ITEM 8 – Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Tennant Company:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Tennant Company and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company acquired Gaomei during 2019, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, Gaomei’s internal control over financial reporting associated with total assets of $41.3 million and total revenues of $15.8 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2019. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Gaomei.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842), and related amendments, and as discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for revenues as of January 1, 2018 due to the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), and related amendments.
Basis for Opinions
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. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits 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.
Our audits of the consolidated financial statements 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated 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 consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated 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.
Evaluation of the acquisition-date fair value of contingent consideration
As discussed in Note 5 to the consolidated financial statements, on January 4, 2019, the Company acquired Gaomei for a total purchase price of $27.1 million, including $4.7 million representing the estimated fair value of contingent consideration at the acquisition date. The acquisition-date fair value was based on probability-weighted scenario analyses of achieving certain levels of gross profit growth over a three-year period. Consideration ranging from zero to $42.4 million will be paid in March 2021 if the gross profit growth targets are met.
We identified the evaluation of the acquisition-date fair value of contingent consideration as a critical audit matter. A high degree of auditor judgment was required in assessing the valuation method, forecasted annual gross profit growth rates, gross profit volatility rate, and discount rate, as the fair value determination is sensitive to minor changes in these assumptions.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s fair value determination process, including controls over the development of the forecasted annual gross profit growth rates, gross profit volatility rate, and discount rate. We analyzed the forecasted gross profit growth rates by comparing the Gaomei forecasted gross profit growth rates to historical results to assess the Company’s ability to accurately forecast. We performed sensitivity analyses to assess the impact of changes in these assumptions on the Company’s fair value determination of the contingent consideration. We involved valuation professionals with specialized skills and knowledge who assisted in:
|
|
•
|
evaluating the valuation method used by the Company to determine the acquisition-date fair value of contingent consideration,
|
|
|
•
|
evaluating the Company’s gross profit volatility rate by comparing the Company’s inputs to amounts calculated from publicly available data for comparable entities and assessing the resulting rates,
|
|
|
•
|
evaluating the Company’s discount rate by comparing the Company’s inputs to publicly available data for comparable entities and assessing the resulting rates, and
|
|
|
•
|
performing independent simulation analyses to assess the accuracy of the Company’s resulting fair value of contingent consideration.
|
/s/ KPMG LLP
We have served as the Company's auditor since 1954.
Minneapolis, Minnesota
February 27, 2020
Consolidated Statements of Operations
TENNANT COMPANY AND SUBSIDIARIES
(In millions, except shares and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2019
|
|
2018
|
|
2017
|
Net Sales
|
$
|
1,137.6
|
|
|
$
|
1,123.5
|
|
|
$
|
1,003.1
|
|
Cost of Sales
|
675.9
|
|
|
678.5
|
|
|
603.3
|
|
Gross Profit
|
461.7
|
|
|
445.0
|
|
|
399.8
|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
Research and Development Expense
|
32.7
|
|
|
30.7
|
|
|
32.0
|
|
Selling and Administrative Expense
|
357.2
|
|
|
356.3
|
|
|
334.8
|
|
Total Operating Expense
|
389.9
|
|
|
387.0
|
|
|
366.8
|
|
Profit from Operations
|
71.8
|
|
|
58.0
|
|
|
33.0
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
Interest Income
|
3.3
|
|
|
3.0
|
|
|
2.4
|
|
Interest Expense
|
(21.1
|
)
|
|
(23.3
|
)
|
|
(25.4
|
)
|
Net Foreign Currency Transaction Losses
|
(0.7
|
)
|
|
(1.1
|
)
|
|
(3.4
|
)
|
Other Income (Expense), Net
|
0.7
|
|
|
(0.8
|
)
|
|
(7.9
|
)
|
Total Other Expense, Net
|
(17.8
|
)
|
|
(22.2
|
)
|
|
(34.3
|
)
|
Profit (Loss) Before Income Taxes
|
54.0
|
|
|
35.8
|
|
|
(1.3
|
)
|
Income Tax Expense
|
8.1
|
|
|
2.3
|
|
|
4.9
|
|
Net Earnings (Loss) Including Noncontrolling Interest
|
45.9
|
|
|
33.5
|
|
|
(6.2
|
)
|
Net Earnings (Loss) Attributable to Noncontrolling Interest
|
0.1
|
|
|
0.1
|
|
|
—
|
|
Net Earnings (Loss) Attributable to Tennant Company
|
$
|
45.8
|
|
|
$
|
33.4
|
|
|
$
|
(6.2
|
)
|
|
|
|
|
|
|
Net Earnings (Loss) Attributable to Tennant Company per Share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
2.53
|
|
|
$
|
1.86
|
|
|
$
|
(0.35
|
)
|
Diluted
|
$
|
2.48
|
|
|
$
|
1.82
|
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
Basic
|
18,118,486
|
|
|
17,940,438
|
|
|
17,695,390
|
|
Diluted
|
18,453,145
|
|
|
18,338,569
|
|
|
17,695,390
|
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Comprehensive Income
TENNANT COMPANY AND SUBSIDIARIES
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2019
|
|
2018
|
|
2017
|
Net Earnings (Loss) Including Noncontrolling Interest
|
$
|
45.9
|
|
|
$
|
33.5
|
|
|
$
|
(6.2
|
)
|
Other Comprehensive (Loss) Income:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(4.5
|
)
|
|
(16.2
|
)
|
|
28.3
|
|
Pension and retiree medical benefits
|
(0.5
|
)
|
|
1.7
|
|
|
5.9
|
|
Cash flow hedge
|
4.6
|
|
|
1.3
|
|
|
(7.7
|
)
|
Income Taxes:
|
|
|
|
|
|
Foreign currency translation adjustments
|
0.1
|
|
|
0.2
|
|
|
0.3
|
|
Pension and retiree medical benefits
|
0.1
|
|
|
(0.5
|
)
|
|
(2.1
|
)
|
Cash flow hedge
|
(1.1
|
)
|
|
(1.4
|
)
|
|
2.9
|
|
Total Other Comprehensive (Loss) Income, net of tax
|
(1.3
|
)
|
|
(14.9
|
)
|
|
27.6
|
|
Total Comprehensive Income Including Noncontrolling Interest
|
44.6
|
|
|
18.6
|
|
|
21.4
|
|
Comprehensive Income Attributable to Noncontrolling Interest
|
0.1
|
|
|
0.1
|
|
|
—
|
|
Comprehensive Income Attributable to Tennant Company
|
$
|
44.5
|
|
|
$
|
18.5
|
|
|
$
|
21.4
|
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Balance Sheets
TENNANT COMPANY AND SUBSIDIARIES
(In millions, except shares and per share data)
|
|
|
|
|
|
|
|
|
December 31
|
2019
|
|
2018
|
ASSETS
|
|
|
|
Current Assets:
|
|
|
|
Cash, Cash Equivalents, and Restricted Cash
|
$
|
74.6
|
|
|
$
|
86.1
|
|
Receivables:
|
|
|
|
|
|
Trade, less Allowances of $3.6 and $2.5, respectively
|
216.5
|
|
|
208.0
|
|
Other
|
6.8
|
|
|
8.2
|
|
Net Receivables
|
223.3
|
|
|
216.2
|
|
Inventories
|
150.1
|
|
|
135.1
|
|
Prepaid and Other Current Assets
|
33.0
|
|
|
31.2
|
|
Total Current Assets
|
481.0
|
|
|
468.6
|
|
Property, Plant and Equipment
|
412.5
|
|
|
386.6
|
|
Accumulated Depreciation
|
(239.2
|
)
|
|
(223.2
|
)
|
Property, Plant and Equipment, Net
|
173.3
|
|
|
163.4
|
|
Operating Lease Assets
|
46.6
|
|
|
—
|
|
Goodwill
|
195.1
|
|
|
182.7
|
|
Intangible Assets, Net
|
137.7
|
|
|
146.5
|
|
Other Assets
|
29.2
|
|
|
31.3
|
|
Total Assets
|
$
|
1,062.9
|
|
|
$
|
992.5
|
|
LIABILITIES AND TOTAL EQUITY
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
Current Portion of Long-Term Debt
|
$
|
31.3
|
|
|
$
|
27.0
|
|
Accounts Payable
|
94.1
|
|
|
98.4
|
|
Employee Compensation and Benefits
|
63.5
|
|
|
56.1
|
|
Other Current Liabilities
|
86.0
|
|
|
67.4
|
|
Total Current Liabilities
|
274.9
|
|
|
248.9
|
|
Long-Term Liabilities:
|
|
|
|
|
|
Long-Term Debt
|
307.5
|
|
|
328.1
|
|
Long-Term Operating Lease Liability
|
30.3
|
|
|
—
|
|
Employee-Related Benefits
|
19.4
|
|
|
21.1
|
|
Deferred Income Taxes
|
41.7
|
|
|
46.0
|
|
Other Liabilities
|
27.8
|
|
|
32.1
|
|
Total Long-Term Liabilities
|
426.7
|
|
|
427.3
|
|
Total Liabilities
|
701.6
|
|
|
676.2
|
|
Commitments and Contingencies (Note 16)
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
Common Stock, $0.375 par value per share, 60,000,000 shares authorized; 18,336,010 and 18,125,201 issued and outstanding, respectively
|
6.9
|
|
|
6.8
|
|
Additional Paid-In Capital
|
45.5
|
|
|
28.5
|
|
Retained Earnings
|
346.0
|
|
|
316.3
|
|
Accumulated Other Comprehensive Loss
|
(38.5
|
)
|
|
(37.2
|
)
|
Total Tennant Company Shareholders' Equity
|
359.9
|
|
|
314.4
|
|
Noncontrolling Interest
|
1.4
|
|
|
1.9
|
|
Total Equity
|
361.3
|
|
|
316.3
|
|
Total Liabilities and Total Equity
|
$
|
1,062.9
|
|
|
$
|
992.5
|
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
TENNANT COMPANY AND SUBSIDIARIES
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2019
|
|
2018
|
|
2017
|
OPERATING ACTIVITIES
|
|
|
|
|
|
Net Earnings (Loss) Including Noncontrolling Interest
|
$
|
45.9
|
|
|
$
|
33.5
|
|
|
$
|
(6.2
|
)
|
Adjustments to Reconcile Net Earnings (Loss) to Net Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
32.2
|
|
|
32.3
|
|
|
26.2
|
|
Amortization of Intangible Assets
|
22.2
|
|
|
22.1
|
|
|
17.1
|
|
Amortization of Debt Issuance Costs
|
1.3
|
|
|
2.4
|
|
|
1.8
|
|
Debt Issuance Cost Charges Related to Short-Term Financing
|
—
|
|
|
—
|
|
|
6.2
|
|
Fair Value Step-Up Adjustment to Acquired Inventory
|
0.9
|
|
|
—
|
|
|
7.2
|
|
Deferred Income Taxes
|
(9.6
|
)
|
|
(10.9
|
)
|
|
(6.1
|
)
|
Share-Based Compensation Expense
|
11.4
|
|
|
8.3
|
|
|
5.9
|
|
Allowance for Doubtful Accounts and Returns
|
2.5
|
|
|
0.8
|
|
|
1.6
|
|
Acquisition Contingent Consideration Adjustment
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
Note Receivable Write-down
|
2.7
|
|
|
—
|
|
|
—
|
|
Discontinuation of Product Lines
|
3.3
|
|
|
—
|
|
|
—
|
|
Other, Net
|
1.1
|
|
|
(0.4
|
)
|
|
0.4
|
|
Changes in Operating Assets and Liabilities, Net of Assets Acquired:
|
|
|
|
|
|
|
|
|
Receivables, Net
|
(8.5
|
)
|
|
(7.6
|
)
|
|
(14.4
|
)
|
Inventories
|
(21.1
|
)
|
|
(16.6
|
)
|
|
(2.9
|
)
|
Accounts Payable
|
(7.5
|
)
|
|
4.6
|
|
|
10.8
|
|
Employee Compensation and Benefits
|
4.5
|
|
|
12.7
|
|
|
(4.0
|
)
|
Other Current Liabilities
|
(1.4
|
)
|
|
(0.7
|
)
|
|
11.1
|
|
Other Assets and Liabilities
|
(5.7
|
)
|
|
(0.5
|
)
|
|
(0.5
|
)
|
Net Cash Provided by Operating Activities
|
71.9
|
|
|
80.0
|
|
|
54.2
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of Property, Plant and Equipment
|
(38.4
|
)
|
|
(18.8
|
)
|
|
(20.4
|
)
|
Proceeds from Disposals of Property, Plant and Equipment
|
0.1
|
|
|
0.1
|
|
|
2.5
|
|
Proceeds from Principal Payments Received on Long-Term Note Receivable
|
2.9
|
|
|
1.4
|
|
|
0.7
|
|
Issuance of Long-Term Note Receivable
|
—
|
|
|
—
|
|
|
(1.5
|
)
|
Acquisitions of Businesses, Net of Cash, Cash Equivalents and Restricted Cash Acquired
|
(19.7
|
)
|
|
—
|
|
|
(354.1
|
)
|
Purchase of Intangible Asset
|
(0.5
|
)
|
|
(2.8
|
)
|
|
(2.5
|
)
|
Proceeds from Sale of Business
|
—
|
|
|
4.0
|
|
|
—
|
|
Net Cash Used in Investing Activities
|
(55.6
|
)
|
|
(16.1
|
)
|
|
(375.3
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from Debt
|
25.0
|
|
|
14.9
|
|
|
743.0
|
|
Repayments of Debt
|
(41.8
|
)
|
|
(38.3
|
)
|
|
(399.3
|
)
|
Change in Finance Lease Obligations
|
(0.2
|
)
|
|
—
|
|
|
0.3
|
|
Payments of Debt Issuance Costs
|
—
|
|
|
—
|
|
|
(16.5
|
)
|
Proceeds from Issuances of Common Stock
|
6.1
|
|
|
5.9
|
|
|
6.9
|
|
Purchase of Noncontrolling Owner Interest
|
(0.5
|
)
|
|
—
|
|
|
—
|
|
Dividends Paid
|
(16.0
|
)
|
|
(15.3
|
)
|
|
(15.0
|
)
|
Net Cash (Used in) Provided by Financing Activities
|
(27.4
|
)
|
|
(32.8
|
)
|
|
319.4
|
|
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
|
(0.4
|
)
|
|
(4.0
|
)
|
|
2.2
|
|
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
(11.5
|
)
|
|
27.1
|
|
|
0.5
|
|
Cash, Cash Equivalents and Restricted Cash at Beginning of Year
|
86.1
|
|
|
59.0
|
|
|
58.5
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR
|
$
|
74.6
|
|
|
$
|
86.1
|
|
|
$
|
59.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
Years ended December 31
|
2019
|
|
2018
|
|
2017
|
Cash Paid for:
|
|
|
|
|
|
Income Taxes
|
$
|
21.7
|
|
|
$
|
11.1
|
|
|
$
|
13.5
|
|
Interest
|
$
|
19.7
|
|
|
$
|
22.4
|
|
|
$
|
14.2
|
|
Supplemental Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
Capital Expenditures in Accounts Payable
|
$
|
3.9
|
|
|
$
|
2.3
|
|
|
$
|
2.2
|
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Equity
TENNANT COMPANY AND SUBSIDIARIES
(In 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, 2016
|
17,688,350
|
|
$
|
6.6
|
|
$
|
3.6
|
|
$
|
318.2
|
|
$
|
(49.9
|
)
|
$
|
278.5
|
|
$
|
—
|
|
$
|
278.5
|
|
Net Loss
|
—
|
|
—
|
|
—
|
|
(6.2
|
)
|
—
|
|
(6.2
|
)
|
—
|
|
(6.2
|
)
|
Other Comprehensive Income
|
—
|
|
—
|
|
—
|
|
—
|
|
27.6
|
|
27.6
|
|
—
|
|
27.6
|
|
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 16,990 shares
|
192,827
|
|
0.1
|
|
5.6
|
|
—
|
|
—
|
|
5.7
|
|
—
|
|
5.7
|
|
Share-Based Compensation
|
—
|
|
—
|
|
5.9
|
|
—
|
|
—
|
|
5.9
|
|
—
|
|
5.9
|
|
Dividends paid $0.84 per Common Share
|
—
|
|
—
|
|
—
|
|
(15.0
|
)
|
—
|
|
(15.0
|
)
|
—
|
|
(15.0
|
)
|
Recognition of Noncontrolling Interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2.0
|
|
2.0
|
|
Balance, December 31, 2017
|
17,881,177
|
|
$
|
6.7
|
|
$
|
15.1
|
|
$
|
297.0
|
|
$
|
(22.3
|
)
|
$
|
296.5
|
|
$
|
2.0
|
|
$
|
298.5
|
|
Net Earnings
|
—
|
|
—
|
|
—
|
|
33.4
|
|
—
|
|
33.4
|
|
0.1
|
|
33.5
|
|
Other Comprehensive Loss
|
—
|
|
—
|
|
—
|
|
—
|
|
(14.9
|
)
|
(14.9
|
)
|
—
|
|
(14.9
|
)
|
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 9,598 shares
|
244,024
|
|
0.1
|
|
5.1
|
|
—
|
|
—
|
|
5.2
|
|
—
|
|
5.2
|
|
Share-Based Compensation
|
—
|
|
—
|
|
8.3
|
|
—
|
|
—
|
|
8.3
|
|
—
|
|
8.3
|
|
Dividends paid $0.85 per Common Share
|
—
|
|
—
|
|
—
|
|
(15.3
|
)
|
—
|
|
(15.3
|
)
|
—
|
|
(15.3
|
)
|
Recognition of Noncontrolling Interests
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.2
|
)
|
(0.2
|
)
|
Adjustments to beginning Retained Earnings resulting from newly adopted accounting pronouncements
|
—
|
|
—
|
|
—
|
|
1.2
|
|
—
|
|
1.2
|
|
—
|
|
1.2
|
|
Balance, December 31, 2018
|
18,125,201
|
|
$
|
6.8
|
|
$
|
28.5
|
|
$
|
316.3
|
|
$
|
(37.2
|
)
|
$
|
314.4
|
|
$
|
1.9
|
|
$
|
316.3
|
|
Net Earnings
|
—
|
|
—
|
|
—
|
|
45.8
|
|
—
|
|
45.8
|
|
0.1
|
|
45.9
|
|
Other Comprehensive Loss
|
—
|
|
—
|
|
—
|
|
—
|
|
(1.3
|
)
|
(1.3
|
)
|
—
|
|
(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
|
|
—
|
|
—
|
|
5.2
|
|
—
|
|
5.2
|
|
Share-Based Compensation
|
—
|
|
—
|
|
11.4
|
|
—
|
|
—
|
|
11.4
|
|
—
|
|
11.4
|
|
Dividends paid $0.88 per Common Share
|
—
|
|
—
|
|
—
|
|
(16.0
|
)
|
—
|
|
(16.0
|
)
|
—
|
|
(16.0
|
)
|
Purchase of Noncontrolling Interests
|
—
|
|
—
|
|
0.5
|
|
—
|
|
—
|
|
0.5
|
|
(0.5
|
)
|
—
|
|
Other
|
—
|
|
—
|
|
—
|
|
(0.1
|
)
|
—
|
|
(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
|
|
See accompanying Notes to Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
|
|
1.
