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| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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Minnesota | 41-0572550 | ||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Common Stock, par value $0.375 per share | TNC | New York Stock Exchange | ||||||||||||
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| Yes | þ | No | o | |||||||||||
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| Yes | þ | No | o | |||||||||||
| Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer |
| Smaller reporting company |
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Emerging growth company |
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| Yes | o | No | þ | |||||||||||
PART I – FINANCIAL INFORMATION
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Three Months Ended | Six Months Ended | |||||||||||||||
(In millions, except shares and per share data) | June 30, | June 30, | ||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net sales | $ | 280.2 | $ | 279.1 | $ | 538.3 | $ | 542.4 | ||||||||
Cost of sales | 174.1 | 164.2 | 333.3 | 314.2 | ||||||||||||
Gross profit | 106.1 | 114.9 | 205.0 | 228.2 | ||||||||||||
Selling and administrative expense | 79.1 | 86.2 | 155.7 | 165.6 | ||||||||||||
Research and development expense | 7.9 | 8.3 | 15.6 | 15.7 | ||||||||||||
Gain on sale of assets | (3.7 | ) | 0 | (3.7 | ) | (9.8 | ) | |||||||||
Operating income | 22.8 | 20.4 | 37.4 | 56.7 | ||||||||||||
Interest expense, net | (1.2 | ) | (2.1 | ) | (1.5 | ) | (6.0 | ) | ||||||||
Net foreign currency transaction (loss) gain | (1.0 | ) | 0 | (0.4 | ) | 0.5 | ||||||||||
Loss on extinguishment of debt | 0 | (11.3 | ) | 0 | (11.3 | ) | ||||||||||
Other (expense) income, net | (0.3 | ) | 0.2 | (0.5 | ) | 0.3 | ||||||||||
Income before income taxes | 20.3 | 7.2 | 35.0 | 40.2 | ||||||||||||
Income tax expense (benefit) | 3.7 | (2.6 | ) | 8.1 | 4.7 | |||||||||||
Net income | $ | 16.6 | $ | 9.8 | $ | 26.9 | $ | 35.5 | ||||||||
Net income per share | ||||||||||||||||
Basic | $ | 0.90 | $ | 0.53 | $ | 1.46 | $ | 1.92 | ||||||||
Diluted | $ | 0.89 | $ | 0.51 | $ | 1.44 | $ | 1.88 | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 18,507,073 | 18,547,276 | 18,485,367 | 18,501,930 | ||||||||||||
Diluted | 18,683,798 | 18,931,703 | 18,735,913 | 18,879,616 | ||||||||||||
|
Three Months Ended | Six Months Ended | |||||||||||||||
(In millions) | June 30, | June 30, | ||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net income | $ | 16.6 | $ | 9.8 | $ | 26.9 | $ | 35.5 | ||||||||
Other comprehensive (loss) income: | ||||||||||||||||
Foreign currency translation adjustments (net of related tax expense of $1.0, $0.3, $1.4, and $0.2, respectively) | (16.9 | ) | 4.9 | (20.7 | ) | (5.8 | ) | |||||||||
Pension and postretirement medical benefits (net of related tax benefit of $0, $0.1, $0, and $0.1, respectively) | 0 | 0.1 | 0 | 0.1 | ||||||||||||
Cash flow hedge (net of related tax expense of $0.3, $0, $0.2, and $0, respectively) | 0.8 | (0.1 | ) | 0.6 | (0.1 | ) | ||||||||||
Total other comprehensive (loss) income, net of tax | (16.1 | ) | 4.9 | (20.1 | ) | (5.8 | ) | |||||||||
Comprehensive income | $ | 0.5 | $ | 14.7 | $ | 6.8 | $ | 29.7 | ||||||||
| (In millions, except shares and per share data) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | $ | 262.9 | $ | 272.0 | $ | 801.2 | $ | 814.4 | |||||||||||||||
| Cost of sales | 162.2 | 162.8 | 495.5 | 477.0 | |||||||||||||||||||
| Gross profit | 100.7 | 109.2 | 305.7 | 337.4 | |||||||||||||||||||
| Selling and administrative expense | 71.4 | 76.9 | 227.1 | 242.5 | |||||||||||||||||||
| Research and development expense | 7.9 | 8.4 | 23.5 | 24.1 | |||||||||||||||||||
| Gain on sale of assets | — | — | (3.7) | (9.8) | |||||||||||||||||||
| Operating income | 21.4 | 23.9 | 58.8 | 80.6 | |||||||||||||||||||
| Interest expense, net | (2.2) | (0.6) | (3.7) | (6.6) | |||||||||||||||||||
| Net foreign currency transaction loss | — | (0.7) | (0.4) | (0.2) | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | — | (11.3) | |||||||||||||||||||
| Other income (expense), net | 0.6 | (0.3) | 0.1 | — | |||||||||||||||||||
| Income before income taxes | 19.8 | 22.3 | 54.8 | 62.5 | |||||||||||||||||||
| Income tax expense | 4.2 | 0.8 | 12.3 | 5.5 | |||||||||||||||||||
| Net income | $ | 15.6 | $ | 21.5 | $ | 42.5 | $ | 57.0 | |||||||||||||||
| Net income per share | |||||||||||||||||||||||
| Basic | $ | 0.84 | $ | 1.16 | $ | 2.30 | $ | 3.08 | |||||||||||||||
| Diluted | $ | 0.83 | $ | 1.14 | $ | 2.27 | $ | 3.02 | |||||||||||||||
| Weighted average shares outstanding | |||||||||||||||||||||||
| Basic | 18,515,851 | 18,554,136 | 18,495,640 | 18,519,523 | |||||||||||||||||||
| Diluted | 18,691,916 | 18,871,217 | 18,713,337 | 18,869,898 | |||||||||||||||||||
| (In millions) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income | $ | 15.6 | $ | 21.5 | $ | 42.5 | $ | 57.0 | |||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation adjustments (net of related tax (expense) benefit of $(1.2), $0.6, $(2.6), and $0.4, respectively) | (20.1) | (7.3) | (40.8) | (13.1) | |||||||||||||||||||
| Pension and postretirement medical benefits (net of related tax benefit of $—, $—, $—, and $0.1, respectively) | — | — | — | 0.1 | |||||||||||||||||||
| Cash flow hedge (net of related tax expense of $—, $0.1, $0.2, and $0.1, respectively) | (0.1) | (0.2) | 0.5 | (0.3) | |||||||||||||||||||
| Total other comprehensive loss, net of tax | (20.2) | (7.5) | (40.3) | (13.3) | |||||||||||||||||||
| Comprehensive (loss) income | $ | (4.6) | $ | 14.0 | $ | 2.2 | $ | 43.7 | |||||||||||||||
|
| (Unaudited) | ||||||||
(In millions, except shares and per share data) | June 30, | December 31, | ||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Cash, cash equivalents, and restricted cash | $ | 73.8 | $ | 123.6 | ||||
Receivables, less allowances of $5.3 and $5.3, respectively | 215.7 | 211.4 | ||||||
Inventories | 188.6 | 160.6 | ||||||
Prepaid and other current assets | 43.0 | 31.2 | ||||||
Total current assets | 521.1 | 526.8 | ||||||
Property, plant and equipment, less accumulated depreciation of $261.5 and $258.4, respectively | 169.3 | 172.8 | ||||||
Operating lease assets | 36.9 | 41.3 | ||||||
Goodwill | 180.3 | 193.1 | ||||||
Intangible assets, net | 83.1 | 98.0 | ||||||
Other assets | 34.5 | 29.7 | ||||||
Total assets | $ | 1,025.2 | $ | 1,061.7 | ||||
LIABILITIES AND EQUITY | ||||||||
Current portion of long-term debt | $ | 5.2 | $ | 4.2 | ||||
Accounts payable | 120.4 | 121.5 | ||||||
Employee compensation and benefits | 50.4 | 60.6 | ||||||
Other current liabilities | 88.9 | 104.0 | ||||||
Total current liabilities | 264.9 | 290.3 | ||||||
Long-term debt | 260.6 | 263.4 | ||||||
Long-term operating lease liabilities | 21.7 | 25.4 | ||||||
Employee benefits | 15.4 | 16.3 | ||||||
Deferred income taxes | 17.9 | 20.6 | ||||||
Other liabilities | 10.7 | 10.6 | ||||||
Total long-term liabilities | 326.3 | 336.3 | ||||||
Total liabilities | $ | 591.2 | $ | 626.6 | ||||
Commitments and contingencies (Note 12) | ||||||||
Common Stock, $0.375 par value; 60,000,000 shares authorized; 18,589,675 and 18,535,116 shares issued and outstanding, respectively | $ | 7.0 | $ | 7.0 | ||||
Additional paid-in capital | 55.4 | 54.1 | ||||||
Retained earnings | 428.3 | 410.6 | ||||||
Accumulated other comprehensive loss | (58.0 | ) | (37.9 | ) | ||||
Total Tennant Company shareholders' equity | 432.7 | 433.8 | ||||||
Noncontrolling interest | 1.3 | 1.3 | ||||||
Total equity | 434.0 | 435.1 | ||||||
Total liabilities and total equity | $ | 1,025.2 | $ | 1,061.7 | ||||
| (Unaudited) | |||||||||||
| (In millions, except shares and per share data) | September 30, 2022 | December 31, 2021 | |||||||||
| ASSETS | |||||||||||
