | $ | 104 | $ | 121 | ||||||||||||
S&P SmallCap 600 | $ | 100 | $ | 113 | $ | 104 | $ | 127 | $ | 142 | $ | 180 | ||||||||||||
S&P 500 Industrials (Sector) (TR) | $ | 100 | $ | 121 | $ | 105 | $ | 136 | $ | 151 | $ | 183 |
NOTE: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2022.
NOTE: Index Data: Copyright Standard and Poor’s, Inc. Used with permission. All rights reserved.
Years Ended December 31 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||
Financial Results: | ||||||||||||||||||||||||
Net Sales | $ | 1,123,511 | $ | 1,003,066 | $ | 808,572 | $ | 811,799 | $ | 821,983 | ||||||||||||||
Cost of Sales | 678,478 | 603,253 | (2), (5) | 456,977 | 462,739 | 469,556 | ||||||||||||||||||
Gross Margin - % | 39.6 | 39.9 | 43.5 | 43.0 | 42.9 | |||||||||||||||||||
Research and Development Expense | 30,739 | 32,013 | 34,738 | 32,415 | 29,432 | |||||||||||||||||||
% of Net Sales | 2.7 | 3.2 | 4.3 | 4.0 | 3.6 | |||||||||||||||||||
Selling and Administrative Expense | 356,316 | (1), (4) | 334,782 | (2), (4), (5) | 248,592 | (4) | 251,670 | (3), (4) | 250,695 | (4) | ||||||||||||||
% of Net Sales | 31.7 | 33.4 | 30.7 | 31.0 | 30.5 | |||||||||||||||||||
Profit from Operations | 57,978 | (1), (4) | 33,018 | (2), (4), (5) | 68,265 | (4) | 52,576 | (3), (4) | 71,894 | (4) | ||||||||||||||
% of Net Sales | 5.2 | 3.3 | 8.4 | 6.6 | 8.8 | |||||||||||||||||||
Income Tax Expense | 2,304 | (1) | 4,913 | (2) | 19,877 | 18,336 | (3) | 18,887 | ||||||||||||||||
Effective Tax Rate - % | 6.4 | (380.2 | ) | 29.9 | 36.4 | 27.2 | ||||||||||||||||||
Net Earnings (Loss) Attributable to Tennant Company | 33,412 | (1) | (6,195 | ) | (2) | 46,614 | 32,088 | 50,651 | ||||||||||||||||
% of Net Sales | 3.0 | (0.6 | ) | 5.8 | 4.0 | 6.2 | ||||||||||||||||||
Per Share Data: | ||||||||||||||||||||||||
Basic Net Earnings (Loss) Attributable to Tennant Company | $ | 1.86 | (1) | $ | (0.35 | ) | (2) | $ | 2.66 | $ | 1.78 | (3) | $ | 2.78 | ||||||||||
Diluted Net Earnings (Loss) Attributable to Tennant Company | $ | 1.82 | (1) | $ | (0.35 | ) | (2) | $ | 2.59 | $ | 1.74 | (3) | $ | 2.70 | ||||||||||
Diluted Weighted Average Shares | 18,338,569 | 17,695,390 | 17,976,183 | 18,493,447 | 18,740,858 | |||||||||||||||||||
Cash Dividends | $ | 0.85 | $ | 0.84 | $ | 0.81 | $ | 0.80 | $ | 0.78 | ||||||||||||||
Financial Position: | ||||||||||||||||||||||||
Total Assets | $ | 992,544 | $ | 993,977 | $ | 470,037 | $ | 432,295 | $ | 486,932 | ||||||||||||||
Total Debt | 355,065 | 376,839 | 36,194 | 24,653 | 28,137 | |||||||||||||||||||
Total Tennant Company Shareholders’ Equity | 314,422 | 296,503 | 278,543 | 252,207 | 280,651 | |||||||||||||||||||
Current Ratio | 1.9 | 1.8 | 2.2 | 2.2 | 2.4 | |||||||||||||||||||
Debt-to-Capital Ratio | 53.0 | % | 56.0 | % | 11.5 | % | 8.9 | % | 9.1 | % | ||||||||||||||
Cash Flows: | ||||||||||||||||||||||||
Net Cash Provided by Operations | $ | 79,970 | $ | 54,174 | $ | 57,878 | $ | 45,232 | $ | 59,362 | ||||||||||||||
Capital Expenditures, Net of Disposals | (18,668 | ) | (17,926 | ) | (25,911 | ) | (24,444 | ) | (19,292 | ) | ||||||||||||||
Free Cash Flow | 61,302 | 36,248 | 31,967 | 20,788 | 40,070 | |||||||||||||||||||
Other Data: | ||||||||||||||||||||||||
Depreciation and Amortization | $ | 54,420 | $ | 43,253 | $ | 18,300 | $ | 18,031 | $ | 20,063 | ||||||||||||||
Number of employees at year-end | 4,341 | 4,297 | 3,236 | 3,164 | 3,164 |
ITEM 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Tennant Company is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance, reduce environmental impact and help create a cleaner, safer, healthier world. TennantThe Company is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including floor maintenance and outdoor cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, specialty surface coatings and asset management solutions. TennantOur products are used in many types of environments, including retail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, parking lots and streets, and more. Customers include contract cleaners to whom organizations outsource facilities maintenance as well as businesses that perform facilities maintenance themselves. The companyCompany reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.
The year-over-year comparisons in this Management's Discussion and Analysis of Financial Condition and Results of Operations are as of and for the years ended December 31, 2021 and December 31, 2020, unless stated otherwise. The discussion of 2019 results and related year-over-year comparisons as of and for the years ended December 31, 2020 and December 31, 2019 are found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Form 10-K for the year ended December 31, 2020.
Impact of COVID-19
We continue to actively manage our business to respond to the COVID-19 pandemic and related impacts.
Throughout 2021 and into 2022, we have experienced disruption in the supply of raw materials and component parts, as well as raw material price inflation and inefficiencies as a result of supply chain issues. Although we regularly monitor the financial health and operations of companies in our supply chain, financial hardship or government restrictions on our suppliers or sub-suppliers caused by the COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or component parts required to manufacture our products and adversely affect our operations. We have established frequent communications with suppliers to review, track and prioritize high-risk components. We have also identified and activated alternative suppliers, materials and components as needed. The Company continues work to minimize the impact of price inflation in inputs and market supply challenges by employing local-for-local and region-for-region manufacturing and sourcing to allow us to manufacture our products closer to our customers. At the same time, our engineering teams are evaluating platform design to allow for available parts and to increase our sourcing flexibility. Regarding transportation, we have set up tracking, reporting and communication channels with carriers to understand their risks and to evaluate available options where necessary. We expect the supply chain challenges and inflationary trends to continue into 2022.
We maintain our commitment to protect the health and safety of our employees and customers. We have continued our enhanced safety protocols for those on-site at our manufacturing facilities, and we have implemented work-from home processes for much of our workforce which partially remain in effect. We continue to monitor the evolving situation and guidance from local authorities.
All indications are that 2022 will require us to be agile as we manage through the year. However, as many governments shift their COVID-19 governance strategies from pandemic to endemic, and demand for our products remains strong, we remain confident in the long-term growth trends for all our products and locations.
For more information regarding factors and events that may impact our business, results of operations and financial condition as a result of the COVID-19 pandemic, see Item 1A. Risk Factors
Historical Results
The following table compares the historical results of operations for the years ended December 31, 2018, 20172021, 2020 and 20162019 in dollars and as a percentage of Net Sales (in thousands,millions, except per share amounts and percentages):
2018 | % | 2017 | % | 2016 | % | |||||||||||||||
Net Sales | $ | 1,123,511 | 100.0 | $ | 1,003,066 | 100.0 | $ | 808,572 | 100.0 | |||||||||||
Cost of Sales | 678,478 | 60.4 | 603,253 | 60.1 | 456,977 | 56.5 | ||||||||||||||
Gross Profit | 445,033 | 39.6 | 399,813 | 39.9 | 351,595 | 43.5 | ||||||||||||||
Operating Expense: | ||||||||||||||||||||
Research and Development Expense | 30,739 | 2.7 | 32,013 | 3.2 | 34,738 | 4.3 | ||||||||||||||
Selling and Administrative Expense | 356,316 | 31.7 | 334,782 | 33.4 | 248,592 | 30.7 | ||||||||||||||
Total Operating Expense | 387,055 | 34.5 | 366,795 | 36.6 | 283,330 | 35.0 | ||||||||||||||
Profit from Operations | 57,978 | 5.2 | 33,018 | 3.3 | 68,265 | 8.4 | ||||||||||||||
Other Income (Expense): | ||||||||||||||||||||
Interest Income | 3,035 | 0.3 | 2,405 | 0.2 | 330 | — | ||||||||||||||
Interest Expense | (23,342 | ) | (2.1 | ) | (25,394 | ) | (2.5 | ) | (1,279 | ) | (0.2 | ) | ||||||||
Net Foreign Currency Transaction Losses | (1,100 | ) | (0.1 | ) | (3,387 | ) | (0.3 | ) | (392 | ) | — | |||||||||
Other Expense, Net | (729 | ) | (0.1 | ) | (7,934 | ) | (0.8 | ) | (433 | ) | (0.1 | ) | ||||||||
Total Other Expense, Net | (22,136 | ) | (2.0 | ) | (34,310 | ) | (3.4 | ) | (1,774 | ) | (0.2 | ) | ||||||||
Profit (Loss) Before Income Taxes | 35,842 | 3.2 | (1,292 | ) | (0.1 | ) | 66,491 | 8.2 | ||||||||||||
Income Tax Expense | 2,304 | 0.2 | 4,913 | 0.5 | 19,877 | 2.5 | ||||||||||||||
Net Earnings (Loss) Including Noncontrolling Interest | 33,538 | 3.0 | (6,205 | ) | (0.6 | ) | 46,614 | 5.8 | ||||||||||||
Net Earnings (Loss) Attributable to Noncontrolling Interest | 126 | — | (10 | ) | — | — | — | |||||||||||||
Net Earnings (Loss) Attributable to Tennant Company | $ | 33,412 | 3.0 | $ | (6,195 | ) | (0.6 | ) | $ | 46,614 | 5.8 | |||||||||
Net Earnings (Loss) Attributable to Tennant Company per Share - Diluted | $ | 1.82 | $ | (0.35 | ) | $ | 2.59 |
2021 | % | 2020 | % | 2019 | % | |||||||||||||||||||
Net sales | 1,090.8 | 100.0 | 1,001.0 | 100.0 | 1,137.6 | 100.0 | ||||||||||||||||||
Cost of sales | 652.8 | 59.8 | 593.2 | 59.3 | 675.9 | 59.4 | ||||||||||||||||||
Gross profit | 438.0 | 40.2 | 407.8 | 40.7 | 461.7 | 40.6 | ||||||||||||||||||
Selling and administrative expense | 321.9 | 29.5 | 314.0 | 31.4 | 357.2 | 31.4 | ||||||||||||||||||
Research and development expense | 32.2 | 3.0 | 30.1 | 3.0 | 32.7 | 2.9 | ||||||||||||||||||
Gain on sale of business | (9.8 | ) | (0.9 | ) | — | — | — | — | ||||||||||||||||
Operating income | 93.7 | 8.6 | 63.7 | 6.4 | 71.8 | 6.3 | ||||||||||||||||||
Interest expense, net | (7.3 | ) | (0.7 | ) | (17.4 | ) | (1.7 | ) | (17.8 | ) | (1.6 | ) | ||||||||||||
Net foreign currency transaction loss | (0.7 | ) | (0.1 | ) | (5.3 | ) | (0.5 | ) | (0.7 | ) | (0.1 | ) | ||||||||||||
Loss on extinguishment of debt | (11.3 | ) | (1.0 | ) | — | — | — | — | ||||||||||||||||
Other (expense) income, net | (0.3 | ) | — | 0.1 | — | 0.7 | 0.1 | |||||||||||||||||
Income before income taxes | 74.1 | 6.8 | 41.1 | 4.1 | 54.0 | 4.7 | ||||||||||||||||||
Income tax expense | 9.2 | 0.8 | 7.4 | 0.7 | 8.1 | 0.7 | ||||||||||||||||||
Net income including noncontrolling interest | 64.9 | 5.9 | 33.7 | 3.4 | 45.9 | 4.0 | ||||||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | 0.1 | — | ||||||||||||||||||
Net income attributable to Tennant Company | $ | 64.9 | 5.9 | $ | 33.7 | 3.4 | $ | 45.8 | 4.0 | |||||||||||||||
Net income attributable to Tennant Company per share - diluted | $ | 3.44 | $ | 1.81 | $ | 2.48 |
Net Sales
Consolidated net sales in 20182021 totaled $1,123.5$1,090.8 million, a 12.0%9.0% increase as compared to Net Salesconsolidated net sales of $1,003.1$1,001.0 million in 2017.
The components of the9.0% increase in consolidated Net Sales changenet sales for 20182021 as compared to 2017, and 2017 as compared to 2016, were as follows:
Growth Elements | 2018 v. 2017 | 2017 v. 2016 | |
Organic Growth: | |||
Volume | 3.9% | (0.1%) | |
Price | 1.6% | 1.5% | |
Organic Growth | 5.5% | 1.4% | |
Foreign Currency | 0.3% | 0.5% | |
Acquisitions | 6.2% | 22.2% | |
Total | 12.0% | 24.1% |
• | Organic sales increase of approximately 9.1% which excludes the effects of foreign currency exchange and divestitures. The organic sales increase was primarily driven by volume growth across all business units due to continued recovery from COVID-19 in 2021. Incremental pricing also favorably impacted sales in 2021; | |
• |
• | A net favorable impact from foreign currency exchange across all business units of approximately 2.0%. |
The following table sets forth annual Net Salesnet sales by geographic area and the related percentage change from the prior year (in thousands,millions, except percentages):
2018 | % | 2017 | % | 2016 | |||||||||||||
Americas | $ | 690,996 | 7.9 | $ | 640,274 | 5.5 | $ | 607,026 | |||||||||
Europe, Middle East and Africa | 335,603 | 22.6 | 273,738 | 112.1 | 129,046 | ||||||||||||
Asia Pacific | 96,912 | 8.8 | 89,054 | 22.8 | 72,500 | ||||||||||||
Total | $ | 1,123,511 | 12.0 | $ | 1,003,066 | 24.1 | $ | 808,572 |
2021 | % | 2020 | % | 2019 | ||||||||||||||||
Americas | $ | 658.3 | 4.3 | $ | 631.0 | (12.7 | ) | $ | 722.4 | |||||||||||
Europe, Middle East and Africa | 331.9 | 19.3 | 278.2 | (9.6 | ) | 307.6 | ||||||||||||||
Asia Pacific | 100.6 | 9.6 | 91.8 | (14.7 | ) | 107.6 | ||||||||||||||
Total | $ | 1,090.8 | 9.0 | $ | 1,001.0 | (12.0 | ) | $ | 1,137.6 |
Americas
Net sales in the Americas Net Sales increased 7.9% to $691.0 million as compared with $640.3were $658.3 million in 2017. The direct impact2021, an increase of the second quarter 2017 acquisition of the IPC Group favorably impacted Net Sales by approximately 1.1%. In addition, an unfavorable impact of foreign currency translation exchange effects within the Americas impacted Net Sales by approximately 0.7% in 2018. As a result, organic4.3% from 2020. Organic sales growth in the Americas favorably impacted Net Salesnet sales by approximately 7.5%7.4% due to strong equipment salesvolume growth in North America resulting frommost business units and product categories compared to 2020, which was more impacted by COVID-19. Price increases in all channels, particularly strategic accounts and the distribution channel. The Americas also experienced increased parts and service sales in 2018 as well as strong sales in Latin America, particularly Brazil.
Europe, Middle East and Africa – ("EMEA")
EMEA Net Salesnet sales were $331.9 million in 2018 increased 22.6% to $335.6 million as compared to 2017 Net Sales2021, an increase of $273.7 million. In 2018,the direct impact of the second quarter 2017 acquisition of the IPC Group favorably impacted Net Sales by approximately 18.2%. In addition, a favorable impact of foreign currency translation exchange effects within EMEA impacted Net Sales by approximately 3.0% in 2018. As a result, organic19.3% from 2020. Organic sales growth in EMEA favorably impacted Net Salesnet sales by approximately 1.3%14.2% in 2021 primarily due to strongmarket growth in Germanyacross the business unit and France, partially offset by challenging comparable sales performance in Italy.
Asia Pacific ("APAC")
APAC net sales growthwere $100.6 million in most European countries2021, an increase of 9.6% from strong demand in both the direct and distributor channels being partially offset by lower sales in the UK.
Gross Profit
Gross Profitprofit margin of 40.2% was 39.6%, or 2550 basis points lower in 20182021 compared to 2017. Gross Profit2020. The margin rate decrease was unfavorably impactedprimarily driven by manufacturing productivity issues associated withsignificant raw material and labor shortages, robust strategic account sales which negatively impacted our mix,component parts inflation and higher freight costs, and negative impacts from tariffs. The unfavorable Gross Profit margin impacts were partiallypartly offset by higher selling prices.
Operating Expenses
Selling and Administrative Expense
Selling and Administrative ("S&A") expense was $321.9 million in 2021, an increase of $7.9 million compared to 2020. As a percentage of net sales, S&A expense in 2021 decreased 190 basis points to 29.5% from 31.4% in 2020. The S&A increase in 2021 was primarily driven by more normalized spending as profitability improved operational performancecompared to 2020, when the Company took cost containment actions, including employee furloughs, reduction in both manufacturingtravel spending, and servicetemporary pay reductions, as well as favorable pricing in North America and EMEA. In addition, Gross Profit margin was favorably impacted by a $7.2 million, or approximately 70 basis points, fair value inventory step-up flow throughbenefits from government programs received related to our acquisition of the IPC Group in 2017COVID-19. The benefits represented wage subsidies received from various European and Canadian authorities that didare not repeat in 2018.
Research and Development Expense
Research and Development ("R&D"). We continue to invest in developing innovative new products and technologies and the advancement of detergent-free products, fleet management and other sustainable technologies. New products and product variants launched in 2018 included the T600 series of scrubbers and our first autonomous floor care machine.
We believe that our research and the timing of anticipated project spend in 2018, including investment in our strategic relationship with Brain Corp.,development efforts have been, and continue to accelerate developmentbe, key drivers of our autonomous floor cleaning technology. We continue to investsuccess in R&D at levels necessary to propel our clear technology leadership position.
Gain on Sale of Business
Gain on sale of business was $9.8 million in 2021 as a result of the sale of the Coatings business that occurred in the first quarter of 2021.
Total Other Expense, decreased $2.7Net
Interest Expense, Net
Interest expense, net was $7.3 million or 7.8%,of net expense in 2017 as2021, compared to 2016. As a percentage of Net Sales, 2017 R&D Expense decreased 110 basis points compared to the prior year.$17.4 million in 2020, respectively. The decrease in R&D spending2021 was primarily due to headcount reduction related to the first quarter 2017 restructuring action.
Net Foreign Currency Transaction Losses
Net Foreign Currency Transaction Losses were $1.1foreign currency transaction loss was $0.7 million in 2018 as2021, compared to $3.4$5.3 million in 2017.2020. The favorable change in theunfavorable impact from foreign currency transactions in 20182021 and 2020 was primarily due to fluctuations in foreign currency rates, specifically between the Euro, Brazilian real and the U.S. dollar, and settlements of transactional hedging activity in the normal course of business. Additionally an unfavorable $1.1 million mark-to-market adjustment of a foreign exchange call option was recorded in 2017 that did not recur in 2018. This instrument was held in connection with our acquisition of the IPC Group in April 2017.
Pension and Postretirement Medical Benefits | |||||||||
2018 | 2017 | 2016 | |||||||
Prior Service Costs | $ | 109 | $ | — | $ | — | |||
Net actuarial (gain) loss | (1,699 | ) | 622 | 2,357 | |||||
Amortization of prior service cost | (19 | ) | — | (41 | ) | ||||
Amortization of net actuarial loss | (87 | ) | (117 | ) | (68 | ) | |||
Settlement Charge | (49 | ) | (6,373 | ) | — | ||||
Total recognized in other comprehensive (income) loss | $ | (1,745 | ) | $ | (5,868 | ) | $ | 2,248 |
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $11.3 million in 2021 due to the Canadian dollarrestructuring of debt that occurred in the second quarter of 2021.
Income Taxes
The effective tax rate for 2021 was 12.5% compared to 17.9% in 2020. The effective tax rate in 2021 decreased primarily due to a tax benefit resulting from an election to step-up the tax basis of certain assets for Italian tax purposes, as well as the release of certain valuation allowances related to net operating loss carryovers.
In general, it is our practice and approximately 5%intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial. No deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our foreign investments to the Euro.
Backlog
Backlog is one of the many indicators of business conditions in the Company's markets. Our order backlog at December 31, 2021 was approximately 3x - 5x larger compared to previous years. The $7.7 million loss increase in 2017our order backlog year over year was primarily due to $26.2 millionhigher order rates coupled with persistent supply chain challenges and labor constraints. We expect this level of losses recognized primarily as a resultbacklog to continue in 2022. Backlog includes orders that can be cancelled or postponed at the option of our Euro to U.S. dollar foreign exchange cross currency swaps to mitigate our Euro exposure on our cash flows associated with an intercompany loan from a wholly-owned European subsidiary. The loss was partially offset by $18.5 of losses reclassified from Accumulated Other Comprehensive Loss to the Consolidated Statements of Earnings.
Liquidity and Capital Resources
Liquidity
Our primary liquidity needs are to fund working capital, fund investments, service our debt, maintain cash reserves and capital expenditures. Our sources of liquidity include cash generated from operations, borrowings under our revolving credit facility and from time to time, debt and equity offerings. We believe our current resources are sufficient to meet our working capital requirements for our current business for at least the next 12 months and thereafter for the foreseeable future.
Cash, cash equivalents and Cash Equivalentsrestricted cash totaled $85.6$123.6 million at December 31, 2018,2021, as compared to $58.4$141.0 million as of December 31, 2017. Cash and Cash Equivalents held by our foreign subsidiaries totaled $59.2 million as of December 31, 2018, as compared to $39.1 million as of December 31, 2017.2020. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 1.8 as of December 31, 2021 and 1.9 as of December 31, 2018,2020, and 1.8our primary working capital, which is comprised of accounts receivable, inventories and accounts payable was $250.5 million and $221.3 million, respectively. Our debt-to-capital ratio was 38.1% as of December 31, 2017, and our working capital was $219.8 million and $186.6 million, respectively.
In the second quarter of 2021, we signed an agreement (the "2021 Credit Agreement") that restructured our previous credit agreement. The 2021 Credit Agreement provides greater flexibility with fewer restrictive covenants and more favorable interest rates than the previous arrangement, consisting of a term loan facility in an amount up to $100.0 million and a revolving facility in an amount up to $450.0 million with an option to expand the revolving facility by up to $275.0 million with the consent of the lenders willing to provide additional borrowings in the form of increases to their revolving facility commitment or funding of incremental term loans. As a result, we expect future interest expense to be lower by approximately $1.0 million per month as compared with 56.0% asto periods prior to the debt restructuring. In the second quarter of 2021, we used the proceeds from the 2021 Credit Agreement to retire our 5.625% Senior Notes due 2025. As of December 31, 2017. Our capital structure was comprised2021, we had outstanding borrowings of $355.1$98.8 million of Debt and $314.4$168.0 million of Tennant Company Shareholders’ Equity asunder our term loan facility and revolving facility, respectively. As of December 31, 2018.
The Company's Board of Directors has authorized a quarterly cash dividend of $0.25 per share payable March 15, 2022, to shareholders of record on March 3, 2022.
Cash Flow from Operating Activities
Operating activities provided $69.4 million of cash in 2021. Cash provided by operating activities was $80.0 million in 2018, $54.2 million in 2017 and $57.9 million in 2016. In 2018, cash provided by operating activities was driven primarily by inflows from a strong performance influencing net earnings, afterincome, by adding back non-cash items a $12.6of $52.9 million increase in Employee Compensation and Benefits liabilities and an increase in Accounts Payableaccounts payable of $4.6$19.1 million due to timing of payments. These cash inflows were partially offset by cash outflows resulting from an increase in Accounts Receivableinventory of $7.6$56.0 million resulting from higher sales levels, the variety of payment terms offered and mix of business as well as a $16.6 million increase in Inventories to support future sales growth.
Cash Flow from an increaseInvesting Activities
Investing activities in Accounts Receivable of $14.42021 provided $1.7 million, resulting from higher sales levels, the variety$24.7 million of payment terms offered and mix of business.
Cash Flow from Financing Activities
Net cash used in financing activities was $32.8$84.5 million in 2018. Net cash provided by financing activities was $319.52021. Proceeds from borrowings of $315.8 million in 2017. Net cash used in financing activities was $9.6 million in 2016. In 2018, proceeds from the incurrence of Long-Term Debt associated with the pending Gaomei acquisition and the issuance of Common Stock provided $11.0common stock of $5.0 million and $5.9 million, respectively. These cash inflows were partiallymainly offset by cash outflows resulting from $38.3payments of debt of $362.0 million, of Long-Term Debt payments and dividend payments of $15.3 million. Our annual cash dividend payout increased for the 47
Contractual Obligations
The company believes the liquidity available from the combination of stock if, after giving effectexpected cash generated by operating activities, existing cash and available credit under existing credit facilities will be sufficient to such paymentsmeet its short-term and assuming no default exists or would result from such payment, our leverage ratio is greater than 2.50 to 1, in such case limiting such payments to an amount ranging from $50.0 million to $75.0 million during any fiscal year based on our leverage ratio after giving effect to such payment. Our Senior Notes due 2025 also contain certain restrictions, which are generally less restrictive than those contained in the 2017 Credit Agreement.
Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | |||||||||||||||
Long-term debt(1) | $ | 359,789 | $ | 12,066 | $ | 16,552 | $ | 31,171 | $ | 300,000 | |||||||||
Interest payments on long-term debt(1) | 113,992 | 19,234 | 37,432 | 34,545 | 22,781 | ||||||||||||||
Capital leases | 2,862 | 1,264 | 1,427 | 171 | — | ||||||||||||||
Interest payments on capital leases | 210 | 127 | 80 | 3 | — | ||||||||||||||
Retirement benefit plans(2) | 1,319 | 1,319 | — | — | — | ||||||||||||||
Deferred compensation arrangements(3) | 5,120 | 1,189 | 1,532 | 638 | 1,761 | ||||||||||||||
Operating leases(4) | 40,151 | 15,200 | 14,508 | 6,228 | 4,215 | ||||||||||||||
Purchase obligations(5) | 53,844 | 53,844 | — | — | — | ||||||||||||||
Other(6) | 8,404 | 8,404 | — | — | — | ||||||||||||||
Total contractual obligations | $ | 585,691 | $ | 112,647 | $ | 71,531 | $ | 72,756 | $ | 328,757 |
Newly Issued Accounting Guidance
See Note 2 to the consolidated statements of operations. See FN 1 for further discussion.
No other new accounting pronouncements issued but not yet effective have had, or are expected to have, a material impact on our results of operations or financial position.
Our Consolidated Financial Statementsconsolidated financial statements are based on the selection and application of accounting principles generally accepted in the United States
Goodwill
– Goodwill represents the excess of cost over the fair value of net assets of businesses acquired and is allocated to our reporting units at the time of the acquisition. We analyzeWhen we perform a qualitative goodwill test, we analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. The qualitative test is used as an indicator to identify if there is potential goodwill impairment. If the qualitative test indicates there may be an impairment, we perform the quantitative test, which measures the amount of the goodwill impairment, if any. To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach. The income approach is based on discounted cash flow models that use reporting unit estimates for forecasted future financial performance, including revenues, margins, operating expenses, capital expenditures, depreciation, amortization, tax and discount rates. These estimates are developed as part of our planning process based on assumed growth rates, along with historical data and various internal estimates. Projected future cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated risk-adjusted weighted-average cost of capital relevant to each reporting unit.
We perform our annual goodwill impairment analysis as of year-end orOctober 1 and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount, and use our judgment to develop assumptions foramount. In 2020, we changed the discounted cash flow model that we use, if necessary. Management assumptions include forecasting revenues and margins, estimating capital expenditures, depreciation, amortization and discount rates.
In 2021, we would write down our reporting units’ carrying amount to its fair value and would record an impairment charge in our results of operations inperformed the period such determination is made. Subsequent reversal ofqualitative goodwill impairment charges is not permitted. Basedtest on our analysis of qualitative factors, we determined that it was not more likely than not that the fair value of the North America, Latin America, EMEA and APACall reporting units was less than its respective carrying amount. We elected to performexcept on Europe, Middle East and Africa (EMEA) for which we performed a quantitative analysis of the Coatings reporting unit. Based on the quantitative analysis ofgoodwill test. Our tests indicated that reporting unit, it was determined there was no goodwill impairment in any of our reporting units as of our annual assessment date.