|
Summary of Significant Accounting Policies
|
Nature of Operations – We are a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance, significantly reduce environmental impact and help create a cleaner, safer, healthier world. We offer products and solutions consisting of mechanized cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, specialty surface coatings, and business solutions such as financing, rental and leasing programs, and machine-to-machine asset management solutions. Our 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 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 $6.6 million of payroll tax accruals from Other Current Liabilities to Employee Compensation and Benefits in the Consolidated Balance Sheet at December 31, 2018 to conform to the current year presentation. This reclassification is also reflected in the Consolidated Statement of Cash Flows for the years ended December 31, 2018 and 2017.
Consolidation – The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated.
Translation 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 of Accumulated Other Comprehensive Loss. The balance of cumulative foreign currency translation adjustments recorded within Accumulated Other Comprehensive Loss as of December 31, 2019, 2018 and 2017 was a net loss of $36.3 million, $31.9 million and $15.8 million, respectively. The majority of translation adjustments are not adjusted for income taxes as substantially all translation adjustments relate to permanent investments in non-U.S. subsidiaries. Net Foreign Currency Transaction Losses are included in Other Income (Expense), Net.
Use of Estimates – In preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP"), management must make decisions that impact the reported amounts of assets, liabilities, revenues, expenses and the related disclosures, including disclosures of contingent assets and liabilities. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. Estimates are used in determining, among other items, sales promotions and incentives accruals, inventory valuation, warranty reserves, allowance for doubtful accounts, pension and postretirement accruals, useful lives for intangible assets, and future cash flows associated with impairment testing for Goodwill and other long-lived assets. These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. A number of these factors include, among others, economic conditions, credit markets, foreign currency, commodity cost volatility and consumer spending and confidence, all of which have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual amounts could differ significantly from those estimated at the time the consolidated financial statements are prepared. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
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 of $0.5 million as of December 31, 2019 and 2018 that serves as collateral backing certain bank guarantees and is therefore restricted. This money is invested in time deposits.
Receivables – 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 determined by a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. 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.
Inventories – Inventories are valued at the lower of cost or net realizable value. Cost is determined on a first-in, first-out (“FIFO”) basis except for Inventories in North America, which are determined on a last-in, first-out (“LIFO”) basis.
Property, 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.
Leases – We 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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
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 will 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 lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain leases also include options to 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 not material to our Consolidated Financial Statements.
Further details regarding leases are discussed in Notes 2 and 15.
Goodwill – Goodwill represents the excess of cost over the fair value of net assets of businesses acquired. We analyze Goodwill on an annual basis as of year-end and when an event occurs or circumstances change that may reduce the fair value of one of our reporting units below its carrying amount. A goodwill impairment occurs if the carrying amount of a reporting unit exceeds its fair value. In assessing the recoverability of Goodwill, we use an analysis of 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 impairment test.
Intangible Assets – Intangible Assets consist of definite lived customer lists, trade names and technology. Generally, intangible assets classified as trade names are amortized on a straight-line basis and intangible assets classified as customer lists or technology are amortized using an accelerated method of amortization.
Impairment of Long-lived Assets and Assets Held for Sale – We periodically review our intangible and long-lived assets for impairment and assess whether events or circumstances indicate that the carrying amount of the assets may not be recoverable. We generally deem an asset group to be impaired if an estimate of undiscounted future operating cash flows is less than its carrying amount. If impaired, an impairment loss is recognized based on the excess of the carrying amount of the individual asset group over its fair value.
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 our Common Stock under 2016 and 2015 repurchase programs authorized by our Board of Directors. These programs allow us to repurchase up to an aggregate of 1,392,892 shares of our Common Stock. Upon repurchase, the par value is charged to Common Stock and the remaining purchase price is charged to Additional Paid-in Capital. If the amount of the remaining purchase price causes the Additional Paid-in Capital account to be in a negative position, this amount is then reclassified to Retained Earnings. Common Stock repurchased is included in shares authorized but is not included in shares outstanding.
Warranty – 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 1 to 4 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 out for older equipment warranty issues. Warranty costs are recorded as a component of Selling and Administrative Expense in the Consolidated Statements of Operations.
Debt Issuance Costs – We record all applicable debt issuance costs related to a recognized debt liability 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 Sheets. 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.
Environmental – We record a liability for environmental clean-up on an undiscounted basis when a loss is probable and can be reasonably estimated.
Pension and Profit Sharing Plans – Substantially all U.S. employees are covered by various retirement benefit plans, including postretirement medical plans, defined benefit pension plans and defined contribution savings plans. Pension plan costs are accrued based on actuarial estimates with the required pension cost funded annually, as needed. No new participants have entered the defined benefit pension plan since 2000 and no new participants have entered the postretirement medical plan since 1998. Retirement benefits for eligible employees in foreign locations are funded principally through defined benefit plans, annuity or government programs. For further details regarding our pension and profit sharing plans, see Note 13.
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 foreign currency-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. We may also use foreign exchange option contracts or forward contracts to hedge certain cash flow exposures resulting from changes in foreign currency exchange rates. We enter into these foreign exchange contracts to hedge a portion of our forecasted currency-denominated revenue in the normal course of business, and accordingly, they are not speculative in nature.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
We account for our foreign currency hedging instruments as either assets or liabilities on the balance sheet 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 Losses in our Consolidated Statements of Operations. 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 Loss in our 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. 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 Loss to Net Foreign Currency Transaction Losses in our Consolidated Statements of Operations 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 Losses in our Consolidated Statements of Operations. See Note 11 for additional information regarding our hedging activities.
Revenue Recognition – Revenue is recognized when control transfers under the terms of the contract with our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We do not account for shipping and handling as a distinct performance obligation as we generally perform shipping and handling activities after we transfer control of goods to the customer. We have elected to account for shipping and handling costs associated with outbound freight after control of goods has transferred to a customer as a fulfillment cost. Incidental items that are immaterial in the context of the contract are not recognized as a separate performance obligation. We do not have any significantly extended payment terms as payment is generally received within one year of the point of sale.
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 toward 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 Operations.
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.
We adopted ASU No. 2014-9, Revenue from Contracts with Customers, (Topic 606), in January 2018 using the modified retrospective method. Further details regarding revenue recognition are discussed in Note 3.
Share-based Compensation – We account for employee share-based compensation using the fair value based method. Our share-based compensation plans are more fully described in Note 18.
Research and Development – Research and development costs are expensed as incurred.
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 2019, 2018 and 2017, such activities amounted to $8.2 million, $8.8 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 follow guidance provided by Accounting Standards Codification (ASC) 740, Income Taxes, regarding uncertainty in income taxes, to record these uncertain tax position accruals (refer to Note 17 for additional information). 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 (loss) per share is computed by dividing Net Earnings (Loss) 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 conversions 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 instruments are out-of-the-money, as the effects are anti-dilutive.
New Accounting Pronouncements – In June 16, 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. 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 and supportable forecasts. The amendments in this ASU are effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period, which is our
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
fiscal 2020. Early application is permitted. We adopted this ASU in January 2020. We evaluated the impact of this amended guidance on our consolidated financial statements and related disclosures and concluded that it is immaterial.
In August 2018, the FASB issued 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. This ASU is effective for annual periods ending after December 15, 2020, which is our fiscal 2021. Early application is permitted. We will adopt this ASU in the fourth quarter of 2020. We expect the impact of this amended guidance on our disclosures to be immaterial.
In December 2019, the FASB issued 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 amendment is effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted. We plan to adopt this ASU in the first quarter of 2021. We are still evaluating the impact of this amended guidance on our consolidated financial statements and related disclosures.
Further details regarding the adoption of new accounting standards are discussed in Note 2.
|
|
2.
|
Newly Adopted Accounting Pronouncements
|
Leases
On January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842). This ASU requires lessees to recognize operating lease assets and operating lease liabilities on the balance sheet. Under the new guidance, lessor accounting is largely unchanged.
We have elected to adopt the standard on the modified retrospective basis. We have also elected the package of practical expedients, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the short-term lease recognition whereby we will not recognize operating lease related assets or liabilities for leases with a lease term less than one year. We have also elected the practical expedient to not separate lease and non-lease components for our asset classes. We did not elect the hindsight practical expedient to determine the reasonably certain term of existing leases.
The impact of adopting the new lease standard was the recognition of $44.8 million of lease assets and lease liabilities related to our operating leases. The adoption of the new lease standard had no impact to our Consolidated Statements of Earnings, Consolidated Statements of Cash Flows or Consolidated Statements of Equity.
Derivatives and Hedging
On January 1, 2019, we adopted ASU No. 2017-12, Derivatives and Hedging, and all the related amendments to Accounting Standards Codification Topic 815 which aligns hedge accounting with risk management activities and simplifies the requirements to qualify for hedge accounting. Adoption did not have a material impact on our financial statements.
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.
Further information on revenue recognition is described in Note 1.
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 years ended December 31, 2019, 2018 and 2017 (in millions):
Net Sales by geographic area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
December 31
|
|
|
2019
|
|
2018
|
|
2017
|
Americas
|
|
$
|
722.4
|
|
|
$
|
691.0
|
|
|
$
|
640.3
|
|
Europe, Middle East and Africa
|
|
307.6
|
|
|
335.6
|
|
|
273.7
|
|
Asia Pacific
|
|
107.6
|
|
|
96.9
|
|
|
89.1
|
|
Total
|
|
$
|
1,137.6
|
|
|
$
|
1,123.5
|
|
|
$
|
1,003.1
|
|
Net Sales are attributed to each geographic area based on the end user country and are net of intercompany sales.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Net Sales by groups of similar products and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
December 31
|
|
|
2019
|
|
2018
|
|
2017
|
Equipment
|
|
$
|
742.7
|
|
|
$
|
730.0
|
|
|
$
|
636.9
|
|
Parts and Consumables
|
|
221.0
|
|
|
222.3
|
|
|
202.5
|
|
Specialty Surface Coatings
|
|
25.7
|
|
|
29.8
|
|
|
31.4
|
|
Service and Other
|
|
148.2
|
|
|
141.4
|
|
|
132.3
|
|
Total
|
|
$
|
1,137.6
|
|
|
$
|
1,123.5
|
|
|
$
|
1,003.1
|
|
Net Sales by sales channel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
December 31
|
|
|
2019
|
|
2018
|
|
2017
|
Sales Direct to Consumer
|
|
$
|
750.9
|
|
|
$
|
735.2
|
|
|
$
|
674.5
|
|
Sales to Distributors
|
|
386.7
|
|
|
388.3
|
|
|
328.6
|
|
Total
|
|
$
|
1,137.6
|
|
|
$
|
1,123.5
|
|
|
$
|
1,003.1
|
|
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 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 for the years ended December 31, 2019 and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
December 31
|
|
2019
|
|
2018
|
Beginning balance
|
$
|
16.7
|
|
|
$
|
13.5
|
|
Additions to sales incentive accrual
|
24.7
|
|
|
30.5
|
|
Contract payments
|
(27.7
|
)
|
|
(27.0
|
)
|
Foreign currency fluctuations
|
—
|
|
|
(0.3
|
)
|
Ending balance
|
$
|
13.7
|
|
|
$
|
16.7
|
|
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The change in the deferred revenue balance for the years ended December 31, 2019 and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
December 31
|
|
2019
|
|
2018
|
Beginning balance
|
$
|
8.5
|
|
|
$
|
7.8
|
|
Increase in deferred revenue representing our obligation to satisfy future performance obligations
|
26.0
|
|
|
14.7
|
|
Deferred revenue acquired from acquisition of Gaomei Cleaning Equipment Company
|
1.4
|
|
|
—
|
|
Decrease in deferred revenue for amounts recognized in Net Sales for satisfied performance obligations
|
(25.2
|
)
|
|
(13.8
|
)
|
Foreign currency fluctuations
|
—
|
|
|
(0.2
|
)
|
Ending balance
|
$
|
10.7
|
|
|
$
|
8.5
|
|
As of December 31, 2019, $6.8 million and $3.9 million of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Consolidated Balance Sheets. Of this, we expect to recognize the following approximate amounts in Net Sales in the following periods:
|
|
|
|
|
2020
|
$
|
6.8
|
|
2021
|
2.1
|
|
2022
|
1.1
|
|
2023
|
0.5
|
|
2024
|
0.2
|
|
Thereafter
|
—
|
|
Total
|
$
|
10.7
|
|
As of December 31, 2018, $5.0 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 Actions
Restructuring Actions
During 2018, we implemented a restructuring action consisting of severance to further our integration efforts related to the IPC Group. The pre-tax charge of $1.0 million was included within Selling and Administrative Expense in the Consolidated Statements of Operations. The charge impacted our EMEA and APAC operating segments. We estimate the savings will offset the pre-tax charge approximately one year from the date of the action.
During 2019, we implemented restructuring actions to further our integration efforts related to the IPC Group. The pre-tax charge of $4.8 million consisting of severance was included, with $0.3 million in Cost of Sales and $4.5 million in Selling and Administrative Expense in the Consolidated Statements of Earnings. The charge impacted our EMEA and Americas operating segments. We estimate the savings will offset the pre-tax charge approximately one year from the date of the action.