| Cash, cash equivalents, and restricted cash | $ | 59.2 | $ | 123.6 | |||||||
| Receivables, less allowances of $5.2 and $5.3, respectively | 219.3 | 211.4 | |||||||||
| Inventories | 199.6 | 160.6 | |||||||||
| Prepaid and other current assets | 43.9 | 31.2 | |||||||||
| Total current assets | 522.0 | 526.8 | |||||||||
| Property, plant and equipment, less accumulated depreciation of $261.1 and $258.4, respectively | 166.1 | 172.8 | |||||||||
| Operating lease assets | 31.4 | 41.3 | |||||||||
| Goodwill | 168.6 | 193.1 | |||||||||
| Intangible assets, net | 74.0 | 98.0 | |||||||||
| Other assets | 43.0 | 29.7 | |||||||||
| Total assets | $ | 1,005.1 | $ | 1,061.7 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current portion of long-term debt | $ | 5.3 | $ | 4.2 | |||||||
| Accounts payable | 110.0 | 121.5 | |||||||||
| Employee compensation and benefits | 47.2 | 60.6 | |||||||||
| Other current liabilities | 81.7 | 104.0 | |||||||||
| Total current liabilities | 244.2 | 290.3 | |||||||||
| Long-term debt | 276.3 | 263.4 | |||||||||
| Long-term operating lease liabilities | 17.3 | 25.4 | |||||||||
| Employee benefits | 15.9 | 16.3 | |||||||||
| Deferred income taxes | 15.9 | 20.6 | |||||||||
| Other liabilities | 9.0 | 10.6 | |||||||||
| Total long-term liabilities | 334.4 | 336.3 | |||||||||
| Total liabilities | $ | 578.6 | $ | 626.6 | |||||||
| Commitments and contingencies (Note 12) | |||||||||||
| Common Stock, $0.375 par value; 60,000,000 shares authorized; 18,596,389 and 18,535,116 shares issued and outstanding, respectively | $ | 7.0 | $ | 7.0 | |||||||
| Additional paid-in capital | 57.3 | 54.1 | |||||||||
| Retained earnings | 439.1 | 410.6 | |||||||||
| Accumulated other comprehensive loss | (78.2) | (37.9) | |||||||||
| Total Tennant Company shareholders' equity | 425.2 | 433.8 | |||||||||
| Noncontrolling interest | 1.3 | 1.3 | |||||||||
| Total equity | 426.5 | 435.1 | |||||||||
| Total liabilities and total equity | $ | 1,005.1 | $ | 1,061.7 | |||||||
| (In millions) | Nine Months Ended September 30, | ||||||||||
| 2022 | 2021 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income | $ | 42.5 | $ | 57.0 | |||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation expense | 24.0 | 24.5 | |||||||||
| Amortization expense | 12.1 | 15.1 | |||||||||
| Deferred income tax benefit | (6.3) | (13.1) | |||||||||
| Share-based compensation expense | 4.4 | 9.5 | |||||||||
| Bad debt and returns expense | 0.5 | 0.8 | |||||||||
| Acquisition contingent consideration adjustment | — | 0.7 | |||||||||
| Gain on sale of assets | (3.7) | (9.8) | |||||||||
| Debt extinguishment cost | — | 11.3 | |||||||||
| Other, net | 0.7 | 1.6 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables | (17.3) | (5.5) | |||||||||
| Inventories | (65.5) | (48.9) | |||||||||
| Accounts payable | (1.2) | 16.4 | |||||||||
| Employee compensation and benefits | (10.4) | 7.2 | |||||||||
| Other assets and liabilities | (18.6) | (3.9) | |||||||||
| Net cash (used in) provided by operating activities | (38.8) | 62.9 | |||||||||
| INVESTING ACTIVITIES | |||||||||||
| Purchases of property, plant and equipment | (19.4) | (12.0) | |||||||||
| Proceeds from sale of assets, net of cash divested | 4.1 | 24.7 | |||||||||
| Purchase of intangible assets | — | (0.1) | |||||||||
| Investment in leased assets | (4.1) | — | |||||||||
| Cash received from leased assets | 0.4 | — | |||||||||
| Net cash (used in) provided by investing activities | (19.0) | 12.6 | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Proceeds from borrowings | 32.0 | 315.8 | |||||||||
| Repayments of borrowings | (18.0) | (361.2) | |||||||||
| Debt extinguishment payment | — | (8.4) | |||||||||
| Contingent consideration payments | — | (2.5) | |||||||||
| Change in finance lease obligations | — | 0.2 | |||||||||
| (Repurchases) proceeds from exercise of stock options, net of employee tax withholdings obligations | (1.2) | 4.2 | |||||||||
| Repurchases of common stock | — | (7.5) | |||||||||
| Dividends paid | (14.0) | (12.9) | |||||||||
| Net cash used in financing activities | (1.2) | (72.3) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (5.4) | (3.6) | |||||||||
| Net (decrease) in cash, cash equivalents and restricted cash | (64.4) | (0.4) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 123.6 | 141.0 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 59.2 | $ | 140.6 | |||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | Nine Months Ended September 30, | ||||||||||
| 2022 | 2021 | ||||||||||
| Cash paid for income taxes | $ | 21.9 | $ | 13.1 | |||||||
| Cash paid for interest | 5.4 | 10.3 | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | 13.8 | 15.4 | |||||||||
| Financing cash flows from financing leases | — | 0.1 | |||||||||
| Lease assets obtained in exchange for new operating lease liabilities | 8.4 | 12.9 | |||||||||
| Supplemental non-cash investing and financing activities: | |||||||||||
| Capital expenditures in accounts payable | 1.9 | 1.2 | |||||||||
|
Six Months Ended | ||||||||
(In millions) | June 30, | |||||||
2022 | 2021 | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 26.9 | $ | 35.5 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
Depreciation expense | 16.4 | 16.2 | ||||||
Amortization expense | 8.4 | 10.3 | ||||||
Deferred income tax benefit | (4.4 | ) | (5.9 | ) | ||||
Share-based compensation expense | 2.7 | 7.0 | ||||||
Bad debt and returns expense | 0.7 | 0.9 | ||||||
Acquisition contingent consideration adjustment | 0 | 0.7 | ||||||
Gain on sale of assets | (3.7 | ) | (9.8 | ) | ||||
Debt extinguishment cost | 0 | 11.3 | ||||||
Other, net | 0.5 | 1.3 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables | (9.5 | ) | (13.5 | ) | ||||
Inventories | (44.7 | ) | (32.3 | ) | ||||
Accounts payable | 6.5 | 16.9 | ||||||
Employee compensation and benefits | (8.7 | ) | 7.5 | |||||
Other assets and liabilities | (14.7 | ) | (8.3 | ) | ||||
Net cash (used in) provided by operating activities | (23.6 | ) | 37.8 | |||||
INVESTING ACTIVITIES | ||||||||
Purchases of property, plant and equipment | (10.5 | ) | (8.0 | ) | ||||
Proceeds from sale of assets, net of cash divested | 4.1 | 24.7 | ||||||
Investment in leased assets | (4.0 | ) | 0 | |||||
Cash received from leased assets | 0.3 | 0 | ||||||
Net cash (used in) provided by investing activities | (10.1 | ) | 16.7 | |||||
FINANCING ACTIVITIES | ||||||||
Proceeds from borrowings | 15.0 | 315.8 | ||||||
Repayments of borrowings | (16.6 | ) | (360.4 | ) | ||||
Debt extinguishment payment | 0 | (8.4 | ) | |||||
Contingent consideration payments | 0 | (0.5 | ) | |||||
Change in finance lease obligations | 0 | 0.2 | ||||||
(Repurchases) proceeds from exercise of stock options, net of employee tax withholdings obligations | (1.4 | ) | 3.3 | |||||
Dividends paid | (9.2 | ) | (8.6 | ) | ||||
Net cash used in financing activities | (12.2 | ) | (58.6 | ) | ||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (3.9 | ) | (1.8 | ) | ||||
Net (decrease) in cash, cash equivalents and restricted cash | (49.8 | ) | (5.9 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 123.6 | 141.0 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 73.8 | $ | 135.1 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION | Six Months Ended | |||||||
June 30, | ||||||||
2022 | 2021 | |||||||
Cash paid for income taxes | $ | 10.7 | $ | 9.5 | ||||
Cash paid for interest | 2.5 | 9.6 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | 9.5 | 10.5 | ||||||
Lease assets obtained in exchange for new operating lease liabilities | 6.5 | 11.5 | ||||||
Supplemental non-cash investing and financing activities: | ||||||||
Capital expenditures in accounts payable | 0.9 | 0.7 | ||||||
See accompanying notes to consolidated financial statements.