We had goodwill of $193.1 million and $207.8 million at December 31, 2018. We had Goodwill of $182.7 million as of December 31, 2018.
Income Taxes
– We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax obligations based on expected income, statutory tax rates and tax planning opportunities in the various jurisdictions. We also establish reserves for uncertain tax matters that are complex in nature and uncertain as to the ultimate outcome. Although we believe that our tax return positions are fully supportable, we consider our ability to ultimately prevail in defending these matters when establishing these reserves. We adjust our reserves in light of changing facts and circumstances, such as the closing of a tax audit. We believe that our current reserves are adequate. However, the ultimate outcome may differ from our estimates and assumptions and could impact the income tax expense reflected in ourTax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation
This annual reportAnnual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, contains certain statements that are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or similar words or the negative thereof. These statements do not relate to strictly historical or current facts and provide current expectations of forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. Particular risks and uncertainties presently facing us include:
• | Geopolitical and economic uncertainty throughout the world. | |
• | Uncertainty surrounding the COVID-19 pandemic. | |
• | Ability to comply with global laws and regulations. | |
• | Ability to adapt to price sensitivity. | |
• | Competition in our business. | |
• | Fluctuations in the cost, quality or availability of raw materials and purchased components. | |
• | Ability to adjust pricing to respond to cost pressures. | |
• | Unforeseen product liability claims or product quality issues. | |
• | Ability to attract, retain and develop key personnel and create effective succession planning strategies. | |
• | Ability to effectively manage strategic plan or growth processes. | |
• | Ability to successfully upgrade and evolve our information technology systems. | |
• | Ability to successfully protect our information technology systems from cybersecurity risks. | |
• | Occurrence of a significant business interruption. | |
• | Ability to maintain the health and safety of our workforce. | |
• | Ability to integrate acquisitions. | |
• | Ability to develop and commercialize new innovative products and services. |
We caution that forward-looking statements must be considered carefully and that actual results may differ in material ways due to risks and uncertainties both known and unknown. Information about factors that could materially affect our results can be found in Part I, Item 1A - Risk Factors."Risk Factors" of this Form 10-K. Shareholders, potential investors and other readers are urged to consider
We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Investors are advised to consult any further disclosures by us in our filings with the Securities and Exchange CommissionSEC and in other written statements on related subjects. It is not possible to anticipate or foresee all risk factors, and investors should not consider any list of such factors to be an exhaustive or complete list of all risks or uncertainties.
Commodity Risk
–We are subject to exposures resulting from potential cost increases related to our purchase of raw materials or other product components. We do not use derivative commodity instruments to manage our exposures to changes in commodity prices such as steel, oil, gas, lead and other commodities.Various factors beyond our control affect the price of oil and gas, including, but not limited to, worldwide and domestic supplies of oil and gas, political instability or armed conflict in oil-producing regions, the price and level of foreign imports, the level of consumer demand, the price and availability of alternative fuels, domestic and foreign governmental regulation, weather-related factors and the overall economic environment. We purchase petroleum-related component parts for use in our manufacturing operations. In addition, our freight costs associated with shipping and receiving product and sales and service vehicle fuel costs are impacted by fluctuations in the cost of oil and gas.
Fluctuations in worldwide demand and other factors affect the price for lead, steel and related products. We do not maintain an inventory of raw or fabricated steel or batteries in excess of near-term production requirements. As a result, increases in the price of lead or steel can significantly increase the cost of our lead- and steel-based raw materials and component parts.
We continue to focus on mitigating the risk of future raw material or other product component cost increases through supplier negotiations, ongoing optimization of our supply chain, the continuation of cost reductioncost-reduction actions and product pricing. The success of these efforts will depend upon our ability to leverage our commodity spend in the current global economic environment. If the commodity prices increase significantly and we are not able to offset the increases with higher selling prices, our results may continue to be unfavorably impacted in 2019.
Interest Rate Risk – Our debt portfolio as of December 31, 2021, was comprised of debt predominately denominated in U.S. dollars. We are exposed to changes in interest rates as a result of borrowing activities with variable interest rates that impact interest incurred. As of December 31, 2021, the Company's financial liabilities subject to changes in interest rates are $168.0 million of our revolving credit facility borrowings and $98.8 million of our term loan facility. Assuming a hypothetical 50 basis point increase in short-term interest rates, with all other variables remaining constant, interest expense, net would have increased by approx. $1.0 million in 2021.
Foreign Currency Exchange Rate Risk
–Due to the global nature of our operations, we are subject to exposures resulting from foreign currency exchange fluctuations in the normal course of business. Our primary exchange rate exposures are with theIn the normal course of business, we actively manage the exposure of our foreign currency exchange rate market risk by entering into various hedging instruments with counterparties that are highly rated financial institutions. We may use foreign exchange purchased options or forward contracts to hedge our foreign currency denominated forecasted revenues or forecasted sales to wholly-owned foreign subsidiaries. Additionally, we hedge
These contracts are carried at fair value and have maturities between one and 12 months. The gains and losses on these contracts generally approximate changes in the value of the related assets, liabilities or forecasted transactions. Some of the derivative instruments we enter into do not meet the criteria for cash flow hedge accounting treatment; therefore, changes in fair value are recorded in Foreign Currency Transaction Lossesforeign currency transaction losses on our Consolidated Statementsconsolidated statements of Operations.
We use foreign currency exchange rate derivatives to hedge our exposure to fluctuations in exchange rates for anticipated intercompany cash transactions between Tennantthe Company and its subsidiaries. During 2017, we entered intoWe maintain Euro to U.S. dollar foreign exchange cross currencycross-currency swaps for all of the anticipated cash flows associated with an intercompany loan from a wholly-owned European subsidiary. We entered into these foreign exchange cross currencycross-currency swaps to hedge the foreign currency denominatedcurrency-denominated cash flows associated with this intercompany loan, and accordingly, they are not speculative in nature. We designated these cross currencycross-currency swaps as cash flow hedges. The hedged cash flows as of December 31, 20182021 included €174,000€152.4 million of total notional value. As of December 31, 2018,2021, the aggregate scheduled interest payments over the course of the loan and related swaps amounted to €24,000.€2.4 million. The scheduled maturity and principal payment of the loan and related swaps of €150,000€150.0 million are due in April 2022. There were no new cross currencycross-currency swaps designated as cash flow hedges as of December 31, 2018.
For further information regarding our foreign currency derivatives and hedging programs, see Note 1311 to the Consolidated Financial Statements.
For details of the estimated effects of currency translation on the operations of our operating segments, see Part II, Item 7 – Management's"Management's Discussion and Analysis of Financial Condition and Results of Operations.
Other Matters
–Management regularly reviews our business operations with the objective of improving financial performance and maximizing our return on investment. As a result of this ongoing process to improve financial performance, we may incur additional restructuring charges in the future which, if taken, could be material to our financial results.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and boardthe Board of directors
Opinion on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheetssheet of Tennant Company and subsidiaries (the Company)"Company") as of December 31, 20182021 and 2017,2020, the related consolidated statements of operations,income, comprehensive income, equity,cash flows, and cash flowsequity, for each of the two years in the three-year period ended December 31, 2018,2021, and the related notes and financial statement schedules includedthe schedule listed in the Index at Item 15.A.215 (collectively referred to as the consolidated financial statements)"financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting principles. Alsofirm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill – EMEA Reporting Unit - Refer to Notes 1 and 8 of the consolidated financial statements
Critical Audit Matter Description
The Company’s annual evaluation of goodwill for impairment involved the comparison of the EMEA reporting unit’s fair value to its carrying value. The Company determined the fair value of the reporting unit using the combination of an income and a market approach. The income approach utilizes a discounted cash flow model which requires management to make significant estimates and assumptions related to forecasts of future revenues, profit margins, and discount rates. The determination of the fair value using the market approach requires management to make significant assumptions related to earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples.
The EMEA goodwill balance was $155.8 million as of December 31, 2021. The fair value of the EMEA reporting unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized. Changes in these estimates and related assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.
Given the significant judgments made by management to estimate the fair value of the EMEA reporting unit and the differences between its fair value and carrying value, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future revenues, profit margins, discount rates, and EBITDA multiples, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to forecasts of future revenues, reporting unit profit margins, selection of discount rates, and EBITDA multiples for the EMEA reporting unit included the following, among others:
● | We tested the effectiveness of controls over goodwill, including the underlying assumptions to forecast future revenue and profit margins, and the selection of the discount rate and EBITDA multiples. |
● | We evaluated management’s ability to accurately forecast future revenues and profit margins by comparing actual results to management’s historical forecasts. |
● | We evaluated the reasonableness of management’s forecasted revenue and profit margins by comparing the forecasts to (1) historical results, (2) internal communications between management and the Board of Directors, and (3) information included in Company press releases as well as in analyst and industry reports of the Company and companies in its peer group. |
● | With the assistance of our fair value specialists, we evaluated the discount rate, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management. |
● | With the assistance of our fair value specialists, we evaluated the EBITDA multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline companies. |
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 24, 2022
We have served as the Company's auditor since 2019.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Tennant Company.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Tennant Company and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 20182021, based on criteria established in
We have also audited, in accordance with the Committee of Sponsoring Organizationsstandards of the Treadway Commission.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Definition and Limitations of Internal Control Overover Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 24, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Tennant Company:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of income, comprehensive income, equity, and cash flows for the year ended December 31, 2019, and the related notes and financial statement schedule II – Valuation and Qualifying Accounts(collectively, the consolidated financial statements).
In our opinion, the consolidated financial statements present fairly, in all material respects the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company'sCompany’s auditor since 1954.
Minneapolis, Minnesota
February 28, 201927, 2020
TENNANT COMPANY AND SUBSIDIARIES
(In thousands,millions, except shares and per share data)
Years ended December 31 | 2021 | 2020 | 2019 | |||||||||
Net sales | $ | 1,090.8 | $ | 1,001.0 | $ | 1,137.6 | ||||||
Cost of sales | 652.8 | 593.2 | 675.9 | |||||||||
Gross profit | 438.0 | 407.8 | 461.7 | |||||||||
Selling and administrative expense | 321.9 | 314.0 | 357.2 | |||||||||
Research and development expense | 32.2 | 30.1 | 32.7 | |||||||||
Gain on sale of business | (9.8 | ) | 0 | 0 | ||||||||
Operating income | 93.7 | 63.7 | 71.8 | |||||||||
Interest expense, net | (7.3 | ) | (17.4 | ) | (17.8 | ) | ||||||
Net foreign currency transaction loss | (0.7 | ) | (5.3 | ) | (0.7 | ) | ||||||
Loss on extinguishment of debt | (11.3 | ) | 0 | 0 | ||||||||
Other (expense) income, net | (0.3 | ) | 0.1 | 0.7 | ||||||||
Income before income taxes | 74.1 | 41.1 | 54.0 | |||||||||
Income tax expense | 9.2 | 7.4 | 8.1 | |||||||||
Net income including noncontrolling interest | 64.9 | 33.7 | 45.9 | |||||||||
Net income attributable to noncontrolling interest | 0 | 0 | 0.1 | |||||||||
Net income attributable to Tennant Company | $ | 64.9 | $ | 33.7 | $ | 45.8 | ||||||
Net income attributable to Tennant Company per share: | ||||||||||||
Basic | $ | 3.51 | $ | 1.84 | $ | 2.53 | ||||||
Diluted | $ | 3.44 | $ | 1.81 | $ | 2.48 | ||||||
Weighted average shares outstanding: | ||||||||||||
Basic | 18,499,674 | 18,349,724 | 18,118,486 | |||||||||
Diluted | 18,849,217 | 18,635,002 | 18,453,145 |
Years ended December 31 | 2018 | 2017 | 2016 | ||||||||
Net Sales | $ | 1,123,511 | $ | 1,003,066 | $ | 808,572 | |||||
Cost of Sales | 678,478 | 603,253 | 456,977 | ||||||||
Gross Profit | 445,033 | 399,813 | 351,595 | ||||||||
Operating Expense: | |||||||||||
Research and Development Expense | 30,739 | 32,013 | 34,738 | ||||||||
Selling and Administrative Expense | 356,316 | 334,782 | 248,592 | ||||||||
Total Operating Expense | 387,055 | 366,795 | 283,330 | ||||||||
Profit from Operations | 57,978 | 33,018 | 68,265 | ||||||||
Other Income (Expense): | |||||||||||
Interest Income | 3,035 | 2,405 | 330 | ||||||||
Interest Expense | (23,342 | ) | (25,394 | ) | (1,279 | ) | |||||
Net Foreign Currency Transaction Losses | (1,100 | ) | (3,387 | ) | (392 | ) | |||||
Other Expense, Net | (729 | ) | (7,934 | ) | (433 | ) | |||||
Total Other Expense, Net | (22,136 | ) | (34,310 | ) | (1,774 | ) | |||||
Profit (Loss) Before Income Taxes | 35,842 | (1,292 | ) | 66,491 | |||||||
Income Tax Expense | 2,304 | 4,913 | 19,877 | ||||||||
Net Earnings (Loss) Including Noncontrolling Interest | 33,538 | (6,205 | ) | 46,614 | |||||||
Net Earnings (Loss) Attributable to Noncontrolling Interest | 126 | (10 | ) | — | |||||||
Net Earnings (Loss) Attributable to Tennant Company | $ | 33,412 | $ | (6,195 | ) | $ | 46,614 | ||||
Net Earnings (Loss) Attributable to Tennant Company per Share: | |||||||||||
Basic | $ | 1.86 | $ | (0.35 | ) | $ | 2.66 | ||||
Diluted | $ | 1.82 | $ | (0.35 | ) | $ | 2.59 | ||||
Weighted Average Shares Outstanding: | |||||||||||
Basic | 17,940,438 | 17,695,390 | 17,523,267 | ||||||||
Diluted | 18,338,569 | 17,695,390 | 17,976,183 | ||||||||
Cash Dividends Declared per Common Share | $ | 0.85 | $ | 0.84 | $ | 0.81 |
See accompanying Notesnotes to Consolidated Financial Statements.consolidated financial statements.
TENNANT COMPANY AND SUBSIDIARIES
(In thousands)millions)
Years ended December 31 | 2021 | 2020 | 2019 | |||||||||
Net income including noncontrolling interest | $ | 64.9 | $ | 33.7 | $ | 45.9 | ||||||
Other comprehensive (loss) income: | ||||||||||||
Foreign currency translation adjustments (net of related tax benefits of $0.4, $0.8, and $0.1, respectively) | (16.9 | ) | 17.2 | (4.4 | ) | |||||||
Pension and postretirement medical benefits (net of related tax benefit of $0.3, $0.3, and $0.1, respectively) | (0.4 | ) | (1.0 | ) | (0.4 | ) | ||||||
Cash flow hedge (net of tax benefit (expense) of $0.1, $(0.7), and $(1.1), respectively) | (0.5 | ) | 2.2 | 3.5 | ||||||||
Total other comprehensive (loss) income, net of tax | (17.8 | ) | 18.4 | (1.3 | ) | |||||||
Total comprehensive income including noncontrolling interest | 47.1 | 52.1 | 44.6 | |||||||||
Comprehensive income attributable to noncontrolling interest | 0 | 0 | 0.1 | |||||||||
Comprehensive income attributable to Tennant Company | $ | 47.1 | $ | 52.1 | $ | 44.5 |
Years ended December 31 | 2018 | 2017 | 2016 | ||||||||
Net Earnings (Loss) Including Noncontrolling Interest | $ | 33,538 | $ | (6,205 | ) | $ | 46,614 | ||||
Other Comprehensive (Loss) Income: | |||||||||||
Foreign currency translation adjustments | (16,221 | ) | 28,356 | 109 | |||||||
Pension and retiree medical benefits | 1,745 | 5,868 | (2,248 | ) | |||||||
Cash flow hedge | 1,341 | (7,731 | ) | (305 | ) | ||||||
Income Taxes: | |||||||||||
Foreign currency translation adjustments | 168 | 310 | 32 | ||||||||
Pension and retiree medical benefits | (467 | ) | (2,087 | ) | 504 | ||||||
Cash flow hedge | (1,437 | ) | 2,884 | 114 | |||||||
Total Other Comprehensive (Loss) Income, net of tax | (14,871 | ) | 27,600 | (1,794 | ) | ||||||
Total Comprehensive Income Including Noncontrolling Interest | 18,667 | 21,395 | 44,820 | ||||||||
Comprehensive Income (Loss) Attributable to Noncontrolling Interest | 126 | (10 | ) | — | |||||||
Comprehensive Income Attributable to Tennant Company | $ | 18,541 | $ | 21,405 | $ | 44,820 |
See accompanying Notesnotes to Consolidated Financial Statements.consolidated financial statements.
TENNANT COMPANY AND SUBSIDIARIES
(In thousands,millions, except shares and per share data)
December 31 | 2021 | 2020 | ||||||
ASSETS | ||||||||
Cash, cash equivalents, and restricted cash | $ | 123.6 | $ | 141.0 | ||||
Receivables, less allowances of $5.3 and $4.6, respectively | 211.4 | 199.9 | ||||||
Inventories | 160.6 | 127.7 | ||||||
Prepaid and other current assets | 31.2 | 25.0 | ||||||
Total current assets | 526.8 | 493.6 | ||||||
Property, plant and equipment, less accumulated depreciation of $258.4 and $252.0, respectively | 172.8 | 185.5 | ||||||
Operating lease assets | 41.3 | 44.5 | ||||||
Goodwill | 193.1 | 207.8 | ||||||
Intangible assets, net | 98.0 | 126.2 | ||||||
Other assets | 29.7 | 25.0 | ||||||
Total assets | $ | 1,061.7 | $ | 1,082.6 | ||||
LIABILITIES AND TOTAL EQUITY | ||||||||
Current portion of long-term debt | $ | 4.2 | $ | 10.9 | ||||
Accounts payable | 121.5 | 106.3 | ||||||
Employee compensation and benefits | 60.6 | 53.7 | ||||||
Other current liabilities | 104.0 | 83.4 | ||||||
Total current liabilities | 290.3 | 254.3 | ||||||
Long-term debt | 263.4 | 297.6 | ||||||
Long-term operating lease liabilities | 25.4 | 28.7 | ||||||
Employee-related benefits | 16.3 | 17.9 | ||||||
Deferred income taxes | 20.6 | 39.1 | ||||||
Other liabilities | 10.6 | 38.9 | ||||||
Total long-term liabilities | 336.3 | 422.2 | ||||||
Total liabilities | 626.6 | 676.5 | ||||||
Commitments and contingencies (Note 16) | ||||||||
Common stock, $0.375 par value per share, 60,000,000 shares authorized; 18,535,116 and 18,503,805 issued and outstanding, respectively | 7.0 | 6.9 | ||||||
Additional paid-in capital | 54.1 | 54.7 | ||||||
Retained earnings | 410.6 | 363.3 | ||||||
Accumulated other comprehensive loss | (37.9 | ) | (20.1 | ) | ||||
Total Tennant Company shareholders' equity | 433.8 | 404.8 | ||||||
Noncontrolling interest | 1.3 | 1.3 | ||||||
Total equity | 435.1 | 406.1 | ||||||
Total liabilities and total equity | $ | 1,061.7 | $ | 1,082.6 |
December 31 | 2018 | 2017 | |||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and Cash Equivalents | $ | 85,609 | $ | 58,398 | |||
Restricted Cash | 525 | 653 | |||||
Receivables: | |||||||
Trade, less Allowances of $2,516 and $3,241, respectively | 207,948 | 203,280 | |||||
Other | 8,222 | 6,236 | |||||
Net Receivables | 216,170 | 209,516 | |||||
Inventories | 135,133 | 127,694 | |||||
Prepaid Expenses | 22,141 | 19,351 | |||||
Other Current Assets | 9,066 | 7,503 | |||||
Total Current Assets | 468,644 | 423,115 | |||||
Property, Plant and Equipment | 386,641 | 382,768 | |||||
Accumulated Depreciation | (223,194 | ) | (202,750 | ) | |||
Property, Plant and Equipment, Net | 163,447 | 180,018 | |||||
Deferred Income Taxes | 15,489 | 11,134 | |||||
Goodwill | 182,671 | 186,044 | |||||
Intangible Assets, Net | 146,546 | 172,347 | |||||
Other Assets | 15,747 | 21,319 | |||||
Total Assets | $ | 992,544 | $ | 993,977 | |||
LIABILITIES AND TOTAL EQUITY | |||||||
Current Liabilities: | |||||||
Current Portion of Long-Term Debt | $ | 27,005 | $ | 30,883 | |||
Accounts Payable | 98,398 | 96,082 | |||||
Employee Compensation and Benefits | 49,453 | 37,257 | |||||
Income Taxes Payable | 2,123 | 2,838 | |||||
Other Current Liabilities | 71,895 | 69,447 | |||||
Total Current Liabilities | 248,874 | 236,507 | |||||
Long-Term Liabilities: | |||||||
Long-Term Debt | 328,060 | 345,956 | |||||
Employee-Related Benefits | 21,110 | 23,867 | |||||
Deferred Income Taxes | 46,018 | 53,225 | |||||
Other Liabilities | 32,130 | 35,948 | |||||
Total Long-Term Liabilities | 427,318 | 458,996 | |||||
Total Liabilities | 676,192 | 695,503 | |||||
Commitments and Contingencies (Note 17) | |||||||
Equity: | |||||||
Common Stock, $0.375 par value per share, 60,000,000 shares authorized; 18,125,201 and 17,881,177 issued and outstanding, respectively | 6,797 | 6,705 | |||||
Additional Paid-In Capital | 28,550 | 15,089 | |||||
Retained Earnings | 316,269 | 297,032 | |||||
Accumulated Other Comprehensive Loss | (37,194 | ) | (22,323 | ) | |||
Total Tennant Company Shareholders' Equity | 314,422 | 296,503 | |||||
Noncontrolling Interest | 1,930 | 1,971 | |||||
Total Equity | 316,352 | 298,474 | |||||
Total Liabilities and Total Equity | $ | 992,544 | $ | 993,977 |
See accompanying Notesnotes to Consolidated Financial Statements.consolidated financial statements.
TENNANT COMPANY AND SUBSIDIARIES
(In thousands)millions)
Years ended December 31 | 2021 | 2020 | 2019 | |||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income including noncontrolling interest | $ | 64.9 | $ | 33.7 | $ | 45.9 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation | 33.1 | 32.6 | 32.2 | |||||||||
Amortization of intangible assets | 20.0 | 20.8 | 22.2 | |||||||||
Fair value step-up adjustment to acquired inventory | 0 | 0 | 0.9 | |||||||||
Deferred income taxes | (15.0 | ) | (4.0 | ) | (9.6 | ) | ||||||
Share-based compensation expense | 9.5 | 6.0 | 11.4 | |||||||||
Bad debt and returns expense | 1.5 | 2.0 | 2.5 | |||||||||
Gain on sale of business | (9.8 | ) | 0 | 0 | ||||||||
Acquisition contingent consideration adjustment | 0.7 | (0.4 | ) | (2.3 | ) | |||||||
Note receivable write-down | 0 | 0 | 2.7 | |||||||||
Loss on extinguishment of debt | 11.3 | 0 | 0 | |||||||||
Other, net | 1.6 | 2.6 | 2.4 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Receivables | (20.3 | ) | 26.0 | (8.5 | ) | |||||||
Inventories | (56.0 | ) | 18.3 | (17.8 | ) | |||||||
Accounts payable | 19.1 | 8.5 | (7.5 | ) | ||||||||
Employee compensation and benefits | 8.3 | (10.0 | ) | 4.5 | ||||||||
Other assets and liabilities | 0.5 | (2.3 | ) | (7.1 | ) | |||||||
Net cash provided by operating activities | 69.4 | 133.8 | 71.9 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
Purchases of property, plant and equipment | (19.4 | ) | (29.9 | ) | (38.4 | ) | ||||||
Proceeds from disposals of property, plant and equipment | 0 | 0.1 | 0.1 | |||||||||
Proceeds from principal payments received on long-term note receivable | 0 | 0 | 2.9 | |||||||||
Acquisitions of businesses, net of cash acquired | 0 | 0 | (19.7 | ) | ||||||||
Purchase of intangible asset | (0.1 | ) | (0.1 | ) | (0.5 | ) | ||||||
Proceeds from sale of business, net of cash divested | 24.7 | 0 | 0 | |||||||||
Investment in leased assets | (3.7 | ) | 0 | 0 | ||||||||
Cash received from leased assets | 0.2 | 0 | 0 | |||||||||
Net cash provided by (used in) investing activities | 1.7 | (29.9 | ) | (55.6 | ) | |||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from borrowings | 315.8 | 126.4 | 25.0 | |||||||||
Repayments of borrowings | (362.0 | ) | (157.5 | ) | (41.8 | ) | ||||||
Debt extinguishment payment | (8.4 | ) | 0 | 0 | ||||||||
Contingent consideration payments | (2.5 | ) | 0 | 0 | ||||||||
Change in finance lease obligations | 0.1 | (0.2 | ) | (0.2 | ) | |||||||
Proceeds from issuances of common stock | 5.0 | 4.9 | 6.1 | |||||||||
Purchase of noncontrolling owner interest | 0 | (0.1 | ) | (0.5 | ) | |||||||
Dividends paid | (17.5 | ) | (16.3 | ) | (16.0 | ) | ||||||
Repurchases of common stock | (15.0 | ) | 0 | 0 | ||||||||
Net cash used in financing activities | (84.5 | ) | (42.8 | ) | (27.4 | ) | ||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (4.0 | ) | 5.3 | (0.4 | ) | |||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | (17.4 | ) | 66.4 | (11.5 | ) | |||||||
Cash, cash equivalents and restricted cash at beginning of year | 141.0 | 74.6 | 86.1 | |||||||||
Cash, cash equivalents and restricted cash at end of year | $ | 123.6 | $ | 141.0 | $ | 74.6 |
Years ended December 31 | 2018 | 2017 | 2016 | ||||||||
OPERATING ACTIVITIES | |||||||||||
Net Earnings (Loss) Including Noncontrolling Interest | $ | 33,538 | $ | (6,205 | ) | $ | 46,614 | ||||
Adjustments to Reconcile Net Earnings (Loss) to Net Cash Provided by Operating Activities: | |||||||||||
Depreciation | 32,291 | 26,199 | 17,891 | ||||||||
Amortization of Intangible Assets | 22,129 | 17,054 | 409 | ||||||||
Amortization of Debt Issuance Costs | 2,353 | 1,779 | — | ||||||||
Debt Issuance Cost Charges Related to Short-Term Financing | — | 6,200 | — | ||||||||
Fair Value Step-Up Adjustment to Acquired Inventory | — | 7,245 | — | ||||||||
Deferred Income Taxes | (10,862 | ) | (6,095 | ) | (1,172 | ) | |||||
Share-Based Compensation Expense | 8,314 | 5,891 | 3,875 | ||||||||
Allowance for Doubtful Accounts and Returns | 768 | 1,602 | 468 | ||||||||
Other, Net | (436 | ) | 364 | (196 | ) | ||||||
Changes in Operating Assets and Liabilities, Net of Assets Acquired: | |||||||||||
Receivables, Net | (7,618 | ) | (14,381 | ) | (9,278 | ) | |||||
Inventories | (16,557 | ) | (2,898 | ) | 23 | ||||||
Accounts Payable | 4,569 | 10,849 | (3,904 | ) | |||||||
Employee Compensation and Benefits | 12,649 | (7,780 | ) | 124 | |||||||
Other Current Liabilities | 722 | 14,560 | (185 | ) | |||||||
Income Taxes | (1,383 | ) | 285 | 5,427 | |||||||
Other Assets and Liabilities | (507 | ) | (495 | ) | (2,218 | ) | |||||
Net Cash Provided by Operating Activities | 79,970 | 54,174 | 57,878 | ||||||||
INVESTING ACTIVITIES | |||||||||||
Purchases of Property, Plant and Equipment | (18,780 | ) | (20,437 | ) | (26,526 | ) | |||||
Proceeds from Disposals of Property, Plant and Equipment | 112 | 2,511 | 615 | ||||||||
Proceeds from Principal Payments Received on Long-Term Note Receivable | 1,416 | 667 | — | ||||||||
Issuance of Long-Term Note Receivable | — | (1,500 | ) | (2,000 | ) | ||||||
Acquisitions of Businesses, Net of Cash Acquired | — | (354,073 | ) | (12,933 | ) | ||||||
Purchase of Intangible Asset | (2,775 | ) | (2,500 | ) | — | ||||||
Proceeds from Sale of Business | 4,000 | — | 285 | ||||||||
Net Cash Used in Investing Activities | (16,027 | ) | (375,332 | ) | (40,559 | ) | |||||
FINANCING ACTIVITIES | |||||||||||
Proceeds from Short-Term Debt | 3,926 | 303,000 | — | ||||||||
Repayments of Short-Term Debt | — | (303,000 | ) | — | |||||||
Proceeds from Issuance of Long-Term Debt | 11,000 | 440,000 | 15,000 | ||||||||
Payments of Long-Term Debt | (38,255 | ) | (96,248 | ) | (3,460 | ) | |||||
Payments of Debt Issuance Costs | — | (16,482 | ) | — | |||||||
Change in Capital Lease Obligations | 14 | 311 | — | ||||||||
Purchases of Common Stock | — | — | (12,762 | ) | |||||||
Proceeds from Issuances of Common Stock | 5,880 | 6,875 | 5,271 | ||||||||
Excess Tax Benefit on Stock Plans | — | — | 686 | ||||||||
Purchase of Noncontrolling Owner Interest | — | (30 | ) | — | |||||||
Dividends Paid | (15,343 | ) | (14,953 | ) | (14,293 | ) | |||||
Net Cash (Used in) Provided by Financing Activities | (32,778 | ) | 319,473 | (9,558 | ) | ||||||
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | (4,082 | ) | 2,186 | (1,150 | ) | ||||||
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 27,083 | 501 | 6,611 | ||||||||
Cash, Cash Equivalents and Restricted Cash at Beginning of Year | 59,051 | 58,550 | 51,939 | ||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR | $ | 86,134 | $ | 59,051 | $ | 58,550 |
SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||||||
Years ended December 31 | 2021 | 2020 | 2019 | |||||||||
Cash paid for income taxes | $ | 19.5 | $ | 12.0 | $ | 21.7 | ||||||
Cash paid for interest | $ | 11.7 | $ | 18.3 | $ | 19.7 | ||||||
Supplemental non-cash investing and financing activities: | ||||||||||||
Capital expenditures in accounts payable | $ | 3.7 | $ | 3.8 | $ | 3.9 |
SUPPLEMENTAL CASH FLOW INFORMATION | |||||||||||
Cash Paid During the Year for: | |||||||||||
Income Taxes | $ | 11,132 | $ | 13,542 | $ | 14,172 | |||||
Interest | $ | 22,367 | $ | 14,228 | $ | 1,135 | |||||
Supplemental Non-Cash Investing and Financing Activities: | |||||||||||
Long-Term Note Receivable from Sale of Business | $ | — | $ | — | $ | 5,489 | |||||
Capital Expenditures in Accounts Payable | $ | 2,311 | $ | 2,167 | $ | 2,045 |
See accompanying Notesnotes to Consolidated Financial Statements.consolidated financial statements.