A reconciliation to the ending liability balance of severance and related costs as of December 31, 2019 is as follows:
|
|
|
|
|
|
Severance and Related Costs
|
December 31, 2017 Balance
|
$
|
3.4
|
|
2018 charges and utilization:
|
|
New charges
|
1.0
|
|
Cash payments
|
(2.1
|
)
|
Foreign currency adjustments
|
(0.1
|
)
|
December 31, 2018 Balance
|
2.2
|
|
2019 charges and utilization:
|
|
New charges
|
6.1
|
|
Cash payments
|
(2.5
|
)
|
Adjustment to accrual
|
(1.3
|
)
|
December 31, 2019 Balance
|
$
|
4.5
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Other Actions
During the second quarter of 2019, we recorded a $2.7 million write-down of a portion of a note receivable related to the divestiture of the Green Machine business to adjust the balance to net realizable value. This write-down was recorded in Selling and Administrative Expenses. In the third quarter of 2019, we collected the remaining balance of the note receivable.
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 will not be sold.
|
|
5.
|
Acquisitions and Divestitures
|
Gaomei
On 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 the consolidated financial results since the date of closing.
The following table summarizes the fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:
|
|
|
|
|
|
ASSETS
|
|
|
Current Assets
|
|
$
|
8.5
|
|
Intangible Assets Subject to Amortization:
|
|
|
Trade Name
|
|
1.8
|
|
Customer Lists
|
|
13.9
|
|
Other Assets
|
|
1.3
|
|
Total Identifiable Assets Acquired
|
|
25.5
|
|
LIABILITIES
|
|
|
Current Liabilities
|
|
(8.0
|
)
|
Long-Term Liabilities
|
|
(6.0
|
)
|
Total Identifiable Liabilities Assumed
|
|
(14.0
|
)
|
Goodwill
|
|
15.6
|
|
Total Purchase Price
|
|
$
|
27.1
|
|
The fair value measurements were final as of December 31, 2019.
The total purchase price includes the following:
•$11.3 million which was paid during the first quarter of 2019 upon close of the transaction;
•$11.3 million which was paid in the fourth quarter of 2019;
|
|
•
|
$4.7 million which represents the estimated fair value of contingent consideration at the acquisition date. The estimate is based on a probability-weighted scenario analysis of achieving certain levels of gross profit growth over a three year period. Consideration of $0.0 million to $42.4 million will be paid in March 2021 if the gross profit growth targets are met. As of December 31, 2019, the contingent consideration, which is recorded in Other Liabilities on our Consolidated Balance Sheet, had a fair value of $2.1 million; and
|
•$(0.2) million which represents a working capital purchase price adjustment.
None of the goodwill is expected to be deductible for income tax purposes. The expected lives of the acquired amortizable intangible assets range from 10 years to 15 years and are being amortized on a straight-line basis. The pro forma effects of this acquisition are not significant to the Company.
Waterstar
During 2018, we sold substantially all of the assets of our Waterstar business for $4.0 million in cash. The resulting gain was approximately $1.0 million and is reflected within Selling and Administrative Expense in operating profit in our Consolidated Statements of Operations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
IP Cleaning S.p.A.
On April 6, 2017, we acquired nearly 100 percent of the outstanding capital stock of IPC Group for a purchase price of $353.8 million, net of cash acquired of $8.8 million. The primary seller was Ambienta SGR S.p.A., a European private equity fund. IPC Group, based in Italy, is a designer and manufacturer of innovative professional cleaning equipment, cleaning tools and supplies. The acquisition strengthens our presence and market share in Europe and will allow us to better leverage our EMEA cost structure. We funded the acquisition of IPC Group, along with related fees, including refinancing of existing debt, with funds raised through borrowings under a senior secured credit facility in an aggregate principal amount of $420.0 million. Further details regarding our acquisition financing arrangement are discussed in Note 9.
The following unaudited pro forma financial information presents the combined results of operations of the Company as if the acquisition of IPC Group had occurred as of January 1, 2017:
|
|
|
|
|
Years ended December 31
|
2017
|
Net Sales
|
|
Pro forma
|
$
|
1,057.1
|
|
As reported
|
1,003.1
|
|
|
|
Net Earnings (Loss) Attributable to Tennant Company
|
|
Pro forma
|
$
|
12.3
|
|
As reported
|
(6.2
|
)
|
|
|
Net Earnings (Loss) Attributable to Tennant Company per Diluted Share
|
|
Pro forma
|
$
|
0.68
|
|
As reported
|
(0.35
|
)
|
The unaudited pro forma financial information is presented for informational purposes only. It is not necessarily indicative of what our consolidated results of operations actually would have been had the acquisition occurred at the beginning of each year, nor does it attempt to project the future results of operations of the combined company.
The unaudited pro forma financial information above gives effect to the following:
• Incremental depreciation and amortization expense related to the fair value of the property, plant and equipment and identified intangible assets;
• Exclusion of the purchase accounting impact of the inventory step-up related to the sale of acquired inventory;
• Incremental interest expense related to additional debt used to finance the acquisition;
• Exclusion of non-recurring acquisition-related transaction and financing costs; and
• Pro forma adjustments tax affected based on the jurisdiction where the costs were incurred.
Inventories as of December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Inventories carried at LIFO:
|
|
|
|
Finished goods
|
$
|
50.9
|
|
|
$
|
48.6
|
|
Raw materials, production parts and work-in-process
|
32.5
|
|
|
28.6
|
|
Excess of FIFO over LIFO cost (a)
|
(33.4
|
)
|
|
(31.2
|
)
|
Total LIFO inventories
|
$
|
50.0
|
|
|
$
|
46.0
|
|
|
|
|
|
Inventories carried at FIFO:
|
|
|
|
Finished goods
|
$
|
60.1
|
|
|
$
|
53.5
|
|
Raw materials, production parts and work-in-process
|
40.0
|
|
|
35.6
|
|
Total FIFO inventories
|
$
|
100.1
|
|
|
$
|
89.1
|
|
Total inventories
|
$
|
150.1
|
|
|
$
|
135.1
|
|
(a) Inventories of $50.0 as of December 31, 2019, and $46.0 as of December 31, 2018, were valued at LIFO. The difference between replacement cost and the stated LIFO inventory value is not materially different from the reserve for the LIFO valuation method.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
|
|
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:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Property, Plant and Equipment:
|
|
|
|
Land
|
$
|
19.2
|
|
|
$
|
17.9
|
|
Buildings and improvements
|
98.7
|
|
|
93.7
|
|
Machinery and manufacturing equipment
|
165.2
|
|
|
154.1
|
|
Office equipment
|
107.2
|
|
|
111.2
|
|
Construction in progress
|
22.2
|
|
|
9.7
|
|
Total Property, Plant and Equipment
|
412.5
|
|
|
386.6
|
|
Less: Accumulated Depreciation
|
(239.2
|
)
|
|
(223.2
|
)
|
Property, Plant and Equipment, Net
|
$
|
173.3
|
|
|
$
|
163.4
|
|
Depreciation expense was $32.2 million in 2019, $32.3 million in 2018 and $26.2 million in 2017.
|
|
8.
|
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. We perform an analysis of 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. Based on our analysis, we determined that there was no goodwill impairment as of December 31, 2019 and 2018.
The changes in the carrying amount of Goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Accumulated
Impairment
Losses
|
|
Total
|
Balance as of December 31, 2017
|
$
|
227.2
|
|
|
$
|
(41.2
|
)
|
|
$
|
186.0
|
|
Additions
|
—
|
|
|
—
|
|
|
—
|
|
Purchase accounting adjustments
|
4.6
|
|
|
—
|
|
|
4.6
|
|
Foreign currency fluctuations
|
(10.1
|
)
|
|
2.2
|
|
|
(7.9
|
)
|
Balance as of December 31, 2018
|
$
|
221.7
|
|
|
$
|
(39.0
|
)
|
|
$
|
182.7
|
|
Additions
|
15.6
|
|
|
—
|
|
|
15.6
|
|
Foreign currency fluctuations
|
(2.2
|
)
|
|
(1.0
|
)
|
|
(3.2
|
)
|
Balance as of December 31, 2019
|
$
|
235.1
|
|
|
$
|
(40.0
|
)
|
|
$
|
195.1
|
|
The balances of acquired Intangible Assets, excluding Goodwill, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Lists
|
|
Trade
Names
|
|
Technology
|
|
Total
|
Balance as of December 31, 2019
|
|
|
|
|
|
|
|
Original cost
|
$
|
154.1
|
|
|
$
|
31.8
|
|
|
$
|
17.1
|
|
|
$
|
203.0
|
|
Accumulated amortization
|
(49.8
|
)
|
|
(8.2
|
)
|
|
(7.3
|
)
|
|
(65.3
|
)
|
Carrying amount
|
$
|
104.3
|
|
|
$
|
23.6
|
|
|
$
|
9.8
|
|
|
$
|
137.7
|
|
Weighted-average original life (in years)
|
15
|
|
|
11
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Original cost
|
$
|
143.1
|
|
|
$
|
30.6
|
|
|
$
|
17.4
|
|
|
$
|
191.1
|
|
Accumulated amortization
|
(33.8
|
)
|
|
(5.3
|
)
|
|
(5.5
|
)
|
|
(44.6
|
)
|
Carrying amount
|
$
|
109.3
|
|
|
$
|
25.3
|
|
|
$
|
11.9
|
|
|
$
|
146.5
|
|
Weighted-average original life (in years)
|
15
|
|
|
10
|
|
|
10
|
|
|
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The purchase accounting adjustments recorded in 2018 were based on the fair value adjustments related to our acquisition of the IPC Group, as described further in Note 5.
In 2019, as part of our acquisition of Gaomei, we acquired trade names and a customer list with a combined fair value of $15.7 million. Further details regarding the purchase price allocation of Gaomei are described in Note 5.
Amortization expense on Intangible Assets was $22.2 million, $22.1 million and $17.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Estimated aggregate amortization expense based on the current carrying amount of amortizable Intangible Assets for each of the five succeeding years is as follows:
|
|
|
|
|
2020
|
$
|
20.6
|
|
2021
|
19.0
|
|
2022
|
16.9
|
|
2023
|
15.4
|
|
2024
|
13.9
|
|
Thereafter
|
51.9
|
|
Total
|
$
|
137.7
|
|
9.Debt
Credit Facility Borrowings
2017 Credit Agreement
In 2017, the Company and certain of our foreign subsidiaries entered into a secured Credit Agreement (the "2017 Credit Agreement") with JPMorgan, as administrative agent, Goldman Sachs Bank USA, as syndication agent, Wells Fargo, National Association, U.S. Bank National Association, and HSBC Bank USA, National Association, as co-documentation agents, and the lenders (including JPMorgan) from time to time party thereto.
The fee for committed funds under the revolving facility of the 2017 Credit Agreement ranges from an annual rate of 0.175% to 0.35%, depending on the company’s leverage ratio. Borrowings denominated in U.S. dollars under the 2017 Credit Agreement bear interest at a rate per annum equal to (a) the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) the adjusted LIBOR rate for a one month period, but in any case, not less than 0%, plus, in any such case, 1.00%, plus an additional spread of 0.075% to 0.90% for revolving loans and 0.25% to 1.25% for term loans, depending on the company’s leverage ratio, or (b) the LIBOR Rate, as adjusted for statutory reserve requirements for eurocurrency liabilities, but in any case, not less than 0%, plus an additional spread of 1.075% to 1.90% for revolving loans and 1.25% to 2.25% for term loans, depending on the company’s leverage ratio.
The 2017 Credit Agreement contains customary representations, warranties and covenants, including, but not limited to, covenants restricting the Company’s ability to incur indebtedness and liens and merge or consolidate with another entity. The 2017 Credit Agreement also contains financial covenants, requiring us to maintain a ratio of consolidated total indebtedness to consolidated earnings before income, taxes, depreciation and amortization, subject to certain adjustments ("Adjusted EBITDA") 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, 2019. 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. In connection with the closing of the Gaomei acquisition, we elected an acquisition holiday as provided for under the 2017 Credit Agreement, which increased the net leverage ratio from 4.00 to 1 to 4.50 to 1 and the senior secured net leverage ratio from 3.50 to 1 to 4.00 to 1 during each quarter of 2019. We were in compliance with our financial covenants at December 31, 2019.
In 2018, the Company signed Amendment No. 1 to the 2017 Credit Agreement, which clarified that the adoption of the new lease accounting standard in 2019 would have no effect on any financial covenant calculations.
Effective with our fiscal year ended December 31, 2018, we are required to repay the senior credit agreement with 25% to 50% of our excess cash flow from the preceding fiscal year, as defined in the agreement, unless our net leverage ratio for such preceding fiscal year is less than or equal to 3.00 to 1. We were not required to repay any additional amount of the Notes (as defined below) due to this clause.
The Notes also contain certain restrictions, which are generally less restrictive than those contained in the 2017 Credit Agreement.
Senior Unsecured Notes
On April 18, 2017, we issued and sold $300.0 million in aggregate principal amount of our 5.625% Senior Notes due 2025 (the “Notes”), pursuant to an Indenture, dated as of April 18, 2017, among the Company, the Guarantors (as defined therein), and Wells Fargo Bank, National Association, a national banking association, as trustee. The Notes are guaranteed by Tennant Coatings, Inc., and Tennant Sales and Service Company (collectively, the “Guarantors”), which are wholly-owned subsidiaries of the Company. Separate financial information of the Guarantors is presented in Note 22.
The Notes will mature on May 1, 2025. Interest on the Notes accrues at the rate of 5.625% per annum and is payable semiannually in cash on each May 1 and November 1, commencing on November 1, 2017.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The Notes and the guarantees constitute senior unsecured obligations of the Company and the Guarantors, respectively. The Notes and the guarantees, respectively, are: (a) equal in right of payment with all of the Company’s and the Guarantors’ senior debt, without giving effect to collateral arrangements; (b) senior in right of payment to all of the Company’s and the Guarantors’ future subordinated debt, if any; (c) effectively subordinated in right of payment to all of the company’s and the Guarantors’ debt and obligations that are secured, including borrowings under the Company’s senior secured credit facilities for so long as the senior secured credit facilities are secured, to the extent of the value of the assets securing such liens; and (d) structurally subordinated in right of payment to all liabilities (including trade payables) of the Company’s and the Guarantors’ subsidiaries that do not guarantee the Notes. The Notes also contain customary representations, warranties and covenants, and are less restrictive than those contained in the 2017 Credit Agreement.
We used the net proceeds from this offering to refinance a $300.0 million term loan under our 2017 Credit Agreement that we borrowed as part of the financing for the acquisition of the IPC Group and to pay related fees and expenses.
The Indenture governing the Notes contains covenants that limit, among other things, our ability and the ability of our restricted subsidiary to incur additional indebtedness (including guarantees thereof); incur or create liens on assets securing indebtedness; make certain restricted payments; make certain investments; dispose of certain assets; allow to exist certain restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us; engage in certain transactions with affiliates; and consolidate or merge with or into other companies. If we experience certain kinds of changes of control, we may be required to repurchase the Notes at a price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase. If we make certain asset sales and do not use the net proceeds for specified purposes, we may be required to offer to repurchase the Notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
Registration Rights Agreement
In connection with the issuance and sale of the Notes, the Company entered into a Registration Rights Agreement, dated April 18, 2017, among the Company, the Guarantors and Goldman, Sachs & Co. and J.P. Morgan Securities LLC (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company agreed (1) to use its commercially reasonable efforts to consummate an exchange offer to exchange the original Notes for new registered notes (the "Exchange Notes"), with terms substantially identical in all material respects with the Original Notes (except that the Exchange Notes will not contain terms with respect to additional interest, registration rights or transfer restrictions) and (2) if required, to have a shelf registration statement declared effective with respect to resales of the Notes.
During the first quarter of 2018, we commenced the exchange offer required by the Registration Rights Agreement. The exchange offer closed during the first quarter of 2018. We did not incur any additional indebtedness as a result of the exchange offer. As a result, we were not required to pay additional interest on the Notes.
