NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions, except shares and per share data)
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1.
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Summary of Significant Accounting Policies
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Basis of Presentation – The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the Securities and Exchange Commission (“SEC”) requirements for interim reporting. In our opinion, the Consolidated Financial Statements contain all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of our financial position and results of operations.
These statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our annual report on Form 10-K for the year ended December 31, 2019. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
New Accounting Pronouncements – In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848). This ASU provides optional expedients to applying generally accepted accounting principles to certain contract modifications, hedging relationships, and other transactions affected by the reference rate reform, which affects the London Inter-bank Offered Rate, if certain criteria are met. The amendments are effective as of March 12, 2020 through December 31, 2022. We are evaluating whether to apply any of the expedients and/or exceptions.
Further details regarding the adoption of new accounting standards are discussed in Note 2.
We documented the summary of significant accounting policies in the Notes to the Consolidated Financial Statements of our annual report on Form 10-K for the fiscal year ended December 31, 2019. Other than the accounting policies noted above, there have been no material changes to our accounting policies since the filing of that report.
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2.
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Newly Adopted Accounting Pronouncements
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Financial Instruments
On January 1, 2020, we adopted ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and all related amendments. This ASU improves financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Under the new guidance, the ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. We evaluated the impact of this amended guidance on our consolidated financial statements and related disclosures and concluded that it is immaterial.
We estimate an allowance for doubtful accounts using a loss rate method. We considered the following in determining the expected loss rate: (1) historical loss rate, (2) macroeconomic factors, and (3) creditworthiness of customers.
The historical loss rate is calculated by taking the yearly write-off expense, net of collections, as a percentage of the annual average balance of trade receivables for each of the past three years.
A reconciliation of the beginning and ending allowance for doubtful accounts is as follows:
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Allowance for Doubtful Accounts:
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December 31, 2019 balance
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$
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3.6
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Charged to costs and expenses
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0.3
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Deductions(a)
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(0.3
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)
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March 31, 2020 balance
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$
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3.6
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(a) Includes accounts determined to be uncollectible and charged against reserves.
3. Revenue
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 three months ended March 31, 2020 and 2019:
Net Sales by geographic area
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Three Months Ended
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March 31
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2020
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2019
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Americas
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$
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162.6
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$
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160.8
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Europe, Middle East and Africa
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72.0
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78.1
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Asia Pacific
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17.5
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23.6
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Total
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$
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252.1
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$
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262.5
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Net Sales are attributed to each geographic area based on the end user country and are net of intercompany sales.
Net Sales by groups of similar products and services
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Three Months Ended
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March 31
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2020
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2019
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Equipment
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$
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154.2
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$
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163.0
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Parts and Consumables
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54.2
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55.9
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Specialty Surface Coatings
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6.1
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6.2
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Service and Other
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37.6
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37.4
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Total
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$
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252.1
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$
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262.5
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Prior year numbers have been updated to conform with current year presentation.
Net Sales by sales channel
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Three Months Ended
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March 31
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2020
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2019
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Sales Direct to Consumer
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$
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167.6
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$
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172.5
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Sales to Distributors
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84.5
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90.0
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Total
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$
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252.1
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$
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262.5
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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 three months ended March 31, 2020 and 2019 was as follows:
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Three Months Ended
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March 31
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2020
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2019
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Beginning balance
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$
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13.7
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$
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16.7
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Additions to sales incentive accrual
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5.4
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6.5
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Contract payments
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(8.2
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)
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(12.6
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)
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Foreign currency fluctuations
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(0.2
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)
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—
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Ending balance
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$
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10.7
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$
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10.6
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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 bundled with machines, we use an observable price to determine stand-alone selling price for separate performance obligations.
The change in the deferred revenue balance for the three months ended March 31, 2020 and 2019 was as follows:
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Three Months Ended
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March 31
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2020
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2019
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Beginning balance
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$
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10.7
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$
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8.5
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Increase in deferred revenue representing our obligation to satisfy future performance obligations
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2.7
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3.8
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Deferred revenue addition from the acquisition of Gaomei
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—
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1.4
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Decrease in deferred revenue for amounts recognized in Net Sales for satisfied performance obligations
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(2.5
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)
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(3.1
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)
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Foreign currency fluctuations
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(0.1
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)
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—
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Ending balance
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$
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10.8
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$
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10.6
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At March 31, 2020, $6.9 million and $3.9 million of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Consolidated Balance Sheets. Of this, we expect to recognize the following approximate amounts in Net Sales in the following periods:
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Remaining 2020
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$
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6.2
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2021
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2.3
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2022
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1.4
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2023
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0.6
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2024
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0.3
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Thereafter
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—
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Total
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$
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10.8
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At 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.
Restructuring Actions
In March 2020, we implemented a restructuring action in an effort to streamline our operating model in Japan. The pre-tax charge of $0.8 million in the first quarter of 2020 consisted of severance and was included in Selling and Administrative Expense in the Consolidated Statements of Earnings. We expect to incur up to $2 million of costs related to this restructuring. The charge impacted our Asia Pacific (APAC) operating segment. We estimate the savings will offset the pre-tax charge approximately one year from the date of the action.