TENNANT COMPANY AND SUBSIDIARIES
(In thousands,millions, except shares and per share data)
Tennant Company Shareholders | |||||||||||||||||||||||
Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Tennant Company Shareholders' Equity | Noncontrolling Interest | Total Equity | ||||||||||||||||
Balance, December 31, 2015 | 17,744,381 | $ | 6,654 | $ | — | $ | 293,682 | $ | (48,129 | ) | $ | 252,207 | $ | — | $ | 252,207 | |||||||
Net Earnings | — | — | — | 46,614 | — | 46,614 | — | 46,614 | |||||||||||||||
Other Comprehensive Loss | — | — | — | — | (1,794 | ) | (1,794 | ) | — | (1,794 | ) | ||||||||||||
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 23,113 shares | 190,443 | 71 | 3,939 | — | — | 4,010 | — | 4,010 | |||||||||||||||
Share-Based Compensation | — | — | 3,875 | — | — | 3,875 | — | 3,875 | |||||||||||||||
Dividends paid $0.81 per Common Share | — | — | — | (14,293 | ) | — | (14,293 | ) | — | (14,293 | ) | ||||||||||||
Tax Benefit on Stock Plans | — | — | 686 | — | — | 686 | — | 686 | |||||||||||||||
Purchases of Common Stock | (246,474 | ) | (92 | ) | (4,847 | ) | (7,823 | ) | — | (12,762 | ) | — | (12,762 | ) | |||||||||
Balance, December 31, 2016 | 17,688,350 | $ | 6,633 | $ | 3,653 | $ | 318,180 | $ | (49,923 | ) | $ | 278,543 | $ | — | $ | 278,543 | |||||||
Net Loss | — | — | — | (6,195 | ) | — | (6,195 | ) | (10 | ) | (6,205 | ) | |||||||||||
Other Comprehensive Income | — | — | — | — | 27,600 | 27,600 | — | 27,600 | |||||||||||||||
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 16,990 shares | 192,827 | 72 | 5,545 | — | — | 5,617 | — | 5,617 | |||||||||||||||
Share-Based Compensation | — | — | 5,891 | — | — | 5,891 | — | 5,891 | |||||||||||||||
Dividends paid $0.84 per Common Share | — | — | — | (14,953 | ) | — | (14,953 | ) | — | (14,953 | ) | ||||||||||||
Recognition of Noncontrolling Interests | — | — | — | — | — | — | 2,028 | 2,028 | |||||||||||||||
Purchase of Noncontrolling Shareholder Interest | — | — | — | — | — | — | (30 | ) | (30 | ) | |||||||||||||
Other | — | — | — | — | — | — | (17 | ) | (17 | ) | |||||||||||||
Balance, December 31, 2017 | 17,881,177 | $ | 6,705 | $ | 15,089 | $ | 297,032 | $ | (22,323 | ) | $ | 296,503 | $ | 1,971 | $ | 298,474 | |||||||
Net Earnings | — | — | — | 33,412 | — | 33,412 | 126 | 33,538 | |||||||||||||||
Other Comprehensive Loss | — | — | — | — | (14,871 | ) | (14,871 | ) | — | (14,871 | ) | ||||||||||||
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 9,598 shares | 244,024 | 92 | 5,147 | — | — | 5,239 | — | 5,239 | |||||||||||||||
Share-Based Compensation | — | — | 8,314 | — | — | 8,314 | — | 8,314 | |||||||||||||||
Dividends paid $0.85 per Common Share | — | — | — | (15,343 | ) | — | (15,343 | ) | — | (15,343 | ) | ||||||||||||
Recognition of Noncontrolling Interests | — | — | — | — | — | — | (132 | ) | (132 | ) | |||||||||||||
Adjustments to beginning Retained Earnings resulting from newly adopted accounting pronouncements (see FN 2) | — | — | — | 1,168 | — | 1,168 | — | 1,168 | |||||||||||||||
Other | — | — | — | — | — | — | (35 | ) | (35 | ) | |||||||||||||
Balance, December 31, 2018 | 18,125,201 | $ | 6,797 | $ | 28,550 | $ | 316,269 | $ | (37,194 | ) | $ | 314,422 | $ | 1,930 | $ | 316,352 |
Tennant Company Shareholders | ||||||||||||||||||||||||||||||||
Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Tennant Company Shareholders' Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||
Balance, December 31, 2018 | 18,125,201 | $ | 6.8 | $ | 28.5 | $ | 316.3 | $ | (37.2 | ) | $ | 314.4 | $ | 1.9 | $ | 316.3 | ||||||||||||||||
Net income | — | 0 | 0 | 45.8 | 0 | 45.8 | 0.1 | 45.9 | ||||||||||||||||||||||||
Other comprehensive loss | — | 0 | 0 | 0 | (1.3 | ) | (1.3 | ) | 0 | (1.3 | ) | |||||||||||||||||||||
Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 12,198 shares | 210,809 | 0.1 | 5.1 | 0 | 0 | 5.2 | 0 | 5.2 | ||||||||||||||||||||||||
Share-based compensation | — | 0 | 11.4 | 0 | 0 | 11.4 | 0 | 11.4 | ||||||||||||||||||||||||
Dividends paid $0.88 per common share | — | 0 | 0 | (16.0 | ) | 0 | (16.0 | ) | 0 | (16.0 | ) | |||||||||||||||||||||
Purchase of noncontrolling interests | — | 0 | 0.5 | 0 | 0 | 0.5 | (0.5 | ) | 0 | |||||||||||||||||||||||
Other | — | 0 | 0 | (0.1 | ) | 0 | (0.1 | ) | (0.1 | ) | (0.2 | ) | ||||||||||||||||||||
Balance, December 31, 2019 | 18,336,010 | $ | 6.9 | $ | 45.5 | $ | 346.0 | $ | (38.5 | ) | $ | 359.9 | $ | 1.4 | $ | 361.3 | ||||||||||||||||
Net income | — | 0 | 0 | 33.7 | 0 | 33.7 | 0 | 33.7 | ||||||||||||||||||||||||
Other comprehensive loss | — | 0 | 0 | 0 | 18.4 | 18.4 | 0 | 18.4 | ||||||||||||||||||||||||
Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 20,494 shares | 167,795 | 0 | 3.3 | 0 | 0 | 3.3 | 0 | 3.3 | ||||||||||||||||||||||||
Share-based compensation | — | 0 | 6.0 | 0 | 0 | 6.0 | 0 | 6.0 | ||||||||||||||||||||||||
Dividends paid $0.89 per common share | — | 0 | 0 | (16.3 | ) | 0 | (16.3 | ) | 0 | (16.3 | ) | |||||||||||||||||||||
Purchase of noncontrolling interests | — | 0 | (0.1 | ) | 0 | 0 | (0.1 | ) | 0 | (0.1 | ) | |||||||||||||||||||||
Other | — | 0 | 0 | (0.1 | ) | 0 | (0.1 | ) | (0.1 | ) | (0.2 | ) | ||||||||||||||||||||
Balance, December 31, 2020 | 18,503,805 | $ | 6.9 | $ | 54.7 | $ | 363.3 | $ | (20.1 | ) | $ | 404.8 | $ | 1.3 | $ | 406.1 | ||||||||||||||||
Net income | — | 0 | 0 | 64.9 | 0 | 64.9 | 0 | 64.9 | ||||||||||||||||||||||||
Other comprehensive income | — | 0 | 0 | 0 | (17.8 | ) | (17.8 | ) | 0 | (17.8 | ) | |||||||||||||||||||||
Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 35,061 shares | 228,293 | 0.1 | 4.9 | 0 | 0 | 5.0 | — | 5.0 | ||||||||||||||||||||||||
Share-based compensation | — | 0 | 9.5 | 0 | 0 | 9.5 | 0 | 9.5 | ||||||||||||||||||||||||
Dividends paid $0.94 per common share | — | 0 | 0 | (17.5 | ) | 0 | (17.5 | ) | 0 | (17.5 | ) | |||||||||||||||||||||
Repurchases of common stock | (196,982 | ) | 0 | (15.0 | ) | 0 | 0 | (15.0 | ) | 0 | (15.0 | ) | ||||||||||||||||||||
Other | — | 0 | 0 | (0.1 | ) | 0 | (0.1 | ) | 0 | (0.1 | ) | |||||||||||||||||||||
Balance, December 31, 2021 | 18,535,116 | $ | 7.0 | $ | 54.1 | $ | 410.6 | $ | (37.9 | ) | $ | 433.8 | $ | 1.3 | $ | 435.1 |
See accompanying Notesnotes to Consolidated Financial Statements.
(In thousands,Tables in millions, except shares and per share data)
1. | Operations and Summary of Significant Accounting Policies |
Nature of Operations
– Tennant Company ("the Company", "we", "us", or "our") is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance,Our products are used in many types of environments, including: Retailincluding retail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, parking lots and streets, and more.
Customers include contract cleaners to whom organizations outsource facilities maintenance as well as businesses that perform facilities maintenance themselves. The Company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.
Reclassification – We reclassified $5.0 million of costs from selling and administrative expense to cost of sales in the consolidated statement of income for the year ended December 31, 2020 as part of a global alignment of costs across all regions.
Consolidation
– TheTranslation of Non-U.S. Currency
– Foreign currency-denominated assets and liabilities have been translated to U.S. dollars at year-end exchange rates, while income and expense items are translated at average exchange rates prevailing during the year. Gains or losses resulting from translation are included as a separate component ofUse of Estimates
–Cash and Cash Equivalents
– We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents.Restricted Cash
– We have a total ofReceivables
– Credit is granted to our customers in the normal course of business. Receivables are recorded at original carrying value less reserves for estimated uncollectible accounts and sales returns. To assess the collectability of these receivables, we perform ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information becomes available.Our reserves are also based on amounts determined by using percentages applied to trade receivables. These percentages are determinedreceivables, using a loss rate method. We considered the following in determining the expected loss rate: (1) historical loss rate, (2) macroeconomic factors, and (3) creditworthiness of customers. The historical loss rate is calculated by taking the yearly write-off expense, net of collections, as a varietypercentage of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience.the annual average balance of trade receivables for each of the past three years. An account is considered past-due or delinquent when it has not been paid within the contractual terms. Uncollectible accounts are written off against the reserves when it is deemed that a customer account is uncollectible.
During the fourth quarter of 2021, we entered into a leasing and service transaction with a financing component with a large customer in Brazil. We recorded a $3.1 million financing receivable associated with the assets subject to the arrangements in other assets on the consolidated balance sheets. The financing arrangement is expected to last 8 years.
Inventories
– Inventories are valued at the lower of cost or net realizable value. Cost is determined on aProperty, Plant and Equipment
– Property, plant and equipment is carried at cost. Additions and improvements that extend the lives of the assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. We generally depreciate buildings and improvements by the straight-line method over a life of 30 years. Other property, plant and equipment are generally depreciated using the straight-line method based on lives of 3 years to 15 years.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
Leases – InvestmentsWe assess whether an arrangement is a lease at inception.
Operating leases with an initial term of 12 months or less are expensed as incurred as short-term lease cost. We have elected the practical expedient to not separate lease and non-lease components for all asset classes. Operating lease assets and operating lease liabilities are calculated based on the present value of the future lease payments over the lease term at the lease commencement date. When future lease payments are based on an index or rate, operating lease assets and operating lease liabilities are calculated using the prevailing index or rate at the lease commencement date. As the implicit rate is not readily determinable, we use our incremental borrowing rate based on the information available at the lease start date in determining the present value of future payments. Information used in determining the incremental borrowing rates for the Company's leases includes: (1) the market yield on the Company's traded bond, adjusted for the presence of collateral and the difference in terms of the bond and the leases, (2) consideration of the currency in which each lease was denominated, and (3) the lease term. The operating lease asset is increased by any lease payments made at or before the lease start date, increased by initial direct costs incurred, and reduced by lease incentives. The lease term includes options to renew or terminate the lease when it is reasonably certain that we havewill exercise that option. The exercise of lease renewal options is at our sole discretion. The useful life of lease assets and leasehold improvements are limited by the abilitylease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain leases also include options to exercise significant influence, but do not control,purchase the leased asset. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Certain leases contain variable lease payments for items such as index-based changes in rent, fuel and common area maintenance, which we expense as incurred as variable lease cost.
Finance leases are accounted for under the equity method of accounting and are included in Other Assets on the Consolidated Balance Sheets. Under this method of accounting,not material to our share of the net earnings or losses of the investee are presented as a component of Other Expense, Net on the Consolidated Statements of Operations. The detail regarding our equity method investment in i-team North America B.V., a joint venture that operates as the distributor of the i-mop in North America, is further described in Note 5.
Goodwill
– Goodwill represents the excess of cost over the fair value of net assets of businessesIn 2021, we performed a qualitative goodwill test on all reporting units except on our Europe, Middle East and Africa (EMEA) reporting unit for which we performed the quantitative goodwill test. Our tests indicated that there was 0 goodwill impairment test.
Intangible Assets
– IntangibleImpairment of Long-livedLong-Lived Assets and Assets Held for Sale
Assets held for sale are measured at the lower of their carrying value or fair value less costs to sell. Upon retirement or disposition, the asset cost and related accumulated depreciation or amortization are removed from the accounts and a gain or loss is recognized based on the difference between the fair value of proceeds received and carrying value of the assets held for sale.
Purchase of Common Stock
– We repurchase ourWarranty
– We record a liability for estimated warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. In the event we determine that our current or future product repair and replacement costs exceed our estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. Warranty terms on machines range from one to four years. However, the majority of our claims are paid out within the firstsix to nine months following a sale. The majority of the liability for estimated warranty claims represents amounts to be paid out in the near term for qualified warranty issues, with immaterial amounts reserved to be paid out for older equipment warranty issues. Warranty costs are recorded as a component ofNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in the Consolidated Balance Sheets as a direct deduction from the carrying amount of the debt liability, if not a line-of-credit arrangement. All debt issuance costs related to line-of-credit arrangements are recorded as part of Other Assets in the Consolidated Balance Sheetsmillions, except shares and subsequently amortized over the term of the line-of-credit arrangement. We amortize our debt issuance costs using the effective interest method over the term of the debt instrument or line-of-credit arrangement. Amortization of these costs is included as part of Interest Expense in the Consolidated Statements of Operations.
Pension and Profit Sharing Plans
– Substantially all U.S. employees are covered by various retirement benefit plans, including postretirement medical plans and defined contribution savings plans.Postretirement Benefits
– We accrue and recognize the cost of retiree health benefits over the employees’ period of service based on actuarial estimates. Benefits are only available for U.S. employees hired before January 1, 1999.Derivative Financial Instruments
– In countries outside the U.S., we transact business in U.S. dollars and in various other currencies. We hedge our net recognized foreignWe account for our foreign currency hedging instruments as either assets or liabilities on the consolidated balance sheetsheets and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. Gains and losses from foreign exchange forward contracts that hedge certain balance sheet positions are recorded each period to Net Foreign Currency Transaction Lossesnet foreign currency transaction loss in our Consolidated Statementsconsolidated statements of Operations.income. Foreign exchange option contracts or forward contracts hedging forecasted foreign currency revenue are designated as cash flow hedges under accounting for derivative instruments and hedging activities, with gains and losses recorded each period to Accumulated Other Comprehensive Lossaccumulated other comprehensive loss in our Consolidated Balance Sheets,consolidated balance sheets, until the forecasted transaction occurs. When the forecasted transaction occurs, we reclassify the related gain or loss on the cash flow hedge to Net Sales.net sales. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from Accumulated Other Comprehensive Lossaccumulated other comprehensive loss to Net Foreign Currency Transaction Lossesnet foreign currency transaction losses in our Consolidated Statementsconsolidated statements of Operationsincome at that time. If we do not elect hedge accounting, or the contract does not qualify for hedge accounting treatment, the changes in fair value from period to period are recorded in Net Foreign Currency Transaction Lossesnet foreign currency transaction loss in our Consolidated Statements of Operations. See Note 13 for additional information regarding our hedging activities.
Revenue from Contracts with Customers
As Reported | Balance Without Adoption of ASC 606 | Effect of Change Higher/(Lower) | |||||||||
ASSETS | |||||||||||
Accounts Receivable | $ | 216,170 | $ | 214,858 | $ | 1,312 | |||||
Total Current Assets | 468,644 | 467,332 | $ | 1,312 | |||||||
Total Assets | $ | 992,544 | $ | 991,232 | $ | 1,312 | |||||
LIABILITIES | |||||||||||
Other Current Liabilities | $ | 71,895 | $ | 70,583 | $ | 1,312 | |||||
Total Current Liabilities | 248,874 | 247,562 | $ | 1,312 | |||||||
Total Liabilities | $ | 676,192 | $ | 674,880 | $ | 1,312 |
In general, we transfer control and recognize a sale at the point in time when products are shipped from our manufacturing facilities both direct to consumers and to distributors. Service revenue is recognized in the period the service is performed or ratably over the period of the related service contract. Consideration related to service contracts is deferred if the proceeds are received in advance of the satisfaction of the performance obligations and recognized over the contract period as the performance obligation is met. We use an output method to measure progress toward completion for certain prepaid service contracts, as this method appropriately depicts performance towardstoward satisfaction of the performance obligations.
For contracts with multiple performance obligations (i.e., a product and service component), we allocate the transaction price to the performance obligations in proportion to their stand-alone selling prices. We use an observable price to determine the stand-alone selling price for separate performance obligations. When allocating on a relative stand-alone selling price basis, any discounts contained within the contract are allocated proportionately to all of the performance obligations in the contract.
We generally expense the incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. These costs relate primarily to sales commissions and are recorded in selling and administrative expense in the consolidated statements of income.
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. In addition, we do not adjust the promised amount of consideration for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Share-Based Compensation – We account for share-based compensation awards on a fair value basis. The estimated grant date fair value of each option award is recognized in income on a straight-line basis over the requisite service period (generally the vesting period). The estimated fair value of each option award is calculated using the Black-Scholes option-pricing model. From time to time, we have elected to modify the terms of the original grant. These modified grants are accounted for as a new award and measured using the fair value method, resulting in the inclusion of additional compensation expense in our consolidated statements of income.
Restricted share awards and units are recorded as compensation cost over the requisite service periods based on the market value on the date of grant. To determine the amount of compensation cost to be recognized in each period for these awards and for option awards, we account for forfeitures as they occur.
Performance share awards are stock awards where the ultimate number of shares issued will be contingent on the Company’s performance against certain performance goals. The Compensation Committee has the ability to adjust performance goals or modify the manner of measuring or evaluating a performance goal using its discretion. The fair value of each PSU is based on the market value on the date of grant. We recognize expense related to the estimated vesting of our PSUs granted. The estimated vesting of the PSUs is based on the probability of achieving certain performance metrics over the specified performance period. To determine the amount of compensation cost to be recognized in each period, we estimate forfeitures.
Research and Development – Research and development costs are expensed as incurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Advertising Costs –We advertise products, technologies and solutions to customers and prospective customers through a variety of marketing campaign and promotional efforts. These efforts include tradeshows, online advertising, e-mail marketing, mailings, sponsorships and telemarketing. Advertising costs are expensed as incurred. In 2021, 2020 and 2019, such activities amounted to $4.6 million, $5.0 million and $8.2 million, respectively.
Income Taxes – Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the book and tax bases of existing assets and liabilities. A valuation allowance is provided when, in management’s judgment, it is more likely than not that some portion or all of the deferred tax asset will not be realized. We have established uncertain tax position accruals using management’s best judgment. We adjust these accruals as facts and circumstances change. Interest expense is recognized in the first period the interest would begin accruing. Penalties are recognized in the period we claim or expect to claim the position in our tax return. Interest and penalty expenses are classified as an income tax expense.
Earnings Per Share – Basic earnings per share is computed by dividing net earnings attributable to Tennant Company by the weighted average shares outstanding during the period. Diluted earnings per share assumes conversion of potentially dilutive stock options, performance shares, restricted shares and restricted stock units. These are not included in our computation of diluted earnings per share if we have a net loss attributable to the Company in a reporting period or if the instrument's effects are anti-dilutive.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
2. | Newly Adopted Accounting Pronouncements |
Income Taxes
On January 1, 2021, we adopted Accounting Standards Update ("ASU") No.2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The impact of this amended guidance on our consolidated financial statements and related disclosures was immaterial.
Defined Benefit Plans
In December 2020, we adopted ASU No.2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20):Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans which updates disclosure requirements for defined benefit pension and other postretirement plans. Adoption of this ASU did not have a material impact on our consolidated financial statements.
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) No.2020-04,Reference Rate Reform (Topic 848). This ASU provides optional expedients to applying generally accepted accounting principles to certain contract modifications, hedging relationships, and other transactions affected by the reference rate reform, which affects the London Inter-bank Offered Rate, if certain criteria are met. The amendments are effective March 12, 2020 through December 31, 2022. We are evaluating whether to apply any of the expedients and/or exceptions.
Financial Instruments
On January 1, 2020, we adopted ASU No.2016-13,Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and all related amendments. This ASU improves financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Under the new guidance, the ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. We evaluated the impact of this amended guidance on our consolidated financial statements and related disclosures and concluded that it is immaterial.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
3. | Revenue |
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products and services. Generally, these criteria are met at the time the product is shipped.
We also enter into contracts that can include combinations of products and services, which are generally capable of being distinct and are accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.
Disaggregation of Revenue
The following tables illustrate the disaggregation of revenue by geographic area, groups of similar products and services and sales channels for the twelve monthsyears ended December 31, 2018, 2017 and 2016 (in thousands):
Net Salessales by geographic area
Twelve Months Ended | ||||||||||||
December 31 | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Americas | $ | 690,996 | $ | 640,274 | $ | 607,026 | ||||||
Europe, Middle East and Africa | 335,603 | 273,738 | 129,046 | |||||||||
Asia Pacific | 96,912 | 89,054 | 72,500 | |||||||||
Total | $ | 1,123,511 | $ | 1,003,066 | $ | 808,572 |
2021 | 2020 | 2019 | ||||||||||
Americas | $ | 658.3 | $ | 631.0 | $ | 722.4 | ||||||
Europe, Middle East and Africa (EMEA) | 331.9 | 278.2 | 307.6 | |||||||||
Asia Pacific (APAC) | 100.6 | 91.8 | 107.6 | |||||||||
Total | $ | 1,090.8 | $ | 1,001.0 | $ | 1,137.6 |
Net Salessales are attributed to each geographic area based on the end user country and are net of intercompany sales.
Net Salessales by groups of similar products and services
Twelve Months Ended | ||||||||||||
December 31 | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Equipment | $ | 729,993 | $ | 636,875 | $ | 491,075 | ||||||
Parts and Consumables | 222,345 | 202,452 | 173,632 | |||||||||
Specialty Surface Coatings | 29,827 | 31,407 | 29,146 | |||||||||
Service and Other | 141,346 | 132,332 | 114,719 | |||||||||
Total | $ | 1,123,511 | $ | 1,003,066 | $ | 808,572 |
2021 | 2020 | 2019 | ||||||||||
Equipment | $ | 679.9 | $ | 629.7 | $ | 741.8 | ||||||
Parts and consumables | 249.3 | 205.8 | 221.9 | |||||||||
Specialty surface coatings(a) | 1.5 | 22.7 | 25.7 | |||||||||
Service and other | 160.1 | 142.8 | 148.2 | |||||||||
Total | $ | 1,090.8 | $ | 1,001.0 | $ | 1,137.6 |
(a) On February 1, 2021, we sold our Coatings business. Further details regarding the sale are discussed in Note 5.
Net Salessales by sales channel
Twelve Months Ended | ||||||||||||
December 31 | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Sales Direct to Consumer | $ | 735,244 | $ | 674,495 | $ | 609,538 | ||||||
Sales to Distributors | 388,267 | 328,571 | 199,034 | |||||||||
Total | $ | 1,123,511 | $ | 1,003,066 | $ | 808,572 |
2021 | 2020 | 2019 | ||||||||||
Sales direct to consumer | $ | 692.4 | $ | 664.9 | $ | 750.9 | ||||||
Sales to distributors | 398.4 | 336.1 | 386.7 | |||||||||
Total | $ | 1,090.8 | $ | 1,001.0 | $ | 1,137.6 |
Contract Liabilities
Sales Returns
The right of return may exist explicitly or implicitly with our customers. When the right of return exists, we adjust the transaction price for the estimated effect of returns. We estimate the expected returns using the expected value method by assessing historical sales levels and the timing and magnitude of historical sales return levels as a percent of sales and projecting this experience into the future.
Sales Incentives
Our sales contracts may contain various customer incentives, such as volume-based rebates or other promotions. We reduce the transaction price for certain customer programs and incentive offerings that represent variable consideration. Sales incentives given to our customers are recorded using the most likely amount approach for estimating the amount of consideration to which the companyCompany will be entitled. We forecast the most likely amount of the incentive to be paid at the time of sale, update this forecast quarterly, and adjust the transaction price accordingly to reflect the new amount of incentives expected to be earned by the customer. A majority of our customer incentives are settled within one year. We record our accruals for volume-based rebates and other promotions in Other Current Liabilitiesother current liabilities on our Condensed Consolidated Balance Sheets.
The change in our sales incentive accrual balance for the twelve monthsyears ended December 31, 20182021 and 2020 was as follows:
2021 | 2020 | |||||||
Beginning balance | $ | 12.1 | $ | 13.7 | ||||
Additions to sales incentive accrual | 38.0 | 18.2 | ||||||
Contract payments | (30.0 | ) | (20.0 | ) | ||||
Foreign currency fluctuations | (0.2 | ) | 0.2 | |||||
Ending balance | $ | 19.9 | $ | 12.1 |
Twelve Months Ended | |||||
December 31 | |||||
2018 | |||||
Beginning balance | $ | 13,466 | |||
Additions to sales incentive accrual | 30,458 | ||||
Contract payments | (26,992 | ) | |||
Foreign currency fluctuations | (280 | ) | |||
Ending balance | $ | 16,652 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Deferred Revenue
We sell separately priced prepaid contracts to our customers where we receive payment at the inception of the contract and defer recognition of the consideration received because we have to satisfy future performance obligations. Our deferred revenue balance is primarily attributed to prepaid maintenance contracts on our machines ranging from 12 months to 60 months. In circumstances where prepaid contracts are sold simultaneously with machines, we use an observable price to determine stand-alone selling price for separate performance obligations.