Debt outstanding as of December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Bank Borrowings
|
$
|
—
|
|
|
$
|
3.9
|
|
Senior Unsecured Notes
|
300.0
|
|
|
300.0
|
|
Secured Credit Facility Borrowings
|
40.0
|
|
|
53.0
|
|
Other Secured Borrowings
|
2.4
|
|
|
2.4
|
|
Finance Lease Liabilities
|
0.2
|
|
|
0.5
|
|
Unamortized Debt Issuance Costs
|
(3.8
|
)
|
|
(4.7
|
)
|
Total Debt
|
338.8
|
|
|
355.1
|
|
Less: Current Portion of Long-Term Debt (1)
|
(31.3
|
)
|
|
(27.0
|
)
|
Long-term portion
|
$
|
307.5
|
|
|
$
|
328.1
|
|
|
|
(1)
|
Current portion of long-term debt includes a $30.0 million of anticipated repayment on Secured Credit Facility Borrowings under our 2017 Credit Agreement, $1.1 million of current maturities of other secured borrowings and $0.2 million of current maturities of finance lease obligations.
|
As of December 31, 2019, we had outstanding borrowings under our Senior Unsecured Notes of $300.0 million. We had outstanding borrowings under our 2017 Credit Agreement totaling $40.0 million under our term loan facility. In addition, we had letters of credit and bank guarantees outstanding in the amount of $3.3 million, leaving approximately $156.7 million of unused borrowing capacity on our revolving facility. Although we are not required to make a minimum principal payment during 2020, we have both the intent and the ability to pay an additional $30.0 million during 2020. As such, we have classified $30.0 million as current maturities of long-term debt. Commitment fees on unused lines of credit for the year ended December 31, 2019 were $0.5 million. The overall weighted average cost of debt is approximately 5.3%, and net of a related cross-currency swap instrument, is approximately 4.4%. Further details regarding the cross-currency swap instrument are discussed in Note 11.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The aggregate maturities of our outstanding debt, excluding unamortized debt issuance costs, as of December 31, 2019, are as follows:
|
|
|
|
|
2020
|
$
|
31.3
|
|
2021
|
0.7
|
|
2022
|
10.4
|
|
2023
|
0.2
|
|
2024
|
—
|
|
Thereafter
|
300.0
|
|
Total aggregate maturities
|
$
|
342.6
|
|
|
|
10.
|
Other Current Liabilities
|
Other Current Liabilities as of December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Other Current Liabilities:
|
|
|
|
Taxes, other than income taxes
|
$
|
10.4
|
|
|
$
|
8.9
|
|
Warranty
|
12.7
|
|
|
13.1
|
|
Deferred revenue
|
6.8
|
|
|
5.0
|
|
Customer sales incentives
|
13.7
|
|
|
16.6
|
|
Freight
|
4.9
|
|
|
4.5
|
|
Restructuring
|
4.5
|
|
|
2.2
|
|
Operating leases
|
16.7
|
|
|
—
|
|
Miscellaneous accrued expenses
|
11.6
|
|
|
13.1
|
|
Other
|
4.7
|
|
|
4.0
|
|
Total Other Current Liabilities
|
$
|
86.0
|
|
|
$
|
67.4
|
|
The changes in warranty reserves for the three years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Beginning balance
|
$
|
13.1
|
|
|
$
|
12.7
|
|
|
$
|
11.0
|
|
Product warranty provision
|
11.1
|
|
|
13.2
|
|
|
12.1
|
|
Acquired warranty obligations
|
—
|
|
|
—
|
|
|
1.2
|
|
Foreign currency
|
—
|
|
|
(0.2
|
)
|
|
0.3
|
|
Claims paid
|
(11.5
|
)
|
|
(12.6
|
)
|
|
(11.9
|
)
|
Ending balance
|
$
|
12.7
|
|
|
$
|
13.1
|
|
|
$
|
12.7
|
|
Hedge Accounting and Hedging Programs
In 2015, we expanded our foreign currency hedging programs to include foreign exchange purchased options and forward contracts to hedge our foreign currency-denominated revenue. We recognize all derivative instruments as either assets or liabilities in our Consolidated 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 Losses on our Consolidated Statements of Operations. The time value of purchased contracts is recorded in Net Foreign Currency Transaction Losses in our Consolidated 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-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 Sheets with changes in the fair value recorded to Net
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Foreign Currency Transaction Losses in our Consolidated Statements of Operations. 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, 2019 and December 31, 2018, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $41.9 million and $63.4 million, respectively.
During the first quarter of 2017, in connection with our acquisition of IPC Group, we entered into a foreign currency option contract not designated as a hedging instrument for a notional amount of €180.0 million. The option contract has since expired and there were no outstanding foreign currency option contracts not designated as hedging instruments as of December 31, 2019 and December 31, 2018.
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-denominated revenue in the normal course of business, and accordingly, they are not speculative in nature. The notional amount of outstanding foreign currency forward contracts designated as cash flow hedges were $3.0 million and $0.0 million as of December 31, 2019 and December 31, 2018, respectively. The notional amount of outstanding foreign currency option contracts designated as cash flow hedges was $9.8 million and $8.4 million as of December 31, 2019 and December 31, 2018, 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 the Company and its subsidiaries. During 2017, we entered into euro to U.S. dollar foreign exchange cross 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 currency swaps to hedge the foreign currency-denominated cash flows associated with this intercompany loan, and accordingly, they are not speculative in nature. We designated these cross currency swaps as cash flow hedges. The hedged cash flows as of December 31, 2019 included €166.8 million of total notional value. As of December 31, 2019, the aggregate scheduled interest payments over the course of the loan and related swaps amounted to €16.8 million. The scheduled maturity and principal payment of the loan and related swaps of €150.0 million are due in April 2022. There were no new cross currency swaps designated as cash flow hedges as of December 31, 2019.
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 Loss in our 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. 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 Loss to Net Foreign Currency Transaction Losses in our Consolidated Statements of Operations 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 Losses in our Consolidated Statements of Operations.
The fair value of derivative instruments on our Consolidated Balance Sheets as of December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Balance Sheet Location
|
December 31, 2019
|
December 31, 2018
|
|
Balance Sheet Location
|
December 31, 2019
|
December 31, 2018
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign currency option contracts(1)
|
Other Current Assets
|
$
|
—
|
|
$
|
0.2
|
|
|
Other Current Liabilities
|
$
|
—
|
|
$
|
—
|
|
Foreign currency option contracts(1)
|
Other Assets
|
—
|
|
—
|
|
|
Other Liabilities
|
—
|
|
—
|
|
Foreign currency forward contracts(1)
|
Other Current Assets
|
2.5
|
|
2.3
|
|
|
Other Current Liabilities
|
—
|
|
—
|
|
Foreign currency forward contracts(1)
|
Other Assets
|
—
|
|
—
|
|
|
Other Liabilities
|
12.6
|
|
20.7
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign currency forward contracts(1)
|
Other Current Assets
|
0.6
|
|
0.2
|
|
|
Other Current Liabilities
|
0.3
|
|
—
|
|
Foreign currency forward contracts(1)
|
Other Assets
|
$
|
—
|
|
$
|
—
|
|
|
Other Liabilities
|
$
|
—
|
|
$
|
—
|
|
|
|
(1)
|
Contracts that mature within the next 12 months are included in Other Current Assets and Other Current Liabilities for asset derivatives and liabilities derivatives, respectively, on our Consolidated Balance Sheets. Contracts with maturities greater than 12 months are included in Other Assets and Other Liabilities for asset derivatives and liability derivatives, respectively, in our Consolidated Balance Sheets. Amounts included in our Consolidated Balance Sheets are recorded net where a right of offset exists with the same derivative counterparty.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
As of December 31, 2019, we anticipate reclassifying approximately $2.4 million of gains from Accumulated Other Comprehensive Loss to net earnings during the next 12 months.
The following tables include the amounts in the Consolidated Statements of Earnings 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, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
December 31
|
|
2019
|
|
2018
|
|
Total
|
Amount of Gain (Loss) on Cash Flow Hedge Activity
|
|
Total
|
Amount of Gain (Loss) on Cash Flow Hedge Activity
|
Net Sales
|
$
|
1,137.6
|
|
$
|
(0.1
|
)
|
|
1,123.5
|
|
(0.2
|
)
|
Interest Income
|
3.3
|
|
2.9
|
|
|
3.0
|
|
2.4
|
|
Net Foreign Currency Transaction Losses
|
(0.7
|
)
|
3.4
|
|
|
(1.1
|
)
|
8.3
|
|
The effect of foreign currency derivative instruments designated as cash flow hedges and foreign currency derivative instruments not designated as hedges in our Consolidated Statements of Earnings for the three years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
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)
|
|
(0.3
|
)
|
|
8.6
|
|
|
0.1
|
|
|
9.0
|
|
|
(0.2
|
)
|
(16.2
|
)
|
Net (loss) gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Sales
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.2
|
)
|
—
|
|
Net gain reclassified from Accumulated Other Comprehensive Loss in earnings, net of tax, effective portion to Interest Income
|
|
—
|
|
|
2.2
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
1.2
|
|
Net gain (loss) reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction Losses
|
|
—
|
|
|
2.6
|
|
|
—
|
|
|
6.4
|
|
|
—
|
|
(12.6
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Net loss recognized in earnings(2)
|
|
—
|
|
|
(1.3
|
)
|
|
—
|
|
|
(2.5
|
)
|
|
—
|
|
(6.2
|
)
|
|
|
(1)
|
Net change in the fair value of the effective portion classified in Other Comprehensive (Loss) Income.
|
|
|
(2)
|
Classified in Net Foreign Currency Transaction Losses.
|
|
|
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 millions, except shares and per share data)
Our population of assets and liabilities subject to fair value measurements as of December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
$
|
6.4
|
|
|
—
|
|
|
$
|
6.4
|
|
|
—
|
|
Total Assets
|
6.4
|
|
|
—
|
|
|
6.4
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
16.2
|
|
|
—
|
|
|
16.2
|
|
|
—
|
|
Contingent Consideration
|
2.1
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
Total Liabilities
|
$
|
18.3
|
|
|
—
|
|
|
$
|
16.2
|
|
|
$
|
2.1
|
|
Our population of assets and liabilities subject to fair value measurements as of December 31, 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
$
|
7.2
|
|
|
—
|
|
|
$
|
7.2
|
|
|
—
|
|
Foreign currency option contracts
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
Total Assets
|
7.4
|
|
|
—
|
|
|
7.4
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
25.4
|
|
|
—
|
|
|
25.4
|
|
|
—
|
|
Total Liabilities
|
$
|
25.4
|
|
|
—
|
|
|
$
|
25.4
|
|
|
—
|
|
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 11.
The carrying amounts reported in the Consolidated Balance Sheets for Cash and Cash Equivalents, Restricted Cash, Receivables, Other Current Assets, Accounts Payable and Other Current Liabilities approximate fair value due to their short-term nature.
The fair value and carrying value of total debt, including current portion, was $357.2 million and $338.8 million, respectively, as of December 31, 2019. The fair value was calculated based on the borrowing rates currently available to us for bank loans with similar terms and remaining maturities, which is a Level 2 in the fair value hierarchy.
From time to time, we measure certain assets at fair value on a non-recurring basis, including evaluation of long-lived assets, goodwill and other intangible assets, as part of a business acquisition. These assets are measured and recognized at amounts equal to the fair value determined as of the date of acquisition. Fair value valuations are based on the information available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by us. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of assets acquired and liabilities assumed as part of a business acquisition are based on valuations involving significant unobservable inputs, or Level 3, in the fair value hierarchy.
These assets are also subject to periodic impairment testing by comparing the respective carrying value of each asset to the estimated fair value of the reporting unit or asset group in which they reside. In the event we determine these assets to be impaired, we would recognize an impairment loss equal to the amount by which the carrying value of the reporting unit, impaired asset or asset group exceeds its estimated fair value. These periodic impairment tests utilize company-specific assumptions involving significant unobservable inputs, or Level 3, in the fair value hierarchy.
|
|
13.
|
Retirement Benefit Plans
|
Substantially all U.S. employees are covered by various retirement benefit plans, including postretirement medical plans and defined contribution savings 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 $13.7 million, $11.9 million and $13.3 million in 2019, 2018 and 2017, respectively.
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. As of December 31, 2019, we held excess assets of $2.8 million 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Our defined contribution savings plan (“401(k)”) covers substantially all U.S. employees. Under this plan, we match up to 3% of the employee’s annual compensation in cash to be invested per their election. We also make a profit sharing contribution to the 401(k) plan for employees with more than 1 year of service in accordance with our Profit Sharing Plan. This contribution is based upon our financial performance and can be funded in the form of Tennant stock, cash or a combination of both. Expenses for the 401(k) plan were $9.8 million, $8.1 million and $4.4 million during 2019, 2018 and 2017, respectively.
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) 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 and Germany (the “U.K. Pension Plan” and the “German Pension Plan”). The U.K. Pension Plan and German Pension Plan cover certain current and retired employees and both 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 $0.1 million relating to past service benefits.
We expect to contribute approximately $0.2 million to our U.S. Nonqualified Plan, $0.7 million to our U.S. Retiree Plan, and $0.3 million to our U.K. Pension Plan in 2020. We expect contributions to our German Pension Plan to be less than $0.1 million in 2020.
Weighted-average asset allocations by asset category of the U.K. Pension Plan and the Tennant Company Retirement Savings Plan as of December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
2.8
|
|
|
$
|
2.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investment Account held by Pension Plan(1)
|
12.2
|
|
|
—
|
|
|
—
|
|
|
12.2
|
|
Total
|
$
|
15.0
|
|
|
$
|
2.8
|
|
|
$
|
—
|
|
|
$
|
12.2
|
|
|
|
(1)
|
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 December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
6.4
|
|
|
$
|
6.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investment Account held by Pension Plan(1)
|
10.8
|
|
|
—
|
|
|
—
|
|
|
10.8
|
|
Total
|
$
|
17.2
|
|
|
$
|
6.4
|
|
|
$
|
—
|
|
|
$
|
10.8
|
|
|
|
(1)
|
This category is comprised of investments in insurance contracts.
|
Estimates of the fair value of the U.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 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. 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 are as follows:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Fair value at beginning of year
|
$
|
10.8
|
|
|
$
|
11.2
|
|
Purchases, sales, issuances and settlements, net
|
0.2
|
|
|
(0.9
|
)
|
Net gain
|
0.8
|
|
|
1.1
|
|
Foreign currency
|
0.4
|
|
|
(0.6
|
)
|
Fair value at end of year
|
$
|
12.2
|
|
|
$
|
10.8
|
|
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Weighted-average assumptions used to determine benefit obligations as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Nonqualified Plan
|
|
Non-U.S.
Pension Benefits
|
|
Postretirement
Medical Benefits
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Discount rate
|
3.01
|
%
|
|
3.95
|
%
|
|
2.03
|
%
|
|
2.72
|
%
|
|
3.06
|
%
|
|
3.95
|
%
|
Rate of compensation increase
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
3.50
|
%
|
|
—
|
|
|
—
|
|
Weighted-average assumptions used to determine net periodic benefit costs as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
Non-U.S.
Pension Benefits
|
|
Postretirement
Medical Benefits
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Discount rate
|
3.95
|
%
|
|
3.28
|
%
|
|
3.92
|
%
|
|
2.72
|
%
|
|
2.45
|
%
|
|
2.64
|
%
|
|
3.95
|
%
|
|
3.26
|
%
|
|
3.58
|
%
|
Expected long-term rate of return on plan assets
|
—
|
%
|
|
—
|
%
|
|
5.10
|
%
|
|
3.80
|
%
|
|
3.80
|
%
|
|
3.90
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
Rate of compensation increase
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
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 Mercer Above Mean Yield Curve for high-quality corporate bonds is used in determining the discount rate for the U.S. Nonqualified Plan in 2019. The Mercer Yield Curve is used in determining the discount rate for the Non-U.S. Plans in 2019. 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. 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:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
U.S. Nonqualified Plan
|
$
|
1.3
|
|
|
$
|
1.3
|
|
U.K. Pension Plan
|
10.4
|
|
|
9.3
|
|
German Pension Plan
|
1.0
|
|
|
0.9
|
|
Information for our plans with an accumulated benefit obligation in excess of plan assets as of December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Accumulated benefit obligation
|
$
|
2.3
|
|
|
$
|
2.2
|
|
Fair value of plan assets
|
—
|
|
|
—
|
|
As of December 31, 2019 and 2018, the U.S. Nonqualified and the German Pension Plans had an accumulated benefit obligation in excess of plan assets.
Information for our plans with a projected benefit obligation in excess of plan assets as of December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Projected benefit obligation
|
$
|
2.3
|
|
|
$
|
2.2
|
|
Fair value of plan assets
|
—
|
|
|
—
|
|
As of December 31, 2019 and 2018, the U.S. Nonqualified and the German Pension Plans had a projected benefit obligation in excess of plan assets.