Tennant Company Shareholders | 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 | 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, 2021 | 18,535,116 | $ | 7.0 | $ | 54.1 | $ | 410.6 | $ | (37.9 | ) | $ | 433.8 | $ | 1.3 | $ | 435.1 | Balance, December 31, 2021 | 18,535,116 | $ | 7.0 | $ | 54.1 | $ | 410.6 | $ | (37.9) | $ | 433.8 | $ | 1.3 | $ | 435.1 | |||||||||||||||||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 10.3 | 0 | 10.3 | 0 | 10.3 | Net income | — | — | 10.3 | — | 10.3 | — | 10.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | 0 | 0 | 0 | (4.0 | ) | (4.0 | ) | 0 | (4.0 | ) | Other comprehensive loss | — | — | — | (4.0) | (4.0) | — | (4.0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue stock for directors, employee benefit and stock plans, net of related tax withholdings and repurchases of 24,025 shares | 44,700 | 0 | (1.3 | ) | 0 | 0 | (1.3 | ) | 0 | (1.3 | ) | Issue stock for directors, employee benefit and stock plans, net of related tax withholdings and repurchases of 24,025 shares | 44,700 | — | (1.3) | — | — | (1.3) | — | (1.3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 0 | 1.8 | 0 | 0 | 1.8 | 0 | 1.8 | Share-based compensation | — | 1.8 | — | — | 1.8 | — | 1.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid $0.25 per common share | 0 | 0 | (4.6 | ) | 0 | (4.6 | ) | 0 | (4.6 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid $0.25 per common share | Dividends paid $0.25 per common share | — | — | (4.6) | — | (4.6) | — | (4.6) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | 18,579,816 | $ | 7.0 | $ | 54.6 | $ | 416.3 | $ | (41.9 | ) | $ | 436.0 | $ | 1.3 | $ | 437.3 | Balance, March 31, 2022 | 18,579,816 | $ | 7.0 | $ | 54.6 | $ | 416.3 | $ | (41.9) | $ | 436.0 | $ | 1.3 | $ | 437.3 | |||||||||||||||||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 16.6 | 0 | 16.6 | 0 | 16.6 | Net income | — | — | 16.6 | — | 16.6 | — | 16.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 0 | 0 | 0 | (16.1 | ) | (16.1 | ) | 0 | (16.1 | ) | Other comprehensive income | — | — | — | (16.1) | (16.1) | — | (16.1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 2,071 shares | 9,859 | 0 | (0.1 | ) | 0 | 0 | (0.1 | ) | 0 | (0.1 | ) | Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 2,071 shares | 9,859 | — | (0.1) | — | — | (0.1) | — | (0.1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 0 | 0.9 | 0 | 0 | 0.9 | 0 | 0.9 | Share-based compensation | — | 0.9 | — | — | 0.9 | — | 0.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid $0.25 per common share | 0 | 0 | (4.6 | ) | 0 | (4.6 | ) | 0 | (4.6 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid $0.25 per common share | Dividends paid $0.25 per common share | — | — | (4.6) | — | (4.6) | — | (4.6) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | 18,589,675 | $ | 7.0 | $ | 55.4 | $ | 428.3 | $ | (58.0 | ) | $ | 432.7 | $ | 1.3 | $ | 434.0 | Balance, June 30, 2022 | 18,589,675 | $ | 7.0 | $ | 55.4 | $ | 428.3 | $ | (58.0) | $ | 432.7 | $ | 1.3 | $ | 434.0 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | Net income | — | — | 15.6 | — | 15.6 | — | 15.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | Other comprehensive income | — | — | — | (20.2) | (20.2) | — | (20.2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 54 shares | Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 54 shares | 6,714 | — | 0.2 | — | — | 0.2 | — | 0.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | Share-based compensation | — | 1.7 | — | — | 1.7 | — | 1.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid $0.25 per common share | Dividends paid $0.25 per common share | — | — | (4.8) | — | (4.8) | — | (4.8) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | Balance, September 30, 2022 | 18,596,389 | $ | 7.0 | $ | 57.3 | $ | 439.1 | $ | (78.2) | $ | 425.2 | $ | 1.3 | $ | 426.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 2020 | 18,503,805 | $ | 6.9 | $ | 54.7 | $ | 363.3 | $ | (20.1 | ) | $ | 404.8 | $ | 1.3 | $ | 406.1 | ||||||||||||||||
Net income | 0 | 0 | 25.7 | 0 | 25.7 | 0 | 25.7 | |||||||||||||||||||||||||
Other comprehensive loss | 0 | 0 | 0 | (10.7 | ) | (10.7 | ) | 0 | (10.7 | ) | ||||||||||||||||||||||
Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 22,724 shares | 102,681 | 0.1 | 1.3 | 0 | 0 | 1.4 | 0 | 1.4 | ||||||||||||||||||||||||
Share-based compensation | 0 | 3.1 | 0 | 0 | 3.1 | 0 | 3.1 | |||||||||||||||||||||||||
Dividends paid $0.23 per common share | 0 | 0 | (4.2 | ) | 0 | (4.2 | ) | 0 | (4.2 | ) | ||||||||||||||||||||||
Balance, March 31, 2021 | 18,606,486 | $ | 7.0 | $ | 59.1 | $ | 384.8 | $ | (30.8 | ) | $ | 420.1 | $ | 1.3 | $ | 421.4 | ||||||||||||||||
Net income | 0 | 0 | 9.8 | 0 | 9.8 | 0 | 9.8 | |||||||||||||||||||||||||
Other comprehensive income | 0 | 0 | 0 | 4.9 | 4.9 | 0 | 4.9 | |||||||||||||||||||||||||
Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 3,305 shares | 58,579 | 0 | 1.9 | 0 | 0 | 1.9 | 0 | 1.9 | ||||||||||||||||||||||||
Share-based compensation | 0 | 3.9 | 0 | 0 | 3.9 | 0 | 3.9 | |||||||||||||||||||||||||
Dividends paid $0.23 per common share | 0 | 0 | (4.4 | ) | 0 | (4.4 | ) | 0 | (4.4 | ) | ||||||||||||||||||||||
Balance, June 30, 2021 | 18,665,065 | $ | 7.0 | $ | 64.9 | $ | 390.2 | $ | (25.9 | ) | $ | 436.2 | $ | 1.3 | $ | 437.5 | ||||||||||||||||
| 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, 2020 | 18,503,805 | $ | 6.9 | $ | 54.7 | $ | 363.3 | $ | (20.1) | $ | 404.8 | $ | 1.3 | $ | 406.1 | ||||||||||||||||||||||||||||||||
| Net income | — | — | 25.7 | — | 25.7 | — | 25.7 | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (10.7) | (10.7) | — | (10.7) | ||||||||||||||||||||||||||||||||||||||||
| Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 22,724 shares | 102,681 | 0.1 | 1.3 | — | — | 1.4 | — | 1.4 | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 3.1 | — | — | 3.1 | — | 3.1 | ||||||||||||||||||||||||||||||||||||||||
| Dividends paid $0.23 per common share | — | — | (4.2) | — | (4.2) | — | (4.2) | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 18,606,486 | $ | 7.0 | $ | 59.1 | $ | 384.8 | $ | (30.8) | $ | 420.1 | $ | 1.3 | $ | 421.4 | ||||||||||||||||||||||||||||||||
| Net income | — | — | 9.8 | — | 9.8 | — | 9.8 | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | 4.9 | 4.9 | — | 4.9 | ||||||||||||||||||||||||||||||||||||||||
| Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 3,305 shares | 58,579 | — | 1.9 | — | — | 1.9 | — | 1.9 | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 3.9 | — | — | 3.9 | — | 3.9 | ||||||||||||||||||||||||||||||||||||||||
| Dividends paid $0.23 per common share | — | — | (4.4) | — | (4.4) | — | (4.4) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 18,665,065 | $ | 7.0 | $ | 64.9 | $ | 390.2 | $ | (25.9) | $ | 436.2 | $ | 1.3 | $ | 437.5 | ||||||||||||||||||||||||||||||||
| Net income | — | — | 21.5 | — | 21.5 | — | 21.5 | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (7.5) | (7.5) | — | (7.5) | ||||||||||||||||||||||||||||||||||||||||
| Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 18 shares | 20,401 | — | 0.9 | — | — | 0.9 | — | 0.9 | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 2.5 | 2.5 | 2.5 | |||||||||||||||||||||||||||||||||||||||||||
| Dividends paid $0.23 per common share | — | — | (4.3) | — | (4.3) | — | (4.3) | ||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (102,229) | — | (7.5) | (7.5) | — | (7.5) | |||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 18,583,237 | $ | 7.0 | $ | 60.8 | $ | 407.4 | $ | (33.4) | $ | 441.8 | $ | 1.3 | $ | 443.1 | ||||||||||||||||||||||||||||||||
TENNANT COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(In millions, except shares and per share data)1.