The change in the deferred revenue balance for the twelve monthsyears ended December 31, 20182021 and 2020 was as follows:
Twelve Months Ended | |||||
December 31 | |||||
2018 | |||||
Beginning balance | $ | 7,787 | |||
Increase in deferred revenue representing our obligation to satisfy future performance obligations | 14,650 | ||||
Decrease in deferred revenue for amounts recognized in Net Sales for satisfied performance obligations | (13,755 | ) | |||
Foreign currency fluctuations | (157 | ) | |||
Ending balance | $ | 8,525 |
2021 | 2020 | |||||||
Beginning balance | $ | 9.3 | $ | 10.7 | ||||
Increase in deferred revenue representing our obligation to satisfy future performance obligations | 34.5 | 21.0 | ||||||
Decrease in deferred revenue for amounts recognized in net sales for satisfied performance obligations | (32.5 | ) | (21.8 | ) | ||||
Foreign currency fluctuations | (0.1 | ) | (0.6 | ) | ||||
Ending balance | $ | 11.2 | $ | 9.3 |
As of December 31, 2018, $5,0212021, $7.7 million and $3,504$3.5 million of deferred revenue was reported in Other Current Liabilitiesother current liabilities and Other Liabilities,other liabilities, respectively, on our Condensed Consolidated Balance Sheets.consolidated balance sheets. Of this, we expect to recognize the following approximate amounts in Net Salesnet sales in the following periods:
2019 | $ | 5,021 | |
2020 | 1,865 | ||
2021 | 1,044 | ||
2022 | 442 | ||
2023 | 153 | ||
Thereafter | — | ||
Total | $ | 8,525 |
2022 | $ | 7.7 | ||
2023 | 1.9 | |||
2024 | 1.1 | |||
2025 | 0.4 | |||
2026 | 0.1 | |||
Thereafter | 0 | |||
Total | $ | 11.2 |
As of December 31, 2017, $5,8152020, $5.9 million and $2,483$3.4 million of deferred revenue was reported in Other Current Liabilitiesother current liabilities and Other Liabilities,other liabilities, respectively, on our Condensed Consolidated Balance Sheets.
(In thousands,Tables in millions, except shares and per share data)
4. | Management Actions |
Restructuring Actions
In 2021, we implemented a restructuring action consistingactions as part of severance to further our integration efforts related to the IPC Group.global reorganization efforts. The pre-tax charge of $1,032 was$4.1 million consisted of severance-related costs. Of these restructuring costs, $3.3 million were included within Sellingin selling and Administrative Expenseadministrative expense and $0.8 million were included in cost of sales in the Consolidated Statementsconsolidated statements of Operations.income in 2021. The chargecharges primarily impacted ourthe EMEA and APAC operating segments. We estimate the savings will offset the
In 2020, we implemented several restructuring actions as part of our global reorganization efforts. The pre-tax charge approximately one year fromof $8.6 million consisted of severance-related costs and $2.4 million of other costs. Of the daterestructuring costs, $7.1 million were included in selling and administrative expense and $1.5 million were included in cost of sales in the action.
A reconciliation to the ending liability balance of severance and related costs as of December 31, 20182021 is as follows:
Severance and Related Costs | |||
2017 restructuring actions | $ | 9,558 | |
Cash payments | (6,312 | ) | |
Foreign currency adjustments | 190 | ||
December 31, 2017 Balance | 3,436 | ||
2018 charges and utilization: | |||
New charges | 1,032 | ||
Cash payments | (2,123 | ) | |
Foreign currency adjustments | (97 | ) | |
December 31, 2018 Balance | $ | 2,248 |
2021 | 2020 | |||||||
Beginning balance | $ | 4.5 | $ | 4.5 | ||||
New charges | 4.1 | 6.2 | ||||||
Cash payments | (2.9 | ) | (5.4 | ) | ||||
Foreign currency adjustments | (0.2 | ) | 0.2 | |||||
Adjustment to accrual | (0.6 | ) | (1.0 | ) | ||||
Ending balance | $ | 4.9 | $ | 4.5 |
Other Actions
In 2019, we made the decision to exit certain product lines, and as a result, recorded $3.3 million in cost of sales to reflect our estimate of inventory that would not be sold. During the thirdyear ended December 31, 2020, we recorded an additional $1.7 million in cost of sales in the consolidated statements of income to reflect our estimate of inventory that would not be sold, all of which was recorded in the first quarter 2020.
During the second quarter of 2018,2019, we sold substantially allrecorded a $2.7 million write-down of a portion of a note receivable related to the divestiture of the assetsGreen Machine business to adjust the balance to net realizable value. This write-down was recorded in selling and administrative expense. In the third quarter of our Waterstar business for $4,000 in cash. The resulting gain was approximately $1,000 and is reflected within Selling and Administrative Expense in operating profit in our Consolidated Statements of Operations.
(In thousands,Tables in millions, except shares and per share data)
ASSETS | |||
Receivables | $ | 39,984 | |
Inventories | 46,442 | ||
Other Current Assets | 7,456 | ||
Assets Held for Sale | 2,247 | ||
Property, Plant and Equipment | 63,890 | ||
Intangible Assets Subject to Amortization: | |||
Trade Name | 26,753 | ||
Customer Lists | 123,061 | ||
Technology | 9,631 | ||
Other Assets | 2,000 | ||
Total Identifiable Assets Acquired | 321,464 | ||
LIABILITIES | |||
Accounts Payable | 32,227 | ||
Accrued Expenses | 18,130 | ||
Deferred Income Taxes | 56,950 | ||
Other Liabilities | 10,964 | ||
Total Identifiable Liabilities Assumed | 118,271 | ||
Net Identifiable Assets Acquired | 203,193 | ||
Noncontrolling Interest | (1,896 | ) | |
Goodwill | 152,472 | ||
Total Estimated Purchase Price, net of Cash Acquired | $ | 353,769 |
5. | Acquisitions and Divestitures |
Coatings
During the first quarter of 2021, we sold the Coatings business. The resulting pre-tax gain was $9.8 million and is reflected within gain on the final fair value measurementsale of the assets acquired and liabilities assumed, we allocated $152,472 to goodwill for the expected synergies from combining IPC Group with our existing business. None of the goodwill is expected to be deductible for income tax purposes. In connection with the finalization of the fair value measurementsbusiness in the first quarterconsolidated statements of 2018,income. Proceeds from sale of business, net of cash divested was $24.7 million.
Gaomei
On January 4, 2019, we recorded a measurement period adjustment, which increased goodwill by $4,627 with offsetting adjustments to various income tax assets and liabilities.
6. | Inventories |
Inventories as of January 1, 2016:December 31 consisted of the following:
2021 | 2020 | |||||||
Inventories carried at LIFO: | ||||||||
Finished goods(a) | $ | 54.0 | $ | 42.4 | ||||
Raw materials and work-in-process | 42.4 | 21.6 | ||||||
Excess of FIFO over LIFO cost(b) | (43.0 | ) | (31.4 | ) | ||||
Total LIFO inventories | $ | 53.4 | $ | 32.6 | ||||
Inventories carried at FIFO: | ||||||||
Finished goods(a) | $ | 53.8 | $ | 55.0 | ||||
Raw materials and work-in-process | 53.4 | 40.1 | ||||||
Total FIFO inventories | $ | 107.2 | $ | 95.1 | ||||
Total inventories | $ | 160.6 | $ | 127.7 |
(a) | Finished goods include machines, parts and consumables and component parts that are used in our products. | |
(b) | The difference between replacement cost and the stated LIFO inventory value is not materially different from the reserve for the LIFO valuation method. |
7. | Property, Plant and Equipment |
Property, plant and equipment and related accumulated depreciation, including equipment under finance leases, as of December 31, consisted of the following:
2021 | 2020 | |||||||
Property, plant and equipment: | ||||||||
Land | $ | 21.7 | $ | 23.3 | ||||
Buildings and improvements | 125.7 | 131.5 | ||||||
Machinery and manufacturing equipment | 152.6 | 157.0 | ||||||
Office equipment | 125.2 | 118.0 | ||||||
Construction in progress | 6.0 | 7.7 | ||||||
Total property, plant and equipment | 431.2 | 437.5 | ||||||
Less: accumulated depreciation | (258.4 | ) | (252.0 | ) | ||||
Property, plant and equipment, net | $ | 172.8 | $ | 185.5 |
Depreciation expense was $33.1 million in 2021, $32.6 million in 2020 and $32.2 million in 2019.
Years ended December 31 | 2017 | 2016 | |||||
Net Sales | |||||||
Pro forma | $ | 1,057,127 | $ | 1,013,710 | |||
As reported | 1,003,066 | 808,572 | |||||
Net Earnings (Loss) Attributable to Tennant Company | |||||||
Pro forma | $ | 12,288 | $ | 30,412 | |||
As reported | (6,195 | ) | 46,614 | ||||
Net Earnings (Loss) Attributable to Tennant Company per Diluted Share | |||||||
Pro forma | $ | 0.68 | $ | 1.69 | |||
As reported | (0.35 | ) | 2.59 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
8. |
2018 | 2017 | ||||||
Inventories carried at LIFO: | |||||||
Finished goods | $ | 48,607 | $ | 43,439 | |||
Raw materials, production parts and work-in-process | 28,581 | 23,694 | |||||
Excess of FIFO over LIFO cost (a) | (31,199 | ) | (28,429 | ) | |||
Total LIFO inventories | $ | 45,989 | $ | 38,704 | |||
Inventories carried at FIFO: | |||||||
Finished goods | $ | 53,520 | $ | 54,161 | |||
Raw materials, production parts and work-in-process | 35,624 | 34,829 | |||||
Total FIFO inventories | $ | 89,144 | $ | 88,990 | |||
Total inventories | $ | 135,133 | $ | 127,694 |
2018 | 2017 | ||||||
Property, Plant and Equipment: | |||||||
Land | $ | 17,857 | $ | 18,152 | |||
Buildings and improvements | 93,729 | 96,230 | |||||
Machinery and manufacturing equipment | 154,118 | 151,645 | |||||
Office equipment | 111,219 | 107,312 | |||||
Work in progress | 9,718 | 9,429 | |||||
Total Property, Plant and Equipment | 386,641 | 382,768 | |||||
Less: Accumulated Depreciation | (223,194 | ) | (202,750 | ) | |||
Property, Plant and Equipment, Net | $ | 163,447 | $ | 180,018 |
Goodwill and Intangible Assets |
For purposes of performing our goodwill impairment analysis, we have identified our reporting units as North America, Latin America, Coatings, EMEA and APAC. AsIn 2021, the Coatings reporting unit was sold and is no longer considered a reporting unit.
We have the option of December 31, 2018, 2017 and 2016, we performed an analysis offirst analyzing qualitative factors to determine whether it is more likely than not that the fair value of aany reporting unit is less than its carrying amount, asand in 2021 we performed the qualitative goodwill test on all reporting units except for EMEA, for which we performed a basis for determining whether it is necessaryquantitative goodwill test. In 2020, we elected to perform the quantitative goodwill impairment test.test on all reporting units. Based on our analysis, of qualitative factors, we determined that it was not more likely than not that the fair value of the North America, Latin America, EMEA and APAC reporting units was less than its respective carrying amount. We elected to perform a quantitative analysis of the Coatings reporting unit. Based on the quantitative analysis of that reporting unit, it was determined there was no0 goodwill impairment at as of December 31, 2018.
The changes in the carrying amount of Goodwillgoodwill are as follows:
Goodwill | Accumulated Impairment Losses | Total | |||||||||
Balance as of December 31, 2016 | $ | 58,397 | $ | (37,332 | ) | $ | 21,065 | ||||
Additions | 147,845 | — | 147,845 | ||||||||
Purchase accounting adjustments | (1,865 | ) | — | (1,865 | ) | ||||||
Foreign currency fluctuations | 22,847 | (3,848 | ) | 18,999 | |||||||
Balance as of December 31, 2017 | $ | 227,224 | $ | (41,180 | ) | $ | 186,044 | ||||
Additions | — | — | — | ||||||||
Purchase accounting adjustments | 4,627 | — | 4,627 | ||||||||
Foreign currency fluctuations | (10,141 | ) | 2,142 | (8,000 | ) | ||||||
Balance as of December 31, 2018 | $ | 221,710 | $ | (39,038 | ) | $ | 182,671 |
Accumulated | ||||||||||||
Impairment | ||||||||||||
Goodwill | Losses | Total | ||||||||||
Balance as of December 31, 2021 | $ | 233.9 | $ | (40.8 | ) | $ | 193.1 | |||||
Divestiture | (1.7 | ) | — | (1.7 | ) | |||||||
Foreign currency fluctuations | (13.9 | ) | 0.9 | (13.0 | ) | |||||||
Balance as of December 31, 2020 | $ | 249.5 | $ | (41.7 | ) | $ | 207.8 | |||||
Foreign currency fluctuations | 14.4 | (1.7 | ) | 12.7 | ||||||||
Balance as of December 31, 2019 | $ | 235.1 | $ | (40.0 | ) | $ | 195.1 |
The balances of acquired Intangible Assets,intangible assets, excluding Goodwill, as of December 31,goodwill, are as follows:
Customer Lists | Trade Names | Technology | Total | ||||||||||||
Balance as of December 31, 2018 | |||||||||||||||
Original cost | $ | 143,059 | $ | 30,592 | $ | 17,436 | $ | 191,087 | |||||||
Accumulated amortization | (33,714 | ) | (5,327 | ) | (5,500 | ) | (44,541 | ) | |||||||
Carrying amount | $ | 109,345 | $ | 25,265 | $ | 11,936 | $ | 146,546 | |||||||
Weighted-average original life (in years) | 15 | 10 | 10 | ||||||||||||
Balance as of December 31, 2017 | |||||||||||||||
Original cost | $ | 149,355 | $ | 31,968 | $ | 14,589 | $ | 195,912 | |||||||
Accumulated amortization | (17,870 | ) | (2,436 | ) | (3,259 | ) | (23,565 | ) | |||||||
Carrying amount | $ | 131,485 | $ | 29,532 | $ | 11,330 | $ | 172,347 | |||||||
Weighted-average original life (in years) | 15 | 10 | 11 |
Customer | Trade | |||||||||||||||
Lists | Names | Technology | Total | |||||||||||||
Balance as of December 31, 2021 | ||||||||||||||||
Original cost | $ | 155.4 | $ | 30.3 | $ | 17.0 | $ | 202.7 | ||||||||
Accumulated amortization | (80.0 | ) | (13.9 | ) | (10.8 | ) | (104.7 | ) | ||||||||
Carrying amount | $ | 75.4 | $ | 16.4 | $ | 6.2 | $ | 98.0 | ||||||||
Weighted-average original life (in years) | 15 | 11 | 11 | |||||||||||||
Balance as of December 31, 2020 | ||||||||||||||||
Original cost | $ | 166.2 | $ | 34.4 | $ | 17.9 | $ | 218.5 | ||||||||
Accumulated amortization | (70.3 | ) | (12.3 | ) | (9.7 | ) | (92.3 | ) | ||||||||
Carrying amount | $ | 95.9 | $ | 22.1 | $ | 8.2 | $ | 126.2 | ||||||||
Weighted-average original life (in years) | 15 | 11 | 11 |
In 2021, we divested identified intangible assets, excluding goodwill, with a carrying value of $0.9 million and $1.4 million in the first quartercategories of 2018 were based on the fair value adjustments related to our acquisitioncustomer lists and trade names, respectively, as a result of the IPC Group, as described furthersale of the Coatings business discussed in Note 7.
Amortization expense of intangible assets were $2,775, which was primarily due to a technology license. The license was recorded in Intangible Assets, Net as technology on the Condensed Consolidated Balance Sheets as of December 31, 2018.
Estimated aggregate amortization expense based on the current carrying amount of amortizable Intangible Assetsintangible assets for each of the five succeeding years is as follows:
2022 | $ | 16.9 | ||
2023 | 15.4 | |||
2024 | 13.9 | |||
2025 | 12.5 | |||
2026 | 11.1 | |||
Thereafter | 28.2 | |||
Total | $ | 98.0 |
2019 | $ | 21,297 | |
2020 | 19,873 | ||
2021 | 18,092 | ||
2022 | 15,913 | ||
2023 | 14,352 | ||
Thereafter | 57,019 | ||
Total | $ | 146,546 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
9. | Debt | |
2021Credit Agreement
On April 5, 2021, we and certain of our foreign subsidiaries entered into aan Amended and Restated Credit Agreement (the "2017“2021 Credit Agreement"Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, Goldman Sachs Bank USA, as syndication agent, Wells Fargo, National Association, U.S. Bank National Association,agent. The 2021 Credit Agreement provides us and HSBC Bank USA, National Association, as co-documentation agents,certain of our foreign subsidiaries access to a senior secured credit facility until April 3, 2026, consisting of a term loan facility in an amount up to $100.0 million and a revolving facility in an amount up to $450.0 million with an option to expand the credit facility by up to $275.0 million, with the consent of the lenders (including JPMorgan)willing to provide additional borrowings in the form of increases to their revolving facility commitment or funding of incremental term loans. Borrowings may be denominated in U.S. dollars or certain other currencies.
The fee for committed funds under the revolving facility of the 2021 Credit Agreement ranges from timean annual rate of 0.15% to time party thereto.
In connection with the 2021 Credit Agreement, we reaffirmed our security interest in favor of the lenders in substantially all our personal property and pledged the stock of our domestic subsidiaries and 65% of the stock of our first-tier foreign subsidiaries. The 2017obligations under the 2021 Credit Agreement are also guaranteed by certain of our first-tier domestic subsidiaries, and those subsidiaries also provided a security interest in their similar personal property.
Our 2021 Credit Agreement restricts the payment of dividends or repurchasing of stock requiring that, after giving effect to such payments, no default exists or would result from such payment. Additionally, cash dividends are restricted to $7.5 million per quarter and approved levels of other restricted payments range from $60.0 million to unlimited based on our net leverage ratio (not taking into account any acquisition holiday) after giving effect to such payment.
The 2021 Credit Agreement contains customary representations, warranties and covenants, including but not limited to covenants restricting the company’sour ability to incur indebtedness and liens and merge or consolidate with another entity. The 2017Further, the 2021 Credit Agreement also contains financial covenants, requiring us to maintain the following covenants:
• | a covenant requiring us to maintain an indebtedness to EBITDA ratio, determined as of the end of each of our fiscal quarters, of no greater than 3.50 to 1.00, with certain alternative requirements for permitted acquisitions greater than $50.0 million; |
• | a covenant requiring us to maintain an EBITDA to interest expense ratio for a period of four consecutive fiscal quarters as of the end of each quarter of no less than 3.00 to 1; and |
• | a covenant restricting us from paying dividends or repurchasing stock if, after giving effect to such payments and assuming no default exists or would result from such payment, our leverage ratio is greater than 2.50 to 1, in such case limiting such payments to $60.0 million during any fiscal year. |
Redemption of consolidated total indebtedness to consolidated earnings before income, taxes, depreciation and amortization, subject to certain adjustments ("Adjusted EBITDA")Senior Notes
In the second quarter of not greater than 4.00 to 1, as well as requiring us to maintain a ratio of consolidated Adjusted EBITDA to consolidated interest expense of no less than 3.50 to 1 for the year ended December 31, 2018. The 2017 Credit Agreement also contains a financial covenant requiring us to maintain a senior secured net indebtedness to Adjusted EBITDA ratio of not greater than 3.50 to 1. These financial covenants may restrict our ability to pay dividends and purchase outstanding shares of our common stock. We were in compliance with our financial covenants at December 31, 2018.
(In thousands,Tables in millions, except shares and per share data)
Debt outstanding at as of December 31 consisted of the following:
2018 | 2017 | ||||||
Bank Borrowings | $ | 3,926 | $ | — | |||
Senior Unsecured Notes | 300,000 | 300,000 | |||||
Credit Facility Borrowings | 53,000 | 80,000 | |||||
Capital Lease Obligations | 2,863 | 3,279 | |||||
Unamortized Debt Issuance Costs | (4,724 | ) | (6,440 | ) | |||
Total Debt | 355,065 | 376,839 | |||||
Less: Current Maturities of Credit Facility Borrowings, Net of Debt Issuance Costs(1) | (27,005 | ) | (30,883 | ) | |||
Long-term portion | $ | 328,060 | $ | 345,956 |
2021 | 2020 | |||||||
Senior unsecured notes | $ | 0 | $ | 300.0 | ||||
Credit facility borrowings: | ||||||||
Revolving credit facility borrowings | 168.0 | 10.0 | ||||||
Term loan facility borrowings | 98.8 | 0 | ||||||
Secured borrowings | 0.7 | 1.5 | ||||||
Finance lease liabilities | 0.1 | 0.1 | ||||||
Unamortized debt issuance costs | 0 | (3.1 | ) | |||||
Total debt | 267.6 | 308.5 | ||||||
Less: current portion of long-term debt(a) | (4.2 | ) | (10.9 | ) | ||||
Long-term debt | $ | 263.4 | $ | 297.6 |
|
As of December 31, 2018, 2021, we had outstanding borrowings under our Senior Unsecured Notes of $300,000. We had outstanding borrowings under our 2017 Credit Agreement, totaling $22,000$98.8 million and $168.0 million under our term loan facility and $31,000 under our revolving facility. In addition, wefacility, respectively. We had letters of credit and bank guarantees outstanding in the amount of $3,279,$2.9 million, leaving approximately $165,721$279.1 million of unused borrowing capacity on our revolving facility. Although we are only required to make a minimum principal payment of $6,875 during 2019, we have both the intent and the ability to pay an additional $15,125 during 2019. As such, we have classified $22,000 as current maturities of long-term debt. Commitment fees on unused lines of credit for the year ended December 31, 2018 2021 were $595.$0.6 million. The overall weighted average cost of debt is approximately 5.4%1.3% and net of a related cross-currency swap instrument is approximately 4.5%0.3%. Further details regarding the cross-currency swap instrument are discussed in Note 13.
The aggregate maturities of our outstanding debt, excluding unamortized debt issuance costs, as of
December 31,2022 | $ | 4.2 | ||
2023 | 5.3 | |||
2024 | 6.3 | |||
2025 | 8.8 | |||
2026 | 243.0 | |||
Thereafter | 0 | |||
Total aggregate maturities | $ | 267.6 |
2019 | $ | 12,066 | |
2020 | 10,297 | ||
2021 | 6,255 | ||
2022 | 31,171 | ||
2023 | — | ||
Thereafter | 300,000 | ||
Total aggregate maturities | $ | 359,789 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
10. | Other Current Liabilities |
Other Current Liabilitiescurrent liabilities as of December 31 consisted of the following:
2021 | 2020 | |||||||
Other current liabilities: | ||||||||
Taxes | $ | 13.8 | $ | 12.5 | ||||
Warranty | 10.4 | 11.1 | ||||||
Deferred revenue | 7.7 | 5.9 | ||||||
Customer sales incentives | 19.9 | 12.1 | ||||||
Freight | 7.1 | 4.6 | ||||||
Restructuring | 4.9 | 4.5 | ||||||
Operating leases | 16.4 | 16.3 | ||||||
Cash flow hedge liabilities | 10.4 | 0 | ||||||
Miscellaneous accrued expenses | 13.4 | 16.4 | ||||||
Total other current liabilities | $ | 104.0 | $ | 83.4 |
2018 | 2017 | ||||||
Other Current Liabilities: | |||||||
Taxes, other than income taxes | $ | 12,763 | $ | 14,760 | |||
Warranty | 13,062 | 12,676 | |||||
Deferred revenue | 5,021 | 5,815 | |||||
Rebates | 16,652 | 13,466 | |||||
Freight | 4,475 | 3,208 | |||||
Restructuring | 2,248 | 4,267 | |||||
Miscellaneous accrued expenses | 13,117 | 10,779 | |||||
Other | 4,557 | 4,476 | |||||
Total Other Current Liabilities | $ | 71,895 | $ | 69,447 |
2018 | 2017 | 2016 | |||||||||
Beginning balance | $ | 12,676 | $ | 10,960 | $ | 10,093 | |||||
Product warranty provision | 13,172 | 12,124 | 12,413 | ||||||||
Acquired warranty obligations | — | 1,208 | 42 | ||||||||
Foreign currency | (172 | ) | 274 | 82 | |||||||
Claims paid | (12,614 | ) | (11,890 | ) | (11,670 | ) | |||||
Ending balance | $ | 13,062 | $ | 12,676 | $ | 10,960 |
11. | Derivatives | |
Hedge Accounting and Hedging Programs
We recognize all derivative instruments as either assets or liabilities in our Consolidated Balance Sheetsconsolidated balance sheets and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.
We evaluate hedge effectiveness on our hedges that are designated and qualify for hedge accounting at the inception of the hedge prospectively, as well as retrospectively, and record any ineffective portion of the hedging instruments in Net Foreign Currency Transaction Lossesnet foreign currency transaction loss on our Consolidated Statementsconsolidated statements of Operations.income. The time value of purchased contracts is recorded in Net Foreign Currency Transaction Lossesnet foreign currency transaction loss in our Consolidated Statementsconsolidated statements of Operations.
Our hedging policy establishes maximum limits for each counterparty to mitigate any concentration of risk.
Balance Sheet Hedging
Hedges of Foreign Currency Assets and Liabilities
We hedge our net recognized foreign currency denominatedcurrency-denominated assets and liabilities with foreign exchange forward contracts to reduce the risk that the value of these assets and liabilities will be adversely affected by changes in exchange rates. These contracts hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value as either assets or liabilities on the Consolidated Balance Sheetsconsolidated balance sheets with changes in the fair value recorded to Net Foreign Currency Transaction Lossesnet foreign currency transaction losses in our Consolidated Statementsconsolidated statements of Operations.income. These contracts do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being hedged. At December 31, 20182021 and December 31, 2017,2020, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $63,410$45.0 million and $60,858,$57.3 million, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
Cash Flow Hedging
Hedges of Forecasted Foreign Currency Transactions
In countries outside the U.S., we transact business in U.S. dollars and in various other currencies. We may use foreign exchange option contracts or forward contracts to hedge certain cash flow exposures resulting from changes in these foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities of up to one year. We enter into these foreign exchange contracts to hedge a portion of our forecasted foreign currency denominatedcurrency-denominated revenue in the normal course of business, and accordingly, they are not speculative in nature. TheAs of December 31, 2021, we have no outstanding foreign currency forward contracts or foreign currency option contracts designated as cash flow hedges. As of December 31, 2020, the notional amount of outstanding foreign currency forward contracts designated as cash flow hedges were $0was $2.7 million, and $2,928 as of December 31, 2018 and December 31, 2017, respectively. Thethe notional amount of outstanding foreign currency option contracts designated as cash flow hedges was $8,436 and $8,619 as of December 31, 2018 and December 31, 2017, respectively.
Foreign Currency Derivatives
We use foreign currency exchange rate derivatives to hedge our exposure to fluctuations in exchange rates for anticipated intercompany cash transactions between Tennantthe Company and its subsidiaries. During 2017, weWe entered into Euro to U.S. dollar foreign exchange cross currencycross-currency swaps for all of the anticipated cash flows associated with an intercompany loan from a wholly-owned European subsidiary. We enteredenter into these foreign exchange cross currencycross-currency swaps to hedge the foreign currency denominatedcurrency-denominated cash flows associated with this intercompany loan, and accordingly, they are not speculative in nature. WeThese cross-currency swaps are designated these cross currency swaps as cash flow hedges. The hedged cash flows as of
To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. We record changes in the fair value of these cash flow hedges in Accumulated Other Comprehensive Lossaccumulated other comprehensive loss in our Consolidated Balance Sheets,consolidated balance sheets, until the forecasted transaction occurs. When the forecasted transaction occurs, we reclassify the related gain or loss on the cash flow hedge to Net Sales.net sales. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from Accumulated Other Comprehensive Lossaccumulated other comprehensive loss to Net Foreign Currency Transaction Lossesnet foreign currency transaction losses in our Consolidated Statementsconsolidated statements of Operationsincome at that time. If we do not elect hedge accounting, or the contract does not qualify for hedge accounting treatment, the changes in fair value from period to period are recorded in Net Foreign Currency Transaction Lossesnet foreign currency transaction losses in our Consolidated Statementsconsolidated statements of Operations.