Assumed healthcare cost trend rates as of December 31 are as follows:
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Healthcare cost trend rate assumption for the next year
|
6.22
|
%
|
|
6.38
|
%
|
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
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Assumed healthcare cost trend rates have a significant effect on the amounts reported for healthcare plans. To illustrate, a one-percentage-point change in assumed healthcare cost trends would have the following effects:
|
|
|
|
|
|
|
|
|
|
1-Percentage-
Point
Decrease
|
|
1-Percentage-
Point
Increase
|
Effect on total of service and interest cost components
|
$
|
—
|
|
|
$
|
—
|
|
Effect on postretirement benefit obligation
|
$
|
(0.5
|
)
|
|
$
|
0.6
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Nonqualified Plan
|
|
Non-U.S.
Pension Benefits
|
|
Postretirement
Medical Benefits
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
1.3
|
|
|
$
|
1.5
|
|
|
$
|
10.2
|
|
|
$
|
12.1
|
|
|
$
|
8.6
|
|
|
$
|
9.6
|
|
Service cost
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Interest cost
|
0.1
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
Plan amendments
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
Actuarial loss (gain)
|
—
|
|
|
—
|
|
|
0.8
|
|
|
(0.5
|
)
|
|
(0.1
|
)
|
|
(0.5
|
)
|
Foreign exchange
|
—
|
|
|
—
|
|
|
0.3
|
|
|
(0.6
|
)
|
|
—
|
|
|
—
|
|
Benefits paid
|
(0.1
|
)
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(1.2
|
)
|
|
(1.0
|
)
|
|
(0.9
|
)
|
Settlement
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Curtailment
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
Benefit obligation at end of year
|
$
|
1.3
|
|
|
$
|
1.3
|
|
|
$
|
11.4
|
|
|
$
|
10.2
|
|
|
$
|
7.8
|
|
|
$
|
8.6
|
|
Change in fair value of plan assets and net accrued liabilities:
|
Fair value of plan assets at beginning of year
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10.8
|
|
|
$
|
11.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
—
|
|
|
—
|
|
|
0.8
|
|
|
1.1
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
0.1
|
|
|
0.2
|
|
|
0.4
|
|
|
0.3
|
|
|
1.0
|
|
|
0.9
|
|
Foreign exchange
|
—
|
|
|
—
|
|
|
0.4
|
|
|
(0.6
|
)
|
|
—
|
|
|
—
|
|
Benefits paid
|
(0.1
|
)
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(1.2
|
)
|
|
(1.0
|
)
|
|
(0.9
|
)
|
Settlement
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Fair value of plan assets at end of year
|
—
|
|
|
—
|
|
|
12.2
|
|
|
10.8
|
|
|
—
|
|
|
—
|
|
Funded status at end of year
|
$
|
(1.3
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
0.8
|
|
|
$
|
0.6
|
|
|
$
|
(7.8
|
)
|
|
$
|
(8.6
|
)
|
Amounts recognized in the Consolidated Balance Sheets consist of:
|
Noncurrent Other Assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current Liabilities
|
(0.2
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
(0.7
|
)
|
|
(0.8
|
)
|
Long-Term Liabilities
|
(1.1
|
)
|
|
(1.1
|
)
|
|
(1.0
|
)
|
|
(0.9
|
)
|
|
(7.1
|
)
|
|
(7.8
|
)
|
Net accrued (liability) asset
|
$
|
(1.3
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
0.8
|
|
|
$
|
0.6
|
|
|
$
|
(7.8
|
)
|
|
$
|
(8.6
|
)
|
Amounts recognized in Accumulated Other Comprehensive Loss consist of:
|
Prior service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Net actuarial (loss) gain
|
(0.9
|
)
|
|
(0.9
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
0.4
|
|
|
0.4
|
|
Accumulated Other Comprehensive (Loss) Income
|
$
|
(0.9
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The components of the net periodic benefit cost (credit) for the three years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
Non-U.S.
Pension Benefits
|
|
Postretirement
Medical Benefits
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
Interest cost
|
0.1
|
|
|
—
|
|
|
1.5
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
0.4
|
|
Expected return on plan assets
|
—
|
|
|
—
|
|
|
(2.3
|
)
|
|
(0.4
|
)
|
|
(0.4
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of net actuarial loss (gain)
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
Net periodic benefit cost (credit)
|
0.1
|
|
|
0.1
|
|
|
(0.8
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
0.1
|
|
|
0.2
|
|
|
0.4
|
|
|
0.4
|
|
Curtailment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlement
|
—
|
|
|
—
|
|
|
6.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net benefit cost (credit)
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
5.6
|
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
The changes in Accumulated Other Comprehensive Loss for the three years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
Non-U.S.
Pension Benefits
|
|
Postretirement
Medical Benefits
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Prior service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net actuarial loss (gain)
|
0.1
|
|
|
—
|
|
|
1.6
|
|
|
0.4
|
|
|
(1.2
|
)
|
|
(0.5
|
)
|
|
(0.1
|
)
|
|
(0.5
|
)
|
|
(0.5
|
)
|
Amortization of net actuarial (loss) gain
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
0.1
|
|
|
—
|
|
|
—
|
|
Settlement
|
—
|
|
|
—
|
|
|
(6.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total recognized in other comprehensive (loss) income
|
$
|
0.1
|
|
|
$
|
(0.1
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
0.4
|
|
|
$
|
(1.1
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
—
|
|
|
$
|
(0.5
|
)
|
|
$
|
(0.5
|
)
|
Total recognized in net benefit cost (credit) and other comprehensive loss (income)
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
0.3
|
|
|
$
|
(1.2
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
0.2
|
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
The following benefit payments, which reflect expected future service, are expected to be paid for our U.S. Nonqualified and Non-U.S. plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Nonqualified Plan
|
|
Non-U.S.
Pension Benefits
|
|
Postretirement
Medical Benefits
|
2020
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.7
|
|
2021
|
0.1
|
|
|
0.3
|
|
|
0.7
|
|
2022
|
0.1
|
|
|
0.3
|
|
|
0.7
|
|
2023
|
0.1
|
|
|
0.3
|
|
|
0.7
|
|
2024
|
0.1
|
|
|
0.3
|
|
|
0.6
|
|
2025 to 2029
|
0.5
|
|
|
1.6
|
|
|
2.8
|
|
Total
|
$
|
1.1
|
|
|
$
|
3.0
|
|
|
$
|
6.2
|
|
The following amounts are included in Accumulated Other Comprehensive Loss as of December 31, 2019 and are expected to be recognized as components of net periodic benefit cost during 2020:
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Postretirement
Medical
Benefits
|
Net actuarial loss
|
$
|
0.1
|
|
|
$
|
—
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
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 of $0.375 per share. The Board of Directors is authorized to establish one or more series of preferred stock, setting forth the designation of each such series, and fixing the relative rights and preferences of each such series.
Accumulated Other Comprehensive Loss
Components of Accumulated Other Comprehensive Loss, net of tax, within the Consolidated Balance Sheets and Consolidated Statements of Equity as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Foreign currency translation adjustments
|
$
|
(36.3
|
)
|
|
$
|
(31.9
|
)
|
|
$
|
(15.8
|
)
|
Pension and retiree medical benefits
|
(0.7
|
)
|
|
(0.3
|
)
|
|
(1.6
|
)
|
Cash flow hedge
|
(1.5
|
)
|
|
(5.0
|
)
|
|
(4.9
|
)
|
Total Accumulated Other Comprehensive Loss
|
$
|
(38.5
|
)
|
|
$
|
(37.2
|
)
|
|
$
|
(22.3
|
)
|
The changes in components of Accumulated Other Comprehensive Loss, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
Pension and Postretirement Benefits
|
|
Cash Flow Hedge
|
|
Total
|
December 31, 2018
|
$
|
(31.9
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(5.0
|
)
|
|
$
|
(37.2
|
)
|
Other comprehensive (loss) income before reclassifications
|
(4.4
|
)
|
|
(0.4
|
)
|
|
8.3
|
|
|
3.5
|
|
Amounts reclassified from Accumulated Other Comprehensive Loss
|
—
|
|
|
—
|
|
|
(4.8
|
)
|
|
(4.8
|
)
|
Net current period other comprehensive (loss) income
|
(4.4
|
)
|
|
(0.4
|
)
|
|
3.5
|
|
|
(1.3
|
)
|
December 31, 2019
|
$
|
(36.3
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
(38.5
|
)
|
Accumulated Other Comprehensive Loss associated with pension and postretirement benefits and cash flow hedges are included in Notes 13 and 11, respectively.
15.Leases
We lease facilities, vehicles and equipment under the operating lease agreements, which include both monthly and longer-term arrangements.
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. As of December 31, 2019, of those leases that contain residual value guarantees, the aggregate residual value at lease expiration was $13.7 million, of which we have guaranteed $10.7 million. As of December 31, 2019, we have recorded a liability for the estimated end of term loss related to this residual value guarantee of $0.2 million for certain vehicles within our fleet.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The lease assets and liabilities as of December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
December 31,
|
Leases
|
Classification
|
2019
|
Assets
|
|
|
Operating lease assets
|
Operating Lease Assets
|
$
|
46.6
|
|
Finance lease assets
|
Property, Plant and Equipment(a)
|
0.3
|
|
Total leased assets
|
|
$
|
46.9
|
|
Liabilities
|
|
|
Current:
|
|
|
Operating
|
Other Current Liabilities
|
$
|
16.7
|
|
Finance
|
Current Portion of Long-term Debt
|
0.2
|
|
Noncurrent:
|
|
|
Operating
|
Long-term Operating Lease Liabilities
|
30.3
|
|
Finance
|
Long-term Debt
|
—
|
|
Total lease liabilities
|
|
$
|
47.2
|
|
(a) Finance lease assets are recorded net of accumulated amortization of $0.5 million as of December 31, 2019.
The lease cost for the years ended December 31, 2019 and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
December 31
|
Lease Cost
|
2019
|
|
2018
|
Operating lease cost
|
$
|
27.5
|
|
(a)
|
$
|
23.3
|
|
Finance lease cost(b)
|
0.3
|
|
|
0.4
|
|
Total lease cost
|
$
|
27.8
|
|
|
$
|
23.7
|
|
|
|
(a)
|
Includes short-term lease costs of $3.1 million for the year ended December 31, 2019, and variable lease costs of $2.4 million for the year ended December 31, 2019.
|
(b) Includes amortization of leased assets and interest on lease liabilities.
The maturity of lease liabilities as of December 31, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Maturity of Lease Liabilities
|
Operating Leases
|
|
Finance Leases
|
|
Total
|
|
2020
|
$
|
18.0
|
|
$
|
0.2
|
|
$
|
18.2
|
|
2021
|
13.2
|
|
—
|
|
13.2
|
|
2022
|
8.4
|
|
—
|
|
8.4
|
|
2023
|
5.5
|
|
—
|
|
5.5
|
|
2024
|
3.2
|
|
—
|
|
3.2
|
|
Thereafter
|
2.2
|
|
—
|
|
2.2
|
|
Total lease payments
|
$
|
50.5
|
|
$
|
0.2
|
|
$
|
50.7
|
|
Less: Interest
|
(3.5
|
)
|
—
|
|
(3.5
|
)
|
Present value of lease liabilities
|
$
|
47.0
|
|
$
|
0.2
|
|
$
|
47.2
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The minimum rentals for aggregate lease commitments as of December 31, 2018 were as follows:
|
|
|
|
|
2019
|
$
|
15.2
|
|
2020
|
9.0
|
|
2021
|
5.5
|
|
2022
|
3.6
|
|
2023
|
2.6
|
|
Thereafter
|
4.2
|
|
Total
|
$
|
40.1
|
|
The lease term and discount rate as of December 31, 2019 were as follows:
|
|
|
|
|
December 31,
|
Lease Term and Discount Rate
|
2019
|
Weighted-average remaining lease term (years):
|
|
Operating leases
|
3.7
|
|
Finance leases
|
1.5
|
|
Weighted-average discount rate:
|
|
Operating leases
|
3.7
|
%
|
Finance leases
|
2.5
|
%
|
Other information related to cash paid related to lease liabilities and lease assets obtained for the year ended December 31, 2019 was as follows:
|
|
|
|
|
|
Year Ended
|
|
December 31,
|
Other Information
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from finance leases
|
$
|
—
|
|
Operating cash flows from operating leases
|
22.7
|
|
Financing cash flows from finance leases
|
0.3
|
|
Lease assets obtained in exchange for new finance lease liabilities
|
0.1
|
|
Lease assets obtained in exchange for new operating lease liabilities
|
26.4
|
|
|
|
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.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law. The Tax Act made broad and complex changes to the U.S. tax code which included a lowering of the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, accelerated expensing of qualified capital investments for a specific period, limitations of the deductibility of interest expense and executive compensation, and a transition from a worldwide to a territorial tax system, which required companies to pay a one-time transition tax on certain unrepatriated earnings from foreign subsidiaries.
The accounting for the remeasurement of the deferred taxes and transition tax was finalized in the third quarter of 2018. Adjustments to the provisional amounts were not material to the consolidated financial statements. The accounting for the income tax effects of the Tax Act is complete as of December 31, 2018.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Income from continuing operations for the three years ended December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
U.S. operations
|
$
|
50.1
|
|
|
$
|
23.9
|
|
|
$
|
7.5
|
|
Foreign operations
|
3.9
|
|
|
11.9
|
|
|
(8.8
|
)
|
Total
|
$
|
54.0
|
|
|
$
|
35.8
|
|
|
$
|
(1.3
|
)
|
Income tax expense (benefit) for the three years ended December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
Federal
|
$
|
9.6
|
|
|
$
|
3.7
|
|
|
$
|
2.6
|
|
Foreign
|
5.6
|
|
|
7.0
|
|
|
8.7
|
|
State
|
2.1
|
|
|
1.0
|
|
|
0.8
|
|
|
$
|
17.3
|
|
|
$
|
11.7
|
|
|
$
|
12.1
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
(2.4
|
)
|
|
$
|
(3.1
|
)
|
|
$
|
1.6
|
|
Foreign
|
(6.7
|
)
|
|
(6.0
|
)
|
|
(8.7
|
)
|
State
|
(0.1
|
)
|
|
(0.3
|
)
|
|
(0.1
|
)
|
|
$
|
(9.2
|
)
|
|
$
|
(9.4
|
)
|
|
$
|
(7.2
|
)
|
Total:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
7.2
|
|
|
$
|
0.6
|
|
|
$
|
4.2
|
|
Foreign
|
(1.1
|
)
|
|
1.0
|
|
|
—
|
|
State
|
2.0
|
|
|
0.7
|
|
|
0.7
|
|
Total Income Tax Expense
|
$
|
8.1
|
|
|
$
|
2.3
|
|
|
$
|
4.9
|
|
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. Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our approximately $64.8 million of undistributed earnings from foreign subsidiaries to the United States as those earnings continue to be permanently reinvested.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Our effective income tax rate varied from the U.S. federal statutory tax rate for the three years ended December 31 as follows:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Tax at statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
(Decreases) increases in the tax rate from:
|
|
|
|
|
|
|
|
State and local taxes, net of federal benefit
|
1.9
|
|
|
1.4
|
|
|
(21.1
|
)
|
Effect of foreign operations
|
3.5
|
|
|
(4.3
|
)
|
|
(70.8
|
)
|
Transaction costs
|
0.1
|
|
|
(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
|
(9.7
|
)
|
|
6.6
|
|
|
(126.5
|
)
|
Domestic production activities deduction
|
(0.3
|
)
|
|
0.4
|
|
|
28.3
|
|
Executive compensation over $1 million
|
2.5
|
|
|
1.0
|
|
|
(3.6
|
)
|
Share-based payments
|
(2.0
|
)
|
|
(5.7
|
)
|
|
90.4
|
|
Research & Development credit
|
(1.9
|
)
|
|
(3.6
|
)
|
|
82.9
|
|
Other, net
|
—
|
|
|
(4.2
|
)
|
|
13.8
|
|
Effective income tax rate
|
15.1
|
%
|
|
6.4
|
%
|
|
(380.2
|
)%
|
Deferred tax assets and liabilities were comprised of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Deferred Tax Assets:
|
|
|
|
Inventory costing and valuation methods
|
$
|
4.6
|
|
|
$
|
3.3
|
|
Employee wages and benefits, principally due to accruals for financial reporting purposes
|
13.7
|
|
|
11.7
|
|
Warranty reserves accrued for financial reporting purposes
|
2.5
|
|
|
2.6
|
|
Receivables, principally due to allowance for doubtful accounts and tax accounting method for equipment rentals
|
1.9
|
|
|
1.7
|
|
Operating lease liability
|
11.4
|
|
|
—
|
|
Tax loss carryforwards
|
6.6
|
|
|
7.8
|
|
Tax credit carryforwards
|
3.2
|
|
|
4.7
|
|
Other
|
3.2
|
|
|
4.7
|
|
Gross Deferred Tax Assets
|
$
|
47.1
|
|
|
$
|
36.5
|
|
Less: valuation allowance
|
(6.2
|
)
|
|
(11.5
|
)
|
Total Net Deferred Tax Assets
|
$
|
40.9
|
|
|
$
|
25.0
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
Lease Right of Use Assets
|
11.4
|
|
|
—
|
|
Property, Plant and Equipment, principally due to differences in depreciation and related gains
|
10.2
|
|
|
9.9
|
|
Goodwill and Intangible Assets
|
43.4
|
|
|
45.6
|
|
Total Deferred Tax Liabilities
|
$
|
65.0
|
|
|
$
|
55.5
|
|
Net Deferred Tax Liabilities
|
$
|
(24.1
|
)
|
|
$
|
(30.5
|
)
|
Tax credit carryforwards consist of $1.7 million U.S. federal and state tax credits and $1.4 million of Netherlands tax credits. We have non-U.S. cumulative tax losses of $33.5 million in various countries. Cumulative losses can be used to offset the income tax liabilities on future income in these countries. $16.4 million of these losses have unlimited carryforward periods. $17.1 million of these losses have a limited carryforward period which must be utilized during 2020 to 2026.