During 2019, we implemented a restructuring action 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 $4.5 million in Selling and Administrative Expense in the Consolidated Statements of Earnings. The charge impacted our Europe, Middle East and Africa (EMEA) as well as our Americas operating segments. We expect no further charges related to this restructuring action. We estimate the savings have offset the pre-tax charges incurred to date.
A reconciliation of the beginning and ending liability balances is as follows:
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Severance and Related Costs
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December 31, 2018 balance
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$
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2.2
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2019 charges and utilization:
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New charges
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6.1
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Cash payments
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(2.5
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)
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Adjustments to accrual
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(1.3
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)
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December 31, 2019 balance
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$
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4.5
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2020 charges and utilization:
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New charges
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0.8
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Cash payments
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(0.9
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)
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March 31, 2020 balance
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$
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4.4
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Other Actions
In 2019, we made the decision to discontinue certain product lines. During the first quarter of 2020, we recorded an additional $1.7 million in Cost of Sales to reflect our estimate of inventory that will not be sold.
On January 4, 2019, we completed the acquisition of Hefei Gaomei Cleaning Machines Co., Ltd. and Anhui Rongen Environmental Protection Technology Co., Ltd. (collectively "Gaomei"), privately held designers and manufacturers of commercial cleaning solutions based in China. The financial results for Gaomei have been included in the consolidated financial results since the date of closing.
The following table summarizes the fair value measurements of the assets acquired and liabilities assumed as of the date of acquisition:
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ASSETS
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Current Assets
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$
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8.5
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Intangible Assets Subject to Amortization:
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Trade Name
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1.8
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Customer Lists
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13.9
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Other Assets
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1.3
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Total Identifiable Assets Acquired
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25.5
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LIABILITIES
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Current Liabilities
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(8.0
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)
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Long-Term Liabilities
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(6.0
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)
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Total Identifiable Liabilities Assumed
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(14.0
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)
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Goodwill
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15.6
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Total Purchase Price
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$
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27.1
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The fair value measurements were final as of December 31, 2019.
The total purchase price includes the following:
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•
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$11.3 million was paid during the first quarter of 2019 upon close of the transaction;
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•
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$11.3 million which was paid in the fourth quarter of 2019;
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•
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$4.7 million which represents the estimated fair value of contingent consideration at the acquisition date. In April 2020, the earnout agreement was modified. The final payment is based on a fixed payment plus variable payments contingent on achieving certain levels of gross profit and achieving integration milestones. Consideration of $1.4 million to $3.1 million will be paid in March 2021 if the targets are met. As of March 31, 2020, the contingent consideration had a fair value of $2.1 million based on a probability-weighted analysis of achieving targets; and
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•
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$(0.2) million which represents a working capital purchase price adjustment.
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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.
Inventories are valued at the lower of cost or net realizable value. Inventories at March 31, 2020 and December 31, 2019 consisted of the following:
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March 31,
2020
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December 31,
2019
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Inventories carried at LIFO:
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Finished goods
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$
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51.3
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$
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50.9
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Raw materials, production parts and work-in-process
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31.2
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32.5
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Excess of FIFO over LIFO cost(a)
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(32.0
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)
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(33.4
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)
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Total LIFO inventories
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50.5
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50.0
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Inventories carried at FIFO:
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|
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Finished goods
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60.4
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60.1
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Raw materials, production parts and work-in-process
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44.3
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40.0
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Total FIFO inventories
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104.7
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|
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100.1
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|
Total inventories
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$
|
155.2
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$
|
150.1
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(a)
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Inventories of $50.5 million as of March 31, 2020, and $50.0 million as of December 31, 2019, were valued at LIFO. The difference between replacement cost and the stated LIFO inventory value is not materially different from the reserve for the LIFO valuation method.
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7.
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Goodwill and Intangible Assets
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The changes in the carrying value of Goodwill for the three months ended March 31, 2020 were as follows:
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Goodwill
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Accumulated
Impairment
Losses
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Total
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Balance as of December 31, 2019
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$
|
235.1
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|
|
$
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(40.0
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)
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$
|
195.1
|
|
Additions
|
—
|
|
|
—
|
|
|
—
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Foreign currency fluctuations
|
(6.1
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)
|
|
2.2
|
|
|
(3.9
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)
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Balance as of March 31, 2020
|
$
|
229.0
|
|
|
$
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(37.8
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)
|
|
$
|
191.2
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|
The balances of acquired Intangible Assets, excluding Goodwill, as of March 31, 2020 and December 31, 2019, were as follows:
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|
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|
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|
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|
|
|
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Customer Lists
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Trade Names
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Technology
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Total
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Balance as of March 31, 2020
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|
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|
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Original cost
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$
|
150.7
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|
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$
|
31.3
|
|
|
$
|
16.7
|
|
|
$
|
198.7
|
|
Accumulated amortization
|
(52.5
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)
|
|
(8.9
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)
|
|
(7.7
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)
|
|
(69.1
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)
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Carrying value
|
$
|
98.2
|
|
|
$
|
22.4
|
|
|
$
|
9.0
|
|
|
$
|
129.6
|
|
Weighted average original life (in years)
|
15
|
|
|
11
|
|
|
11
|
|
|
|
|
Balance as of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Original cost
|
$
|
154.1
|
|
|
$
|
31.8
|
|
|
$
|
17.1
|
|
|
$
|
203.0
|
|
Accumulated amortization
|
(49.8
|
)
|
|
(8.2
|
)
|
|
(7.3
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)
|
|
(65.3
|
)
|
Carrying value
|
$
|
104.3
|
|
|
$
|
23.6
|
|
|
$
|
9.8
|
|
|
$
|
137.7
|
|
Weighted average original life (in years)
|
15
|
|
|
11
|
|
|
11
|
|
|
|
|
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 for the three months ended March 31, 2020 was $5.0 million. Amortization expense on Intangible Assets for the three months ended March 31, 2019 was $5.7 million.