|
Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Americas $ 178.4 $ 167.2 $ 338.7 $ 325.0 Europe, Middle East and Africa 77.3 85.2 156.0 166.1 Asia Pacific 24.5 26.7 43.6 51.3 Total $ 280.2 $ 279.1 $ 538.3 $ 542.4 Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Equipment Parts and consumables Specialty surface coatings(a) Service and other Total2. Newly Adopted Accounting PronouncementsReference Rate ReformIn March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) No.2020-04, 2020-04, Reference Rate Reform (Topic848) 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 Interbank Offered ("LIBO") Rate, if certain criteria are met. The amendments are effective March 12, 2020 through December 31, 2022. We continue to monitor our contracts and transactions for potential application of this ASU.3. RevenueDisaggregation of RevenueThe following tables illustrate the disaggregation of revenue by geographic area, groups of similar products and services and sales channels:Net sales by geographic area Three Months Ended
September 30,Nine Months Ended
September 30,2022 2021 2022 2021 Americas $ 174.0 $ 166.7 $ 512.7 $ 491.7 Europe, Middle East and Africa 69.0 80.7 225.0 246.8 Asia Pacific 19.9 24.6 63.5 75.9 Total $ 262.9 $ 272.0 $ 801.2 $ 814.4 Net sales are attributed to each geographic area based on the end-user country and are net of intercompany sales.Net sales by groups of similar products and services $ 172.1 $ 177.1 $ 330.2 $ 338.0 66.1 62.3 126.7 124.6 0 0 0 1.5 42.0 39.7 81.4 78.3 $ 280.2 $ 279.1 $ 538.3 $ 542.4 (a)On February 1, 2021, we sold our Coatings business. Further details regarding the sale are discussed in Note 5.Three Months Ended
September 30,Nine Months Ended
September 30,2022 2021 2022 2021 Equipment $ 153.8 $ 168.6 $ 484.0 $ 506.6 Parts and consumables 67.4 62.8 194.1 187.4 Service and other 41.7 40.6 123.1 118.9 Specialty surface coatings(a)— — — 1.5 Total $ 262.9 $ 272.0 $ 801.2 $ 814.4 (a)On February 1, 2021, we sold our Coatings business. Further details regarding the sale are discussed in Note 5.7
Net sales by sales channel
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Sales direct to consumer | $ | 179.7 | $ | 172.9 | $ | 343.5 | $ | 341.9 | ||||||||
Sales to distributors | 100.5 | 106.2 | 194.8 | 200.5 | ||||||||||||
Total | $ | 280.2 | $ | 279.1 | $ | 538.3 | $ | 542.4 | ||||||||
Six Months Ended June 30, 2022 2021 Beginning balance Additions to sales incentive accrual Contract payments Foreign currency fluctuations Ending balance Six Months Ended June 30, 2022 2021 Beginning balance Increase in deferred revenue representing our obligation to satisfy future performance obligations Decrease in deferred revenue for amounts recognized in net sales for satisfied performance obligations Foreign currency fluctuations Ending balance Remaining 2022 2023 2024 2025 2026 Thereafter TotalThree Months Ended
September 30,Nine Months Ended
September 30,2022 2021 2022 2021 Sales direct to consumer $ 174.9 $ 175.4 $ 518.4 $ 517.3 Sales to distributors 88.0 96.6 282.8 297.1 Total $ 262.9 $ 272.0 $ 801.2 $ 814.4 Contract LiabilitiesSales ReturnsThe 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.11Sales IncentivesOur 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 Company 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 liabilities on our consolidated balance sheets.The change in our sales incentive accrual balance was as follows: $ 19.9 $ 12.1 10.3 15.7 (16.4 ) (13.0 ) (0.5 ) (0.2 ) $ 13.3 $ 14.6 Nine Months Ended
September 30,2022 2021 Beginning balance $ 19.9 $ 12.1 Additions to sales incentive accrual 16.1 29.9 Contract payments (19.5) (26.1) Foreign currency fluctuations (0.9) 0.1 Ending balance $ 15.6 $ 16.0 Deferred RevenueWe 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 bundled with machines, we use an observable price to determine stand-alone selling price for separate performance obligations.The change in the deferred revenue balance was as follows: $ 11.2 $ 9.3 15.6 17.8 (14.8 ) (17.1 ) (0.3 ) 0.1 $ 11.7 $ 10.1 Nine Months Ended
September 30,2022 2021 Beginning balance $ 11.2 $ 9.3 Increase in deferred revenue representing our obligation to satisfy future performance obligations 19.4 25.9 Decrease in deferred revenue for amounts recognized in net sales for satisfied performance obligations (19.9) (25.2) Foreign currency fluctuations (0.7) — Ending balance $ 10.0 $ 10.0 12At JuneSeptember 30, 2022,, $8.4 $6.9 million and $3.3$3.1 million of deferred revenue was reported in other current liabilities and other liabilities, respectively, on our consolidated balance sheets. Of these amounts, we expect to recognize the following approximate amounts in net sales in the following periods: $ 7.2 2.4 1.4 0.5 0.1 0.1 $ 11.7 Remaining 2022 $ 5.5 2023 2.4 2024 1.4 2025 0.4 2026 0.2 Thereafter 0.1 Total $ 10.0 At December 31, 2021,, $7.7 million and $3.5 million of deferred revenue was reported in other current liabilities and other liabilities, respectively, on our consolidated balance sheets.4. Management Actions84.
Restructuring Actions
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Severance-related costs | $ | 0.1 | $ | 0.9 | $ | 0.3 | $ | 0.9 | ||||||||
Other costs | 0.3 | 0 | 0.3 | 0 | ||||||||||||
Total pre-tax restructuring costs | $ | 0.4 | $ | 0.9 | $ | 0.6 | $ | 0.9 | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Severance-related costs | $ | — | $ | — | $ | 0.3 | $ | 0.9 | |||||||||||||||
| Other costs | 0.5 | — | 0.8 | — | |||||||||||||||||||
| Total pre-tax restructuring costs | $ | 0.5 | $ | — | $ | 1.1 | $ | 0.9 | |||||||||||||||
Six Months Ended | ||||||||
June 30, | ||||||||
2022 | 2021 | |||||||
Beginning balance | $ | 4.9 | $ | 4.5 | ||||
New charges | 0.9 | 0.9 | ||||||
Cash payments | (1.9 | ) | (1.2 | ) | ||||
Foreign currency fluctuations | (0.5 | ) | (0.1 | ) | ||||
Adjustments to accrual | (0.6 | ) | 0 | |||||
Ending balance | $ | 2.8 | $ | 4.1 | ||||
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Beginning balance | $ | 4.9 | $ | 4.5 | |||||||
| New charges | 0.9 | 0.9 | |||||||||
| Cash payments | (2.3) | (2.3) | |||||||||
| Foreign currency fluctuations | (0.7) | (0.2) | |||||||||
| Adjustments to accrual | (0.6) | — | |||||||||
| Ending balance | $ | 2.2 | $ | 2.9 | |||||||
|
135. Acquisition and DivestituresSale of buildingDuring the second quarter of 2022, we sold a building located in Golden Valley, Minnesota. The resulting pre-tax gain was $3.7 million and is reflected within gain on sale of assets in the consolidated statements of income. Proceeds from sale of assets was $4.1 million.Sale of Coatings businessDuring 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 sale of assets in the consolidated statements of income. Proceeds from sale of assets, net of cash divested, was $24.7 million.Acquisition of GaomeiOn January 4, 2019, we completed the acquisition of Hefei Gaomei Cleaning Machines Co., Ltd. and Anhui Rongen Environmental Protection Technology Co., Ltd. (collectively "Gaomei"), privately held designers and manufacturers of commercial cleaning solutions based in China. The financial results for Gaomei have been included in our consolidated financial results since the date of closing. The purchase price included contingent consideration payments totaling $2.5 million paid in 2021.6. Inventories96.