The valuation allowance as of December 31, 2019 principally applies to The Netherlands tax loss and tax credit carryforwards, a Sweden tax loss carryforward, and state tax credit carryforwards that, 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 since it is more likely than not that they will be realized through carryback to taxable income in prior years, future reversals of existing taxable temporary differences and future taxable income.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Balance at January 1
|
$
|
5.6
|
|
|
$
|
2.2
|
|
Increases as a result of tax positions taken during a prior period
|
0.1
|
|
|
0.1
|
|
Increases as a result of tax positions taken during the current year
|
0.5
|
|
|
0.4
|
|
Increase related to prior period tax positions of acquired entities
|
2.5
|
|
|
3.8
|
|
Decreases relating to settlement with tax authorities
|
(0.1
|
)
|
|
—
|
|
Reductions as a result of a lapse of the applicable statute of limitations
|
(1.0
|
)
|
|
(1.3
|
)
|
Increases as a result of foreign currency fluctuations
|
(0.1
|
)
|
|
0.4
|
|
Balance at December 31
|
$
|
7.5
|
|
|
$
|
5.6
|
|
Included in the balance of unrecognized tax benefits as of December 31, 2019 and 2018 are potential benefits of $7.4 million and $5.5 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 $7.5 million and $5.6 million for unrecognized tax benefits as of December 31, 2019 and 2018, there was approximately $0.6 million and $0.4 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 2016 and, with limited exceptions, state and foreign income tax examinations for taxable years before 2015. We are currently under examination by the Internal Revenue Service for the 2016 and 2017 tax years. Although the outcome of the examinations cannot currently be determined, we believe adequate provision has been made for any potential unfavorable financial statement impact.
|
|
18.
|
Share-Based Compensation
|
We have four 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”) and the 2017 Stock Incentive Plan ("2017 Plan"), which were adopted as a continuing step toward aggregating our equity compensation programs to reduce the complexity of our equity compensation programs.
The 2010 Plan, originally approved by our shareholders on April 28, 2010 and amended and restated by our shareholders on April 25, 2012, terminated our rights to grant awards under the 2007 Plan; however, any awards granted under the 2007 or 2010 Plans that do not result in the issuance of shares of Common Stock may again be used for an award under the 2010 Plan. The 2010 Plan was amended and restated by our shareholders on April 24, 2013, increasing the number of shares available under the amended 2010 Plan from 1,500,000 shares to 2,600,000 shares.
The 2017 Plan approved by our shareholders on April 26, 2017 terminated our rights to grant awards under previous plans; however, any awards granted under previous plans that do not result in the issuance of shares of Common Stock may again be used for an award under the 2017 Plan. There were 1,200,000 shares made available under the approved 2017 Plan.
As of December 31, 2019, there were 962,647 shares reserved for issuance under the 2007 Plan and the 2010 Plan for outstanding compensation awards. There were 377,077 shares available for issuance under the 2017 Plan for current and future equity awards as of December 31, 2019. 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 Expense of $11.4 million, $8.3 million and $5.9 million, respectively, during the years ended 2019, 2018 and 2017. The total excess tax benefit recognized for share-based compensation arrangements during the years ended 2019, 2018 and 2017 was $1.1 million, $2.1 million and $1.2 million, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
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 2019, 2018 and 2017 grants:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Expected volatility
|
26 - 27%
|
|
|
25
|
%
|
|
25 - 26%
|
|
Weighted-average expected volatility
|
26
|
%
|
|
25
|
%
|
|
26
|
%
|
Expected dividend yield
|
1.2 - 1.4%
|
|
|
1.2
|
%
|
|
1.2 - 1.3%
|
|
Weighted-average expected dividend yield
|
1.2
|
%
|
|
1.2
|
%
|
|
1.3
|
%
|
Expected term, in years
|
5
|
|
|
5
|
|
|
5
|
|
Risk-free interest rate
|
1.6 - 2.5%
|
|
|
2.6 - 2.9%
|
|
|
1.7 - 2.0%
|
|
New stock option awards granted vest one-third each year over a 3 year period and have a 10 year contractual term. Compensation expense equal to the grant date fair value is recognized for these awards on a straight-line basis over the awards' vesting period. Stock options granted to employees are subject to accelerated expensing if the option holder meets the retirement definition set forth in the 2017 and 2010 Plans.
The following table summarizes the activity during the year ended December 31, 2019 for stock option awards:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average Exercise Price
|
Outstanding at beginning of year
|
1,084,567
|
|
|
$
|
55.11
|
|
Granted
|
210,664
|
|
|
63.68
|
|
Exercised
|
(182,433
|
)
|
|
33.52
|
|
Forfeited
|
(29,223
|
)
|
|
66.76
|
|
Expired
|
(11,798
|
)
|
|
$
|
68.05
|
|
Outstanding at end of year
|
1,071,777
|
|
|
$
|
60.01
|
|
Exercisable at end of year
|
711,381
|
|
|
$
|
56.91
|
|
The weighted-average grant date fair value of stock options granted during the years ended December 31, 2019, 2018 and 2017 was $15.37, $16.07 and $16.39, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2019, 2018 and 2017 was $6.8 million, $10.3 million and $4.5 million, respectively. The aggregate intrinsic value of options outstanding and exercisable at December 31, 2019 was $19.2 million and $14.9 million, respectively. The weighted-average remaining contractual life for options outstanding and exercisable as of December 31, 2019 was 6.2 years and 5.0 years, respectively. As of December 31, 2019, there was unrecognized compensation cost for nonvested options of $2.1 million, which is expected to be recognized over a weighted-average period of 1.3 years.
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.
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, 2019 for nonvested restricted share awards:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
Nonvested at beginning of year
|
100,221
|
|
|
$
|
53.52
|
|
Granted
|
16,211
|
|
|
63.65
|
|
Vested
|
(18,025
|
)
|
|
54.45
|
|
Forfeited
|
(4,808
|
)
|
|
69.57
|
|
Nonvested at end of year
|
93,599
|
|
|
$
|
54.27
|
|
The total fair value of restricted shares vested during the years ended December 31, 2019, 2018 and 2017 was $1.0 million, $1.0 million and $1.5 million, respectively. As of December 31, 2019, there was $1.1 million of total unrecognized compensation cost related to nonvested restricted shares which is expected to be recognized over a weighted-average period of 1.8 years.
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) 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 three year performance period. Performance shares are granted in restricted stock units. They are payable in stock and vest solely upon achievement of certain financial performance targets during this three year period.
The following table summarizes the activity during the year ended December 31, 2019 for nonvested performance share awards:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
Nonvested at beginning of year
|
127,047
|
|
|
$
|
63.80
|
|
Granted
|
50,864
|
|
|
63.68
|
|
Forfeited
|
(57,197
|
)
|
|
55.97
|
|
Nonvested at end of year
|
120,714
|
|
|
$
|
67.45
|
|
No performance shares vested during the year ended December 31, 2019 and December 31, 2018. The total fair value of performance shares vested during the year ended December 31, 2017 was $1.2 million. As of December 31, 2019, we expect to recognize $5.4 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, 2019 for nonvested restricted stock units:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
Nonvested at beginning of year
|
101,955
|
|
|
$
|
67.23
|
|
Granted
|
36,116
|
|
|
64.06
|
|
Vested
|
(29,905
|
)
|
|
72.73
|
|
Forfeited
|
(4,879
|
)
|
|
63.23
|
|
Nonvested at end of year
|
103,287
|
|
|
$
|
64.72
|
|
The total fair value of shares vested during the years ended December 31, 2019, 2018 and 2017 was $2.2 million, $0.9 million, and $1.0 million , respectively. As of December 31, 2019, there was $3.0 million of total unrecognized compensation cost related to nonvested shares which is expected to be recognized over a weighted-average period of 1.4 years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Share-Based Liabilities
As of December 31, 2019 and 2018, we had $0.2 million in total share-based liabilities recorded on our Consolidated Balance Sheets.
|
|
19.
|
Earnings (Loss) Attributable to Tennant Company Per Share
|
The computations of Basic and Diluted Earnings (Loss) Attributable to Tennant Company per Share for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
Net Earnings (Loss) Attributable to Tennant Company
|
$
|
45.8
|
|
|
$
|
33.4
|
|
|
$
|
(6.2
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic - Weighted Average Shares Outstanding
|
18,118,486
|
|
|
17,940,438
|
|
|
17,695,390
|
|
Effect of dilutive securities
|
334,659
|
|
|
398,131
|
|
|
—
|
|
Diluted - Weighted Average Shares Outstanding
|
18,453,145
|
|
|
18,338,569
|
|
|
17,695,390
|
|
Basic Earnings (Loss) per Share
|
$
|
2.53
|
|
|
$
|
1.86
|
|
|
$
|
(0.35
|
)
|
Diluted Earnings (Loss) per Share
|
$
|
2.48
|
|
|
$
|
1.82
|
|
|
$
|
(0.35
|
)
|
Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 552,402, 293,356 and 711,212 shares of common stock during 2019, 2018 and 2017, respectively. These exclusions were made if the exercise prices of these options are greater than the average market price of our common stock for the period, if the number of shares we can repurchase under the treasury stock method exceeds the weighted shares outstanding in the options or if we have a net loss, as these effects are anti-dilutive.
We are organized into four 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 one 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 Sales by geographic area for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Net Sales:
|
|
|
|
|
|
United States
|
$
|
609.6
|
|
|
$
|
579.8
|
|
|
$
|
543.7
|
|
Other Americas
|
112.8
|
|
|
111.2
|
|
|
96.6
|
|
Americas
|
722.4
|
|
|
691.0
|
|
|
640.3
|
|
Europe, Middle East, Africa
|
307.6
|
|
|
335.6
|
|
|
273.7
|
|
Asia Pacific
|
107.6
|
|
|
96.9
|
|
|
89.1
|
|
Total
|
$
|
1,137.6
|
|
|
$
|
1,123.5
|
|
|
$
|
1,003.1
|
|
Accounting policies of the operations in various operating segments are the same as those described in Note 1. Net Sales 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The following table presents long-lived assets by geographic area as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Long-lived assets:
|
|
|
|
|
|
United States
|
$
|
114.5
|
|
|
$
|
107.3
|
|
|
$
|
108.0
|
|
Other Americas
|
12.8
|
|
|
11.3
|
|
|
24.7
|
|
Americas
|
127.3
|
|
|
118.6
|
|
|
132.7
|
|
Italy
|
325.2
|
|
|
355.5
|
|
|
393.9
|
|
Other Europe, Middle East, Africa
|
28.6
|
|
|
30.2
|
|
|
28.4
|
|
Europe, Middle East, Africa
|
353.8
|
|
|
385.7
|
|
|
422.3
|
|
Asia Pacific
|
36.6
|
|
|
4.1
|
|
|
4.7
|
|
Total
|
$
|
517.7
|
|
|
$
|
508.4
|
|
|
$
|
559.7
|
|
Long-lived assets consist of Property, Plant and Equipment, Goodwill, Intangible Assets and certain other assets. Apart from the United States and Italy shown in the table above, there are no other individual foreign locations which have long-lived assets which represent more than 10% of our consolidated long-lived assets.
|
|
21.
|
Consolidated Quarterly Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
Net Sales
|
$
|
262.5
|
|
|
$
|
299.7
|
|
|
$
|
280.7
|
|
|
$
|
294.8
|
|
Gross Profit
|
108.2
|
|
|
120.8
|
|
|
114.0
|
|
|
118.6
|
|
Net Earnings Attributable to Tennant Company
|
5.4
|
|
|
14.8
|
|
|
14.6
|
|
|
10.9
|
|
Basic Earnings Attributable to Tennant Company per Share
|
$
|
0.30
|
|
|
$
|
0.82
|
|
|
$
|
0.81
|
|
|
$
|
0.60
|
|
Diluted Earnings Attributable to Tennant Company per Share
|
$
|
0.29
|
|
|
$
|
0.81
|
|
|
$
|
0.79
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Net Sales
|
$
|
272.8
|
|
|
$
|
292.2
|
|
|
$
|
273.3
|
|
|
$
|
285.2
|
|
|
Gross Profit
|
109.1
|
|
|
117.2
|
|
|
106.5
|
|
|
112.2
|
|
|
Net (Loss) Earnings Attributable to Tennant Company
|
3.3
|
|
|
12.7
|
|
|
9.7
|
|
|
7.7
|
|
|
Basic (Loss) Earnings Attributable to Tennant Company per Share
|
$
|
0.18
|
|
|
$
|
0.71
|
|
|
$
|
0.54
|
|
|
$
|
0.43
|
|
|
Diluted (Loss) Earnings Attributable to Tennant Company per Share
|
$
|
0.18
|
|
|
$
|
0.69
|
|
|
$
|
0.52
|
|
|
$
|
0.42
|
|
|
The summation of quarterly data may not equate to the calculation for the full fiscal year as quarterly calculations are performed on a discrete basis.
Regular quarterly dividends aggregated to $0.88 per share in 2019, or $0.22 per share per quarter, and $0.85 per share in 2018, or $0.21 per share for the first three quarters and $0.22 per share for the last quarter of 2018.
|
|
22.
|
Separate Financial Information of Guarantor Subsidiaries
|
The following condensed consolidated guarantor financial information is presented to comply with the requirements of Rule 3-10 of Regulation S-X.
On April 18, 2017, we issued and sold $300.0 million in aggregate principal amount of our 5.625% Senior Notes due 2025 (the “Notes”), pursuant to an Indenture, dated as of April 18, 2017, among the Company, the Guarantors (as defined below), and Wells Fargo Bank, National Association, a national banking association, as trustee. The Notes are unconditionally and jointly and severally guaranteed by Tennant Coatings, Inc., and Tennant Sales and Service Company (collectively, the “Guarantors” or "Guarantor Subsidiaries"), which are 100% owned subsidiaries of the Company.