Estimated aggregate amortization expense based on the current carrying value of amortizable Intangible Assets for each of the five succeeding years and thereafter is as follows:
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|
|
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|
Remaining 2020
|
$
|
14.9
|
|
2021
|
18.6
|
|
2022
|
16.6
|
|
2023
|
15.1
|
|
2024
|
13.6
|
|
Thereafter
|
50.8
|
|
Total
|
$
|
129.6
|
|
Financial Covenants
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 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, and expires in April 2022. The 2017 Credit Agreement also contains financial covenants requiring us to maintain a net leverage ratio of consolidated net 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 an interest coverage ratio of consolidated Adjusted EBITDA to consolidated interest expense of no less than 3.50 to 1 for the quarter ended March 31, 2020. The 2017 Credit Agreement also contains a financial covenant requiring us to maintain a senior secured net leverage ratio of consolidated senior secured net indebtedness to consolidated Adjusted EBITDA ratio of not greater than 3.50 to 1. These financial covenants may restrict our ability to pay dividends and purchase outstanding shares of our common stock. We were in compliance with our financial covenants at March 31, 2020.
Debt Outstanding
Debt outstanding at March 31, 2020 and December 31, 2019 consisted of the following:
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|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
Senior Unsecured Notes
|
$
|
300.0
|
|
|
$
|
300.0
|
|
Credit Facility Borrowings
|
165.0
|
|
|
40.0
|
|
Secured Borrowings
|
2.1
|
|
|
2.4
|
|
Finance Lease Liabilities
|
0.1
|
|
|
0.2
|
|
Unamortized Debt Issuance Costs
|
(3.6
|
)
|
|
(3.8
|
)
|
Total Debt
|
463.6
|
|
|
338.8
|
|
Less: Current Portion of Long-Term Debt(a)
|
(1.1
|
)
|
|
(31.3
|
)
|
Long-Term Debt
|
$
|
462.5
|
|
|
$
|
307.5
|
|
|
|
(a)
|
Current portion of long-term debt includes $1.0 million of current maturities of secured borrowings and $0.1 million of current maturities of finance lease liabilities.
|
As of March 31, 2020, we had outstanding borrowings under our Senior Unsecured Notes of $300.0 million. In addition, we had outstanding borrowings of $165.0 million under our revolving facility and had letters of credit and bank guarantees outstanding in the amount of $3.2 million, leaving approximately $31.8 million of unused borrowing capacity on our revolving facility. Commitment fees on unused lines of credit for the three months ended March 31, 2020 were $0.1 million. The overall weighted average cost of debt is approximately 4.8% and net of a related cross-currency swap instrument is approximately 4.1%. Further details regarding the cross-currency swap instrument are discussed in Note 10.
We record a liability for warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. Warranty terms on machines generally range from one to four years. However, the majority of our claims are paid out within the first six to nine months following a sale. The majority of the liability for estimated warranty claims represents amounts to be paid out in the near term for qualified warranty issues, with immaterial amounts reserved to be paid for older equipment warranty issues.
The changes in warranty reserves for the three months ended March 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31
|
|
2020
|
|
2019
|
Beginning balance
|
$
|
12.7
|
|
|
$
|
13.1
|
|
Additions charged to expense
|
2.4
|
|
|
2.5
|
|
Foreign currency fluctuations
|
(0.2
|
)
|
|
—
|
|
Claims paid
|
(3.1
|
)
|
|
(3.0
|
)
|
Ending balance
|
$
|
11.8
|
|
|
$
|
12.6
|
|
Hedge Accounting and Hedging Programs
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 along with the time value of purchased contracts in the same line item of the income statement as the item being hedged on our Consolidated Statements of Earnings. In prior years, ineffective portions of hedging instruments and time value of purchased contracts were recorded in Net Foreign Currency Transaction Losses on our Consolidated Statements of Earnings.
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 Foreign Currency Transaction Losses in our Consolidated Statements of Earnings. 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 March 31, 2020 and December 31, 2019, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $46.4 million and $41.9 million, respectively.