Inventories are valued at the lower of cost or net realizable value and consisted of the following:
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Inventories carried at LIFO: | ||||||||
Finished goods(a) | $ | 68.2 | $ | 54.0 | ||||
Raw materials and work-in-process | 50.5 | 42.4 | ||||||
Excess of FIFO over LIFO cost(b) | (49.0 | ) | (43.0 | ) | ||||
Total LIFO inventories | $ | 69.7 | $ | 53.4 | ||||
Inventories carried at FIFO: | ||||||||
Finished goods(a) | $ | 58.8 | $ | 53.8 | ||||
Raw materials and work-in-process | 60.1 | 53.4 | ||||||
Total FIFO inventories | $ | 118.9 | $ | 107.2 | ||||
Total inventories | $ | 188.6 | $ | 160.6 | ||||
|
| |
|
| September 30, 2022 | December 31, 2021 | ||||||||||
| Inventories carried at LIFO: | |||||||||||
Finished goods(a) | $ | 78.8 | $ | 54.0 | |||||||
| Raw materials and work-in-process | 51.2 | 42.4 | |||||||||
Excess of FIFO over LIFO cost(b) | (51.2) | (43.0) | |||||||||
| Total LIFO inventories | $ | 78.8 | $ | 53.4 | |||||||
| Inventories carried at FIFO: | |||||||||||
Finished goods(a) | $ | 62.8 | $ | 53.8 | |||||||
| Raw materials and work-in-process | 58.0 | 53.4 | |||||||||
| Total FIFO inventories | $ | 120.8 | $ | 107.2 | |||||||
| Total inventories | $ | 199.6 | $ | 160.6 | |||||||
Accumulated | ||||||||||||
Impairment | ||||||||||||
Goodwill | Losses | Total | ||||||||||
Balance as of December 31, 2021 | $ | 233.9 | $ | (40.8 | ) | $ | 193.1 | |||||
Foreign currency fluctuations | (16.7 | ) | 3.9 | (12.8 | ) | |||||||
Balance as of June 30, 2022 | $ | 217.2 | $ | (36.9 | ) | $ | 180.3 | |||||
| Goodwill | Accumulated Impairment Losses | Total | |||||||||||||||
| Balance as of December 31, 2021 | $ | 233.9 | $ | (40.8) | $ | 193.1 | |||||||||||
| Foreign currency fluctuations | (32.0) | 7.5 | (24.5) | ||||||||||||||
| Balance as of September 30, 2022 | $ | 201.9 | $ | (33.3) | $ | 168.6 | |||||||||||
Customer Lists | Trade Names | Technology | Total | |||||||||||||
Balance as of June 30, 2022 | ||||||||||||||||
Original cost | $ | 144.4 | $ | 28.0 | $ | 16.0 | $ | 188.4 | ||||||||
Accumulated amortization | (80.4 | ) | (14.2 | ) | (10.7 | ) | (105.3 | ) | ||||||||
Carrying value | $ | 64.0 | $ | 13.8 | $ | 5.3 | $ | 83.1 | ||||||||
Weighted average original life (in years) | 15 | 10 | 11 | |||||||||||||
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 value | $ | 75.4 | $ | 16.4 | $ | 6.2 | $ | 98.0 | ||||||||
Weighted average original life (in years) | 15 | 11 | 11 | |||||||||||||
| Customer Lists | Trade Names | Technology | Total | ||||||||||||||||||||
| Balance as of September 30, 2022 | |||||||||||||||||||||||
| Original cost | $ | 134.5 | $ | 26.1 | $ | 15.3 | $ | 175.9 | |||||||||||||||
| Accumulated amortization | (77.6) | (13.8) | (10.5) | (101.9) | |||||||||||||||||||
| Carrying value | $ | 56.9 | $ | 12.3 | $ | 4.8 | $ | 74.0 | |||||||||||||||
| Weighted average original life (in years) | 15 | 10 | 11 | ||||||||||||||||||||
| 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 value | $ | 75.4 | $ | 16.4 | $ | 6.2 | $ | 98.0 | |||||||||||||||
| Weighted average original life (in years) | 15 | 11 | 11 | ||||||||||||||||||||
Remaining 2022 | $ | 7.7 | ||
2023 | 14.3 | |||
2024 | 12.9 | |||
2025 | 11.6 | |||
2026 | 10.3 | |||
Thereafter | 26.3 | |||
Total | $ | 83.1 |
| Remaining 2022 | $ | 3.6 | |||
| 2023 | 13.3 | ||||
| 2024 | 12.0 | ||||
| 2025 | 10.8 | ||||
| 2026 | 9.7 | ||||
| Thereafter | 24.6 | ||||
| Total | $ | 74.0 | |||
|
• 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 1.00, in such case limiting such payments to $60.0 million during any fiscal year. June 30, December 31, 2022 2021 Credit facility borrowings: Revolving credit facility borrowings Term loan facility borrowings Secured borrowings Finance lease liabilities Total debt Less: current portion of long-term debt(a) Long-term debt2021 Credit AgreementOn April 5, 2021, we and certain of our foreign subsidiaries entered into an Amended and Restated Credit Agreement (the “2021“2021 Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent. The 2021 Credit Agreement provides us and 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 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 an annual rate of 0.15% to 0.30%, depending on our leverage ratio. Borrowings denominated in U.S. dollars under the 2021 Credit Agreement bear interest at a rate per annum equal to (a) the Adjusted LIBO Rate, as adjusted for statutory reserve requirements for eurocurrency liabilities, but in any case, not less than 0%, plus an additional spread of 1.10% to 1.70%, depending on our leverage ratio or (b) the Alternate Base Rate which is the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) the adjusted LIBO rate for a one-monthone-month period, but in any case, not less than 1.0%, plus, in any such case, 1.0%, plus an additional spread of 0.10% to 0.70%, depending on our leverage ratio.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-tierfirst-tier foreign subsidiaries. The obligations under the 2021 Credit Agreement are also guaranteed by certain of our first-tierfirst-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(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 our ability to incur indebtedness and liens and to merge or consolidate with another entity. Further, the 2021 Credit Agreement contains 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 1.00; and • • Redemption of Senior NotesIn the second quarter of 2021, the Company redeemed $300.0 million principal amount outstanding of its 5.625% Senior Notes due 2025 ("Senior Notes"). We used the proceeds from the borrowings under the 2021 Credit Agreement to retire our Senior Notes and pay the $8.4 million call premium due upon redemption in the second quarter of 2021. In addition, we wrote off $2.9 million of unamortized debt issuance costs in the second quarter of 2021.16Debt OutstandingDebt outstanding consisted of the following: $ 168.0 $ 168.0 97.5 98.8 0.2 0.7 0.1 0.1 265.8 267.6 (5.2 ) (4.2 ) $ 260.6 $ 263.4 (a)As of JuneSeptember 30, 2022 December 31, 2021 Credit facility borrowings: Revolving credit facility borrowings $ 185.0 $ 168.0 Term loan facility borrowings 96.3 98.8 Secured borrowings 0.2 0.7 Finance lease liabilities 0.1 0.1 Total debt 281.6 267.6 Less: current portion of long-term debt(a)(5.3) (4.2) Long-term debt $ 276.3 $ 263.4 (a)As of September 30, 2022, the Company is required to repay $5.0 million in outstanding credit facility borrowings, $0.2 million of current maturities of secured borrowings and $0.1 million of finance lease liabilities over the next 12 months.As of September 30, 2022,, the Company is required to repay $5.0 million in outstanding credit facility borrowings and $0.2 million of current maturities of secured borrowings over the next 12 months.As of June 30, 2022, we had outstanding borrowings of $168.0 million$185.0 and $97.5 million$96.3 under our revolving facility and term loan facility, respectively. We had letters of credit and bank guarantees outstanding in the amount of $2.9$3.1 million, leaving approximately $279.1 million$261.9 of unused borrowing capacity on our revolving facility. Commitment fees on unused lines of credit for the sixnine months ended JuneSeptember 30, 2022 were $0.4$0.6 million. The overall weighted average cost of debt iswas approximately 2.0%3.5% and net of related cross-currency swap instruments iswas approximately 0.9%2.5%. Further details regarding the cross-currency swap instrument are discussed in Note 10.9. Warranty11
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We record a liability for 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. Warranty terms on machines generally range from one to four years. However, the majority of our claims are paid out within the first six 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 for older equipment warranty issues.
Six Months Ended | ||||||||
June 30, | ||||||||
2022 | 2021 | |||||||
Beginning balance | $ | 10.4 | $ | 11.1 | ||||
Additions charged to expense | 4.4 | 4.3 | ||||||
Foreign currency fluctuations | (0.1 | ) | (0.1 | ) | ||||
Claims paid | (4.1 | ) | (4.7 | ) | ||||
Ending balance | $ | 10.6 | $ | 10.6 | ||||
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Beginning balance | $ | 10.4 | $ | 11.1 | |||||||
| Additions charged to expense | 6.7 | 6.7 | |||||||||
| Foreign currency fluctuations | (0.3) | (0.2) | |||||||||
| Claims paid | (6.2) | (7.1) | |||||||||
| Ending balance | $ | 10.6 | $ | 10.5 | |||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||||
Balance Sheet Location | June 30, 2022 | December 31, 2021 | Balance Sheet Location | June 30, 2022 | December 31, 2021 | |||||||||||||
Derivatives designated as cash flow hedges: | ||||||||||||||||||
Foreign currency forward contracts | Other current assets | $ | 0 | $ | 0 | Other current liabilities | $ | 0 | $ | 10.4 | ||||||||
Derivatives designated as fair value hedges: | ||||||||||||||||||