The Notes and the guarantees constitute senior unsecured obligations of the Company and the Guarantors, respectively. The Notes and the guarantees, respectively, are: (a) equal in right of payment with all of the Company’s and the Guarantors’ senior debt, without giving effect to collateral arrangements; (b) senior in right of payment to all of the Company’s and the Guarantors’ future subordinated debt, if any; (c) effectively subordinated in right of payment to all of the Company’s and the Guarantors’ debt and obligations that are secured, including borrowings under the Company’s senior secured credit facilities for so long as the senior secured credit facilities are secured, to the extent of the value of the assets securing such liens; and (d) structurally subordinated in right of payment to all liabilities (including trade payables) of the Company’s and the Guarantors’ subsidiaries that do not guarantee the Notes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The following condensed consolidated financial information presents the Condensed Consolidated Statements of Earnings, Comprehensive Income and Cash Flows for each of the years in the three year period ended December 31, 2019, and the related Condensed Consolidated Balance Sheets as of December 31, 2019 and 2018, of Tennant Company ("Parent"), the Guarantor Subsidiaries on a combined basis, the Non-Guarantor Subsidiaries on a combined basis and elimination entries necessary to consolidate the Parent with the Guarantor and Non-Guarantor Subsidiaries. The following condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto of which this note is an integral part.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Earnings
|
For the year ended December 31, 2019
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
Net Sales
|
$
|
529.6
|
|
|
$
|
666.2
|
|
|
$
|
554.6
|
|
|
$
|
(612.8
|
)
|
|
$
|
1,137.6
|
|
Cost of Sales
|
347.2
|
|
|
563.0
|
|
|
376.1
|
|
|
(610.4
|
)
|
|
675.9
|
|
Gross Profit
|
182.4
|
|
|
103.2
|
|
|
178.5
|
|
|
(2.4
|
)
|
|
461.7
|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expense
|
25.9
|
|
|
1.1
|
|
|
5.7
|
|
|
—
|
|
|
32.7
|
|
Selling and Administrative Expense
|
117.8
|
|
|
76.4
|
|
|
163.0
|
|
|
—
|
|
|
357.2
|
|
Total Operating Expense
|
143.7
|
|
|
77.5
|
|
|
168.7
|
|
|
—
|
|
|
389.9
|
|
Profit (Loss) from Operations
|
38.7
|
|
|
25.7
|
|
|
9.8
|
|
|
(2.4
|
)
|
|
71.8
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in Earnings of Affiliates
|
21.0
|
|
|
2.0
|
|
|
2.8
|
|
|
(25.8
|
)
|
|
—
|
|
Interest (Expense) Income, Net
|
(17.4
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
|
(17.8
|
)
|
Intercompany Interest Income (Expense)
|
13.9
|
|
|
(5.7
|
)
|
|
(8.2
|
)
|
|
—
|
|
|
—
|
|
Net Foreign Currency Transaction Losses
|
0.3
|
|
|
—
|
|
|
(1.0
|
)
|
|
—
|
|
|
(0.7
|
)
|
Other (Expense) Income, Net
|
(2.2
|
)
|
|
(1.3
|
)
|
|
4.3
|
|
|
(0.1
|
)
|
|
0.7
|
|
Total Other Income (Expense), Net
|
15.6
|
|
|
(5.0
|
)
|
|
(2.5
|
)
|
|
(25.9
|
)
|
|
(17.8
|
)
|
Profit (Loss) Before Income Taxes
|
54.3
|
|
|
20.7
|
|
|
7.3
|
|
|
(28.3
|
)
|
|
54.0
|
|
Income Tax Expense (Benefit)
|
8.4
|
|
|
4.9
|
|
|
(1.2
|
)
|
|
(4.0
|
)
|
|
8.1
|
|
Net Earnings (Loss) Including Noncontrolling Interest
|
45.9
|
|
|
15.8
|
|
|
8.5
|
|
|
(24.3
|
)
|
|
45.9
|
|
Net Earnings (Loss) Attributable to Noncontrolling Interest
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
0.1
|
|
Net Earnings (Loss) Attributable to Tennant Company
|
$
|
45.8
|
|
|
$
|
15.8
|
|
|
$
|
8.4
|
|
|
$
|
(24.2
|
)
|
|
$
|
45.8
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Earnings
|
For the year ended December 31, 2018
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
Net Sales
|
$
|
494.4
|
|
|
$
|
634.3
|
|
|
$
|
570.6
|
|
|
$
|
(575.8
|
)
|
|
$
|
1,123.5
|
|
Cost of Sales
|
336.4
|
|
|
533.8
|
|
|
383.0
|
|
|
(574.7
|
)
|
|
678.5
|
|
Gross Profit
|
158.0
|
|
|
100.5
|
|
|
187.6
|
|
|
(1.1
|
)
|
|
445.0
|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expense
|
24.5
|
|
|
1.0
|
|
|
5.2
|
|
|
—
|
|
|
30.7
|
|
Selling and Administrative Expense
|
116.5
|
|
|
76.6
|
|
|
161.9
|
|
|
1.3
|
|
|
356.3
|
|
Total Operating Expense
|
141.0
|
|
|
77.6
|
|
|
167.1
|
|
|
1.3
|
|
|
387.0
|
|
Profit (Loss) from Operations
|
17.0
|
|
|
22.9
|
|
|
20.5
|
|
|
(2.4
|
)
|
|
58.0
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in Earnings of Affiliates
|
27.4
|
|
|
2.2
|
|
|
5.4
|
|
|
(35.0
|
)
|
|
—
|
|
Interest (Expense) Income, Net
|
(20.5
|
)
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
(20.3
|
)
|
Intercompany Interest Income (Expense)
|
14.6
|
|
|
(5.8
|
)
|
|
(8.8
|
)
|
|
—
|
|
|
—
|
|
Net Foreign Currency Transaction Losses
|
(0.4
|
)
|
|
—
|
|
|
(0.7
|
)
|
|
—
|
|
|
(1.1
|
)
|
Other (Expense) Income, Net
|
(2.3
|
)
|
|
(2.4
|
)
|
|
2.8
|
|
|
1.1
|
|
|
(0.8
|
)
|
Total Other Income (Expense), Net
|
18.8
|
|
|
(6.0
|
)
|
|
(1.1
|
)
|
|
(33.9
|
)
|
|
(22.2
|
)
|
Profit (Loss) Before Income Taxes
|
35.8
|
|
|
16.9
|
|
|
19.4
|
|
|
(36.3
|
)
|
|
35.8
|
|
Income Tax Expense (Benefit)
|
2.3
|
|
|
4.0
|
|
|
0.4
|
|
|
(4.4
|
)
|
|
2.3
|
|
Net Earnings (Loss) Including Noncontrolling Interest
|
33.5
|
|
|
12.9
|
|
|
19.0
|
|
|
(31.9
|
)
|
|
33.5
|
|
Net Earnings (Loss) Attributable to Noncontrolling Interest
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
0.1
|
|
Net Earnings (Loss) Attributable to Tennant Company
|
$
|
33.4
|
|
|
$
|
12.9
|
|
|
$
|
18.9
|
|
|
$
|
(31.8
|
)
|
|
$
|
33.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Earnings
|
For the year ended December 31, 2017
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
Net Sales
|
$
|
454.7
|
|
|
$
|
594.4
|
|
|
$
|
471.6
|
|
|
$
|
(517.6
|
)
|
|
$
|
1,003.1
|
|
Cost of Sales
|
311.9
|
|
|
489.0
|
|
|
321.8
|
|
|
(519.4
|
)
|
|
603.3
|
|
Gross Profit
|
142.8
|
|
|
105.4
|
|
|
149.8
|
|
|
1.8
|
|
|
399.8
|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expense
|
27.2
|
|
|
0.3
|
|
|
4.5
|
|
|
—
|
|
|
32.0
|
|
Selling and Administrative Expense
|
110.4
|
|
|
78.5
|
|
|
145.9
|
|
|
—
|
|
|
334.8
|
|
Total Operating Expense
|
137.6
|
|
|
78.8
|
|
|
150.4
|
|
|
—
|
|
|
366.8
|
|
Profit (Loss) from Operations
|
5.2
|
|
|
26.6
|
|
|
(0.6
|
)
|
|
1.8
|
|
|
33.0
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in Earnings of Affiliates
|
12.7
|
|
|
2.0
|
|
|
28.9
|
|
|
(43.6
|
)
|
|
—
|
|
Interest Expense, Net
|
(22.7
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(23.0
|
)
|
Intercompany Interest Income (Expense)
|
12.5
|
|
|
(5.8
|
)
|
|
(6.7
|
)
|
|
—
|
|
|
—
|
|
Net Foreign Currency Transaction Gains (Losses)
|
0.9
|
|
|
—
|
|
|
(4.3
|
)
|
|
—
|
|
|
(3.4
|
)
|
Other (Expense) Income, Net
|
(9.9
|
)
|
|
(0.7
|
)
|
|
2.8
|
|
|
(0.1
|
)
|
|
(7.9
|
)
|
Total Other Income (Expense), Net
|
(6.5
|
)
|
|
(4.5
|
)
|
|
20.4
|
|
|
(43.7
|
)
|
|
(34.3
|
)
|
Profit (Loss) Before Income Taxes
|
(1.3
|
)
|
|
22.1
|
|
|
19.8
|
|
|
(41.9
|
)
|
|
(1.3
|
)
|
Income Tax Expense (Benefit)
|
4.9
|
|
|
8.1
|
|
|
(0.1
|
)
|
|
(8.0
|
)
|
|
4.9
|
|
Net Earnings (Loss) Attributable to Tennant Company
|
$
|
(6.2
|
)
|
|
$
|
14.0
|
|
|
$
|
19.9
|
|
|
$
|
(33.9
|
)
|
|
$
|
(6.2
|
)
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Comprehensive Income
|
For the year ended December 31, 2019
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
Net Earnings (Loss) Including Noncontrolling Interest
|
$
|
45.9
|
|
|
$
|
15.8
|
|
|
$
|
8.5
|
|
|
$
|
(24.3
|
)
|
|
$
|
45.9
|
|
Other Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(4.5
|
)
|
|
0.5
|
|
|
(4.9
|
)
|
|
4.4
|
|
|
(4.5
|
)
|
Pension and retiree medical benefits
|
(0.5
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
0.4
|
|
|
(0.5
|
)
|
Cash flow hedge
|
4.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.6
|
|
Income Taxes:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
0.1
|
|
Pension and retiree medical benefits
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
0.1
|
|
Cash flow hedge
|
(1.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.1
|
)
|
Total Other Comprehensive Income (Loss), net of tax
|
(1.3
|
)
|
|
0.5
|
|
|
(5.1
|
)
|
|
4.6
|
|
|
(1.3
|
)
|
Total Comprehensive Income (Loss) Including Noncontrolling Interest
|
44.6
|
|
|
16.3
|
|
|
3.4
|
|
|
(19.7
|
)
|
|
44.6
|
|
Comprehensive Income (Loss) Attributable to Noncontrolling Interest
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
0.1
|
|
Comprehensive Income (Loss) Attributable to Tennant Company
|
$
|
44.5
|
|
|
$
|
16.3
|
|
|
$
|
3.3
|
|
|
$
|
(19.6
|
)
|
|
$
|
44.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Comprehensive Income
|
For the year ended December 31, 2018
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
Net Earnings (Loss) Including Noncontrolling Interest
|
$
|
33.5
|
|
|
$
|
12.9
|
|
|
$
|
19.0
|
|
|
$
|
(31.9
|
)
|
|
$
|
33.5
|
|
Other Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(16.2
|
)
|
|
(1.0
|
)
|
|
(21.4
|
)
|
|
22.4
|
|
|
(16.2
|
)
|
Pension and retiree medical benefits
|
1.7
|
|
|
—
|
|
|
1.2
|
|
|
(1.2
|
)
|
|
1.7
|
|
Cash flow hedge
|
1.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
Income Taxes:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
(0.2
|
)
|
|
0.2
|
|
Pension and retiree medical benefits
|
(0.5
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
0.2
|
|
|
(0.5
|
)
|
Cash flow hedge
|
(1.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.4
|
)
|
Total Other Comprehensive Income (Loss), net of tax
|
(14.9
|
)
|
|
(1.0
|
)
|
|
(20.2
|
)
|
|
21.2
|
|
|
(14.9
|
)
|
Total Comprehensive Income (Loss) Including Noncontrolling Interest
|
18.6
|
|
|
11.9
|
|
|
(1.2
|
)
|
|
(10.7
|
)
|
|
18.6
|
|
Comprehensive Income (Loss) Attributable to Noncontrolling Interest
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
0.1
|
|
Comprehensive Income (Loss) Attributable to Tennant Company
|
$
|
18.5
|
|
|
$
|
11.9
|
|
|
$
|
(1.3
|
)
|
|
$
|
(10.6
|
)
|
|
$
|
18.5
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Comprehensive Income
|
For the year ended December 31, 2017
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
Net Earnings (Loss)
|
$
|
(6.2
|
)
|
|
$
|
14.0
|
|
|
$
|
19.9
|
|
|
$
|
(33.9
|
)
|
|
$
|
(6.2
|
)
|
Other Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
28.3
|
|
|
1.2
|
|
|
3.0
|
|
|
(4.2
|
)
|
|
28.3
|
|
Pension and retiree medical benefits
|
5.9
|
|
|
—
|
|
|
0.6
|
|
|
(0.6
|
)
|
|
5.9
|
|
Cash flow hedge
|
(7.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.7
|
)
|
Income Taxes:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
(0.3
|
)
|
|
0.3
|
|
Pension and retiree medical benefits
|
(2.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
0.1
|
|
|
(2.1
|
)
|
Cash flow hedge
|
2.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.9
|
|
Total Other Comprehensive Income (Loss), net of tax
|
27.6
|
|
|
1.2
|
|
|
3.8
|
|
|
(5.0
|
)
|
|
27.6
|
|
Comprehensive Income (Loss)
|
$
|
21.4
|
|
|
$
|
15.2
|
|
|
$
|
23.7
|
|
|
$
|
(38.9
|
)
|
|
$
|
21.4
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet
|
As of December 31, 2019
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, and Restricted Cash
|
$
|
27.7
|
|
|
$
|
1.3
|
|
|
$
|
45.6
|
|
|
$
|
—
|
|
|
$
|
74.6
|
|
Net Receivables
|
3.3
|
|
|
99.7
|
|
|
120.3
|
|
|
—
|
|
|
223.3
|
|
Intercompany Receivables
|
35.7
|
|
|
137.7
|
|
|
—
|
|
|
(173.4
|
)
|
|
—
|
|
Inventories
|
39.1
|
|
|
16.9
|
|
|
106.9
|
|
|
(12.8
|
)
|
|
150.1
|
|
Prepaid Expenses and Other Current Assets
|
17.8
|
|
|
1.2
|
|
|
14.0
|
|
|
—
|
|
|
33.0
|
|
Total Current Assets
|
123.6
|
|
|
256.8
|
|
|
286.8
|
|
|
(186.2
|
)
|
|
481.0
|
|
Property, Plant and Equipment
|
246.7
|
|
|
10.0
|
|
|
155.8
|
|
|
—
|
|
|
412.5
|
|
Accumulated Depreciation
|
(164.3
|
)
|
|
(4.2
|
)
|
|
(70.7
|
)
|
|
—
|
|
|
(239.2
|
)
|
Property, Plant and Equipment, Net
|
82.4
|
|
|
5.8
|
|
|
85.1
|
|
|
—
|
|
|
173.3
|
|
Operating Lease Assets
|
5.2
|
|
|
10.3
|
|
|
31.1
|
|
|
—
|
|
|
46.6
|
|
Investment in Affiliates
|
420.7
|
|
|
14.1
|
|
|
39.2
|
|
|
(474.0
|
)
|
|
—
|
|
Intercompany Loans
|
298.2
|
|
|
—
|
|
|
—
|
|
|
(298.2
|
)
|
|
—
|
|
Goodwill
|
12.9
|
|
|
1.7
|
|
|
180.5
|
|
|
—
|
|
|
195.1
|
|
Intangible Assets, Net
|
3.2
|
|
|
2.5
|
|
|
132.0
|
|
|
—
|
|
|
137.7
|
|
Other Assets
|
4.9
|
|
|
4.4
|
|
|
19.9
|
|
|
—
|
|
|
29.2
|
|
Total Assets
|
$
|
951.1
|
|
|
$
|
295.6
|
|
|
$
|
774.6
|
|
|
$
|
(958.4