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 amounts of outstanding foreign currency forward contracts designated as cash flow hedges were $3.2 million as of March 31, 2020 and $3.0 million as of December 31, 2019. The notional amounts of outstanding foreign currency option contracts designated as cash flow hedges were $8.9 million and $9.8 million as of March 31, 2020 and December 31, 2019, 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 Tennant Company and its subsidiaries. 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 enter 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. These cross-currency swaps are designated as cash flow hedges. The hedged cash flows as of March 31, 2020 and December 31, 2019 included €165.0 million and €166.8 million of total notional values, respectively. As of March 31, 2020, the aggregate scheduled interest payments over the course of the loan and related swaps amounted to €15.0 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 March 31, 2020.
The fair value of derivative instruments on our Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Balance Sheet Location
|
March 31, 2020
|
December 31, 2019
|
|
Balance Sheet Location
|
March 31, 2020
|
December 31, 2019
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign currency option contracts
|
Other Current Assets
|
$
|
0.4
|
|
$
|
—
|
|
|
Other Current Liabilities
|
$
|
—
|
|
$
|
—
|
|
Foreign currency option contracts
|
Other Assets
|
—
|
|
—
|
|
|
Other Liabilities
|
—
|
|
—
|
|
Foreign currency forward contracts
|
Other Current Assets
|
2.6
|
|
2.5
|
|
|
Other Current Liabilities
|
—
|
|
—
|
|
Foreign currency forward contracts
|
Other Assets
|
—
|
|
—
|
|
|
Other Liabilities
|
5.8
|
|
12.6
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
Other Current Assets
|
2.4
|
|
0.6
|
|
|
Other Current Liabilities
|
0.1
|
|
0.3
|
|
Foreign currency forward contracts
|
Other Assets
|
$
|
—
|
|
$
|
—
|
|
|
Other Liabilities
|
$
|
—
|
|
$
|
—
|
|
As of March 31, 2020, we anticipate reclassifying approximately $2.9 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 three months ended March 31, 2020 and March 31, 2019:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31
|
|
2020
|
|
2019
|
|
Total
|
Amount of Gain on Cash Flow Hedge Activity
|
|
Total
|
Amount of Gain on Cash Flow Hedge Activity
|
Net Sales
|
$
|
252.1
|
|
$
|
—
|
|
|
$
|
262.5
|
|
$
|
—
|
|
Interest Income
|
0.9
|
|
0.7
|
|
|
0.8
|
|
0.7
|
|
Net Foreign Currency Transaction (Loss) Gain
|
(4.1
|
)
|
2.7
|
|
|
0.2
|
|
3.1
|
|
The effect of foreign currency derivative instruments designated as hedges and of foreign currency derivative instruments not designated as hedges in our Consolidated Statements of Earnings for the three months ended March 31, 2020 was as follows:
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2020
|
|
|
Foreign Currency Option Contracts
|
|
Foreign Currency Forward Contracts
|
Derivatives in cash flow hedging relationships:
|
|
|
|
|
Net gain recognized in Other Comprehensive (Loss) Income, net of tax(a)
|
|
$
|
0.3
|
|
|
$
|
6.0
|
|
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Interest Income
|
|
—
|
|
|
0.5
|
|
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction (Loss) Gain
|
|
—
|
|
|
2.1
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Net gain recognized in earnings(b)
|
|
$
|
—
|
|
|
$
|
2.2
|
|
The effect of foreign currency derivative instruments designated as hedges and of foreign currency derivative instruments not designated as hedges in our Consolidated Statements of Earnings for the three months ended March 31, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2019
|
|
|
Foreign Currency Option Contracts
|
|
Foreign Currency Forward Contracts
|
Derivatives in cash flow hedging relationships:
|
|
|
|
|
Net (loss) gain recognized in Other Comprehensive (Loss) Income, net of tax(a)
|
|
$
|
(0.1
|
)
|
|
$
|
4.1
|
|
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Interest Income
|
|
—
|
|
|
0.5
|
|
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction (Loss) Gain
|
|
—
|
|
|
2.4
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Net (loss) gain recognized in earnings(b)
|
|
$
|
—
|
|
|
$
|
(0.2
|
)
|
|
|
(a)
|
Net change in the fair value of the effective portion classified in Other Comprehensive (Loss) Income.
|
|
|
(b)
|
Classified in Net Foreign Currency Transaction (Loss) Gain.
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|
|
11.
|
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.
|
Our population of assets and liabilities subject to fair value measurements at March 31, 2020 is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
$
|
8.1
|
|
|
$
|
—
|
|
|
$
|
8.1
|
|
|
$
|
—
|
|
Foreign currency options contracts
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
Total Assets
|
$
|
8.4
|
|
|
$
|
—
|
|
|
$
|
8.4
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
$
|
8.9
|
|
|
$
|
—
|
|
|
$
|
8.9
|
|
|
$
|
—
|
|
Contingent consideration
|
2.1
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
Total Liabilities
|
$
|
11.0
|
|
|
$
|
—
|
|
|
$
|
8.9
|
|
|
$
|
2.1
|
|
Our population of assets and liabilities subject to fair value measurements at 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 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 10.