Cross-currency swaps | Other current assets | 1.3 | 0 | Other current liabilities | 0 | 0 | ||||||||||||
Cross-currency swaps | Other assets | 1.2 | 0 | Other liabilities | 0 | 0 | ||||||||||||
Derivatives designated as net investment hedges: | ||||||||||||||||||
Cross-currency swaps | Other current assets | 1.1 | 0 | Other current liabilities | 0 | 0 | ||||||||||||
Cross-currency swaps | Other assets | 0.7 | 0 | Other liabilities | 0 | 0 | ||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||
Foreign currency forward contracts | Other current assets | 0.5 | 0.3 | Other current liabilities | 0.2 | 0.4 | ||||||||||||
| Derivative Assets | Derivative Liabilities | |||||||||||||||||||
| Balance Sheet Location | September 30, 2022 | December 31, 2021 | Balance Sheet Location | September 30, 2022 | December 31, 2021 | |||||||||||||||
| Derivatives designated as cash flow hedges: | ||||||||||||||||||||
| Foreign currency forward contracts | Other current assets | $ | — | $ | — | Other current liabilities | $ | — | $ | 10.4 | ||||||||||
| Derivatives designated as fair value hedges: | ||||||||||||||||||||
| Cross-currency swaps | Other current assets | 1.6 | — | Other current liabilities | — | — | ||||||||||||||
| Cross-currency swaps | Other assets | 6.5 | — | Other liabilities | — | — | ||||||||||||||
| Derivatives designated as net investment hedges: | ||||||||||||||||||||
| Cross-currency swaps | Other current assets | 1.2 | — | Other current liabilities | — | — | ||||||||||||||
| Cross-currency swaps | Other assets | 5.4 | — | Other liabilities | — | — | ||||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||||||
| Foreign currency forward contracts | Other current assets | $ | 2.7 | $ | 0.3 | Other current liabilities | $ | — | $ | 0.4 | ||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
Total | Amount of Gain (Loss) on Hedging Activity | Total | Amount of Gain (Loss) on Hedging Activity | Total | Amount of Gain (Loss) on Hedging Activity | Total | Amount of Gain (Loss) on Hedging Activity | |||||||||||||||||||||||||
Derivatives designated as cash flow hedges: | ||||||||||||||||||||||||||||||||
Net sales | $ | 280.2 | $ | 0 | $ | 279.1 | $ | (0.2 | ) | $ | 538.3 | $ | 0 | $ | 542.4 | $ | (0.3 | ) | ||||||||||||||
Interest expense, net | (1.2 | ) | 0 | (2.1 | ) | 0.5 | (1.5 | ) | 0.7 | (6.0 | ) | 1.1 | ||||||||||||||||||||
Net foreign currency transaction (loss) gain | (1.0 | ) | 0.2 | 0 | (1.9 | ) | (0.4 | ) | 4.7 | 0.5 | 5.4 | |||||||||||||||||||||
Derivatives designated as fair value hedges: | ||||||||||||||||||||||||||||||||
Interest expense, net | (1.2 | ) | 0.4 | (2.1 | ) | 0 | (1.5 | ) | 0.4 | (6.0 | ) | 0 | ||||||||||||||||||||
Net foreign currency transaction (loss) gain | (1.0 | ) | 4.3 | 0 | 0 | (0.4 | ) | 4.3 | 0.5 | 0 | ||||||||||||||||||||||
Derivatives designated as net investment hedges: | ||||||||||||||||||||||||||||||||
Interest expense, net | (1.2 | ) | 0.3 | (2.1 | ) | 0 | (1.5 | ) | 0.3 | (6.0 | ) | 0 | ||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Total | Amount of Gain (Loss) on Hedging Activity | Total | Amount of Gain (Loss) on Hedging Activity | Total | Amount of Gain (Loss) on Hedging Activity | Total | Amount of Gain (Loss) on Hedging Activity | ||||||||||||||||||||||||||||
| Derivatives designated as cash flow hedges: | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 262.9 | $ | — | $ | 272.0 | $ | — | $ | 801.2 | $ | — | $ | 814.4 | $ | (0.3) | |||||||||||||||||||
| Interest expense, net | (2.2) | — | (0.6) | 0.6 | (3.7) | 0.7 | (6.6) | 1.7 | |||||||||||||||||||||||||||
| Net foreign currency transaction (loss) gain | — | — | (0.7) | 4.1 | (0.4) | 4.7 | (0.2) | 9.5 | |||||||||||||||||||||||||||
| Derivatives designated as fair value hedges: | |||||||||||||||||||||||||||||||||||
| Interest expense, net | (2.2) | 0.4 | (0.6) | — | (3.7) | 0.8 | (6.6) | — | |||||||||||||||||||||||||||
| Net foreign currency transaction (loss) gain | — | 5.6 | (0.7) | — | (0.4) | 9.9 | (0.2) | — | |||||||||||||||||||||||||||
| Derivatives designated as net investment hedges: | |||||||||||||||||||||||||||||||||||
| Interest expense, net | $ | (2.2) | $ | 0.3 | $ | (0.6) | $ | — | $ | (3.7) | $ | 0.6 | $ | (6.6) | $ | — | |||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June, 30 | June, 30 | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Derivatives designated as cash flow hedges: | ||||||||||||||||
Net (loss) gain recognized in other comprehensive loss, net of tax(a) | $ | 0 | $ | (1.3 | ) | $ | 3.8 | $ | 4.7 | |||||||
Net loss reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net sales | 0 | (0.2 | ) | 0 | $ | (0.2 | ) | |||||||||
Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net | 0 | 0.5 | 0.5 | 0.9 | ||||||||||||
Net (loss) gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net foreign currency transaction gain | 0.1 | (1.5 | ) | 3.6 | 4.1 | |||||||||||
Derivatives designated as fair value hedges: | ||||||||||||||||
Net gain recognized in other comprehensive loss, net of tax(a) | 4.7 | 0 | 4.7 | 0 | ||||||||||||
Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net | 0.3 | 0 | 0.3 | 0 | ||||||||||||
Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net foreign currency transaction gain | 3.3 | 0 | 3.3 | 0 | ||||||||||||
Derivatives designated as net investment hedges: | ||||||||||||||||
Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net | 0.2 | 0 | 0.2 | 0 | ||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||
Net gain (loss) recognized in income(b) | 4.2 | (0.7 | ) | 2.6 | 1.4 | |||||||||||
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Derivatives designated as cash flow hedges: | |||||||||||||||||
Net gain recognized in other comprehensive loss, net of tax(a) | $ | — | $ | 3.4 | $ | 3.8 | $ | 8.1 | |||||||||
| Net loss reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net sales | — | — | — | (0.2) | |||||||||||||
| Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net | — | 0.4 | 0.5 | 1.3 | |||||||||||||
| Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net foreign currency transaction gain | — | 3.2 | 3.6 | 7.3 | |||||||||||||
| Derivatives designated as fair value hedges: | |||||||||||||||||
Net gain recognized in other comprehensive loss, net of tax(a) | 0.2 | — | 1.4 | — | |||||||||||||
| Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net | 0.3 | — | 0.6 | — | |||||||||||||
| Derivatives designated as net investment hedges: | |||||||||||||||||
Net gain recognized in other comprehensive loss, net of tax(a) | 3.9 | — | 7.8 | — | |||||||||||||
| Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net | 0.3 | — | 0.5 | — | |||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
Net gain recognized in income(b) | $ | 4.0 | $ | 0.8 | $ | 6.6 | $ | 2.2 | |||||||||
|
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:
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Fair | ||||||||||||||||
Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Foreign currency forward exchange contracts | $ | 0.5 | $ | 0 | $ | 0.5 | $ | 0 | ||||||||
Cross-currency swaps | 4.3 | 0 | 4.3 | 0 | ||||||||||||
Total assets | 4.8 | 0 | 4.8 | 0 | ||||||||||||
Liabilities: | ||||||||||||||||
Foreign currency forward exchange contracts | 0.2 | 0 | 0.2 | 0 | ||||||||||||
Total liabilities | $ | 0.2 | $ | 0 | $ | 0.2 | $ | 0 | ||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Foreign currency forward exchange contracts | $ | 2.7 | $ | — | $ | 2.7 | $ | — | |||||||||||||||
| Cross-currency swaps | 14.7 | — | 14.7 | — | |||||||||||||||||||
| Total assets | 17.4 | — | 17.4 | — | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Foreign currency forward exchange contracts | — | — | — | — | |||||||||||||||||||
| Total liabilities | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
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 | ||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Foreign currency forward exchange contracts | $ | 0.9 | $ | — | $ | 0.9 | $ | — | |||||||||||||||
| Total assets | 0.9 | — | 0.9 | — | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Foreign currency forward exchange contracts | 11.4 | — | 11.4 | — | |||||||||||||||||||
| Total liabilities | $ | 11.4 | $ | — | $ | 11.4 | $ | — | |||||||||||||||
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Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||
Foreign Currency Translation Adjustments | Pension and Post-Retirement Medical Benefits | Derivative Financial Instruments | Total | Foreign Currency Translation Adjustments | Pension and Post-Retirement Medical Benefits | Derivative Financial Instruments | Total | |||||||||||||||||||||||||
Beginning balance | $ | (36.0 | ) | $ | (2.1 | ) | $ | 0.2 | $ | (37.9 | ) | $ | (19.1 | ) | $ | (1.7 | ) | $ | 0.7 | $ | (20.1 | ) | ||||||||||