|
)
|
|
$
|
1,062.9
|
|
LIABILITIES AND TOTAL EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current Portion of Long-Term Debt
|
$
|
30.0
|
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
31.3
|
|
Accounts Payable
|
39.4
|
|
|
5.1
|
|
|
49.6
|
|
|
—
|
|
|
94.1
|
|
Intercompany Payables
|
137.5
|
|
|
—
|
|
|
35.9
|
|
|
(173.4
|
)
|
|
—
|
|
Employee Compensation and Benefits
|
19.3
|
|
|
17.5
|
|
|
26.7
|
|
|
—
|
|
|
63.5
|
|
Other Current Liabilities
|
24.9
|
|
|
20.5
|
|
|
40.6
|
|
|
—
|
|
|
86.0
|
|
Total Current Liabilities
|
251.1
|
|
|
43.1
|
|
|
154.1
|
|
|
(173.4
|
)
|
|
274.9
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
306.2
|
|
|
—
|
|
|
1.3
|
|
|
—
|
|
|
307.5
|
|
Intercompany Loans
|
2.1
|
|
|
128.0
|
|
|
168.1
|
|
|
(298.2
|
)
|
|
—
|
|
Long-Term Operating Lease Liabilities
|
4.0
|
|
|
5.3
|
|
|
21.0
|
|
|
—
|
|
|
30.3
|
|
Employee-Related Benefits
|
10.4
|
|
|
1.4
|
|
|
7.6
|
|
|
—
|
|
|
19.4
|
|
Deferred Income Taxes
|
—
|
|
|
—
|
|
|
41.7
|
|
|
—
|
|
|
41.7
|
|
Other Liabilities
|
16.0
|
|
|
3.0
|
|
|
8.8
|
|
|
—
|
|
|
27.8
|
|
Total Long-Term Liabilities
|
338.7
|
|
|
137.7
|
|
|
248.5
|
|
|
(298.2
|
)
|
|
426.7
|
|
Total Liabilities
|
589.8
|
|
|
180.8
|
|
|
402.6
|
|
|
(471.6
|
)
|
|
701.6
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
6.9
|
|
|
—
|
|
|
11.1
|
|
|
(11.1
|
)
|
|
6.9
|
|
Additional Paid-In Capital
|
45.5
|
|
|
77.6
|
|
|
417.4
|
|
|
(495.0
|
)
|
|
45.5
|
|
Retained Earnings
|
346.0
|
|
|
38.4
|
|
|
6.0
|
|
|
(44.4
|
)
|
|
346.0
|
|
Accumulated Other Comprehensive Loss
|
(38.5
|
)
|
|
(1.2
|
)
|
|
(63.9
|
)
|
|
65.1
|
|
|
(38.5
|
)
|
Total Tennant Company Shareholders’ Equity
|
359.9
|
|
|
114.8
|
|
|
370.6
|
|
|
(485.4
|
)
|
|
359.9
|
|
Noncontrolling Interest
|
1.4
|
|
|
—
|
|
|
1.4
|
|
|
(1.4
|
)
|
|
1.4
|
|
Total Equity
|
361.3
|
|
|
114.8
|
|
|
372.0
|
|
|
(486.8
|
)
|
|
361.3
|
|
Total Liabilities and Total Equity
|
$
|
951.1
|
|
|
$
|
295.6
|
|
|
$
|
774.6
|
|
|
$
|
(958.4
|
)
|
|
$
|
1,062.9
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet
|
As of December 31, 2018
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents, and Restricted Cash
|
$
|
24.8
|
|
|
$
|
1.6
|
|
|
$
|
59.7
|
|
|
$
|
—
|
|
|
$
|
86.1
|
|
Net Receivables
|
0.9
|
|
|
94.8
|
|
|
120.5
|
|
|
—
|
|
|
216.2
|
|
Intercompany Receivables
|
30.0
|
|
|
148.9
|
|
|
—
|
|
|
(178.9
|
)
|
|
—
|
|
Inventories
|
37.1
|
|
|
13.4
|
|
|
94.7
|
|
|
(10.1
|
)
|
|
135.1
|
|
Prepaid Expenses and Other Current Assets
|
17.5
|
|
|
1.2
|
|
|
13.0
|
|
|
(0.5
|
)
|
|
31.2
|
|
Total Current Assets
|
110.3
|
|
|
259.9
|
|
|
287.9
|
|
|
(189.5
|
)
|
|
468.6
|
|
Property, Plant and Equipment
|
229.8
|
|
|
12.7
|
|
|
144.1
|
|
|
—
|
|
|
386.6
|
|
Accumulated Depreciation
|
(159.4
|
)
|
|
(6.9
|
)
|
|
(56.9
|
)
|
|
—
|
|
|
(223.2
|
)
|
Property, Plant and Equipment, Net
|
70.4
|
|
|
5.8
|
|
|
87.2
|
|
|
—
|
|
|
163.4
|
|
Investment in Affiliates
|
421.0
|
|
|
12.1
|
|
|
20.8
|
|
|
(453.9
|
)
|
|
—
|
|
Intercompany Loans
|
301.6
|
|
|
—
|
|
|
3.2
|
|
|
(304.8
|
)
|
|
—
|
|
Goodwill
|
12.9
|
|
|
1.7
|
|
|
168.1
|
|
|
—
|
|
|
182.7
|
|
Intangible Assets, Net
|
4.0
|
|
|
2.7
|
|
|
139.8
|
|
|
—
|
|
|
146.5
|
|
Other Assets
|
11.0
|
|
|
3.1
|
|
|
17.2
|
|
|
—
|
|
|
31.3
|
|
Total Assets
|
$
|
931.2
|
|
|
$
|
285.3
|
|
|
$
|
724.2
|
|
|
$
|
(948.2
|
)
|
|
$
|
992.5
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current Portion of Long-Term Debt
|
$
|
21.8
|
|
|
$
|
—
|
|
|
$
|
5.2
|
|
|
$
|
—
|
|
|
$
|
27.0
|
|
Accounts Payable
|
41.0
|
|
|
5.0
|
|
|
52.4
|
|
|
—
|
|
|
98.4
|
|
Intercompany Payables
|
149.5
|
|
|
—
|
|
|
29.5
|
|
|
(179.0
|
)
|
|
—
|
|
Employee Compensation and Benefits
|
14.4
|
|
|
17.2
|
|
|
24.5
|
|
|
—
|
|
|
56.1
|
|
Other Current Liabilities
|
22.8
|
|
|
17.6
|
|
|
27.5
|
|
|
(0.5
|
)
|
|
67.4
|
|
Total Current Liabilities
|
249.5
|
|
|
39.8
|
|
|
139.1
|
|
|
(179.5
|
)
|
|
248.9
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
326.5
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
328.1
|
|
Intercompany Loans
|
3.3
|
|
|
128.1
|
|
|
173.5
|
|
|
(304.9
|
)
|
|
—
|
|
Employee-Related Benefits
|
11.0
|
|
|
2.0
|
|
|
8.1
|
|
|
—
|
|
|
21.1
|
|
Deferred Income Taxes
|
—
|
|
|
—
|
|
|
46.0
|
|
|
—
|
|
|
46.0
|
|
Other Liabilities
|
24.6
|
|
|
2.9
|
|
|
4.6
|
|
|
—
|
|
|
32.1
|
|
Total Long-Term Liabilities
|
365.4
|
|
|
133.0
|
|
|
233.8
|
|
|
(304.9
|
)
|
|
427.3
|
|
Total Liabilities
|
614.9
|
|
|
172.8
|
|
|
372.9
|
|
|
(484.4
|
)
|
|
676.2
|
|
Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
6.8
|
|
|
—
|
|
|
11.1
|
|
|
(11.1
|
)
|
|
6.8
|
|
Additional Paid-In Capital
|
28.5
|
|
|
77.5
|
|
|
399.5
|
|
|
(477.0
|
)
|
|
28.5
|
|
Retained Earnings
|
316.3
|
|
|
36.6
|
|
|
(2.5
|
)
|
|
(34.1
|
)
|
|
316.3
|
|
Accumulated Other Comprehensive Loss
|
(37.2
|
)
|
|
(1.6
|
)
|
|
(58.7
|
)
|
|
60.3
|
|
|
(37.2
|
)
|
Total Tennant Company Shareholders’ Equity
|
314.4
|
|
|
112.5
|
|
|
349.4
|
|
|
(461.9
|
)
|
|
314.4
|
|
Noncontrolling Interest
|
1.9
|
|
|
—
|
|
|
1.9
|
|
|
(1.9
|
)
|
|
1.9
|
|
Total Equity
|
316.3
|
|
|
112.5
|
|
|
351.3
|
|
|
(463.8
|
)
|
|
316.3
|
|
Total Liabilities and Total Equity
|
$
|
931.2
|
|
|
$
|
285.3
|
|
|
$
|
724.2
|
|
|
$
|
(948.2
|
)
|
|
$
|
992.5
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows
|
For the year ended December 31, 2019
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
$
|
54.2
|
|
|
$
|
0.1
|
|
|
$
|
17.6
|
|
|
$
|
—
|
|
|
$
|
71.9
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchases of Property, Plant and Equipment
|
(27.5
|
)
|
|
(0.4
|
)
|
|
(10.5
|
)
|
|
—
|
|
|
(38.4
|
)
|
Proceeds from Disposals of Property, Plant and Equipment
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Proceeds from Principal Payments Received on Long-Term Note Receivable
|
—
|
|
|
—
|
|
|
2.9
|
|
|
—
|
|
|
2.9
|
|
Acquisition of Business, Net of Cash Acquired
|
—
|
|
|
—
|
|
|
(19.7
|
)
|
|
—
|
|
|
(19.7
|
)
|
Purchases of Intangible Asset
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
(0.5
|
)
|
Loan Payments Received by Subsidiary from Parent
|
—
|
|
|
—
|
|
|
1.1
|
|
|
(1.1
|
)
|
|
—
|
|
Net Cash Used in Investing Activities
|
(27.4
|
)
|
|
(0.4
|
)
|
|
(26.7
|
)
|
|
(1.1
|
)
|
|
(55.6
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceed from Debt
|
25.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25.0
|
|
Loan Repayments made to Subsidiary from Parent
|
(1.1
|
)
|
|
—
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
Repayments of Debt
|
(37.7
|
)
|
|
—
|
|
|
(4.1
|
)
|
|
—
|
|
|
(41.8
|
)
|
Change in Finance Lease Obligations
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
Proceeds from Issuances of Common Stock
|
6.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.1
|
|
Purchase of Noncontrolling Owner Interest
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
(0.5
|
)
|
Dividends Paid
|
(16.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16.0
|
)
|
Net Cash (Used in) Provided by Financing Activities
|
(23.7
|
)
|
|
—
|
|
|
(4.8
|
)
|
|
1.1
|
|
|
(27.4
|
)
|
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.4
|
)
|
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
2.9
|
|
|
(0.3
|
)
|
|
(14.1
|
)
|
|
—
|
|
|
(11.5
|
)
|
Cash, Cash Equivalents and Restricted Cash at Beginning of Year
|
24.8
|
|
|
1.6
|
|
|
59.7
|
|
|
—
|
|
|
86.1
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR
|
$
|
27.7
|
|
|
$
|
1.3
|
|
|
$
|
45.6
|
|
|
$
|
—
|
|
|
$
|
74.6
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows
|
For the year ended December 31, 2018
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
$
|
68.1
|
|
|
$
|
1.2
|
|
|
$
|
10.9
|
|
|
$
|
(0.2
|
)
|
|
$
|
80.0
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Purchases of Property, Plant and Equipment
|
(6.8
|
)
|
|
(0.1
|
)
|
|
(11.9
|
)
|
|
—
|
|
|
(18.8
|
)
|
Proceeds from Disposals of Property, Plant and Equipment
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Proceeds from Principal Payments received on Long-Term Note Receivable
|
—
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
1.4
|
|
Proceeds from Sale of Business
|
—
|
|
|
—
|
|
|
4.0
|
|
|
—
|
|
|
4.0
|
|
Purchase of Intangible Asset
|
(2.5
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(2.8
|
)
|
Change in Investments in Subsidiaries
|
(15.6
|
)
|
|
—
|
|
|
—
|
|
|
15.6
|
|
|
—
|
|
Loan Payments from Subsidiaries
|
1.2
|
|
|
—
|
|
|
—
|
|
|
(1.2
|
)
|
|
—
|
|
Loan Payments from Parent
|
—
|
|
|
—
|
|
|
1.8
|
|
|
(1.8
|
)
|
|
—
|
|
Net Cash (Used in) Provided by Investing Activities
|
(23.7
|
)
|
|
(0.1
|
)
|
|
(4.9
|
)
|
|
12.6
|
|
|
(16.1
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds from Debt
|
11.0
|
|
|
—
|
|
|
3.9
|
|
|
—
|
|
|
14.9
|
|
Loan Repayments to Subsidiary from Parent
|
(1.8
|
)
|
|
—
|
|
|
—
|
|
|
1.8
|
|
|
—
|
|
Loan Repayments to Parent from Subsidiary
|
—
|
|
|
—
|
|
|
(1.2
|
)
|
|
1.2
|
|
|
—
|
|
Change in Subsidiary Equity
|
—
|
|
|
—
|
|
|
15.6
|
|
|
(15.6
|
)
|
|
—
|
|
Payment of LongTerm Debt
|
(38.0
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(38.3
|
)
|
Proceeds from Issuances of Common Stock
|
5.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.9
|
|
Dividends Paid
|
(15.3
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
0.2
|
|
|
(15.3
|
)
|
Net Cash (Used in) Provided by Financing Activities
|
(38.2
|
)
|
|
—
|
|
|
17.8
|
|
|
(12.4
|
)
|
|
(32.8
|
)
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
0.2
|
|
|
—
|
|
|
(4.2
|
)
|
|
—
|
|
|
(4.0
|
)
|
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
6.4
|
|
|
1.1
|
|
|
19.6
|
|
|
—
|
|
|
27.1
|
|
Cash, Cash Equivalents and Restricted Cash at Beginning of Year
|
18.4
|
|
|
0.5
|
|
|
40.1
|
|
|
—
|
|
|
59.0
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR
|
$
|
24.8
|
|
|
$
|
1.6
|
|
|
$
|
59.7
|
|
|
$
|
—
|
|
|
$
|
86.1
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows
|
For the year ended December 31, 2017
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
$
|
27.0
|
|
|
$
|
0.3
|
|
|
$
|
27.7
|
|
|
$
|
(0.8
|
)
|
|
$
|
54.2
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchases of Property, Plant and Equipment
|
(9.5
|
)
|
|
—
|
|
|
(10.9
|
)
|
|
—
|
|
|
(20.4
|
)
|
Proceeds from Disposals of Property, Plant and Equipment
|
—
|
|
|
—
|
|
|
2.5
|
|
|
—
|
|
|
2.5
|
|
Proceeds from Principal Payments Received on Long-Term Note Receivable
|
—
|
|
|
—
|
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
Acquisition of Businesses, Net of Cash Acquired
|
(0.3
|
)
|
|
—
|
|
|
(353.8
|
)
|
|
—
|
|
|
(354.1
|
)
|
Issuance of Long-Term Note Receivable
|
—
|
|
|
—
|
|
|
(1.5
|
)
|
|
—
|
|
|
(1.5
|
)
|
Purchase of Intangible Asset
|
(2.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.5
|
)
|
Loan Borrowings (Payments) from Subsidiaries
|
(159.8
|
)
|
|
—
|
|
|
(5.0
|
)
|
|
164.8
|
|
|
—
|
|
Change in Investments in Subsidiaries
|
(199.0
|
)
|
|
—
|
|
|
—
|
|
|
199.0
|
|
|
—
|
|
Net Cash (Used in) Provided by Investing Activities
|
(371.1
|
)
|
|
—
|
|
|
(368.0
|
)
|
|
363.8
|
|
|
(375.3
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds from Debt
|
743.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
743.0
|
|
Loan Borrowings (Payments) from Parent
|
5.0
|
|
|
—
|
|
|
159.8
|
|
|
(164.8
|
)
|
|
—
|
|
Change in Subsidiary Entity
|
—
|
|
|
—
|
|
|
199.0
|
|
|
(199.0
|
)
|
|
—
|
|
Repayments of Debt
|
(399.2
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(399.3
|
)
|
Payments of Debt Issuance Costs
|
(16.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16.5
|
)
|
Change in Finance Lease Obligations
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
Proceeds from Issuances of Common Stock
|
6.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.9
|
|
Dividends Paid
|
(15.0
|
)
|
|
—
|
|
|
(0.8
|
)
|
|
0.8
|
|
|
(15.0
|
)
|
Net Cash Provided by (Used in) Financing Activities
|
324.2
|
|
|
—
|
|
|
358.2
|
|
|
(363.0
|
)
|
|
319.4
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
(0.1
|
)
|
|
—
|
|
|
2.3
|
|
|
—
|
|
|
2.2
|
|
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
(20.0
|
)
|
|
0.3
|
|
|
20.2
|
|
|
—
|
|
|
0.5
|
|
Cash, Cash Equivalents and Restricted Cash at Beginning of Year
|
38.4
|
|
|
0.2
|
|
|
19.9
|
|
|
—
|
|
|
58.5
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR
|
$
|
18.4
|
|
|
$
|
0.5
|
|
|
$
|
40.1
|
|
|
$
|
—
|
|
|
$
|
59.0
|
|