The fair value of derivative instruments on our Consolidated Balance Sheetsconsolidated balance sheets as of December 31 consisted of the following:
2018 | 2017 | |||||||||||||||
Fair Value Asset Derivatives | Fair Value Liability Derivatives | Fair Value Asset Derivatives | Fair Value Liability Derivatives | |||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||
Foreign currency option contracts(1) | $ | 245 | $ | — | $ | 86 | $ | — | ||||||||
Foreign currency forward contracts(1) | 6,987 | 25,415 | 7,218 | 34,961 | ||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||
Foreign currency forward contracts(1) | $ | 223 | $ | — | $ | 442 | $ | 425 |
Derivative Assets | Derivative Liabilities | ||||||||||||||||||
Balance Sheet Location | December 31, 2021 | December 31, 2020 | Balance Sheet Location | December 31, 2021 | December 31, 2020 | ||||||||||||||
Derivatives designated as hedging instruments: | |||||||||||||||||||
Foreign currency forward contracts(a) | Other current assets | $ | 0 | $ | 1.9 | Other current liabilities | $ | 10.4 | $ | 0 | |||||||||
Foreign currency forward contracts(a) | Other assets | 0 | 0 | Other liabilities | 0 | 24.1 | |||||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||||
Foreign currency forward contracts(a) | Other current assets | 0.3 | 0.4 | Other current liabilities | 0.4 | 0.7 |
| Contracts that mature within the next 12 months are included in |
As of December 31, 2018,2021, we anticipate reclassifying approximately $2,367$0.4 million of gains from Accumulated Other Comprehensive Lossaccumulated other comprehensive loss to n
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
The following tables include the amounts in the consolidated statements of income in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items for the years ended December 31, 2021 and December 31, 2020:
2021 | 2020 | |||||||||||||||
Total | Amount of Gain (Loss) on Cash Flow Hedge Activity | Total | Amount of Gain (Loss) on Cash Flow Hedge Activity | |||||||||||||
Net sales | $ | 1,090.8 | $ | (0.4 | ) | $ | 1,001.0 | $ | (0.2 | ) | ||||||
Interest expense, net | (7.3 | ) | 2.4 | (17.4 | ) | 2.7 | ||||||||||
Net foreign currency transaction loss | (0.7 | ) | 12.7 | (5.3 | ) | (15.0 | ) |
The effect of foreign currency derivative instruments designated as cash flow hedges and foreign currency derivative instruments not designated as hedges in our Consolidated Statementsconsolidated statements of Earningsincome for the three years ended
2018 | 2017 | 2016 | |||||||||||||||||||||
Foreign Currency Option Contracts | Foreign Currency Forward Contracts | Foreign Currency Option Contracts | Foreign Currency Forward Contracts | Foreign Currency Option Contracts | Foreign Currency Forward Contracts | ||||||||||||||||||
Derivatives in cash flow hedging relationships: | |||||||||||||||||||||||
Net gain (loss) recognized in Other Comprehensive Income (Loss), net of tax(1) | $ | 100 | $ | 9,025 | $ | (193 | ) | $ | (16,226 | ) | $ | (259 | ) | $ | (73 | ) | |||||||
Net (loss) gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Sales | (110 | ) | (18 | ) | (178 | ) | (37 | ) | (148 | ) | 7 | ||||||||||||
Net gain reclassified from Accumulated Other Comprehensive Loss in earnings, net of tax, effective portion to Interest Income | — | 1,870 | — | 1,198 | — | — | |||||||||||||||||
Net gain (loss) reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction Losses | — | 6,353 | — | (12,555 | ) | — | — | ||||||||||||||||
Net gain (loss) recognized in earnings(2) | 8 | 12 | (13 | ) | 10 | (11 | ) | 2 | |||||||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
Net loss recognized in earnings(3) | $ | — | $ | (2,518 | ) | $ | — | $ | (6,161 | ) | $ | — | $ | (890 | ) |
2021 | 2020 | 2019 | ||||||||||||||||||||||
Foreign Currency Option Contracts | Foreign Currency Forward Contracts | Foreign Currency Option Contracts | Foreign Currency Forward Contracts | Foreign Currency Option Contracts | Foreign Currency Forward Contracts | |||||||||||||||||||
Derivatives in cash flow hedging relationships: | ||||||||||||||||||||||||
Net gain (loss) recognized in other comprehensive (loss) income, net of tax(a) | $ | 0 | $ | 10.8 | $ | (0.1 | ) | $ | (7.4 | ) | $ | (0.3 | ) | $ | 8.6 | |||||||||
Net loss reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net sales | 0 | (0.3 | ) | 0 | (0.1 | ) | 0 | 0 | ||||||||||||||||
Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest income | 0 | 1.9 | 0 | 2.0 | 0 | 2.2 | ||||||||||||||||||
Net gain (loss) reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net foreign currency transaction losses | 0 | 9.7 | 0 | (11.6 | ) | 0 | 2.6 | |||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||
Net gain (loss) recognized in earnings(b) | 0 | 2.5 | 0 | (5.0 | ) | 0 | (1.3 | ) |
| Net change in the fair value of the effective portion classified in |
|
Classified in |
12. | Fair Value Measurements |
Estimates of fair value for financial assets and financial liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
• | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
• | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
• | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in active markets for identical assets or liabilities.
Our population of assets and liabilities subject to fair value measurements at
Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | |||||||||||||||
Foreign currency forward exchange contracts | $ | 7,210 | $ | — | $ | 7,210 | $ | — | |||||||
Foreign currency option contracts | 245 | — | 245 | — | |||||||||||
Total Assets | $ | 7,455 | $ | — | $ | 7,455 | $ | — | |||||||
Liabilities: | |||||||||||||||
Foreign currency forward exchange contracts | $ | 25,415 | $ | — | $ | 25,415 | $ | — | |||||||
Total Liabilities | $ | 25,415 | $ | — | $ | 25,415 | $ | — |
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Foreign currency forward exchange contracts | $ | 0.9 | 0 | $ | 0.9 | 0 | ||||||||||
Total assets | 0.9 | 0 | 0.9 | 0 | ||||||||||||
Liabilities: | ||||||||||||||||
Foreign currency forward exchange contracts | 11.4 | 0 | 11.4 | 0 | ||||||||||||
Total liabilities | $ | 11.4 | 0 | $ | 11.4 | $ | 0 |
Our population of assets and liabilities subject to fair value measurements at as of December 31, 2017 is2020 were as follows:
Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | |||||||||||||||
Foreign currency forward exchange contracts | $ | 7,660 | $ | — | $ | 7,660 | $ | — | |||||||
Foreign currency option contracts | 86 | — | 86 | — | |||||||||||
Total Assets | $ | 7,746 | $ | — | $ | 7,746 | $ | — | |||||||
Liabilities: | |||||||||||||||
Foreign currency forward exchange contracts | $ | 35,386 | $ | — | $ | 35,386 | $ | — | |||||||
Total Liabilities | $ | 35,386 | $ | — | $ | 35,386 | $ | — |
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Foreign currency forward exchange contracts | $ | 3.0 | 0 | $ | 3.0 | 0 | ||||||||||
Total assets | 3.0 | 0 | 3.0 | 0 | ||||||||||||
Liabilities: | ||||||||||||||||
Foreign currency forward exchange contracts | 25.5 | 0 | 25.5 | 0 | ||||||||||||
Contingent consideration | 1.8 | 0 | 0 | 1.8 | ||||||||||||
Total liabilities | $ | 27.3 | 0 | $ | 25.5 | $ | 1.8 |
Our foreign currency forward exchange and option contracts are valued using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present value amount. Further details regarding our foreign currency forward exchange and option contracts are discussed in Note 13.
Contingent consideration is valued using a probability-weighted analysis of projected gross profit and integration milestones. Contingent consideration payments totaling $2.5 million were paid in 2021.
The carrying amounts reported in the Consolidated Balance Sheetsconsolidated balance sheets for Cashcash and Cash Equivalents, Restricted Cash, Receivables, Other Current Assets, Accounts Payablecash equivalents, restricted cash, receivables, other current assets, accounts payable and Other Current Liabilitiesother current liabilities approximate fair value due to their short-term nature.
The fair marketvalue and carrying value of our Long-Term Debt approximates costtotal debt, including current portion, was $271.2 million and $267.6 million, respectively, as of December 31, 2021. The fair value was calculated based on the borrowing rates currently available to us for bank loans with similar terms and remaining maturities.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
13. | Retirement Benefit Plans |
Substantially all U.S. employees are covered by various retirement benefit plans, including postretirement medicaldefined contribution savings plans and defined contribution savingspostretirement medical plans. Retirement benefits for eligible employees in foreign locations are funded principally through defined benefit plans, annuity or government programs. The total cost of benefits for our plans was $11,926, $13,253$14.8 million, $12.3 million and
We had a qualified, funded defined benefit retirement plan (the “U.S. Pension Plan”) covering certain current and retired employees in the U.S. During 2015, the plan was amended to freeze benefits for all participants effective January 31,2017. On February 15,2017, the Board of Directors approved the termination of the U.S. Pension Plan, effective May 15,2017. Participants who elected an immediate lump sum distribution were paid out in December 2017. Assets for participants who elected or are currently receiving annuity payments and those who have elected to defer their benefits were transferred to the annuity company, Pacific Life, in December 2017. Excess assets were transferred from the Tennant Company Pension Trust to the Tennant Company Retirement Savings Plan to deliver future discretionary benefits to plan participants. AsDuring 2020, all remaining excess assets were utilized, and none remained outstanding as of December 31, 2018, we held excess assets of $6,408 for future discretionary benefit payments.
We have a U.S. postretirement medical benefit plan (the “U.S. Retiree Plan”) to provide certain healthcare benefits for U.S. employees hired before January 1, 1999. Eligibility for those benefits is based upon a combination of years of service with us and age upon retirement.
Our defined contribution savings plan (“401(k)”(“401(k) plan”) covers substantially all U.S. employees. Under this plan, we match up to
We have a U.S. nonqualified supplemental benefit plan (the “U.S. Nonqualified Plan”) to provide additional retirement benefits for certain employees whose benefits under our 401(k)401(k) plan or U.S. Pension Plan are limited by either the Employee Retirement Income Security Act or the Internal Revenue Code.
We also have defined benefit pension plans in the United Kingdom, Germany and GermanyItaly (the “U.K. Pension Plan” and, the “German Pension Plan” and the "Italian Pension Plan"). The U.K. Pension Plan, German Pension Plan and GermanItalian Pension Plan cover certain current and retired employees and bothall plans are closed to new participants. In December 2018, the U.K. Pension Plan was amended to close all future accrual of benefits to existing active members, resulting in a curtailment gain of $165$0.1 million relating to past service benefits.
We expect to contribute approximately $146$0.1 million to our U.S. Nonqualified Plan $779and $0.7 million to our U.S. Retiree Plan $360in 2022. We expect contributions to our U.K. Pension Plan, and $34 to our German Pension Plan and Italian Pension Plans to be less than $0.1 million in 2019.
Weighted-average asset allocations by asset category of the U.K. Pension Plan and the Tennant Company Retirement Savings Plan as of
Asset Category | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
Cash and Cash Equivalents | $ | 6,408 | $ | 6,408 | $ | — | $ | — | |||||||
Investment Account held by Pension Plan(1) | 10,842 | — | — | 10,842 | |||||||||||
Total | $ | 17,250 | $ | 6,408 | $ | — | $ | 10,842 |
Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
Asset category | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Investment account held by pension plan(a) | $ | 12.9 | $ | 0 | $ | 0 | $ | 12.9 | ||||||||
Total | $ | 12.9 | $ | 0 | $ | 0 | $ | 12.9 |
| This category is comprised of investments in insurance contracts. |
Weighted-average asset allocations by asset category of the U.K. Pension Plan and the Tennant Company Retirement Savings Plan as of
Asset Category | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
Cash and Cash Equivalents | $ | 6,305 | $ | 6,305 | $ | — | $ | — | |||||||
Investment Account held by Pension Plan(1) | 11,163 | — | — | 11,163 | |||||||||||
Total | $ | 17,468 | $ | 6,305 | $ | — | $ | 11,163 |
Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
Asset category | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Investment account held by pension plan(a) | $ | 13.3 | 0 | 0 | $ | 13.3 | ||||||||||
Total | $ | 13.3 | $ | 0 | $ | 0 | $ | 13.3 |
| This category is comprised of investments in insurance contracts. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Estimates of the fair value of the U.KU.K. Pension Plan and the Tennant Company Retirement Savings Plan assets are based on the framework established in the accounting guidance for fair value measurements. A brief description of the three levels can be found in Note 14.12. The Investment Account held by the U.K. Pension Plan invests in insurance contracts for purposes of funding the U.K. Pension Plan and is classified as Level 3. The fair value of the Investment Account is the cash surrender values as determined by the provider which are the amounts the plan would receive if the contracts were cashed out at year end.year-end. The underlying assets held by these contracts are primarily invested in assets traded in active markets.
A reconciliation of the beginning and ending balances of the Level 3 investments of our U.K. Pension Plan during the years ended December 31 areis as follows:
2018 | 2017 | ||||||
Fair value at beginning of year | $ | 11,163 | $ | 9,562 | |||
Purchases, sales, issuances and settlements, net | (856 | ) | (535 | ) | |||
Net gain | 1,138 | 1,190 | |||||
Foreign currency | (603 | ) | 946 | ||||
Fair value at end of year | $ | 10,842 | $ | 11,163 |
2021 | 2020 | |||||||
Fair value at beginning of year | $ | 13.3 | $ | 12.2 | ||||
Purchases, sales, issuances and settlements, net | 0.2 | 0.1 | ||||||
Net (loss) gain | (0.4 | ) | 0.6 | |||||
Foreign currency | (0.2 | ) | 0.4 | |||||
Fair value at end of year | $ | 12.9 | $ | 13.3 |
The primary objective of our U.K. Pension Plan is to meet retirement income commitments to plan participants at a reasonable cost to us and to maintain a sound actuarially funded status. This objective is accomplished through growth of capital and safety of funds invested. Assets are invested in securities to achieve growth of capital over inflation through appreciation and accumulation and reinvestment of dividend and interest income. Investments are diversified to control risk. The U.K. Pension Plan is invested in insurance contracts with underlying investments primarily in equity and fixed income securities. Our German Pension Plan is unfunded, which is customary in that country.
Weighted-average assumptions used to determine benefit obligations as of December 31 are as follows:
U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | |||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Discount rate | 3.95 | % | 3.28 | % | 2.72 | % | 2.45 | % | 3.95 | % | 3.26 | % | |||||
Rate of compensation increase | — | % | — | % | 3.50 | % | 3.50 | % | — | — |
Non-U.S. | Postretirement | |||||||||||||||||||||||
U.S. Nonqualified Plan | Pension Benefits | Medical Benefits | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Discount rate | 2.54 | % | 2.06 | % | 1.59 | % | 1.05 | % | 2.53 | % | 2.07 | % | ||||||||||||
Rate of compensation increase | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % |
Weighted-average assumptions used to determine net periodic benefit costs as of December 31 are as follows:
U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | ||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | ||||||||||||||||||
Discount rate | 3.28 | % | 3.92 | % | 4.08 | % | 2.45 | % | 2.64 | % | 3.59 | % | 3.26 | % | 3.58 | % | 3.70 | % | ||||||||
Expected long-term rate of return on plan assets | — | % | 5.10 | % | 5.20 | % | 3.80 | % | 3.90 | % | 4.60 | % | — | — | — | |||||||||||
Rate of compensation increase | — | % | — | % | 3.00 | % | 3.50 | % | 3.50 | % | 3.50 | % | — | — | — |
Non-U.S. | Postretirement | |||||||||||||||||||||||||||||||||||
U.S. Nonqualified Plan | Pension Benefits | Medical Benefits | ||||||||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||
Discount rate | 2.06 | % | 3.01 | % | 3.95 | % | 1.05 | % | 1.42 | % | 1.92 | % | 2.07 | % | 3.06 | % | 3.95 | % | ||||||||||||||||||
Expected long-term rate of return on plan assets | 0 | % | 0 | % | 0 | % | 2.70 | % | 3.30 | % | 3.80 | % | 0 | % | 0 | % | 0 | % | ||||||||||||||||||
Rate of compensation increase | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % |
The discount rate is used to discount future benefit obligations back to today’s dollars. Our discount rates were determined based on high-quality fixed income investments. The resulting discount rates are consistent with the duration of plan liabilities. The FTSE (formerly known as Citigroup)Mercer Above Median Spot RatesMean Yield Curve for high-quality corporate bonds areis used in determining the discount rate for the U.S. Nonqualified Plan in 2021. The Mercer Yield Curve is used in determining the discount rate for the Non-U.S. Plans in 2021. Before 2019, the FTSE (formerly known as Citigroup) Above Median Spot rates for high-quality corporate bonds were used in determining the discount rate for the U.S. Plans. Before 2021, the iBoxx € Corporates AA 7-10 and iBoxx € Corporates AA 10+ Benchmark was used to determine the discount rate for the Italian Pension Plan. The expected return on assets assumption on the investment portfolios for the pension plans is based on the long-term expected returns for the investment mix of assets currently in the portfolio. Management uses historic return trends of the asset portfolio combined with recent market conditions to estimate the future rate of return.
The accumulated benefit obligations as of December 31 for all defined benefit plans are as follows:
2018 | 2017 | ||||||
U.S. Pension Plans | $ | 1,267 | $ | 1,414 | |||
U.K. Pension Plan | 9,264 | 11,131 | |||||
German Pension Plan | 950 | 1,013 |
2021 | 2020 | |||||||
U.S. Nonqualified Plan | $ | 1.1 | $ | 1.2 | ||||
U.K. Pension Plan | 11.4 | 12.2 | ||||||
German Pension Plan | 1.0 | 1.2 | ||||||
Italian Pension Plan | 3.7 | 4.2 |
Information for our plans with an accumulated benefit obligation in excess of plan assets as of December 31 is as follows:
2018 | 2017 | ||||||
Accumulated benefit obligation | $ | 2,217 | $ | 2,427 | |||
Fair value of plan assets | — | — |
2021 | 2020 | |||||||
Accumulated benefit obligation | $ | 5.8 | $ | 6.6 | ||||
Fair value of plan assets | 0 | 0 |
As of December 31, 2018 2021 and 2017,2020, the U.S. Nonqualified, the German Pension and the GermanItalian Pension Plans had an accumulated benefit obligation in excess of plan assets.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Information for our plans with a projected benefit obligation in excess of plan assets as of December 31 is as follows:
2018 | 2017 | ||||||
Projected benefit obligation | $ | 2,217 | $ | 2,427 | |||
Fair value of plan assets | — | — |
2021 | 2020 | |||||||
Projected benefit obligation | $ | 5.8 | $ | 6.6 | ||||
Fair value of plan assets | 0 | 0 |
As of December 31, 2018 2021 and 2017,2020, the U.S. Nonqualified, the German Pension and the GermanItalian Pension Plans had a projected benefit obligation in excess of plan assets.
Assumed healthcare cost trend rates as of December 31 are as follows:
2018 | 2017 | ||||
Healthcare cost trend rate assumption for the next year | 6.38 | % | 6.56 | % | |
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.00 | % | 5.00 | % | |
Year that the rate reaches the ultimate trend rate | 2032 | 2032 |
1-Percentage- Point Decrease | 1-Percentage- Point Increase | ||||||
Effect on total of service and interest cost components | $ | (26 | ) | $ | 29 | ||
Effect on postretirement benefit obligation | $ | (599 | ) | $ | 672 |
2021 | 2020 | |||||||
Healthcare cost trend rate assumption for the next year Pre-65 | 5.40 | % | 5.90 | % | ||||
Healthcare cost trend rate assumption for the next year Post-65 | 5.90 | % | 6.20 | % | ||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.00 | % | 4.50 | % | ||||
Year that the rate reaches the ultimate trend rate | 2045 | 2037 |
Summaries related to changes in benefit obligations and plan assets and to the funded status of our defined benefit and postretirement medical benefit plans are as follows:
Non-U.S. | Postretirement | |||||||||||||||||||||||
U.S. Nonqualified Plan | Pension Benefits | Medical Benefits | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Change in benefit obligation: | ||||||||||||||||||||||||
Benefit obligation at beginning of year | $ | 1.2 | $ | 1.3 | $ | 17.6 | $ | 15.7 | $ | 7.3 | $ | 7.8 | ||||||||||||
Service cost | 0 | 0 | 0 | 0 | 0.1 | 0.1 | ||||||||||||||||||
Interest cost | 0.1 | 0 | 0.2 | 0.2 | 0.1 | 0.2 | ||||||||||||||||||
Actuarial loss (gain) | 0 | 0 | (0.6 | ) | 1.7 | 0.6 | (0.3 | ) | ||||||||||||||||
Foreign exchange | 0 | 0 | (0.4 | ) | 0.8 | 0 | 0 | |||||||||||||||||
Settlement | 0 | 0 | (0.3 | ) | 0 | 0 | 0 | |||||||||||||||||
Benefits paid | (0.2 | ) | (0.1 | ) | (0.3 | ) | (0.8 | ) | (1.1 | ) | (0.5 | ) | ||||||||||||
Benefit obligation at end of year | $ | 1.1 | $ | 1.2 | $ | 16.2 | $ | 17.6 | $ | 7.0 | $ | 7.3 | ||||||||||||
Change in fair value of plan assets and net accrued liabilities: | ||||||||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 0 | $ | 0 | $ | 13.3 | $ | 12.2 | $ | 0 | $ | 0 | ||||||||||||
Actual return on plan assets | 0 | 0 | (0.4 | ) | 0.6 | 0 | 0 | |||||||||||||||||
Employer contributions | 0.1 | 0.1 | 0.8 | 0.9 | 1.0 | 0.5 | ||||||||||||||||||
Foreign exchange | 0 | 0 | (0.2 | ) | 0.4 | 0 | 0 | |||||||||||||||||
Settlement | 0 | 0 | (0.3 | ) | 0 | 0 | 0 | |||||||||||||||||
Benefits paid | (0.1 | ) | (0.1 | ) | (0.3 | ) | (0.8 | ) | (1.0 | ) | (0.5 | ) | ||||||||||||
Fair value of plan assets at end of year | 0 | 0 | 12.9 | 13.3 | 0 | 0 | ||||||||||||||||||
Funded status at end of year | $ | (1.1 | ) | $ | (1.2 | ) | $ | (3.3 | ) | $ | (4.3 | ) | $ | (7.0 | ) | $ | (7.3 | ) | ||||||
Amounts recognized in the consolidated balance sheets consist of: | ||||||||||||||||||||||||
Noncurrent other assets | $ | 0 | $ | 0 | $ | 1.4 | $ | 1.1 | $ | 0 | $ | 0 | ||||||||||||
Current liabilities | (0.1 | ) | (0.1 | ) | (0.2 | ) | 0 | (0.7 | ) | (0.7 | ) | |||||||||||||
Long-term liabilities | (1.0 | ) | (1.1 | ) | (4.5 | ) | (5.4 | ) | (6.3 | ) | (6.6 | ) | ||||||||||||
Net accrued liability | $ | (1.1 | ) | $ | (1.2 | ) | $ | (3.3 | ) | $ | (4.3 | ) | $ | (7.0 | ) | $ | (7.3 | ) | ||||||
Amounts recognized in accumulated other comprehensive loss consist of: | ||||||||||||||||||||||||
Prior service cost | $ | 0 | $ | 0 | $ | (0.2 | ) | $ | (0.2 | ) | $ | 0 | $ | 0 | ||||||||||
Net actuarial (loss) gain | (0.9 | ) | (0.9 | ) | (2.1 | ) | (2.0 | ) | 0.2 | 0.8 | ||||||||||||||
Accumulated other comprehensive (loss) income | $ | (0.9 | ) | $ | (0.9 | ) | $ | (2.3 | ) | $ | (2.2 | ) | $ | 0.2 | $ | 0.8 |
U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | |||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Change in benefit obligation: | |||||||||||||||||||||||
Benefit obligation at beginning of year | $ | 1,414 | $ | 40,961 | $ | 12,144 | $ | 11,136 | $ | 9,604 | $ | 10,540 | |||||||||||
Service cost | — | — | 126 | 132 | 45 | 60 | |||||||||||||||||
Interest cost | 43 | 1,538 | 280 | 298 | 293 | 363 | |||||||||||||||||
Plan participants' contributions | — | — | 13 | 14 | — | — | |||||||||||||||||
Plan amendments | — | — | 109 | — | — | — | |||||||||||||||||
Actuarial loss (gain) | 35 | 1,811 | (514 | ) | 327 | (485 | ) | (524 | ) | ||||||||||||||
Foreign exchange | — | — | (583 | ) | 1,097 | — | — | ||||||||||||||||
Benefits paid | (149 | ) | (1,950 | ) | (1,196 | ) | (860 | ) | (844 | ) | (835 | ) | |||||||||||
Settlement | (76 | ) | (40,946 | ) | — | — | — | — | |||||||||||||||
Curtailment | — | — | (165 | ) | — | — | — | ||||||||||||||||
Benefit obligation at end of year | $ | 1,267 | $ | 1,414 | $ | 10,214 | $ | 12,144 | $ | 8,613 | $ | 9,604 | |||||||||||
Change in fair value of plan assets and net accrued liabilities: | |||||||||||||||||||||||
Fair value of plan assets at beginning of year | $ | — | $ | 46,389 | $ | 11,163 | $ | 9,562 | $ | — | $ | — | |||||||||||
Actual return on plan assets | — | 2,536 | 1,138 | 1,189 | — | — | |||||||||||||||||
Employer contributions | 225 | 276 | 327 | 313 | 844 | 835 | |||||||||||||||||
Plan participants' contributions | — | — | 13 | 14 | — | — | |||||||||||||||||
Excess assets transferred to Defined Contribution Plan | — | (6,305 | ) | — | — | — | — | ||||||||||||||||
Foreign exchange | — | — | (603 | ) | 945 | — | — | ||||||||||||||||
Benefits paid | (149 | ) | (1,950 | ) | (1,196 | ) | (860 | ) | (844 | ) | (835 | ) | |||||||||||
Settlement | (76 | ) | (40,946 | ) | — | — | — | — | |||||||||||||||
Fair value of plan assets at end of year | — | — | 10,842 | 11,163 | — | — | |||||||||||||||||
Funded status at end of year | $ | (1,267 | ) | $ | (1,414 | ) | $ | 628 | $ | (981 | ) | $ | (8,613 | ) | $ | (9,604 | ) | ||||||
Amounts recognized in the Consolidated Balance Sheets consist of: | |||||||||||||||||||||||
Noncurrent Other Assets | $ | — | $ | — | $ | 1,578 | $ | — | $ | — | $ | — | |||||||||||
Current Liabilities | (146 | ) | (140 | ) | (34 | ) | (36 | ) | (779 | ) | (771 | ) | |||||||||||
Long-Term Liabilities | (1,121 | ) | (1,274 | ) | (916 | ) | (945 | ) | (7,834 | ) | (8,833 | ) | |||||||||||
Net accrued (liability) asset | $ | (1,267 | ) | $ | (1,414 | ) | $ | 628 | $ | (981 | ) | $ | (8,613 | ) | $ | (9,604 | ) | ||||||
Amounts recognized in Accumulated Other Comprehensive Loss consist of: | |||||||||||||||||||||||
Prior service cost | $ | — | $ | — | $ | (109 | ) | $ | — | $ | — | $ | — | ||||||||||
Net actuarial (loss) gain | (852 | ) | (915 | ) | 42 | (1,245 | ) | 444 | (41 | ) | |||||||||||||
Accumulated Other Comprehensive (Loss) Income | $ | (852 | ) | $ | (915 | ) | $ | (67 | ) | $ | (1,245 | ) | $ | 444 | $ | (41 | ) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
The components of the net periodic benefit cost (credit) cost for the three years ended December 31 were as follows:
U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | |||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
Service cost | $ | — | $ | — | $ | 354 | $ | 126 | $ | 132 | $ | 103 | $ | 45 | $ | 60 | $ | 76 | |||||||||||||||||
Interest cost | 43 | 1,538 | 1,659 | 280 | 298 | 358 | 293 | 363 | 396 | ||||||||||||||||||||||||||
Expected return on plan assets | — | (2,336 | ) | (2,400 | ) | (403 | ) | (379 | ) | (452 | ) | — | — | — | |||||||||||||||||||||
Amortization of net actuarial loss | 49 | 43 | 41 | 38 | 74 | 27 | — | — | — | ||||||||||||||||||||||||||
Amortization of prior service cost | — | — | 41 | — | — | — | — | — | — | ||||||||||||||||||||||||||
Foreign currency | — | — | — | 35 | (1 | ) | 97 | — | — | — | |||||||||||||||||||||||||
Net periodic benefit cost (credit) | 92 | (755 | ) | (305 | ) | 76 | 124 | 133 | 338 | 423 | 472 | ||||||||||||||||||||||||
Curtailment | — | — | — | (165 | ) | — | — | — | — | — | |||||||||||||||||||||||||
Settlement | 49 | 6,373 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Net benefit cost (credit) | $ | 141 | $ | 5,618 | $ | (305 | ) | $ | (89 | ) | $ | 124 | $ | 133 | $ | 338 | $ | 423 | $ | 472 |
Non-U.S. | Postretirement | |||||||||||||||||||||||||||||||||||
U.S. Nonqualified Plan | Pension Benefits | Medical Benefits | ||||||||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||
Service cost | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0.1 | $ | 0.1 | $ | 0 | ||||||||||||||||||
Interest cost | 0.1 | 0 | 0.1 | 0.2 | 0.2 | 0.3 | 0.1 | 0.2 | 0.3 | |||||||||||||||||||||||||||
Expected return on plan assets | 0 | 0 | 0 | (0.4 | ) | (0.3 | ) | (0.4 | ) | 0 | 0 | 0 | ||||||||||||||||||||||||
Amortization of net actuarial loss (gain) | 0 | 0.1 | 0 | 0.1 | 0 | 0 | 0 | 0 | (0.1 | ) | ||||||||||||||||||||||||||
Net periodic benefit cost (credit) | $ | 0.1 | $ | 0.1 | $ | 0.1 | $ | (0.1 | ) | $ | (0.1 | ) | $ | (0.1 | ) | $ | 0.2 | $ | 0.3 | $ | 0.2 |
The changes in Accumulated Other Comprehensive Lossaccumulated other comprehensive loss for the three years ended December 31 were as follows:
U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | |||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
Prior service cost | $ | — | $ | — | $ | — | $ | 109 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
Net actuarial loss (gain) | 35 | 1,611 | 633 | (1,249 | ) | (465 | ) | 1,718 | (485 | ) | (524 | ) | 6 | ||||||||||||||||||||||
Amortization of prior service cost | — | — | (41 | ) | (19 | ) | — | — | — | — | — | ||||||||||||||||||||||||
Amortization of net actuarial loss | (49 | ) | (43 | ) | (41 | ) | (38 | ) | (74 | ) | (27 | ) | — | — | — | ||||||||||||||||||||
Settlement | (49 | ) | (6,373 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total recognized in other comprehensive (income) loss | $ | (63 | ) | $ | (4,805 | ) | $ | 551 | $ | (1,197 | ) | $ | (539 | ) | $ | 1,691 | $ | (485 | ) | $ | (524 | ) | $ | 6 | |||||||||||
Total recognized in net benefit cost (credit) and other comprehensive (income) loss | $ | 78 | $ | 813 | $ | 246 | $ | (1,286 | ) | $ | (415 | ) | $ | 1,824 | $ | (147 | ) | $ | (101 | ) | $ | 478 |
Non-U.S. | Postretirement | |||||||||||||||||||||||||||||||||||
U.S. Nonqualified Plan | Pension Benefits | Medical Benefits | ||||||||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||
Prior service cost | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0.1 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||
Net actuarial loss (gain) | 0 | 0 | 0.1 | 0.2 | 1.6 | 0.4 | 0.6 | (0.3 | ) | (0.1 | ) | |||||||||||||||||||||||||
Amortization of net actuarial (loss) gain | 0 | (0.1 | ) | 0 | (0.1 | ) | 0 | 0 | 0 | 0 | 0.1 | |||||||||||||||||||||||||
Total recognized in other comprehensive (income) loss | $ | 0 | $ | (0.1 | ) | $ | 0.1 | $ | 0.1 | $ | 1.7 | $ | 0.4 | $ | 0.6 | $ | (0.3 | ) | $ | 0 | ||||||||||||||||
Total recognized in net benefit cost (credit) and other comprehensive loss (income) | $ | 0.1 | $ | 0 | $ | 0.2 | $ | 0 | $ | 1.6 | $ | 0.3 | $ | 0.8 | $ | 0 | $ | 0.2 |
The following benefit payments, which reflect expected future service, are expected to be paid for our U.S. and Non-U.S. plans:
U.S. | Non-U.S. | Postretirement | |||||||||||
Nonqualified Plan | Pension Benefits | Medical Benefits | |||||||||||
2022 | $ | 0.1 | $ | 0.6 | $ | 0.7 | |||||||
2023 | 0.1 | 0.6 | 0.7 | ||||||||||
2024 | 0.1 | 0.6 | 0.7 | ||||||||||
2025 | 0.1 | 0.6 | 0.6 | ||||||||||
2026 | 0.1 | 0.6 | 0.6 | ||||||||||
2027 to 2030 | 0.4 | 3.5 | 2.5 | ||||||||||
Total | $ | 0.9 | $ | 6.5 | $ | 5.8 |
U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | |||||||||
2019 | $ | 146 | $ | 243 | $ | 779 | |||||
2020 | 138 | 249 | 830 | ||||||||
2021 | 129 | 257 | 752 | ||||||||
2022 | 121 | 265 | 755 | ||||||||
2023 | 112 | 275 | 715 | ||||||||
2024 to 2028 | 468 | 1,511 | 3,424 | ||||||||
Total | $ | 1,114 | $ | 2,800 | $ | 7,255 |
Pension Benefits | Postretirement Medical Benefits | ||||||
Net actuarial loss | $ | 104 | $ | — | |||
Transition obligation | 4 | — |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
14. | Shareholders' Equity |
Authorized Shares
We are authorized to issue an aggregate of
60,000,000 shares, all of which are designated as Common Stock having a par value ofAccumulated Other Comprehensive Loss
2018 | 2017 | 2016 | |||||||||
Foreign currency translation adjustments | $ | (31,831 | ) | $ | (15,778 | ) | $ | (44,444 | ) | ||
Pension and retiree medical benefits | (332 | ) | (1,610 | ) | (5,391 | ) | |||||
Cash flow hedge | (5,031 | ) | (4,935 | ) | (88 | ) | |||||
Total Accumulated Other Comprehensive Loss | $ | (37,194 | ) | $ | (22,323 | ) | $ | (49,923 | ) |
The changes in components of Accumulated Other Comprehensive Loss,accumulated other comprehensive loss, net of tax, are as follows:
Foreign Currency Translation Adjustments | Pension and Postretirement Benefits | Cash Flow Hedge | Total | ||||||||||||
December 31, 2017 | $ | (15,778 | ) | $ | (1,610 | ) | $ | (4,935 | ) | $ | (22,323 | ) | |||
Other comprehensive (loss) income before reclassifications | (16,053 | ) | 1,293 | 9,125 | (5,635 | ) | |||||||||
Amounts reclassified from Accumulated Other Comprehensive Loss | — | 122 | (8,095 | ) | (7,973 | ) | |||||||||
Adjustments to Accumulated Other Comprehensive Loss for disproportionate income tax effects recognized from the adoption of ASU 2018-02 | — | (137 | ) | (1,126 | ) | (1,263 | ) | ||||||||
Net current period other comprehensive (loss) income | (16,053 | ) | 1,278 | (96 | ) | (14,871 | ) | ||||||||
December 31, 2018 | $ | (31,831 | ) | $ | (332 | ) | $ | (5,031 | ) | $ | (37,194 | ) |
Foreign Currency Translation Adjustments | Pension and Postretirement Medical Benefits | Cash Flow Hedge | Total | |||||||||||||
December 31, 2019 | $ | (36.3 | ) | $ | (0.7 | ) | $ | (1.5 | ) | $ | (38.5 | ) | ||||
Other comprehensive income (loss) before reclassifications | 17.2 | (1.0 | ) | (7.5 | ) | 8.7 | ||||||||||
Amounts reclassified from accumulated other comprehensive loss | 0 | 0 | 9.7 | 9.7 | ||||||||||||
Net current period other comprehensive income (loss) | 17.2 | (1.0 | ) | 2.2 | 18.4 | |||||||||||
December 31, 2020 | $ | (19.1 | ) | $ | (1.7 | ) | $ | 0.7 | $ | (20.1 | ) | |||||
Other comprehensive (loss) income before reclassifications | (16.9 | ) | (0.4 | ) | 10.8 | (6.5 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive loss | 0 | 0 | (11.3 | ) | (11.3 | ) | ||||||||||
Net current period other comprehensive loss | (16.9 | ) | (0.4 | ) | (0.5 | ) | (17.8 | ) | ||||||||
December 31, 2021 | $ | (36.0 | ) | $ | (2.1 | ) | $ | 0.2 | $ | (37.9 | ) |
Accumulated Other Comprehensive Lossother comprehensive loss associated with pension and postretirement benefits and cash flow hedges areis included in Notes 1513 and 13,11, respectively.