Other comprehensive (loss) income before reclassifications | (20.7 | ) | 0 | 8.5 | (12.2 | ) | (5.8 | ) | 0.1 | 4.7 | (1.0 | ) | ||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss | 0 | 0 | (7.9 | ) | (7.9 | ) | 0 | 0 | (4.8 | ) | (4.8 | ) | ||||||||||||||||||||
Net current period other comprehensive loss | (20.7 | ) | 0 | 0.6 | (20.1 | ) | (5.8 | ) | 0.1 | (0.1 | ) | (5.8 | ) | |||||||||||||||||||
Ending balance | $ | (56.7 | ) | $ | (2.1 | ) | $ | 0.8 | $ | (58.0 | ) | $ | (24.9 | ) | $ | (1.6 | ) | $ | 0.6 | $ | (25.9 | ) | ||||||||||
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
| Foreign Currency Translation Adjustments | Pension and Post- Retirement Medical Benefits | Cash Flow Hedge | Total | Foreign Currency Translation Adjustments | Pension and Post- Retirement Medical Benefits | Cash Flow Hedge | Total | ||||||||||||||||||||||
| Beginning balance | $ | (36.0) | $ | (2.1) | $ | 0.2 | $ | (37.9) | $ | (19.1) | $ | (1.7) | $ | 0.7 | $ | (20.1) | |||||||||||||
| Other comprehensive (loss) income before reclassifications | (40.3) | — | 5.2 | (35.1) | (13.1) | 0.1 | 8.1 | (4.9) | |||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | (0.5) | — | (4.7) | (5.2) | — | — | (8.4) | (8.4) | |||||||||||||||||||||
| Net current period other comprehensive (loss) income | (40.8) | — | 0.5 | (40.3) | (13.1) | 0.1 | (0.3) | (13.3) | |||||||||||||||||||||
| Ending balance | $ | (76.8) | $ | (2.1) | $ | 0.7 | $ | (78.2) | $ | (32.2) | $ | (1.6) | $ | 0.4 | $ | (33.4) | |||||||||||||
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The computations of basic and diluted earnings per share were as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 16.6 | $ | 9.8 | $ | 26.9 | $ | 35.5 | ||||||||
Denominator: | ||||||||||||||||
Basic - weighted average shares outstanding | 18,507,073 | 18,547,276 | 18,485,367 | 18,501,930 | ||||||||||||
Effect of dilutive securities: | 176,725 | 384,427 | 250,546 | 377,686 | ||||||||||||
Diluted - weighted average shares outstanding | 18,683,798 | 18,931,703 | 18,735,913 | 18,879,616 | ||||||||||||
Basic earnings per share | $ | 0.90 | $ | 0.53 | $ | 1.46 | $ | 1.92 | ||||||||
Diluted earnings per share | $ | 0.89 | $ | 0.51 | $ | 1.44 | $ | 1.88 | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | 15.6 | $ | 21.5 | $ | 42.5 | $ | 57.0 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Basic - weighted average shares outstanding | 18,515,851 | 18,554,136 | 18,495,640 | 18,519,523 | |||||||||||||||||||
| Effect of dilutive securities: | 176,065 | 317,081 | 217,697 | 350,375 | |||||||||||||||||||
| Diluted - weighted average shares outstanding | 18,691,916 | 18,871,217 | 18,713,337 | 18,869,898 | |||||||||||||||||||
| Basic earnings per share | $ | 0.84 | $ | 1.16 | $ | 2.30 | $ | 3.08 | |||||||||||||||
| Diluted earnings per share | $ | 0.83 | $ | 1.14 | $ | 2.27 | $ | 3.02 | |||||||||||||||
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Overview
Outlook
We expect the supply chain challenges and inflationary trends to continue in the second half
Results
The following table compares the results of operations for the three and sixnine months ended JuneSeptember 30, 2022 and 2021, respectively (in millions, except per share data and percentages):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2022 | % | 2021 | % | 2022 | % | 2021 | % | |||||||||||||||||||||||||
Net sales | $ | 280.2 | 100.0 | $ | 279.1 | 100.0 | $ | 538.3 | 100.0 | $ | 542.4 | 100.0 | ||||||||||||||||||||
Cost of sales | 174.1 | 62.1 | 164.2 | 58.8 | 333.3 | 61.9 | 314.2 | 57.9 | ||||||||||||||||||||||||
Gross profit | 106.1 | 37.9 | 114.9 | 41.2 | 205.0 | 38.1 | 228.2 | 42.1 | ||||||||||||||||||||||||
Selling and administrative expense | 79.1 | 28.2 | 86.2 | 30.9 | 155.7 | 28.9 | 165.6 | 30.5 | ||||||||||||||||||||||||
Research and development expense | 7.9 | 2.8 | 8.3 | 3.0 | 15.6 | 2.9 | 15.7 | 2.9 | ||||||||||||||||||||||||
Gain on sale of assets | (3.7 | ) | �� | (1.3 | ) | — | — | (3.7 | ) | (0.7 | ) | (9.8 | ) | (1.8 | ) | |||||||||||||||||
Operating income | 22.8 | 8.1 | 20.4 | 7.3 | 37.4 | 6.9 | 56.7 | 10.5 | ||||||||||||||||||||||||
Interest expense, net | (1.2 | ) | (0.4 | ) | (2.1 | ) | (0.8 | ) | (1.5 | ) | (0.3 | ) | (6.0 | ) | (1.1 | ) | ||||||||||||||||
Net foreign currency transaction (loss) gain | (1.0 | ) | (0.4 | ) | — | — | (0.4 | ) | (0.1 | ) | 0.5 | 0.1 | ||||||||||||||||||||
Loss on extinguishment of debt | — | — | (11.3 | ) | (4.0 | ) | — | — | (11.3 | ) | (2.1 | ) | ||||||||||||||||||||
Other (expense) income, net | (0.3 | ) | (0.1 | ) | 0.2 | 0.1 | (0.5 | ) | (0.1 | ) | 0.3 | 0.1 | ||||||||||||||||||||
Income before income taxes | 20.3 | 7.2 | 7.2 | 2.6 | 35.0 | 6.5 | 40.2 | 7.4 | ||||||||||||||||||||||||
Income tax expense (benefit) | 3.7 | 1.3 | (2.6 | ) | (0.9 | ) | 8.1 | 1.5 | 4.7 | 0.9 | ||||||||||||||||||||||
Net income | $ | 16.6 | 5.9 | $ | 9.8 | 3.5 | $ | 26.9 | 5.0 | $ | 35.5 | 6.5 | ||||||||||||||||||||
Net income per share - diluted | $ | 0.89 | $ | 0.51 | $ | 1.44 | $ | 1.88 | ||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2022 | % | 2021 | % | 2022 | % | 2021 | % | |||||||||||||||||||
| Net sales | $ | 262.9 | 100.0 | $ | 272.0 | 100.0 | $ | 801.2 | 100.0 | $ | 814.4 | 100.0 | ||||||||||||||
| Cost of sales | 162.2 | 61.7 | 162.8 | 59.9 | 495.5 | 61.8 | 477.0 | 58.6 | ||||||||||||||||||
| Gross profit | 100.7 | 38.3 | 109.2 | 40.1 | 305.7 | 38.2 | 337.4 | 41.4 | ||||||||||||||||||
| Selling and administrative expense | 71.4 | 27.2 | 76.9 | 28.3 | 227.1 | 28.3 | 242.5 | 29.8 | ||||||||||||||||||
| Research and development expense | 7.9 | 3.0 | 8.4 | 3.1 | 23.5 | 2.9 | 24.1 | 3.0 | ||||||||||||||||||
| Gain on sale of assets | — | — | — | — | (3.7) | (0.5) | (9.8) | (1.2) | ||||||||||||||||||
| Operating income | 21.4 | 8.1 | 23.9 | 8.8 | 58.8 | 7.3 | 80.6 | 9.9 | ||||||||||||||||||
| Interest expense, net | (2.2) | (0.8) | (0.6) | (0.2) | (3.7) | (0.5) | (6.6) | (0.8) | ||||||||||||||||||
| Net foreign currency transaction (loss) gain | — | — | (0.7) | (0.3) | (0.4) | — | (0.2) | — | ||||||||||||||||||
| Loss on extinguishment of debt | — | — | — | — | — | — | (11.3) | (1.4) | ||||||||||||||||||
| Other (expense) income, net | 0.6 | 0.2 | (0.3) | (0.1) | 0.1 | — | — | — | ||||||||||||||||||
| Income before income taxes | 19.8 | 7.5 | 22.3 | 8.2 | 54.8 | 6.8 | 62.5 | 7.7 | ||||||||||||||||||
| Income tax expense | 4.2 | 1.6 | 0.8 | 0.3 | 12.3 | 1.5 | 5.5 | 0.7 | ||||||||||||||||||
| Net income | $ | 15.6 | 5.9 | $ | 21.5 | 7.9 | $ | 42.5 | 5.3 | $ | 57.0 | 7.0 | ||||||||||||||
| Net income per share - diluted | $ | 0.83 | $ | 1.14 | $ | 2.27 | $ | 3.02 | ||||||||||||||||||
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•A net unfavorable impact from foreign currency exchange across all regions of approximately 5.0%; partly offset by •An organic sales increase of approximately 1.7%, which excludes the effects of foreign currency exchange. |
The 0.8%organic sales increase was primarily due to the impact of higher selling prices across all regions partially offset by volume declines due to supply chain constraints impacting the availability of certain component parts.
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
2022 | 2021 | % Change | 2022 | 2021 | % Change | |||||||||||||||||||
Americas | $ | 178.4 | $ | 167.2 | 6.7 | % | $ | 338.7 | $ | 325.0 | 4.2 | % | ||||||||||||
Europe, Middle East and Africa | 77.3 | 85.2 | (9.3 | )% | 156.0 | 166.1 | (6.1 | )% | ||||||||||||||||
Asia Pacific | 24.5 | 26.7 | (8.2 | )% | 43.6 | 51.3 | (15.0 | )% | ||||||||||||||||
Total | $ | 280.2 | $ | 279.1 | 0.4 | % | $ | 538.3 | $ | 542.4 | (0.8 | )% | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | % Change | 2022 | 2021 | % Change | ||||||||||||||||||||||||||||||
| Americas | $ | 174.0 | $ | 166.7 | 4.4 | % | $ | 512.7 | $ | 491.7 | 4.3 | % | |||||||||||||||||||||||
| Europe, Middle East and Africa | 69.0 | 80.7 | (14.5) | % | 225.0 | 246.8 | (8.8) | % | |||||||||||||||||||||||||||
| Asia Pacific | 19.9 | 24.6 | (19.1) | % | 63.5 | 75.9 | (16.3) | % | |||||||||||||||||||||||||||
| Total | $ | 262.9 | $ | 272.0 | (3.3) | % | $ | 801.2 | $ | 814.4 | (1.6) | % | |||||||||||||||||||||||
Americas
Americas net sales were $178.4$174.0 million for the secondthird quarter of 2022, an increase of 6.7%4.4% from the secondthird quarter of 2021. Organic sales grew 6.5%4.6% in the Americas, mainly due to higher selling prices across the region, and volume increases in Latin America, and growth in parts and consumables in North America. This was partially offset by volume declines on equipment in North America. Demand in the region remained strong; however, diminishedDiminished parts availability on certain component parts due to global supply chain constraints resulted in increased backlog levels.has limited our ability to increase production. Additionally, foreign currency exchange within the Americas favorablyunfavorably impacted net sales by approximately 0.2% in the secondthird quarter of 2022.
increase production.