Contingent consideration is valued using a probability-weighted analysis of projected gross profit and integration milestones. Actual results may differ significantly from those used in the estimate above, which may affect future payments. Changes in future payments will be reflected in future operating results as they occur.
The carrying amounts reported in the Consolidated Balance Sheets for Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, 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, were $457.4 million and $463.6 million, respectively, as of March 31, 2020.The fair value and carrying value of total debt, including current portion, were $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 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, impairment asset or asset group exceeds its estimated fair value. These periodic impairment tests utilize company-specific assumptions involving unobservable inputs, or Level 3, in the fair value hierarchy.
|
|
12.
|
Retirement Benefit Plans
|
Our defined benefit pension plans and postretirement medical plan are described in Note 13 of our annual report on Form 10-K for the year ended December 31, 2019. We have contributed $0.1 million and $0.2 million during the first quarter of 2020 to our pension plans and postretirement medical plan, respectively. We contributed $0.1 million and $0.2 million during the first quarter of 2019 to our pension plans and postretirement medical plan, respectively.
Net benefit costs for the three months ended March 31, 2020 and 2019 were not material.
|
|
13.
|
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.
|
|
14.
|
Accumulated Other Comprehensive Loss
|
Components of Accumulated Other Comprehensive Loss, net of tax, within the Consolidated Balance Sheets, are as follows:
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Foreign currency translation adjustments
|
$
|
(47.6
|
)
|
|
$
|
(36.3
|
)
|
Pension and retiree medical benefits
|
(0.7
|
)
|
|
(0.7
|
)
|
Cash flow hedge
|
2.2
|
|
|
(1.5
|
)
|
Total Accumulated Other Comprehensive Loss
|
$
|
(46.1
|
)
|
|
$
|
(38.5
|
)
|
The changes in components of Accumulated Other Comprehensive Loss, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
Pension and Post-Retirement Benefits
|
|
Cash Flow Hedge
|
|
Total
|
December 31, 2019
|
$
|
(36.3
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
(38.5
|
)
|
Other comprehensive (loss) income before reclassifications
|
(11.3
|
)
|
|
—
|
|
|
6.3
|
|
|
(5.0
|
)
|
Amounts reclassified from Accumulated Other Comprehensive Loss
|
—
|
|
|
—
|
|
|
(2.6
|
)
|
|
(2.6
|
)
|
Net current period other comprehensive (loss) income
|
(11.3
|
)
|
|
—
|
|
|
3.7
|
|
|
(7.6
|
)
|
March 31, 2020
|
$
|
(47.6
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
2.2
|
|
|
$
|
(46.1
|
)
|
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 recognize potential accrued interest and penalties related to unrecognized tax benefits in Income Tax Expense. In addition to the liability of $7.5 million for unrecognized tax benefits as of March 31, 2020, there was approximately $0.7 million for accrued interest and penalties. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of March 31, 2020 was $7.4 million. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be revised and reflected as an adjustment of the Income Tax Expense.
We are currently under examination by the Internal Revenue Service for the 2016 and 2017 tax years. Although the outcome of this matter cannot currently be determined, we believe adequate provision has been made for any potential unfavorable financial statement impact. Although the final outcome of these examinations cannot be currently determined, we believe that we have adequate reserves with respect to these examinations.
|
|
16.
|
Share-Based Compensation
|
Our share-based compensation plans are described in Note 18 of our annual report on Form 10-K for the year ended December 31, 2019. During the three months ended March 31, 2020 and 2019, we recognized total Share-Based Compensation Expense of $2.8 million and $3.3 million, respectively. The total excess tax benefit recognized for share-based compensation arrangements during the three months ended March 31, 2020 and 2019 was $0.4 million and $0.2 million, respectively.
During the first three months of 2020, we issued 16,537 restricted shares. The weighted average grant date fair value of each share awarded was $82.29. Restricted share awards generally have a three year vesting period from the effective date of the grant. The total fair value of shares vested during the three months ended March 31, 2020 and 2019 was $0.7 million and $1.0 million, respectively.
|
|
17.
|
Earnings Attributable to Tennant Company Per Share
|
The computations of Basic and Diluted Earnings per Share were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31
|
|
2020
|
|
2019
|
Numerator:
|
|
|
|
Net Earnings Attributable to Tennant Company
|
$
|
5.2
|
|
|
$
|
5.4
|
|
Denominator:
|
|
|
|
Basic - Weighted Average Shares Outstanding
|
18,286,816
|
|
|
18,042,468
|
|
Effect of dilutive securities:
|
|
|
|
Share-based compensation plans
|
379,422
|
|
|
302,743
|
|
Diluted - Weighted Average Shares Outstanding
|
18,666,238
|
|
|
18,345,211
|
|
Basic Earnings per Share
|
$
|
0.28
|
|
|
$
|
0.30
|
|
Diluted Earnings per Share
|
$
|
0.28
|
|
|
$
|
0.29
|
|
Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 206,680 and 646,491 shares of common stock during the three months ended March 31, 2020 and 2019, respectively. These exclusions were made if the exercise prices of the 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 average shares outstanding in the options or if we have a net loss, as these effects are anti-dilutive.
|
|
18.
|
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.