Repurchase of Common Stock
The Board of Directors has authorized the repurchase of 1,193,414 of our common stock. During the year ended December 31, 2021, the Company paid $15.0 million to repurchase 196,982 shares of its common stock at an average price of $76.13 per share. As of December 31, 2021, 1,193,414 shares were available to be repurchased. There were 0 share repurchases during the year ended December 31, 2020.
15. | Leases | |
We lease office and warehouse facilities, vehicles and office equipment under the operating lease agreements, which include both monthly and longer-term arrangements. Leases with initial terms of one year or more expire at various dates through 2028 and generally provide for extension options. Rent expense under the leasing agreements (exclusive of real estate taxes, insurance and other expenses payable under the leases) amounted to $23,348, $21,566 and
2019 | $ | 15,200 | |
2020 | 8,973 | ||
2021 | 5,535 | ||
2022 | 3,592 | ||
2023 | 2,636 | ||
Thereafter | 4,215 | ||
Total | $ | 40,151 |
Certain operating leases for vehicles contain residual value guarantee provisions, which would become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. TheAs of December 31, 2021, of those leases that contain residual value guarantees, the aggregate residual value at lease expiration of those leases is $14,043,was $12.6 million, of which we have guaranteed $8,404. As$9.3 million.
The lease assets and liabilities as of December 31 2018, we have recorded a liability for the estimated end-of-term loss related to this residual value guarantee of $243 for certain vehicles within our fleet. Our fleet also contains vehicles we estimate will settle at a gain. Gains on these vehicles will be recognized at the end of the lease term.
Leases | Classification | 2021 | 2020 | |||||||
Assets | ||||||||||
Operating lease assets | Operating lease assets | $ | 41.3 | $ | 44.5 | |||||
Finance lease assets | Property, plant and equipment(a) | 0.1 | 0.1 | |||||||
Total leased assets | $ | 41.4 | $ | 44.6 | ||||||
Liabilities | ||||||||||
Current: | ||||||||||
Operating | Other current liabilities | $ | 16.4 | $ | 16.3 | |||||
Finance | Current portion of long-term debt | 0 | 0.1 | |||||||
Noncurrent: | ||||||||||
Operating | Long-term operating lease liabilities | 25.4 | 28.7 | |||||||
Finance | Long-term debt | 0.1 | 0 | |||||||
Total lease liabilities | $ | 41.9 | $ | 45.1 |
(a) | Finance lease assets are recorded net of accumulated amortization of less than $0.1 million and $0.2 million as of December 31, 2021 and December 31, 2020, respectively. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
The lease cost for the three years ended December 31 was as follows:
Lease Cost | 2021 | 2020 | 2019 | |||||||||
Operating lease cost(a) | $ | 26.6 | $ | 25.1 | $ | 27.5 | ||||||
Finance lease cost(b) | 0.1 | 0.2 | 0.3 | |||||||||
Total lease cost | $ | 26.7 | $ | 25.3 | $ | 27.8 |
(a) | Includes short-term lease costs of $4.0 million and $3.5 million and variable lease costs of $2.2 million and $1.6 million for the years ended December 31, 2021 and December 31, 2020, respectively. |
(b) | Includes amortization of leased assets and interest on lease liabilities. |
The maturity of lease liabilities as of December 31, 2021 was as follows:
Maturity of Lease Liabilities | Operating Leases | Finance Leases | Total | |||||||||
2022 | $ | 17.5 | $ | 0 | $ | 17.5 | ||||||
2023 | 14.1 | 0.1 | 14.2 | |||||||||
2024 | 7.7 | 0 | 7.7 | |||||||||
2025 | 2.9 | 0 | 2.9 | |||||||||
2026 | 1.1 | 0 | 1.1 | |||||||||
Thereafter | 0.8 | 0 | 0.8 | |||||||||
Total lease payments | $ | 44.1 | $ | 0.1 | $ | 44.2 | ||||||
Less: Interest | (2.3 | ) | 0 | (2.3 | ) | |||||||
Present value of lease liabilities | $ | 41.8 | $ | 0.1 | $ | 41.9 |
The lease term and discount rate as of December 31 were as follows:
Lease Term and Discount Rate | 2021 | 2020 | ||||||
Weighted-average remaining lease term (years): | ||||||||
Operating leases | 3.0 | 3.4 | ||||||
Finance leases | 4.2 | 1.0 | ||||||
Weighted-average discount rate: | ||||||||
Operating leases | 3.5% | 3.8% | ||||||
Finance leases | 2.2% | 2.5% |
Other information related to cash paid related to lease liabilities and lease assets obtained for the years ended December 31 was as follows:
Other Information | 2021 | 2020 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $20.2 | $19.7 | ||||||
Financing cash flows from finance leases | 0.1 | 0.1 | ||||||
Lease assets obtained in exchange for new finance lease liabilities | 0.1 | 0 | ||||||
Lease assets obtained in exchange for new operating lease liabilities | 15.7 | 14.8 |
16. | Commitments and Contingencies |
In the ordinary course of business, we may become liable with respect to pending and threatened litigation, tax, environmental and other matters. While the ultimate results of current claims, investigations and lawsuits involving us are unknown at this time, we do not expect that these matters will have a material adverse effect on our consolidated financial position or results of operations. Legal costs associated with such matters are expensed as incurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
17. | Income Taxes |
Income (loss) before income taxes for the three years ended December 31 2018, we hold a note receivable of $5,360, including accrued interest, on our Consolidated Balance Sheet. There is some uncertainty about the collectability of this note receivable; however, we are not able to determine an appropriate allowance, if any, as of December 31, 2018.
2018 | 2017 | 2016 | |||||||||
U.S. operations | $ | 23,913 | $ | 7,465 | $ | 54,018 | |||||
Foreign operations | 11,929 | (8,757 | ) | 12,473 | |||||||
Total | $ | 35,842 | $ | (1,292 | ) | $ | 66,491 |
2021 | 2020 | 2019 | ||||||||||
U.S. operations | $ | 47.5 | $ | 46.6 | $ | 50.1 | ||||||
Foreign operations | 26.6 | (5.5 | ) | 3.9 | ||||||||
Total | $ | 74.1 | $ | 41.1 | $ | 54.0 |
Income tax expense (benefit) for the three years ended December 31 was as follows:
2018 | 2017 | 2016 | |||||||||
Current: | |||||||||||
Federal | $ | 3,731 | $ | 2,590 | $ | 15,962 | |||||
Foreign | 7,030 | 8,701 | 3,035 | ||||||||
State | 1,033 | 812 | 1,859 | ||||||||
$ | 11,794 | $ | 12,103 | $ | 20,856 | ||||||
Deferred: | |||||||||||
Federal | $ | (3,135 | ) | $ | 1,640 | $ | (472 | ) | |||
Foreign | (6,012 | ) | (8,699 | ) | (434 | ) | |||||
State | (343 | ) | (131 | ) | (73 | ) | |||||
$ | (9,490 | ) | $ | (7,190 | ) | $ | (979 | ) | |||
Total: | |||||||||||
Federal | $ | 596 | $ | 4,230 | $ | 15,490 | |||||
Foreign | 1,018 | 2 | 2,601 | ||||||||
State | 690 | 681 | 1,786 | ||||||||
Total Income Tax Expense | $ | 2,304 | $ | 4,913 | $ | 19,877 |
2021 | 2020 | 2019 | ||||||||||
Current: | ||||||||||||
Federal | $ | 11.1 | $ | 4.2 | $ | 9.6 | ||||||
Foreign | 11.2 | 3.8 | 5.6 | |||||||||
State | 1.9 | 1.8 | 2.1 | |||||||||
Total current | $ | 24.2 | $ | 9.8 | $ | 17.3 | ||||||
Deferred: | ||||||||||||
Federal | $ | 0.6 | $ | 4.4 | $ | (2.4 | ) | |||||
Foreign | (15.5 | ) | (6.9 | ) | (6.7 | ) | ||||||
State | (0.1 | ) | 0.1 | (0.1 | ) | |||||||
Total deferred | $ | (15.0 | ) | $ | (2.4 | ) | $ | (9.2 | ) | |||
Total: | ||||||||||||
Federal | $ | 11.7 | $ | 8.6 | $ | 7.2 | ||||||
Foreign | (4.3 | ) | (3.1 | ) | (1.1 | ) | ||||||
State | 1.8 | 1.9 | 2.0 | |||||||||
Total income tax expense | $ | 9.2 | $ | 7.4 | $ | 8.1 |
In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial and that position has not changed following incurring the transition tax under the Tax Act.immaterial. Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our approximately $1,572$83.9 million of undistributed earnings from foreign subsidiaries to the United States as those earnings continue to be permanently reinvested.
Our effective income tax rate varied from the U.S. federal statutory tax rate for the three years ended December 31 as follows:
2021 | 2020 | 2019 | ||||||||||
Tax at statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||
Increases (decreases) in the tax rate from: | ||||||||||||
State and local taxes, net of federal benefit | 2.2 | 3.5 | 1.9 | |||||||||
Effect of foreign operations | (6.3 | ) | (3.7 | ) | 3.5 | |||||||
Effect of changes in valuation allowances | (4.5 | ) | 0.5 | (9.7 | ) | |||||||
Excess tax benefits on share-based compensation | 1.8 | 2.1 | 2.5 | |||||||||
Share-based payments | (0.9 | ) | (0.9 | ) | (2.0 | ) | ||||||
Research and development credit | (1.4 | ) | (3.3 | ) | (1.9 | ) | ||||||
Other, net | 0.6 | (1.3 | ) | (0.2 | ) | |||||||
Effective income tax rate | 12.5 | % | 17.9 | % | 15.1 | % |
2018 | 2017 | 2016 | ||||||
Tax at statutory rate | 21.0 | % | 35.0 | % | 35.0 | % | ||
(Decreases) increases in the tax rate from: | ||||||||
State and local taxes, net of federal benefit | 1.4 | (21.1 | ) | 1.7 | ||||
Effect of foreign operations | (4.3 | ) | (70.8 | ) | (5.5 | ) | ||
Transaction costs | (4.2 | ) | (226.3 | ) | — | |||
Effect of 2017 deferred rate change | (1.0 | ) | (154.3 | ) | — | |||
Transition Tax | (1.0 | ) | (28.0 | ) | — | |||
Effect of changes in valuation allowances | 6.6 | (126.5 | ) | 1.9 | ||||
Domestic production activities deduction | 0.4 | 28.3 | (2.2 | ) | ||||
Share-based payments | (5.7 | ) | 90.4 | — | ||||
Research & Development credit | (3.6 | ) | 82.9 | (1.3 | ) | |||
Other, net | (3.2 | ) | 10.2 | 0.3 | ||||
Effective income tax rate | 6.4 | % | (380.2 | )% | 29.9 | % |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Deferred tax assets and liabilities were comprised of the following as of December 31:
2018 | 2017 | ||||||
Deferred Tax Assets: | |||||||
Inventories, principally due to changes in inventory reserves | $ | 3,335 | $ | 4,757 | |||
Employee wages and benefits, principally due to accruals for financial reporting purposes | 11,642 | 11,031 | |||||
Warranty reserves accrued for financial reporting purposes | 2,610 | 2,578 | |||||
Receivables, principally due to allowance for doubtful accounts and tax accounting method for equipment rentals | 1,728 | 2,138 | |||||
Tax loss carryforwards | 7,765 | 11,383 | |||||
Tax credit carryforwards | 4,708 | 1,575 | |||||
Other | 4,712 | 3,630 | |||||
Gross Deferred Tax Assets | $ | 36,500 | $ | 37,092 | |||
Less: valuation allowance | (11,519 | ) | (9,691 | ) | |||
Total Net Deferred Tax Assets | $ | 24,981 | $ | 27,401 | |||
Deferred Tax Liabilities: | |||||||
Property, Plant and Equipment, principally due to differences in depreciation and related gains | 9,882 | 9,042 | |||||
Goodwill and Intangible Assets | 45,628 | 60,450 | |||||
Total Deferred Tax Liabilities | $ | 55,510 | $ | 69,492 | |||
Net Deferred Tax Liabilities | $ | (30,529 | ) | $ | (42,091 | ) |
2021 | 2020 | |||||||
Deferred tax assets: | ||||||||
Inventory | $ | 3.7 | $ | 4.5 | ||||
Compensation and employee benefits | 14.8 | 14.0 | ||||||
Warranty reserves | 2.2 | 2.3 | ||||||
Allowance for doubtful accounts and deferred revenue | 2.3 | 2.3 | ||||||
Operating lease liabilities | 8.2 | 11.2 | ||||||
Tax loss carryforwards | 7.7 | 9.6 | ||||||
Tax credit carryforwards | 4.5 | 3.6 | ||||||
Other | 0.7 | 2.5 | ||||||
Gross deferred tax assets | $ | 44.1 | $ | 50.0 | ||||
Less: valuation allowance | (4.8 | ) | (7.5 | ) | ||||
Total net deferred tax assets | $ | 39.3 | $ | 42.5 | ||||
Deferred tax liabilities: | ||||||||
Operating lease assets | $ | 8.1 | $ | 11.2 | ||||
Fixed assets | 13.0 | 14.0 | ||||||
Goodwill and intangible assets | 23.0 | 41.5 | ||||||
Total deferred tax liabilities | $ | 44.1 | $ | 66.7 | ||||
Net deferred tax liabilities | $ | (4.8 | ) | $ | (24.2 | ) |
Tax credit carryforwards consist of $1,812 foreign tax credits, $1,268$3.2 million U.S. federal and state tax credits and $1,628$1.3 million of Netherlands tax credits. We have non-U.S. cumulative tax losses of $35,593$30.8 million in various countries. Cumulative losses can be used to offset the income tax liabilities on future income in these countries. $18,649$30.8 million of these losses have unlimited carryforward periods. $16,944Less than $0.1 million of these losses have a limited carryforward period which must be utilized during 2019 to 2026.
The valuation allowance at as of December 31, 20182021 principally applies to the Netherlands tax loss and tax credit carryforwards a Sweden tax loss carryforward,in the Netherlands and state tax credit carryforwards that,certain U.S. states which, in the opinion of management, are more likely than not to expire unutilized. However, to the extent that tax benefits related to these carryforwards are realized in the future, the reduction in the valuation allowance will reduce income tax expense. A valuation allowance for the remaining tax loss carryforwards is not required sinceAs of December 31, 2021, we believe it is more likely than not that they willthe remainder of our deferred tax assets are realizable. We recorded a net valuation allowance release in 2021 of $2.7 million on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized through carryback to taxable incomerealized. The net decrease in prior years, future reversals of existing taxable temporary differences and future taxable income.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2018 | 2017 | ||||||
Balance at January 1 | $ | 2,232 | $ | 2,477 | |||
Increases as a result of tax positions taken during a prior period | 74 | — | |||||
Increases as a result of tax positions taken during the current year | 370 | 329 | |||||
Increase related to prior period tax positions of acquired entities | 3,833 | 236 | |||||
Decreases relating to settlement with tax authorities | — | (68 | ) | ||||
Reductions as a result of a lapse of the applicable statute of limitations | (1,274 | ) | (770 | ) | |||
Increases as a result of foreign currency fluctuations | 418 | 28 | |||||
Balance at December 31 | $ | 5,653 | $ | 2,232 |
2021 | 2020 | |||||||
Beginning balance | $ | 6.4 | $ | 7.5 | ||||
(Decreases) increases as a result of tax positions taken during a prior period | (0.1 | ) | 0.3 | |||||
Increases as a result of tax positions taken during the current year | 0.5 | 0.4 | ||||||
Decreases relating to settlement with tax authorities | 0 | (0.8 | ) | |||||
Decreases as a result of a lapse of the applicable statute of limitations | (2.1 | ) | (1.4 | ) | ||||
Increases as a result of foreign currency fluctuations | 0 | 0.4 | ||||||
Ending balance | $ | 4.7 | $ | 6.4 |
Included in the balance of unrecognized tax benefits at as of December 31, 2018 2021 and 20172020 are potential benefits of $5,473$4.5 million and $1,992,$6.3 million, respectively, that if recognized, would affect the effective tax rate from continuing operations.
We recognize potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. In addition to the liability of $5,653$4.7 million and $2,232$6.4 million for unrecognized tax benefits as of December 31, 2018 2021 and 2017,2020, there was approximately $416$0.7 million and $482,$0.7 million, respectively, for accrued interest and penalties. To the extent interest and penalties are not assessed with respect to uncertain tax positions, the amounts accrued will be revised and reflected as an adjustment to income tax expense.
We and our subsidiaries are subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. We are generally no longer subject to U.S. federal tax examinations for taxable years before 2015 and, with limited exceptions,2018. The number of years which remain open for audit for U.S. state andor foreign income tax examinations for taxable years before 2014.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
18. | Share-Based Compensation |
We have fourfive plans under which we have awarded share-based compensation grants: The 1997 Non-Employee Directors Option Plan ("("1997 Plan"), which provided for stock option grants to our non-employee Directors, the 2007 Stock Incentive Plan (“(“2007 Plan”), the Amended and Restated 2010 Stock Incentive Plan, as Amended (“(“2010 Plan”), the 2017 Stock Incentive Plan ("2017 Plan") and the 20172020 Stock Incentive Plan ("2017("2020 Plan"), which were adopted as a continuing step toward aggregating our equity compensation programs to reduce the complexity of our equity compensation programs.
As of December 31, 2018,2021, there were 897,3151,079,434 shares reserved for issuance under the 2007 Plan, the 2010 Plan and the 20102017 Plan for outstanding compensation awards. There were 761,3821,546,609 shares available for issuance under the 20172020 Plan for current and future equity awards as of December 31, 2018.2021. The Compensation Committee of the Board of Directors determines the number of shares awarded and the grant date, subject to the terms of our equity award policy.
We recognized total Share-Based Compensation Expenseshare-based compensation expense of $8,314, $5,891$9.5 million, $6.0 million and $3,875,$11.4 million, respectively, during the years ended 2018, 20172021, 2020 and 2016.2019. The total excess tax benefit recognized for share-based compensation arrangements during the years ended 2018, 20172021, 2020 and 20162019 was $2,060,
Stock Option Awards
We determined the fair value of our stock option awards using the Black-Scholes valuation model that uses the assumptions noted in the table below. The expected term selected for stock options granted during the year represents the period of time that the stock options are expected to be outstanding based on historical data of stock option holder exercise and termination behavior of similar grants. The risk-free interest rate for periods within the contractual life of the stock option is based on the U.S. Treasury rate over the expected life at the time of grant. Expected volatilities are based upon historical volatility of our stock over a period equal to the expected life of each stock option grant. Dividend yield is estimated over the expected life based on our dividend policy and historical dividends paid. To determine the amount of compensation cost to be recognized in each period, we account for forfeitures as they occur.
The following table illustrates the valuation assumptions used for the 2018, 20172021, 2020 and 20162019 grants:
2018 | 2017 | 2016 | |||
Expected volatility | 25% | 25 - 26% | 29 -32% | ||
Weighted-average expected volatility | 25% | 26% | 32% | ||
Expected dividend yield | 1.2% | 1.2 - 1.3% | 1.3 - 1.5% | ||
Weighted-average expected dividend yield | 1.2% | 1.3% | 1.3% | ||
Expected term, in years | 5 | 5 | 5 | ||
Risk-free interest rate | 2.6 - 2.9% | 1.7 - 2.0% | 1.1 - 1.4% |
2021 | 2020 | 2019 | ||||||||||
Expected volatility | 34 - 35 | % | 27 - 32 | % | 26 - 27 | % | ||||||
Weighted-average expected volatility | 35 | % | 27 | % | 26 | % | ||||||
Expected dividend yield | 1.3 - 1.4 | % | 1.3 | % | 1.2 - 1.4 | % | ||||||
Weighted-average expected dividend yield | 1.4 | % | 1.3 | % | 1.2 | % | ||||||
Expected term, in years | 5 | 5 | 5 | |||||||||
Risk-free interest rate | 0.8 - 0.9 | % | 0.3 - 1.3 | % | 1.6 - 2.5 | % |
New stock option awards granted vest one-thirdone-third each year over a
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The following table summarizes the activity during the year ended December 31, 20182021 for stock option awards:
Shares | Weighted-Average Exercise Price | |||||
Outstanding at beginning of year | 1,135,608 | $ | 47.47 | |||
Granted | 202,623 | 67.85 | ||||
Exercised | (223,352 | ) | 26.33 | |||
Forfeited | (30,312 | ) | 66.06 | |||
Outstanding at end of year | 1,084,567 | $ | 55.11 | |||
Exercisable at end of year | 711,499 | $ | 48.94 |
Shares | Weighted-Average Exercise Price | |||||||
Outstanding at beginning of year | 990,663 | $ | 62.90 | |||||
Granted | 73,274 | 79.14 | ||||||
Exercised | (147,890 | ) | 51.88 | |||||
Forfeited | (5,912 | ) | 64.42 | |||||
Expired | (863 | ) | 73.72 | |||||
Outstanding at end of year | 909,272 | $ | 65.98 | |||||
Exercisable at end of year | 743,371 | $ | 64.03 |
The weighted-average grant date fair value of stock options granted during the years ended December 31,
Restricted Share Awards
Restricted share awards for employees generally have a
three year vesting period from the effective date of the grant. Restricted share awards to non-employee directors vest upon a change of control or upon termination of service as a director occurring at least six months after grant date of the award so long as termination is for one of the following reasons: death; disability; retirement in accordance with Tennant policy (e.g., age, term limits, etc.); resignation at request of Board (other than for gross misconduct); resignation following at least six months’ advance notice; failure to be renominated (unless due to unwillingness to serve) or reelected by shareholders; or removal by shareholders. We use the closing share price the day before the grant date to determine the fair value of our restricted share awards. Expenses on these awards are recognized over the vesting period.The following table summarizes the activity during the year ended
December 31,Shares | Weighted-Average Grant Date Fair Value | |||||
Nonvested at beginning of year | 99,789 | $ | 53.11 | |||
Granted | 16,377 | 67.70 | ||||
Vested | (14,384 | ) | 68.00 | |||
Forfeited | (1,561 | ) | 67.39 | |||
Nonvested at end of year | 100,221 | $ | 53.52 |
Shares | Weighted-Average Grant Date Fair Value | |||||||
Nonvested at beginning of year | 94,043 | $ | 55.81 | |||||
Granted | 16,863 | 79.34 | ||||||
Vested | (19,332 | ) | 59.81 | |||||
Forfeited | 0 | 0 | ||||||
Nonvested at end of year | 91,574 | $ | 59.30 |
The total fair value of restricted stock unitsshares vested during the years ended December 31, 2018, 20172021, 2020 and 20162019 was $978, $1,463$1.2 million, $0.7 million and $1,970,$1.0 million, respectively. As of December 31, 2018,2021, there was $1,196$1.2 million of total unrecognized compensation cost related to nonvested restricted stock unitsshares which is expected to be recognized over a weighted-average period of 1.62.0 years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Performance Share Awards
We grant performance share awards to key employees as a part of our long-term management compensation program. These awards are earned based upon achievement of certain financial performance targets over a three year period. The number of shares of common stock a participant receives will be increased (up to 200 percent of target levels) or reduced (down to zero)0) based on the level of achievement of the financial performance targets. We use the closing share price the day before the grant date to determine the fair value of our performance share awards. Expenses on these awards are recognized over a
The following table summarizes the activity during the year ended December 31, 20182021 for nonvested performance share awards:
Shares | Weighted-Average Grant Date Fair Value | |||||
Nonvested at beginning of year | 123,024 | $ | 63.09 | |||
Granted | 47,997 | 67.84 | ||||
Forfeited | (43,974 | ) | 66.23 | |||
Nonvested at end of year | 127,047 | $ | 63.80 |
Shares | Weighted-Average Grant Date Fair Value | |||||||
Nonvested at beginning of year | 124,219 | $ | 69.68 | |||||
Granted | 57,195 | 78.39 | ||||||
Vested | (43,621 | ) | 67.88 | |||||
Forfeited | (7,441 | ) | 72.25 | |||||
Nonvested at end of year | 130,352 | $ | 73.96 |
During the year ended December 31, 2020, 29,595 performance shares vested during the years ended December 31, 2017 and 2016 was $1,240 and $1,703, respectively. Novested. NaN performance shares vested during the year ended December 31, 2018.2019. As of December 31, 2018,2021, we expect to recognize $3,287$3.4 million of total compensation costs over a weighted-average period of 1.8 years.