S&A expense was $155.7 million for the first six monthslimited availability of 2022, a decrease of $9.9 million compared to the first six months of 2021. As a percentage of net sales, S&A expense for the first six months of 2022 decreased 160 basis points to 28.9% from 30.5% in the first six months of 2021. The S&A expense decrease in the first six months of 2022 was primarily driven by lower variable employee compensation expenses.
component parts.
Total Other Expense, Net
LossInterest Expense, NetInterest expense, net was $1.2$2.2 million in the secondthird quarter of 2022 compared to $2.1$0.6 million in the same period of 2021. The increase was the result of rising interest rates on our variable interest rate debt.Interest expense, net was $1.5$3.7 million in the first sixnine months of 2022 compared to $6.0$6.6 million in the same period of 2021. The decrease in both periodswas a result of 2021 was due to the restructuring of debt in the second quarter of 2021, which resulted in lower interest expense from more favorable interest rates anddue to a lower amount of outstanding debt.Our debt portfolio as of JuneSeptember 30, 2022 was comprised of debt predominately 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.29Net Foreign Currency Transaction (Loss) GainNet foreign currency transaction (loss) gainloss was a $1.0 million loss and less than $0.1 million lossand $0.7 million in the secondthird quarter of 2022 and 2021, respectively. Net foreign currency transaction (loss) gainloss was a $0.4 million loss and a $0.5$0.2 million gain in the first sixnine months of 2022 and 2021, respectively. The unfavorable impact was primarily due to strengthening of the U.S. dollar relative to the Brazilian real on foreign denominated liabilities.Income TaxesThe effective tax rate for the secondthird quarter of 2022 was 18.2%21.2% compared to (36.1)%3.6% for the secondthird quarter of 2021. The effective tax rate for the first sixnine months of 2022 was 23.1%22.4% compared to 11.7%8.8% for the first sixnine months of 2021. The effective tax rate for both the secondthird quarter and the first sixnine months of 2022 increased primarily due to a high level of discrete tax benefit items in 2021 compared to 2022 and the mix in expected full year taxable earnings by country. For the second quarter of 2021, theThe discrete tax benefits in 2021 included 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 tax reserves as a result of a lapse in the applicable statute of limitations and a $3.4 million benefit associated with the reversal of avaluation allowances related to net operating loss carryovers. The valuation allowance related to tax loss carryovers in The Netherlands. The reversalrelease was driven by a change in law providing an unlimited carryforward period.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. No deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our foreign investments to the United States.BacklogBacklog is one of the many indicators of business conditions in the Company's markets. Our order backlog was approximately $281.7 million at September 30, 2022 compared to $288.7 million at June 30, 2022 was approximately three times larger compared to June 30,and $169.7 million at December 31, 2021. During the second quarter of 2022, our order backlog increased approximately 11.0%. The increase in our order backlog wasis primarily due to higher order rates coupled with persistent supply chain challenges that impacted our ability to obtain raw materials andkey component parts. Unless these factors change, we expect our backlog level to remain high throughout 2022.elevated. Backlog includes orders that can be cancelled or postponed at the option of the customer at any time without penalty.21
Liquidity and Capital Resources
production, higher accounts receivables due to increased sales to customers with extended payment terms, and increased cash payments for employee compensation and benefits and taxes. We anticipate that inventory levels will begin to decrease in the fourth quarter as production increases. We also actively manage our accounts receivable portfolio and expect increased collection activity in the fourth quarter. The Company used the proceeds from borrowings to invest in constrained component parts to prepare for a ramp in production.LiquidityCash, cash equivalents and restricted cash totaled $73.8$59.2 million at JuneSeptember 30, 2022, as compared to $123.6 million as of December 31, 2021. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 2.02.1 as of JuneSeptember 30, 2022 and 1.8 as of December 31, 2021, and our primary working capital, which is comprised of accounts receivable, inventories and accounts payables, was $283.9$308.9 million and $250.5 million, respectively. Our debt-to-capital ratio was 38.0%39.8% as of JuneSeptember 30, 2022, compared to 38.1% as of December 31, 2021.As of JuneSeptember 30, 2022, we had letters of credit and bank guarantees outstanding in the amount of $2.9$3.1 million, leaving approximately $279.1$261.9 million of unused borrowing capacity on our revolving facility.On August 3, 2022, the Company's Board of Directors authorized a quarterly cash dividend of $0.25 per share payable September 15, 2022, to shareholders of record at the close of business on August 31, 2022.Cash Flow from Operating ActivitiesNet cash used in operating activities during the sixnine months ended JuneSeptember 30, 2022 was $23.6$38.8 million compared to net cash provided by operating activities of $37.8$62.9 million during the sixnine months ended JuneSeptember 30, 2021. The increase in cash used was primarily driven by an increase in working capital attributable to the effects of inflation as well as an investmentinvestments in constrained component partsinventory to prepare forsupport a ramp in production.30Cash Flow from Investing ActivitiesNet cash used in investing activities during the sixnine months ended JuneSeptember 30, 2022 was $10.1$19.0 million compared to net cash provided by investing activities of $16.7$12.6 million during the sixnine months ended JuneSeptember 30, 2021. The increase of cash outflows was primarily the result of lower cash proceeds from the prior year sale of our Coatings business in 2021.Cash Flow from Financing ActivitiesNet cash used in financing activities decreased during the sixnine months ended JuneSeptember 30, 2022 compared to the sixnine months ended JuneSeptember 30, 2021 primarily due to a decrease in repayments of borrowings in the first sixnine month of 2022.Newly Issued Accounting GuidanceSee Note 2 to the Consolidated Financial Statements for information on new accounting pronouncements.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.Cautionary Statement Relevant to Forward-Looking InformationThis Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains 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 impacts and duration of the COVID-19 pandemic; our ability to comply with global laws and regulations; our ability to adapt to customer pricing sensitivities; the competition in our business; fluctuations in the cost, quality or availability of raw materials and purchased components; our ability to adjust pricing to respond to cost pressures; unforeseen product liability claims or product quality issues; our ability to attract, retain and develop key personnel and create effective succession planning strategies; our ability to effectively develop and manage strategic planning and growth processes and the related operational plans; our ability to successfully upgrade and evolve our information technology systems; our ability to successfully protect our information technology systems from cybersecurity risks; the occurrence of a significant business interruption; our ability to maintain the health and safety of our workers; our ability to integrate acquisitions; and our 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. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Additional information about factors that could materially affect our results can be found in Part I, Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 31, 2021.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 SEC 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.Item 3.Quantitative and Qualitative Disclosures About Market Risk22
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There have been no material changes in our market risk since December 31, 2021. For additional information, refer to Item 7A of our annual report on Form 10-K for the year ended December 31, 2021.
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31Item 4.Controls and ProceduresDisclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and our Principal Financial and Accounting Officer, has evaluated the effectiveness of our disclosure controls and procedures as of JuneSeptember 30, 2022 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and our Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and our principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.Changes in Internal ControlsThere were no changes in our internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Item 1.Legal ProceedingsThere are no material pending legal proceedings other than ordinary routine litigation incidental to our business.Item 1A.Item 1A.Risk FactorsWe documented our risk factors in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 2021. There have been no material changes to our risk factors since the filing of that report.23TableItem 2.Unregistered Sales of ContentsEquity Securities and Use of Proceeds
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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 | ||||||||||||
June 30, 2022 | Purchased(1) | Per Share | Programs | Programs | ||||||||||||
April 1–30, 2022 | 18 | $ | 78.80 | — | 1,192,089 | |||||||||||
May 1–31, 2022 | 2,018 | $ | 60.54 | — | 1,192,089 | |||||||||||
June 1–30, 2022 | 35 | $ | 56.31 | — | 1,192,089 | |||||||||||
Total | 2,071 | $ | 60.63 | — | 1,192,089 | |||||||||||
| For the Quarter Ended September 30, 2022 | 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 | ||||||||||
| July 1–31, 2022 | 54 | $ | 58.86 | — | 1,192,089 | |||||||||
| August 1–31, 2022 | 0 | $ | — | — | 1,192,089 | |||||||||
| September 1–30, 2022 | 0 | $ | — | — | 1,192,089 | |||||||||
| Total | 54 | $ | 58.86 | — | 1,192,089 | |||||||||
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Item |
| Description |
| Method of Filing | |||||||||||
3i | Incorporated by reference to Exhibit 3i to the Company’s report on Form 10-Q for the quarterly period ended June 30, 2006. | |||||||||||||
3ii | Incorporated by reference to Exhibit 3iii to the Company’s Form 8-K dated December 14, 2010. | |||||||||||||
3iii | Incorporated by reference to Exhibit 3iii to the Company's report on Form 10-Q for the quarterly period ended March 31, 2018. | |||||||||||||
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 Quarterly Report on Form 10-Q for the period ended | Filed herewith electronically. | ||||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | Filed herewith electronically. | ||||||||||||
| TENNANT COMPANY | ||||||||||||||
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| Date: | October 27, 2022 | /s/ Fay West | ||||||||||||
Fay West Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||||||||||