In 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 wholly 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.
The following condensed consolidated financial information presents the Condensed Consolidated Statements of Earnings and the Condensed Consolidated Statements of Comprehensive Income (Loss) for each of the three and three months ended March 31, 2020 and March 31, 2019, the related Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, and the related Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and March 31, 2019, of Tennant Company ("Parent"), the Guarantor Subsidiaries on a combined basis, the wholly owned subsidiaries of Parent that are not Guarantor Subsidiaries (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 three months ended March 31, 2020
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
Net Sales
|
$
|
116.9
|
|
|
$
|
150.5
|
|
|
$
|
121.3
|
|
|
$
|
(136.6
|
)
|
|
$
|
252.1
|
|
Cost of Sales
|
76.4
|
|
|
125.5
|
|
|
82.5
|
|
|
(136.4
|
)
|
|
148.0
|
|
Gross Profit
|
40.5
|
|
|
25.0
|
|
|
38.8
|
|
|
(0.2
|
)
|
|
104.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
|
Research and Development Expense
|
5.9
|
|
|
0.3
|
|
|
1.2
|
|
|
—
|
|
|
7.4
|
|
Selling and Administrative Expense
|
27.4
|
|
|
18.6
|
|
|
36.3
|
|
|
—
|
|
|
82.3
|
|
Total Operating Expense
|
33.3
|
|
|
18.9
|
|
|
37.5
|
|
|
—
|
|
|
89.7
|
|
Profit from Operations
|
7.2
|
|
|
6.1
|
|
|
1.3
|
|
|
(0.2
|
)
|
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
Equity in Earnings of Affiliates
|
—
|
|
|
0.5
|
|
|
0.4
|
|
|
(0.9
|
)
|
|
—
|
|
Interest (Expense) Income, Net
|
(4.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.2
|
)
|
Intercompany Interest Income (Expense)
|
3.4
|
|
|
(1.4
|
)
|
|
(2.0
|
)
|
|
—
|
|
|
—
|
|
Net Foreign Currency Transaction Loss (Gain)
|
—
|
|
|
(0.1
|
)
|
|
(4.0
|
)
|
|
—
|
|
|
(4.1
|
)
|
Other (Expense) Income, Net
|
(0.1
|
)
|
|
(0.3
|
)
|
|
0.6
|
|
|
—
|
|
|
0.2
|
|
Total Other Expense, Net
|
(0.9
|
)
|
|
(1.3
|
)
|
|
(5.0
|
)
|
|
(0.9
|
)
|
|
(8.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Profit Before Income Taxes
|
6.3
|
|
|
4.8
|
|
|
(3.7
|
)
|
|
(1.1
|
)
|
|
6.3
|
|
Income Tax Expense (Benefit)
|
1.1
|
|
|
1.1
|
|
|
(0.1
|
)
|
|
(1.0
|
)
|
|
1.1
|
|
Net Earnings Including Noncontrolling Interest
|
5.2
|
|
|
3.7
|
|
|
(3.6
|
)
|
|
(0.1
|
)
|
|
5.2
|
|
Net Earnings Attributable to Tennant Company
|
$
|
5.2
|
|
|
$
|
3.7
|
|
|
$
|
(3.6
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Earnings
|
For the three months ended March 31, 2019
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
Net Sales
|
$
|
116.5
|
|
|
$
|
148.4
|
|
|
$
|
133.3
|
|
|
$
|
(135.7
|
)
|
|
$
|
262.5
|
|
Cost of Sales
|
76.5
|
|
|
123.0
|
|
|
88.8
|
|
|
(134.0
|
)
|
|
154.3
|
|
Gross Profit
|
40.0
|
|
|
25.4
|
|
|
44.5
|
|
|
(1.7
|
)
|
|
108.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
|
Research and Development Expense
|
5.6
|
|
|
0.2
|
|
|
1.4
|
|
|
—
|
|
|
7.2
|
|
Selling and Administrative Expense
|
27.2
|
|
|
19.0
|
|
|
44.0
|
|
|
—
|
|
|
90.2
|
|
Total Operating Expense
|
32.8
|
|
|
19.2
|
|
|
45.4
|
|
|
—
|
|
|
97.4
|
|
Profit from Operations
|
7.2
|
|
|
6.2
|
|
|
(0.9
|
)
|
|
(1.7
|
)
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
Equity in Earnings of Affiliates
|
0.3
|
|
|
0.8
|
|
|
1.4
|
|
|
(2.5
|
)
|
|
—
|
|
Interest (Expense) Income, Net
|
(4.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.2
|
)
|
Intercompany Interest Income (Expense)
|
3.5
|
|
|
(1.4
|
)
|
|
(2.1
|
)
|
|
—
|
|
|
—
|
|
Net Foreign Currency Transaction Loss (Gain)