Restricted Stock Units
We grant restricted stock units to employees and non-employee directors, which generally vest within three years from the date of the grant. Vested restricted stock units are paid out in stock. We use the closing share price the day before the grant date to determine the fair value of our restricted stock units. Expenses on these awards are recognized on a straight-line basis over the vesting period of the award.
The following table summarizes the activity during the year ended December 31, 20182021 for nonvested restricted stock units:
Shares | Weighted-Average Grant Date Fair Value | |||||
Nonvested at beginning of year | 43,125 | $ | 64.67 | |||
Granted | 83,380 | 66.83 | ||||
Vested | (15,427 | ) | 58.27 | |||
Forfeited | (9,123 | ) | 66.60 | |||
Nonvested at end of year | 101,955 | $ | 67.23 |
Shares | Weighted-Average Grant Date Fair Value | |||||||
Nonvested at beginning of year | 97,485 | $ | 64.95 | |||||
Granted | 61,121 | 82.44 | ||||||
Vested | (54,752 | ) | 59.28 | |||||
Forfeited | (12,883 | ) | 79.44 | |||||
Nonvested at end of year | 90,971 | $ | 78.06 |
The total fair value of shares vested during the years ended December 31, 20182021, 2020 and 20172019 was $899$3.2 million, $2.6 million, and $962,$2.2 million, respectively. As of December 31, 2018,2021, there was $4,473$3.6 million of total unrecognized compensation cost related to nonvested shares which is expected to be recognized over a weighted-average period of 2.01.5 years.
Share-Based Liabilities
As of December 31,
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and 2016, we paid out $32, $45 and $62 related to share-based liability awards, respectively.
19. | Income Attributable to Tennant Company Per Share |
The computations of Basicbasic and Diluted Earnings (Loss) Attributablediluted earnings attributable to Tennant Company per Shareshare for the years ended December 31 were as follows:
2018 | 2017 | 2016 | |||||||||
Numerator: | |||||||||||
Net Earnings (Loss) Attributable to Tennant Company | $ | 33,412 | $ | (6,195 | ) | $ | 46,614 | ||||
Denominator: | |||||||||||
Basic - Weighted Average Shares Outstanding | 17,940,438 | 17,695,390 | 17,523,267 | ||||||||
Effect of dilutive securities | 398,131 | — | 452,916 | ||||||||
Diluted - Weighted Average Shares Outstanding | 18,338,569 | 17,695,390 | 17,976,183 | ||||||||
Basic Earnings (Loss) per Share | $ | 1.86 | $ | (0.35 | ) | $ | 2.66 | ||||
Diluted Earnings (Loss) per Share | $ | 1.82 | $ | (0.35 | ) | $ | 2.59 |
2021 | 2020 | 2019 | ||||||||||
Numerator: | ||||||||||||
Net income attributable to Tennant Company | $ | 64.9 | $ | 33.7 | $ | 45.8 | ||||||
Denominator: | ||||||||||||
Basic - weighted average shares outstanding | 18,499,674 | 18,349,724 | 18,118,486 | |||||||||
Effect of dilutive securities | 349,543 | 285,278 | 334,659 | |||||||||
Diluted - weighted average shares outstanding | 18,849,217 | 18,635,002 | 18,453,145 | |||||||||
Basic earnings per share attributable to Tennant Company | $ | 3.51 | $ | 1.84 | $ | 2.53 | ||||||
Diluted earnings per share attributable to Tennant Company | $ | 3.44 | $ | 1.81 | $ | 2.48 |
Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 293,356, 711,212171,273, 610,118 and
20. | Segment Reporting |
We are organized into four4 operating segments: North America; Latin America; Europe, Middle East, Africa; and Asia Pacific. We combine our North America and Latin America operating segments into the "Americas" for reporting net sales by geographic area. In accordance with the objective and basic principles of the applicable accounting guidance, we aggregate our operating segments into one1 reportable segment that consists of the design, manufacture and sale of products used primarily in the maintenance of nonresidential surfaces.
The following table presents Net Salesnet sales by geographic area for the threeyears ended December 31:
2018 | 2017 | 2016 | |||||||||
Net Sales: | |||||||||||
Americas | $ | 690,996 | $ | 640,274 | $ | 607,026 | |||||
Europe, Middle East, Africa | 335,603 | 273,738 | 129,046 | ||||||||
Asia Pacific | 96,912 | 89,054 | 72,500 | ||||||||
Total | $ | 1,123,511 | $ | 1,003,066 | $ | 808,572 |
2018 | 2017 | 2016 | |||||||||
Long-lived assets: | |||||||||||
Americas | $ | 118,609 | $ | 132,659 | $ | 134,737 | |||||
Europe, Middle East, Africa | 385,659 | 422,338 | 19,606 | ||||||||
Asia Pacific | 4,145 | 4,731 | 4,334 | ||||||||
Total | $ | 508,413 | $ | 559,728 | $ | 158,677 |
2021 | 2020 | 2019 | ||||||||||
Net Sales: | ||||||||||||
United States | $ | 566.4 | $ | 546.2 | $ | 609.6 | ||||||
Other Americas | 91.9 | 84.8 | 112.8 | |||||||||
Americas | 658.3 | 631.0 | 722.4 | |||||||||
Europe, Middle East, Africa | 331.9 | 278.2 | 307.6 | |||||||||
Asia Pacific | 100.6 | 91.8 | 107.6 | |||||||||
Total | $ | 1,090.8 | $ | 1,001.0 | $ | 1,137.6 |
Accounting policies of the operations in the various operating segments are the same as those described in Note 1. Net Salessales are attributed to each operating segment based on the end user country and are net of intercompany sales. Apart from the United States shown in the table above, there were no individual foreign locations which had net sales which represented more than 10% of our consolidated net sales. No single customer represents more than 10% of our consolidated Net Sales.
The following table presents long-lived assets by geographic area as of December 31:
2021 | 2020 | 2019 | ||||||||||
Long-lived assets: | ||||||||||||
United States | $ | 106.6 | $ | 121.9 | $ | 114.5 | ||||||
Other Americas | 18.8 | 14.7 | 12.8 | |||||||||
Americas | 125.4 | 136.6 | 127.3 | |||||||||
Italy | 280.4 | 321.5 | 325.2 | |||||||||
Other Europe, Middle East, Africa | 36.2 | 34.0 | 28.6 | |||||||||
Europe, Middle East, Africa | 316.6 | 355.5 | 353.8 | |||||||||
Asia Pacific | 35.8 | 37.5 | 36.6 | |||||||||
Total | $ | 477.8 | $ | 529.6 | $ | 517.7 |
Long-lived assets consist of Property, Plantproperty, plant and Equipment, Goodwill, Intangible Assetsequipment, goodwill, intangible assets and certain other assets. Long-lived assets locatedApart from the United States and Italy shown in Italy totaled $355,460 and $393,917, respectively, at December 31, 2018 and 2017, as a result of our acquisition of IPC Group. We did not have long-lived assets located
2018 | 2017 | 2016 | |||||||||
Net Sales: | |||||||||||
Equipment | $ | 729,993 | $ | 636,875 | $ | 491,075 | |||||
Parts and consumables | 222,345 | 202,452 | 173,632 | ||||||||
Service and other | 141,346 | 132,332 | 114,719 | ||||||||
Specialty surface coatings | 29,827 | 31,407 | 29,146 | ||||||||
Total | $ | 1,123,511 | $ | 1,003,066 | $ | 808,572 |
2018 | |||||||||||||||
Q1 | Q2 | Q3 | Q4 | ||||||||||||
Net Sales | $ | 272,847 | $ | 292,197 | $ | 273,255 | $ | 285,212 | |||||||
Gross Profit | 109,116 | (a) | 117,225 | (a) | 106,509 | (a) | 112,172 | ||||||||
Net Earnings Attributable to Tennant Company | 3,274 | 12,744 | 9,676 | 7,717 | |||||||||||
Basic Earnings Attributable to Tennant Company per Share | $ | 0.18 | $ | 0.71 | $ | 0.54 | $ | 0.43 | |||||||
Diluted Earnings Attributable to Tennant Company per Share | $ | 0.18 | $ | 0.69 | $ | 0.52 | $ | 0.42 |
2017 | ||||||||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||||||||
Net Sales | $ | 191,059 | $ | 270,791 | $ | 261,921 | $ | 279,295 | ||||||||
Gross Profit | 79,736 | 103,130 | (a) | 103,081 | (a) | 113,866 | (a) | |||||||||
Net (Loss) Earnings Attributable to Tennant Company | (3,957 | ) | (2,591 | ) | 3,559 | (3,206 | ) | |||||||||
Basic (Loss) Earnings Attributable to Tennant Company per Share | $ | (0.22 | ) | $ | (0.15 | ) | $ | 0.20 | $ | (0.18 | ) | |||||
Diluted (Loss) Earnings Attributable to Tennant Company per Share | $ | (0.22 | ) | $ | (0.15 | ) | $ | 0.20 | $ | (0.18 | ) |
Condensed Consolidated Statement of Earnings | |||||||||||||||||||
For the year ended December 31, 2018 | |||||||||||||||||||
(in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
Net Sales | $ | 494,341 | $ | 634,341 | $ | 570,627 | $ | (575,798 | ) | $ | 1,123,511 | ||||||||
Cost of Sales | 336,398 | 533,800 | 383,010 | (574,730 | ) | 678,478 | |||||||||||||
Gross Profit | 157,943 | 100,541 | 187,617 | (1,068 | ) | 445,033 | |||||||||||||
Operating Expense: | |||||||||||||||||||
Research and Development Expense | 24,455 | 1,090 | 5,194 | — | 30,739 | ||||||||||||||
Selling and Administrative Expense | 116,528 | 76,623 | 161,911 | 1,254 | 356,316 | ||||||||||||||
Total Operating Expense | 140,983 | 77,713 | 167,105 | 1,254 | 387,055 | ||||||||||||||
Profit (Loss) from Operations | 16,960 | 22,828 | 20,512 | (2,322 | ) | 57,978 | |||||||||||||
Other Income (Expense): | |||||||||||||||||||
Equity in Earnings of Affiliates | 27,409 | 2,249 | 5,374 | (35,032 | ) | — | |||||||||||||
Interest (Expense) Income, Net | (20,466 | ) | — | 196 | (37 | ) | (20,307 | ) | |||||||||||
Intercompany Interest Income (Expense) | 14,597 | (5,760 | ) | (8,837 | ) | — | — | ||||||||||||
Net Foreign Currency Transaction Losses | (370 | ) | (21 | ) | (709 | ) | — | (1,100 | ) | ||||||||||
Other (Expense) Income, Net | (2,288 | ) | (2,434 | ) | 2,862 | 1,131 | (729 | ) | |||||||||||
Total Other Income (Expense), Net | 18,882 | (5,966 | ) | (1,114 | ) | (33,938 | ) | (22,136 | ) | ||||||||||
Profit (Loss) Before Income Taxes | 35,842 | 16,862 | 19,398 | (36,260 | ) | 35,842 | |||||||||||||
Income Tax Expense (Benefit) | 2,304 | 4,022 | 388 | (4,410 | ) | 2,304 | |||||||||||||
Net Earnings (Loss) Including Noncontrolling Interest | 33,538 | 12,840 | 19,010 | (31,850 | ) | 33,538 | |||||||||||||
Net Earnings Attributable to Noncontrolling Interest | 126 | — | 126 | (126 | ) | 126 | |||||||||||||
Net Earnings (Loss) Attributable to Tennant Company | $ | 33,412 | $ | 12,840 | $ | 18,884 | $ | (31,724 | ) | $ | 33,412 |
Condensed Consolidated Statement of Earnings | |||||||||||||||||||
For the year ended December 31, 2017 | |||||||||||||||||||
(in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
Net Sales | $ | 454,703 | $ | 594,405 | $ | 471,559 | $ | (517,601 | ) | $ | 1,003,066 | ||||||||
Cost of Sales | 311,897 | 488,972 | 321,759 | (519,375 | ) | 603,253 | |||||||||||||
Gross Profit | 142,806 | 105,433 | 149,800 | 1,774 | 399,813 | ||||||||||||||
Operating Expense: | |||||||||||||||||||
Research and Development Expense | 27,219 | 315 | 4,479 | — | 32,013 | ||||||||||||||
Selling and Administrative Expense | 110,414 | 78,516 | 145,852 | — | 334,782 | ||||||||||||||
Total Operating Expense | 137,633 | 78,831 | 150,331 | — | 366,795 | ||||||||||||||
Profit (Loss) from Operations | 5,173 | 26,602 | (531 | ) | 1,774 | 33,018 | |||||||||||||
Other Income (Expense): | |||||||||||||||||||
Equity in Earnings of Affiliates | 12,754 | 2,004 | 28,855 | (43,613 | ) | — | |||||||||||||
Interest Expense, Net | (22,659 | ) | — | (299 | ) | (31 | ) | (22,989 | ) | ||||||||||
Intercompany Interest Income (Expense) | 12,519 | (5,776 | ) | (6,743 | ) | — | — | ||||||||||||
Net Foreign Currency Transaction Gains (Losses) | 857 | — | (4,244 | ) | — | (3,387 | ) | ||||||||||||
Other (Expense) Income, Net | (9,936 | ) | (736 | ) | 2,841 | (103 | ) | (7,934 | ) | ||||||||||
Total Other (Expense) Income, Net | (6,465 | ) | (4,508 | ) | 20,410 | (43,747 | ) | (34,310 | ) | ||||||||||
(Loss) Profit Before Income Taxes | (1,292 | ) | 22,094 | 19,879 | (41,973 | ) | (1,292 | ) | |||||||||||
Income Tax Expense (Benefit) | 4,913 | 8,070 | (98 | ) | (7,972 | ) | 4,913 | ||||||||||||
Net (Loss) Earnings Including Noncontrolling Interest | $ | (6,205 | ) | $ | 14,024 | $ | 19,977 | $ | (34,001 | ) | $ | (6,205 | ) | ||||||
Net Loss Attributable to Noncontrolling Interest | $ | (10 | ) | $ | — | $ | (10 | ) | $ | 10 | $ | (10 | ) | ||||||
Net (Loss) Earnings Attributable to Tennant Company | $ | (6,195 | ) | $ | 14,024 | $ | 19,987 | $ | (34,011 | ) | $ | (6,195 | ) |
Condensed Consolidated Statement of Earnings | |||||||||||||||||||
For the year ended December 31, 2016 | |||||||||||||||||||
(in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
Net Sales | $ | 455,375 | $ | 587,815 | $ | 290,349 | $ | (524,967 | ) | $ | 808,572 | ||||||||
Cost of Sales | 299,459 | 483,075 | 199,336 | (524,893 | ) | 456,977 | |||||||||||||
Gross Profit | 155,916 | 104,740 | 91,013 | (74 | ) | 351,595 | |||||||||||||
Operating Expense: | |||||||||||||||||||
Research and Development Expense | 32,378 | 429 | 1,931 | — | 34,738 | ||||||||||||||
Selling and Administrative Expense | 95,340 | 74,643 | 78,609 | — | 248,592 | ||||||||||||||
Total Operating Expense | 127,718 | 75,072 | 80,540 | — | 283,330 | ||||||||||||||
Profit from Operations | 28,198 | 29,668 | 10,473 | (74 | ) | 68,265 | |||||||||||||
Other Income (Expense): | |||||||||||||||||||
Equity in Earnings of Affiliates | 34,068 | 2,192 | — | (36,260 | ) | — | |||||||||||||
Interest (Expense) Income, Net | (1,204 | ) | — | 255 | — | (949 | ) | ||||||||||||
Intercompany Interest Income (Expense) | 7,157 | (5,570 | ) | (1,587 | ) | — | — | ||||||||||||
Net Foreign Currency Transaction Gains (Losses) | 648 | (652 | ) | (388 | ) | — | (392 | ) | |||||||||||
Other (Expense) Income, Net | (2,376 | ) | (573 | ) | 2,516 | — | (433 | ) | |||||||||||
Total Other Income (Expense), Net | 38,293 | (4,603 | ) | 796 | (36,260 | ) | (1,774 | ) | |||||||||||
Profit Before Income Taxes | 66,491 | 25,065 | 11,269 | (36,334 | ) | 66,491 | |||||||||||||
Income Tax Expense | 19,877 | 9,443 | 2,427 | (11,870 | ) | 19,877 | |||||||||||||
Net Earnings (Loss) Attributable to Tennant Company | $ | 46,614 | $ | 15,622 | $ | 8,842 | $ | (24,464 | ) | $ | 46,614 |
Condensed Consolidated Statement of Comprehensive Income | |||||||||||||||||||
For the year ended December 31, 2018 | |||||||||||||||||||
(in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
Net Earnings (Loss) Including Noncontrolling Interest | $ | 33,538 | $ | 12,840 | $ | 19,010 | $ | (31,850 | ) | $ | 33,538 | ||||||||
Other Comprehensive Income (Loss): | |||||||||||||||||||
Foreign currency translation adjustments | (16,221 | ) | (961 | ) | (21,422 | ) | 22,383 | (16,221 | ) | ||||||||||
Pension and retiree medical benefits | 1,745 | — | 1,197 | (1,197 | ) | 1,745 | |||||||||||||
Cash flow hedge | 1,341 | — | — | — | 1,341 | ||||||||||||||
Income Taxes: | |||||||||||||||||||
Foreign currency translation adjustments | 168 | — | 168 | (168 | ) | 168 | |||||||||||||
Pension and retiree medical benefits | (467 | ) | — | (205 | ) | 205 | (467 | ) | |||||||||||
Cash flow hedge | (1,437 | ) | — | — | — | (1,437 | ) | ||||||||||||
Total Other Comprehensive (Loss) Income, net of tax | (14,871 | ) | (961 | ) | (20,262 | ) | 21,223 | (14,871 | ) | ||||||||||
Total Comprehensive Income (Loss) Including Noncontrolling Interest | 18,667 | 11,879 | (1,252 | ) | (10,627 | ) | 18,667 | ||||||||||||
Comprehensive Income Attributable to Noncontrolling Interest | 126 | — | 126 | (126 | ) | 126 | |||||||||||||
Comprehensive Income (Loss) Attributable to Tennant Company | $ | 18,541 | $ | 11,879 | $ | (1,378 | ) | $ | (10,501 | ) | $ | 18,541 |
Condensed Consolidated Statement of Comprehensive Income | |||||||||||||||||||
For the year ended December 31, 2017 | |||||||||||||||||||
(in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
Net (Loss) Earnings | $ | (6,205 | ) | $ | 14,024 | $ | 19,977 | $ | (34,001 | ) | $ | (6,205 | ) | ||||||
Other Comprehensive Income (Loss): | |||||||||||||||||||
Foreign currency translation adjustments | 28,356 | 1,215 | 2,960 | (4,175 | ) | 28,356 | |||||||||||||
Pension and retiree medical benefits | 5,868 | — | 538 | (538 | ) | 5,868 | |||||||||||||
Cash flow hedge | (7,731 | ) | — | — | — | (7,731 | ) | ||||||||||||
Income Taxes: | |||||||||||||||||||
Foreign currency translation adjustments | 310 | — | 310 | (310 | ) | 310 | |||||||||||||
Pension and retiree medical benefits | (2,087 | ) | — | (99 | ) | 99 | (2,087 | ) | |||||||||||
Cash flow hedge | 2,884 | — | — | — | 2,884 | ||||||||||||||
Total Other Comprehensive Income (Loss), net of tax | 27,600 | 1,215 | 3,709 | (4,924 | ) | 27,600 | |||||||||||||
Total Comprehensive Income Including Noncontrolling Interest | 21,395 | 15,239 | 23,686 | (38,925 | ) | 21,395 | |||||||||||||
Comprehensive Loss Attributable to Noncontrolling Interest | (10 | ) | — | (10 | ) | 10 | (10 | ) | |||||||||||
Comprehensive Income | $ | 21,405 | $ | 15,239 | $ | 23,696 | $ | (38,935 | ) | $ | 21,405 |
Condensed Consolidated Statement of Comprehensive Income | |||||||||||||||||||
For the year ended December 31, 2016 | |||||||||||||||||||
(in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
Net Earnings | $ | 46,614 | $ | 15,622 | $ | 8,842 | $ | (24,464 | ) | $ | 46,614 | ||||||||
Other Comprehensive (Loss) Income: | |||||||||||||||||||
Foreign currency translation adjustments | 109 | 270 | 3,534 | (3,804 | ) | 109 | |||||||||||||
Pension and retiree medical benefits | (2,248 | ) | — | (1,691 | ) | 1,691 | (2,248 | ) | |||||||||||
Cash flow hedge | (305 | ) | — | — | — | (305 | ) | ||||||||||||
Income Taxes: | |||||||||||||||||||
Foreign currency translation adjustments | 32 | — | 32 | (32 | ) | 32 | |||||||||||||
Pension and retiree medical benefits | 504 | — | 296 | (296 | ) | 504 | |||||||||||||
Cash flow hedge | 114 | — | — | — | 114 | ||||||||||||||
Total Other Comprehensive (Loss) Earnings, net of tax | (1,794 | ) | 270 | 2,171 | (2,441 | ) | (1,794 | ) | |||||||||||
Comprehensive Income (Loss) | $ | 44,820 | $ | 15,892 | $ | 11,013 | $ | (26,905 | ) | $ | 44,820 |
Condensed Consolidated Balance Sheet | |||||||||||||||||||
As of December 31, 2018 | |||||||||||||||||||
(in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
ASSETS | |||||||||||||||||||
Current Assets: | |||||||||||||||||||
Cash and Cash Equivalents | $ | 24,779 | $ | 1,610 | $ | 59,220 | $ | — | $ | 85,609 | |||||||||
Restricted Cash | — | — | 525 | — | 525 | ||||||||||||||
Net Receivables | 866 | 94,763 | 120,541 | — | 216,170 | ||||||||||||||
Intercompany Receivables | 29,976 | 148,961 | — | (178,937 | ) | — | |||||||||||||
Inventories | 37,154 | 13,381 | 94,680 | (10,082 | ) | 135,133 | |||||||||||||
Prepaid Expenses | 12,565 | 782 | 9,282 | (488 | ) | 22,141 | |||||||||||||
Other Current Assets | 4,935 | 396 | 3,735 | — | 9,066 | ||||||||||||||
Total Current Assets | 110,275 | 259,893 | 287,983 | (189,507 | ) | 468,644 | |||||||||||||
Property, Plant and Equipment | 229,826 | 12,677 | 144,138 | — | 386,641 | ||||||||||||||
Accumulated Depreciation | (159,344 | ) | (6,913 | ) | (56,937 | ) | — | (223,194 | ) | ||||||||||
Property, Plant and Equipment, Net | 70,482 | 5,764 | 87,201 | — | 163,447 | ||||||||||||||
Deferred Income Taxes | 4,035 | 3,072 | 8,382 | — | 15,489 | ||||||||||||||
Investment in Affiliates | 420,897 | 12,142 | 20,768 | (453,807 | ) | — | |||||||||||||
Intercompany Loans | 301,555 | — | 3,205 | (304,760 | ) | — | |||||||||||||
Goodwill | 12,870 | 1,726 | 168,075 | — | 182,671 | ||||||||||||||
Intangible Assets, Net | 4,012 | 2,684 | 139,850 | — | 146,546 | ||||||||||||||
Other Assets | 6,987 | (2 | ) | 8,762 | — | 15,747 | |||||||||||||
Total Assets | $ | 931,113 | $ | 285,279 | $ | 724,226 | $ | (948,074 | ) | $ | 992,544 | ||||||||
LIABILITIES AND TOTAL EQUITY | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||
Current Portion of Long-Term Debt | $ | 21,816 | $ | — | $ | 5,189 | $ | — | $ | 27,005 | |||||||||
Accounts Payable | 40,991 | 4,982 | 52,425 | — | 98,398 | ||||||||||||||
Intercompany Payables | 149,460 | — | 29,477 | (178,937 | ) | — | |||||||||||||
Employee Compensation and Benefits | 13,947 | 16,890 | 18,616 | — | 49,453 | ||||||||||||||
Income Taxes Payable | 806 | — | 1,984 | (667 | ) | 2,123 | |||||||||||||
Other Current Liabilities | 22,387 | 17,939 | 31,390 | 179 | 71,895 | ||||||||||||||
Total Current Liabilities | 249,407 | 39,811 | 139,081 | (179,425 | ) | 248,874 | |||||||||||||
Long-Term Liabilities: | |||||||||||||||||||
Long-Term Debt | 326,460 | — | 1,600 | — | 328,060 | ||||||||||||||
Intercompany Loans | 3,205 | 128,000 | 173,555 | (304,760 | ) | — | |||||||||||||
Employee-Related Benefits | 11,041 | 2,015 | 8,054 | — | 21,110 | ||||||||||||||
Deferred Income Taxes | — | — | 46,018 | — | 46,018 | ||||||||||||||
Other Liabilities | 24,648 | 2,899 | 4,583 | — | 32,130 | ||||||||||||||
Total Long-Term Liabilities | 365,354 | 132,914 | 233,810 | (304,760 | ) | 427,318 | |||||||||||||
Total Liabilities | 614,761 | 172,725 | 372,891 | (484,185 | ) | 676,192 | |||||||||||||
Equity: | |||||||||||||||||||
Common Stock | 6,797 | — | 11,131 | (11,131 | ) | 6,797 | |||||||||||||
Additional Paid-In Capital | 28,550 | 77,551 | 399,459 | (477,010 | ) | 28,550 | |||||||||||||
Retained Earnings | 316,269 | 36,633 | (2,532 | ) | (34,101 | ) | 316,269 | ||||||||||||
Accumulated Other Comprehensive Loss | (37,194 | ) | (1,630 | ) | (58,653 | ) | 60,283 | (37,194 | ) | ||||||||||
Total Tennant Company Shareholders’ Equity | 314,422 | 112,554 | 349,405 | (461,959 | ) | 314,422 | |||||||||||||
Noncontrolling Interest | 1,930 | — | 1,930 | (1,930 | ) | 1,930 | |||||||||||||
Total Equity | 316,352 | 112,554 | 351,335 | (463,889 | ) | 316,352 | |||||||||||||
Total Liabilities and Total Equity | $ | 931,113 | $ | 285,279 | $ | 724,226 | $ | (948,074 | ) | $ | 992,544 |
Condensed Consolidated Balance Sheet | |||||||||||||||||||
As of December 31, 2017 | |||||||||||||||||||
(in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
ASSETS | |||||||||||||||||||
Current Assets: | |||||||||||||||||||
Cash and Cash Equivalents | $ | 18,469 | $ | 507 | $ | 39,422 | $ | — | $ | 58,398 | |||||||||
Restricted Cash | — | — | 653 | — | 653 | ||||||||||||||
Net Receivables | 683 | 88,629 | 120,204 | — | 209,516 | ||||||||||||||
Intercompany Receivables | 53,444 | 133,778 | — | (187,222 | ) | — | |||||||||||||
Inventories | 29,450 | 12,695 | 94,542 | (8,993 | ) | 127,694 | |||||||||||||
Prepaid Expenses | 8,774 | 1,172 | 9,405 | — | 19,351 | ||||||||||||||
Other Current Assets | 4,030 | — | 3,473 | — | 7,503 | ||||||||||||||
Total Current Assets | 114,850 | 236,781 | 267,699 | (196,215 | ) | 423,115 | |||||||||||||
Property, Plant and Equipment | 225,064 | 12,155 | 145,549 | — | 382,768 | ||||||||||||||
Accumulated Depreciation | (146,320 | ) | (6,333 | ) | (50,097 | ) | — | (202,750 | ) | ||||||||||
Property, Plant and Equipment, Net | 78,744 | 5,822 | 95,452 | — | 180,018 | ||||||||||||||
Deferred Income Taxes | 1,308 | 2,669 | 7,157 | — | 11,134 | ||||||||||||||
Investment in Affiliates | 392,486 | 11,273 | 20,811 | (424,570 | ) | — | |||||||||||||
Intercompany Loans | 304,822 | — | 4,983 | (309,805 | ) | — | |||||||||||||
Goodwill | 12,869 | 1,739 | 171,436 | — | 186,044 | ||||||||||||||
Intangible Assets, Net | 2,105 | 2,898 | 167,344 | — | 172,347 | ||||||||||||||
Other Assets | 10,363 | — | 10,956 | — | 21,319 | ||||||||||||||
Total Assets | $ | 917,547 | $ | 261,182 | $ | 745,838 | $ | (930,590 | ) | $ | 993,977 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||
Current Portion of Long-Term Debt | $ | 29,413 | $ | — | $ | 1,470 | $ | — | $ | 30,883 | |||||||||
Accounts Payable | 39,927 | 3,018 | 53,137 | — | 96,082 | ||||||||||||||
Intercompany Payables | 133,778 | 1,963 | 51,481 | (187,222 | ) | — | |||||||||||||
Employee Compensation and Benefits | 8,311 | 10,355 | 18,591 | — | 37,257 | ||||||||||||||
Income Taxes Payable | 366 | — | 2,472 | — | 2,838 | ||||||||||||||
Other Current Liabilities | 20,183 | 15,760 | 33,504 | — | 69,447 | ||||||||||||||
Total Current Liabilities | 231,978 | 31,096 | 160,655 | (187,222 | ) | 236,507 | |||||||||||||
Long-Term Liabilities: | |||||||||||||||||||
Long-Term Debt | 344,147 | — | 1,809 | — | 345,956 | ||||||||||||||
Intercompany Loans | — | 128,000 | 181,805 | (309,805 | ) | — | |||||||||||||
Employee-Related Benefits | 11,160 | 3,992 | 8,715 | — | 23,867 | ||||||||||||||
Deferred Income Taxes | — | — | 53,225 | — | 53,225 | ||||||||||||||
Other Liabilities | 31,788 | 2,483 | 1,677 | — | 35,948 | ||||||||||||||
Total Long-Term Liabilities | 387,095 | 134,475 | 247,231 | (309,805 | ) | 458,996 | |||||||||||||
Total Liabilities | 619,073 | 165,571 | 407,886 | (497,027 | ) | 695,503 | |||||||||||||
Shareholders' Equity: | |||||||||||||||||||
Common Stock | 6,705 | — | 11,131 | (11,131 | ) | 6,705 | |||||||||||||
Additional Paid-In Capital | 15,089 | 72,483 | 384,460 | (456,943 | ) | 15,089 | |||||||||||||