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
Other (Expense) Income, Net
|
(0.2
|
)
|
|
(0.4
|
)
|
|
0.4
|
|
|
—
|
|
|
(0.2
|
)
|
Total Other Income (Expense), Net
|
(0.6
|
)
|
|
(1.0
|
)
|
|
(0.1
|
)
|
|
(2.5
|
)
|
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
Profit Before Income Taxes
|
6.6
|
|
|
5.2
|
|
|
(1.0
|
)
|
|
(4.2
|
)
|
|
6.6
|
|
Income Tax Expense (Benefit)
|
1.2
|
|
|
1.1
|
|
|
1.0
|
|
|
(2.1
|
)
|
|
1.2
|
|
Net Earnings Including Noncontrolling Interest
|
5.4
|
|
|
4.1
|
|
|
(2.0
|
)
|
|
(2.1
|
)
|
|
5.4
|
|
Net Earnings Attributable to Tennant Company
|
$
|
5.4
|
|
|
$
|
4.1
|
|
|
$
|
(2.0
|
)
|
|
$
|
(2.1
|
)
|
|
$
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Comprehensive Income (Loss)
|
For the three months ended March 31, 2020
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
Net Earnings Including Noncontrolling Interest
|
$
|
5.2
|
|
|
$
|
3.7
|
|
|
$
|
(3.6
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
5.2
|
|
Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(11.3
|
)
|
|
(0.3
|
)
|
|
(20.0
|
)
|
|
20.3
|
|
|
(11.3
|
)
|
Cash flow hedge
|
4.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.8
|
|
Income Taxes:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash flow hedge
|
(1.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.1
|
)
|
Total Other Comprehensive Loss, net of tax
|
(7.6
|
)
|
|
(0.3
|
)
|
|
(20.0
|
)
|
|
20.3
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive (Loss) Income Including Noncontrolling Interest
|
(2.4
|
)
|
|
3.4
|
|
|
(23.6
|
)
|
|
20.2
|
|
|
(2.4
|
)
|
Comprehensive (Loss) Income Attributable to Tennant Company
|
$
|
(2.4
|
)
|
|
$
|
3.4
|
|
|
$
|
(23.6
|
)
|
|
$
|
20.2
|
|
|
$
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Comprehensive Income (Loss)
|
For the three months ended March 31, 2019
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
Net Earnings Including Noncontrolling Interest
|
$
|
5.4
|
|
|
$
|
4.1
|
|
|
$
|
(2.0
|
)
|
|
$
|
(2.1
|
)
|
|
$
|
5.4
|
|
Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(2.3
|
)
|
|
—
|
|
|
(22.6
|
)
|
|
22.6
|
|
|
(2.3
|
)
|
Pension and retiree medical benefits
|
—
|
|
|
—
|
|
|
1.2
|
|
|
(1.2
|
)
|
|
—
|
|
Cash flow hedge
|
1.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
Income Taxes:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(0.1
|
)
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Pension and retiree medical benefits
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
0.3
|
|
|
—
|
|
Cash flow hedge
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
Total Other Comprehensive (Loss) Income, net of tax
|
(1.3
|
)
|
|
—
|
|
|
(21.6
|
)
|
|
21.6
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive (Loss) Income Including Noncontrolling Interest
|
4.1
|
|
|
4.1
|
|
|
(23.6
|
)
|
|
19.5
|
|
|
4.1
|
|
Comprehensive (Loss) Income Attributable to Tennant Company
|
$
|
4.1
|
|
|
$
|
4.1
|
|
|
$
|
(23.6
|
)
|
|
$
|
19.5
|
|
|
$
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet
|
As of March 31, 2020
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents, and Restricted Cash
|
$
|
150.3
|
|
|
$
|
1.0
|
|
|
$
|
40.8
|
|
|
$
|
—
|
|
|
$
|
192.1
|
|
Net Receivables
|
1.4
|
|
|
95.5
|
|
|
110.2
|
|
|
—
|
|
|
207.1
|
|
Intercompany Receivables
|
36.1
|
|
|
117.4
|
|
|
—
|
|
|
(153.5
|
)
|
|
—
|
|
Inventories
|
38.5
|
|
|
18.0
|
|
|
111.4
|
|
|
(12.7
|
)
|
|
155.2
|
|
Prepaid and Other Current Assets
|
14.7
|
|
|
0.9
|
|
|
15.0
|
|
|
0.2
|
|
|
30.8
|
|
Total Current Assets
|
241.0
|
|
|
232.8
|
|
|
277.4
|
|
|
(166.0