Retained Earnings | 297,032 | 23,797 | (21,219 | ) | (2,578 | ) | 297,032 | ||||||||||||
Accumulated Other Comprehensive Loss | (22,323 | ) | (669 | ) | (38,391 | ) | 39,060 | (22,323 | ) | ||||||||||
Total Tennant Company Shareholders’ Equity | 296,503 | 95,611 | 335,981 | (431,592 | ) | 296,503 | |||||||||||||
Noncontrolling Interest | 1,971 | — | 1,971 | (1,971 | ) | 1,971 | |||||||||||||
Total Equity | 298,474 | 95,611 | 337,952 | (433,563 | ) | 298,474 | |||||||||||||
Total Liabilities and Total Equity | $ | 917,547 | $ | 261,182 | $ | 745,838 | $ | (930,590 | ) | $ | 993,977 |
Condensed Consolidated Statement of Cash Flows | |||||||||||||||||||
For the year ended December 31, 2018 | |||||||||||||||||||
(in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
OPERATING ACTIVITIES | |||||||||||||||||||
Net Cash Provided by Operating Activities | $ | 68,082 | $ | 1,202 | $ | 10,888 | $ | (202 | ) | $ | 79,970 | ||||||||
INVESTING ACTIVITIES | |||||||||||||||||||
Purchases of Property, Plant and Equipment | (6,832 | ) | (99 | ) | (11,849 | ) | — | (18,780 | ) | ||||||||||
Proceeds from Disposals of Property, Plant and Equipment | 21 | — | 91 | — | 112 | ||||||||||||||
Proceeds from Principal Payments Received on Long-Term Note Receivable | — | — | 1,416 | — | 1,416 | ||||||||||||||
Proceeds from Sale of Business | — | — | 4,000 | — | 4,000 | ||||||||||||||
Purchases of Intangible Asset | (2,500 | ) | — | (275 | ) | — | (2,775 | ) | |||||||||||
Change in Investments in Subsidiaries | (15,622 | ) | — | — | 15,622 | — | |||||||||||||
Loan Payments Received by Parent from Subsidiary | 1,218 | — | — | (1,218 | ) | — | |||||||||||||
Loan Payments Received by Subsidiary from Parent | — | — | 1,778 | (1,778 | ) | — | |||||||||||||
Net Cash Used in Investing Activities | (23,715 | ) | (99 | ) | (4,839 | ) | 12,626 | (16,027 | ) | ||||||||||
FINANCING ACTIVITIES | |||||||||||||||||||
Proceeds from Short-Term Debt | — | — | 3,926 | — | 3,926 | ||||||||||||||
Loan Repayments made to Parent from Subsidiary | — | — | (1,218 | ) | 1,218 | — | |||||||||||||
Loan Repayments made to Subsidiary from Parent | (1,778 | ) | — | — | 1,778 | — | |||||||||||||
Change in Subsidiary Equity | — | — | 15,622 | (15,622 | ) | — | |||||||||||||
Proceeds from Issuance of Long-Term Debt | 11,000 | — | — | — | 11,000 | ||||||||||||||
Payments of Long-Term Debt | (38,000 | ) | — | (255 | ) | — | (38,255 | ) | |||||||||||
Change in Capital Lease Obligations | — | — | 14 | — | 14 | ||||||||||||||
Proceeds from Issuances of Common Stock | 5,880 | — | — | — | 5,880 | ||||||||||||||
Dividends Paid | (15,343 | ) | — | (202 | ) | 202 | (15,343 | ) | |||||||||||
Net Cash (Used in) Provided by Financing Activities | (38,241 | ) | — | 17,887 | (12,424 | ) | (32,778 | ) | |||||||||||
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | 184 | — | (4,266 | ) | — | (4,082 | ) | ||||||||||||
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 6,310 | 1,103 | 19,670 | — | 27,083 | ||||||||||||||
Cash, Cash Equivalents and Restricted Cash at Beginning of Year | 18,469 | 507 | 40,075 | — | 59,051 | ||||||||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR | $ | 24,779 | $ | 1,610 | $ | 59,745 | $ | — | $ | 86,134 |
Condensed Consolidated Statement of Cash Flows | |||||||||||||||||||
For the year ended December 31, 2017 | |||||||||||||||||||
(in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
OPERATING ACTIVITIES | |||||||||||||||||||
Net Cash Provided by Operating Activities | $ | 26,992 | $ | 280 | $ | 27,711 | $ | (809 | ) | $ | 54,174 | ||||||||
INVESTING ACTIVITIES | |||||||||||||||||||
Purchases of Property, Plant and Equipment | (9,558 | ) | — | (10,879 | ) | — | (20,437 | ) | |||||||||||
Proceeds from Disposals of Property, Plant and Equipment | 23 | 1 | 2,487 | — | 2,511 | ||||||||||||||
Proceeds from Principal Payments received on Long-Term Note Receivable | — | — | 667 | — | 667 | ||||||||||||||
Acquisition of Businesses, Net of Cash Acquired | (304 | ) | — | (353,769 | ) | — | (354,073 | ) | |||||||||||
Issuance of Long-Term Note Receivable | — | — | (1,500 | ) | — | (1,500 | ) | ||||||||||||
Purchase of Intangible Asset | (2,500 | ) | — | — | — | (2,500 | ) | ||||||||||||
Change in Investments in Subsidiaries | (199,028 | ) | — | — | 199,028 | — | |||||||||||||
Loan Borrowings (Payments) from Subsidiaries | (159,780 | ) | — | (4,983 | ) | 164,763 | — | ||||||||||||
Net Cash (Used in) Provided by Investing Activities | (371,147 | ) | 1 | (367,977 | ) | 363,791 | (375,332 | ) | |||||||||||
FINANCING ACTIVITIES | |||||||||||||||||||
Proceeds from Short-Term Debt | 303,000 | — | — | — | 303,000 | ||||||||||||||
Repayments of Short-Term Debt | (303,000 | ) | — | — | — | (303,000 | ) | ||||||||||||
Loan Borrowings (Payments) from Parent | 4,983 | — | 159,780 | (164,763 | ) | — | |||||||||||||
Change in Subsidiary Equity | — | — | 199,028 | (199,028 | ) | — | |||||||||||||
Payments of Long-Term Debt | (96,142 | ) | — | (106 | ) | — | (96,248 | ) | |||||||||||
Proceeds from Issuance of Long-Term Debt | 440,000 | — | — | — | 440,000 | ||||||||||||||
Payments of Debt Issuance Costs | (16,482 | ) | — | — | — | (16,482 | ) | ||||||||||||
Change in Capital Lease Obligations | — | — | 311 | — | 311 | ||||||||||||||
Proceeds from Issuances of Common Stock | 6,875 | — | — | — | 6,875 | ||||||||||||||
Purchase of Noncontrolling Owner Interest | — | — | (30 | ) | — | (30 | ) | ||||||||||||
Dividends Paid | (14,953 | ) | — | (809 | ) | 809 | (14,953 | ) | |||||||||||
Net Cash Provided by Financing Activities | 324,281 | — | 358,174 | (362,982 | ) | 319,473 | |||||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (141 | ) | — | 2,327 | — | 2,186 | |||||||||||||
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (20,015 | ) | 281 | 20,235 | — | 501 | |||||||||||||
Cash, Cash Equivalents and Restricted Cash at Beginning of Year | 38,484 | 226 | 19,840 | — | 58,550 | ||||||||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR | $ | 18,469 | $ | 507 | $ | 40,075 | $ | — | $ | 59,051 |
Condensed Consolidated Statement of Cash Flows | |||||||||||||||||||
For the year ended December 31, 2016 | |||||||||||||||||||
(in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
OPERATING ACTIVITIES | |||||||||||||||||||
Net Cash Provided by Operating Activities | $ | 44,147 | $ | 239 | $ | 14,090 | $ | (598 | ) | $ | 57,878 | ||||||||
INVESTING ACTIVITIES | |||||||||||||||||||
Purchases of Property, Plant and Equipment | (21,507 | ) | (13 | ) | (5,006 | ) | — | (26,526 | ) | ||||||||||
Proceeds from Disposals of Property, Plant and Equipment | 377 | — | 238 | — | 615 | ||||||||||||||
Acquisition of Businesses, Net of Cash Acquired | — | (11,539 | ) | (1,394 | ) | — | (12,933 | ) | |||||||||||
Issuance of Long-Term Note Receivable | — | — | (2,000 | ) | — | (2,000 | ) | ||||||||||||
Loan Borrowings (Payments) from Subsidiaries | 8,690 | — | — | (8,690 | ) | — | |||||||||||||
Proceeds from Sale of Business | — | — | 285 | — | 285 | ||||||||||||||
Change in Investments in Subsidiaries | (19,594 | ) | — | — | 19,594 | — | |||||||||||||
Net Cash Used in Investing Activities | (32,034 | ) | (11,552 | ) | (7,877 | ) | 10,904 | (40,559 | ) | ||||||||||
FINANCING ACTIVITIES | |||||||||||||||||||
Loan (Payments) Borrowings from Parent | — | 7,969 | (16,659 | ) | 8,690 | — | |||||||||||||
Change in Subsidiary Entity | — | 3,570 | 16,024 | (19,594 | ) | — | |||||||||||||
Payments of Long-Term Debt | (3,429 | ) | — | (31 | ) | — | (3,460 | ) | |||||||||||
Proceeds from Issuance of Long-Term Debt | 15,000 | — | — | — | 15,000 | ||||||||||||||
Purchases of Common Stock | (12,762 | ) | — | — | — | (12,762 | ) | ||||||||||||
Proceeds from Issuances of Common Stock | 5,271 | — | — | — | 5,271 | ||||||||||||||
Excess Tax Benefit on Stock Plans | 686 | — | — | — | 686 | ||||||||||||||
Dividends Paid | (14,293 | ) | — | (598 | ) | 598 | (14,293 | ) | |||||||||||
Net Cash (Used in) Provided by Financing Activities | (9,527 | ) | 11,539 | (1,264 | ) | (10,306 | ) | (9,558 | ) | ||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 63 | — | (1,213 | ) | — | (1,150 | ) | ||||||||||||
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 2,649 | 226 | 3,736 | — | 6,611 | ||||||||||||||
Cash, Cash Equivalents and Restricted Cash at Beginning of Year | 35,835 | — | 16,104 | — | 51,939 | ||||||||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR | $ | 38,484 | $ | 226 | $ | 19,840 | $ | — | $ | 58,550 |
None.
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and PrincipalChief Financial Officer and Principal Accounting Officer, have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of December 31, 2018.2021. Based on that evaluation, our Chief Executive Officer and PrincipalChief Financial Officer and Principal Accounting Officer concluded that, as of December 31, 2018,2021, our disclosure controls and procedures were effective.
For purposes of Rule 13a-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its Chief Executive Officer and PrincipalChief Financial Officer and Principal Accounting Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act.
The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that:
(i) | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; |
(ii) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
(iii) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Under the supervision of the Audit Committee of the Board of Directors and with the participation of our management, including our Chief Executive Officer and PrincipalChief Financial Officer and Principal Accounting Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria established in
Deloitte & Touche LLP, anour independent registered public accounting firm, has audited the effectiveness of the Company's internal control over financial reporting as of December 31, 20182021 and has issued a report which is included in Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no significant changes in the Company's internal control over financial reporting during the quarter ended December 31, 20182021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
None.
ITEM 9C – Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Information required under this item with respect to directors is contained in the sections entitled “Board of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” as part of our 20192022 Proxy Statement and is incorporated herein by reference. See also
Business Ethics Guide
We have adopted the Tennant Company Business Ethics Guide, which applies to all of our employees, directors, consultants, agents and anyone else acting on our behalf. The Business Ethics Guide includes particular provisions applicable to our senior financial management, which includes our Chief Executive Officer, Chief Financial Officer, Controller and other employees performing similar functions. A copy of our Business Ethics Guide is available on the Investor Relations website at investors.tennantco.com. We intend to post on our website any amendment to, or waiver from, a provision of our Business Ethics Guide that applies to our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, Controller and other persons performing similar functions promptly following the date of such amendment or waiver. In addition, we have also posted copies of our Corporate Governance Principles and the Charters for our Audit, Compensation, Governance and Executive Committees on our website.
Information required under this item is contained in the sections entitled “Director Compensation," “Executive Compensation Information,” and "Pay Ratio" as part of our 20192022 Proxy Statement and is incorporated herein by reference.
Information required under this item is contained in the sectionsections entitled “Security Ownership of Certain Beneficial Owners and Management” and "Equity Compensation Plan Information" as part of our 20192022 Proxy Statement and isare incorporated herein by reference. The section entitled "Equity Compensation Plan Information" can be found within Item 5,
Information required under this item is contained in the sections entitled “Director Independence” and “Related-Person Transaction Approval Policy” as part of our 20192022 Proxy Statement and is incorporated herein by reference.
Information required under this item is contained in the section entitled “Fees Paid to Independent Registered Public Accounting Firm” as part of our 20192022 Proxy Statement and is incorporated herein by reference.
A. | The following documents are filed as a part of this report: |
1. | Financial Statements |
Consolidated financial statements and related notes, together with the reports of Deloitte & Touche LLP, Independent Registered Public Accounting Firm (PCAOB ID No. 34) and KPMG LLP, Independent Registered Public Accounting Firm (PCAOB ID No. 185), appear in Part II Item 8. Financial Statements filed as partand Supplementary Data of this report are contained in Item 8 of this annual report on Form 10-K.
2. | Financial Statement Schedule |
Schedule II - Valuation and Qualifying Accounts
(In thousands) | 2018 | 2017 | 2016 | |||||||||
Allowance for Doubtful Accounts: | ||||||||||||
Balance at beginning of year | $ | 2,428 | $ | 2,570 | $ | 2,929 | ||||||
Charged to costs and expenses | 375 | 1,183 | 649 | |||||||||
Reclassification(1) | 772 | (526 | ) | — | ||||||||
Charged to other accounts(2) | (222 | ) | 80 | (4 | ) | |||||||
Deductions(3) | (837 | ) | (879 | ) | (1,004 | ) | ||||||
Balance at end of year | $ | 2,516 | $ | 2,428 | $ | 2,570 | ||||||
Sales Returns Reserve: | ||||||||||||
Balance at beginning of year | $ | 813 | $ | 538 | (5) | $ | 686 | (5) | ||||
Charged to costs and expenses | 688 | 419 | (5) | (88 | ) | (5) | ||||||
Charged to other accounts(2) | 10 | 31 | (5) | (15 | ) | (5) | ||||||
Deductions(3) | (198 | ) | (175 | ) | (5) | (45 | ) | (5) | ||||
Balance at end of year | $ | 1,313 | $ | 813 | (5) | $ | 538 | (5) | ||||
Inventory Reserves: | ||||||||||||
Balance at beginning of year | $ | 4,107 | $ | 3,644 | $ | 3,540 | ||||||
Charged to costs and expenses | 1,916 | 1,698 | 1,455 | |||||||||
Charged to other accounts(2) | (139 | ) | 183 | (50 | ) | |||||||
Deductions(4) | (246 | ) | (1,418 | ) | (1,301 | ) | ||||||
Balance at end of year | $ | 5,638 | $ | 4,107 | $ | 3,644 | ||||||
Valuation Allowance for Deferred Tax Assets: | ||||||||||||
Balance at beginning of year | $ | 9,691 | $ | 6,865 | $ | 5,884 | ||||||
Charged to costs and expenses | 2,373 | 1,634 | 1,295 | |||||||||
Charged to other accounts(2) | (545 | ) | 1,192 | (314 | ) | |||||||
Balance at end of year | $ | 11,519 | $ | 9,691 | $ | 6,865 |
(In millions) | 2021 | 2020 | 2019 | |||||||||
Allowance for doubtful accounts: | ||||||||||||
Balance at beginning of year | $ | 4.6 | $ | 3.6 | $ | 2.5 | ||||||
Charged to costs and expenses | 1.5 | 2.2 | 2.5 | |||||||||
Reclassification(a) | 0 | 0 | 0.5 | |||||||||
Charged to other accounts(b) | 0.3 | 0 | 0 | |||||||||
Deductions(c) | (1.1 | ) | (1.2 | ) | (1.9 | ) | ||||||
Balance at end of year | $ | 5.3 | $ | 4.6 | $ | 3.6 | ||||||
Sales returns reserve: | ||||||||||||
Balance at beginning of year | $ | 1.0 | $ | 1.2 | $ | 1.3 | ||||||
Charged to costs and expenses | 0.1 | 0.2 | 0.1 | |||||||||
Deductions(c) | (0.1 | ) | (0.4 | ) | (0.2 | ) | ||||||
Balance at end of year | $ | 1.0 | $ | 1.0 | $ | 1.2 | ||||||
Allowance for excess and obsolete inventories: | ||||||||||||
Balance at beginning of year | $ | 13.6 | $ | 9.8 | $ | 5.6 | ||||||
Charged to costs and expenses | 1.7 | 4.4 | 4.6 | |||||||||
Charged to other accounts(b) | (0.3 | ) | 0.2 | 0 | ||||||||
Deductions(d) | (0.7 | ) | (0.8 | ) | (0.4 | ) | ||||||
Balance at end of year | $ | 14.3 | $ | 13.6 | $ | 9.8 | ||||||
Valuation allowance for deferred tax assets: | ||||||||||||
Balance at beginning of year | $ | 7.5 | $ | 6.2 | $ | 11.5 | ||||||
Charged to costs and expenses | (2.6 | ) | 0.9 | (5.2 | ) | |||||||
Charged to other accounts(b) | (0.1 | ) | 0.4 | (0.1 | ) | |||||||
Balance at end of year | $ | 4.8 | $ | 7.5 | $ | 6.2 | ||||||
Warranty reserve: | ||||||||||||
Balance at beginning of year | $ | 11.1 | $ | 12.7 | $ | 13.1 | ||||||
Charged to costs and expenses | 8.5 | 11.9 | 11.1 | |||||||||
Charged to other accounts(b) | (0.2 | ) | 0.1 | 0 | ||||||||
Deductions(e) | (9.0 | ) | (13.6 | ) | (11.5 | ) | ||||||
Balance at end of year | $ | 10.4 | $ | 11.1 | $ | 12.7 |
| Includes amount reclassified between |
| Primarily includes impact from foreign currency fluctuations. |
| Includes accounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves. |
| Includes inventory identified as excess, slow moving or obsolete and charged against reserves. |
Includes warranty claims charged against reserves. |
All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statementsconsolidated financial statements or notes thereto.
3. | Exhibits |
Item # | Description | Method of Filing | ||
3.1 | ||||
Incorporated by reference to Exhibit 3i to the Company’s Form 10-Q for the quarter ended June 30, 2006. | ||||
3.2 | Incorporated by reference to Exhibit 3iii to the Company’s Current Report on Form 8-K dated December 14, 2010. | |||
3.3 | Incorporated by reference to Exhibit 3iii to the Company's Form 10-Q for the quarter ended March 31, 2018. | |||
4.1 | Incorporated by reference to Exhibit 4.1 to the Company's | |||
10.1 | ||||
Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2012. | ||||
10.2 | Incorporated by reference to Exhibit 10.3 to the Company's Form 10-K for the year ended December 31, 2011. | |||
10.3 | Filed herewith electronically. | |||
10.4 | Incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q for the quarter ended June 30, 2004. | |||
10.5 | Incorporated by reference to Appendix A to the Company’s Proxy Statement for the 2006 Annual Meeting of Shareholders filed on March 15, 2006. | |||
10.6 | Incorporated by reference to Appendix A to the Company’s Proxy Statement for the 2007 Annual Meeting of Shareholders filed on March 15, 2007. | |||
10.7 | Incorporated by reference to Exhibit 10.17 to the Company's Form 10-K for the year ended December 31, 2007. | |||
10.8 | ||||
Incorporated by reference to Appendix A to the Company's Proxy Statement for the 2013 Annual Meeting of Shareholders filed on March 11, 2013. | ||||
10.9 | ||||
Incorporated by reference to Appendix A on the Company's Proxy Statement for the 2017 Annual Meeting of Shareholders filed March 15, 2017. |
10.10 | Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q for the quarter ended June 30, 2017. | |||
10.11 | Incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q for the quarter ended June 30, 2017. | |||
10.12 | Incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q for the quarter ended June 30, 2017. | |||
10.13 | Incorporated by reference to Exhibit 10.6 to the Company's Form 10-Q for the quarter ended June 30, 2017. | |||
10.14 | Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2018. |
10.15 | Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 20, 2018. | |||
10.16 | Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed October 10, 2018. | |||
Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||||
10.18 | Tennant Company 2020 Stock Incentive Plan* | Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
10.19 | Form of Tennant Company 2020 Stock Incentive Plan Non-Statutory Stock Option Agreement* | Incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
10.20 | Form of Tennant Company 2020 Stock Incentive Plan Restricted Stock Agreement* | Incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
10.21 | Form of Tennant Company 2020 Stock Incentive Plan Restricted Stock Unit Agreement* | Incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
10.22 | Form of Tennant Company 2020 Stock Incentive Plan Non-Employee Director Restricted Stock Unit Agreement* | Incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
10.23 | Form of Tennant Company 2020 Stock Incentive Plan Performance Restricted Stock Unit Agreement* | Incorporated by reference to Exhibit 10.8 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
10.24 | Form of Tennant Company 2020 Stock Incentive Plan Special Performance Restricted Stock Unit Agreement* | Incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
10.25 | Transition Agreement with H. Chris Killingstad* | Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2021. | ||
10.26 | Amendment to Employment Agreement with David Huml* | Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2021. | ||
10.27 | Non-Statutory Stock Option Agreement (Inducement Grant), between Fay West and Tennant Company, dated May 7, 2021* | Incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed on May 10, 2021. | ||
10.28 | Restricted Stock Agreement (Inducement Grant), between Fay West and Tennant Company, dated May 7, 2021* | Incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8 filed on May 10, 2021. | ||
10.29 | Restricted Stock Unit Agreement (Performance Based Inducement Grant), between Fay West and Tennant Company, dated May7, 2021* | Incorporated by reference to Exhibit 99.3 to the Company’s Registration Statement on Form S-8 filed on May 10, 2021. | ||
10.30 | Restricted Stock Unit Agreement (Inducement Grant), between Fay West and Tennant Company, dated May 7, 2021* | Incorporated by reference to Exhibit 99.4 to the Company’s Registration Statement on Form S-8 filed on May 10, 2021. | ||
10.31 | Credit Agreement, dated April 15, 2021 | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 7, 2021. | ||
10.32 | Offer Letter with Fay West commencing April 15, 2021* | Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 2021. | ||
21 | Filed herewith electronically. | |||
23.1 | Consent of Deloitte & Touche LLP Independent Registered Public Accounting Firm | Filed herewith electronically. | ||
23.2 | Filed herewith electronically. | |||
24.1 | Included on signature page. | |||
31.1 | Filed herewith electronically. | |||
31.2 | Filed herewith electronically. | |||
32.1 | Filed herewith electronically. | |||
32.2 | Filed herewith electronically. | |||
101 | The following financial information from Tennant Company’s annual report on Form 10-K for the period ended December 31, | Filed herewith electronically. | ||
104 | Inline Extensible Business Reporting language (iXBRL) for the cover page of this Annual Report on Form 10-K, included in Exhibit 101 | Filed herewith electronically. |
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form 10-K.
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TENNANT COMPANY | ||||||||
By | /s/ | |||||||
David W. Huml | ||||||||
President, CEO and | ||||||||
Board of Directors | ||||||||
Date | February |
Each of the undersigned hereby appoints H. Chris KillingstadDavid W. Huml and Mary E. Talbott,Kristin A. Stokes, and each of them (with full power to act alone), as attorneys and agents for the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, any and all amendments and exhibits to this annual report on Form 10-K and any and all applications, instruments, and other documents to be filed with the Securities and Exchange Commission pertaining to this annual report on Form 10-K or any amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary or desirable.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By | /s/ | By | /s/ | |||
David W. Huml | Timothy R. Morse | |||||
President, CEO and Board of Directors | Board of Directors | |||||
Date | February | Date | February 24, 2022 | |||
By | /s/ | By | /s/ | |||
Fay West | Donal L. Mulligan | |||||
Chief Financial Officer and Principal Accounting Officer | Board of Directors | |||||
Date | February | Date | February | |||
By | /s/ Azita Arvani | By | /s/ Steven A. Sonnenberg | |||
Azita Arvani | Steven A. Sonnenberg | |||||
Board of Directors | Board of Directors | |||||
Date | February | |||||
Date | February | |||||
24, 2022 | ||||||
By | /s/ William F. Austen | By | /s/ Maria C. Green | |||
William F. Austen | Maria C. Green | |||||
Board of Directors | Board of Directors | |||||
Date | February 24, 2022 | Date | February 24, 2022 | |||
By | /s/ Carol S. Eicher | By | /s/ David Windley | |||
Carol S. Eicher | David Windley | |||||
Board of Directors | Board of Directors | |||||
Date | February 24, 2022 | Date | February 24, 2022 |