|
)
|
|
585.2
|
|
Property, Plant and Equipment
|
252.1
|
|
|
10.1
|
|
|
153.8
|
|
|
—
|
|
|
416.0
|
|
Accumulated Depreciation
|
(167.3
|
)
|
|
(4.4
|
)
|
|
(70.4
|
)
|
|
—
|
|
|
(242.1
|
)
|
Property, Plant and Equipment, Net
|
84.8
|
|
|
5.7
|
|
|
83.4
|
|
|
—
|
|
|
173.9
|
|
Operating Lease Assets
|
4.9
|
|
|
10.2
|
|
|
27.7
|
|
|
—
|
|
|
42.8
|
|
Investment in Affiliates
|
393.3
|
|
|
14.3
|
|
|
31.1
|
|
|
(438.7
|
)
|
|
—
|
|
Intercompany Loans
|
295.5
|
|
|
—
|
|
|
—
|
|
|
(295.5
|
)
|
|
—
|
|
Goodwill
|
12.9
|
|
|
1.7
|
|
|
176.6
|
|
|
—
|
|
|
191.2
|
|
Intangible Assets, Net
|
3.0
|
|
|
2.4
|
|
|
124.2
|
|
|
—
|
|
|
129.6
|
|
Other Assets
|
4.9
|
|
|
5.0
|
|
|
17.6
|
|
|
—
|
|
|
27.5
|
|
Total Assets
|
$
|
1,040.3
|
|
|
$
|
272.1
|
|
|
$
|
738.0
|
|
|
$
|
(900.2
|
)
|
|
$
|
1,150.2
|
|
LIABILITIES AND TOTAL EQUITY
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Current Portion of Long-Term Debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
—
|
|
|
$
|
1.1
|
|
Accounts Payable
|
40.0
|
|
|
5.8
|
|
|
50.0
|
|
|
—
|
|
|
95.8
|
|
Intercompany Payables
|
115.5
|
|
|
—
|
|
|
38.0
|
|
|
(153.5
|
)
|
|
—
|
|
Employee Compensation and Benefits
|
9.6
|
|
|
7.9
|
|
|
22.7
|
|
|
—
|
|
|
40.2
|
|
Other Current Liabilities
|
29.4
|
|
|
17.7
|
|
|
40.7
|
|
|
0.2
|
|
|
88.0
|
|
Total Current Liabilities
|
194.5
|
|
|
31.4
|
|
|
152.5
|
|
|
(153.3
|
)
|
|
225.1
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
461.4
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
462.5
|
|
Intercompany Loans
|
2.9
|
|
|
128.0
|
|
|
164.5
|
|
|
(295.4
|
)
|
|
—
|
|
Long-Term Operating Lease Liabilities
|
3.6
|
|
|
5.2
|
|
|
18.5
|
|
|
—
|
|
|
27.3
|
|
Employee-Related Benefits
|
10.1
|
|
|
1.5
|
|
|
7.0
|
|
|
—
|
|
|
18.6
|
|
Deferred Income Taxes
|
—
|
|
|
—
|
|
|
39.8
|
|
|
—
|
|
|
39.8
|
|
Other Liabilities
|
9.1
|
|
|
2.9
|
|
|
6.2
|
|
|
—
|
|
|
18.2
|
|
Total Long-Term Liabilities
|
487.1
|
|
|
137.6
|
|
|
237.1
|
|
|
(295.4
|
)
|
|
566.4
|
|
Total Liabilities
|
681.6
|
|
|
169.0
|
|
|
389.6
|
|
|
(448.7
|
)
|
|
791.5
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
Common Stock
|
6.9
|
|
|
—
|
|
|
11.1
|
|
|
(11.1
|
)
|
|
6.9
|
|
Additional Paid-In Capital
|
49.4
|
|
|
77.6
|
|
|
417.4
|
|
|
(495.0
|
)
|
|
49.4
|
|
Retained Earnings
|
347.1
|
|
|
26.9
|
|
|
2.4
|
|
|
(29.3
|
)
|
|
347.1
|
|
Accumulated Other Comprehensive Loss
|
(46.1
|
)
|
|
(1.4
|
)
|
|
(83.9
|
)
|
|
85.3
|
|
|
(46.1
|
)
|
Total Tennant Company Shareholders' Equity
|
357.3
|
|
|
103.1
|
|
|
347.0
|
|
|
(450.1
|
)
|
|
357.3
|
|
Noncontrolling Interest
|
1.4
|
|
|
—
|
|
|
1.4
|
|
|
(1.4
|
)
|
|
1.4
|
|
Total Equity
|
358.7
|
|
|
103.1
|
|
|
348.4
|
|
|
(451.5
|
)
|
|
358.7
|
|
Total Liabilities and Total Equity
|
$
|
1,040.3
|
|
|
$
|
272.1
|
|
|
$
|
738.0
|
|
|
$
|
(900.2
|
)
|
|
$
|
1,150.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows
|
For the three months ended March 31, 2020
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities
|
$
|
4.0
|
|
|
$
|
(0.2
|
)
|
|
$
|
4.9
|
|
|
$
|
—
|
|
|
$
|
8.7
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchases of Property, Plant and Equipment
|
(6.2
|
)
|
|
(0.1
|
)
|
|
(6.1
|
)
|
|
—
|
|
|
(12.4
|
)
|
Proceeds from Disposals of Property, Plant, and Equipment
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Purchase of Intangible Assets
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Loan Payments to Parent
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
|
0.9
|
|
|
—
|
|
Net Cash Used in Investing Activities
|
(6.1
|
)
|
|
(0.1
|
)
|
|
(7.1
|
)
|
|
0.9
|
|
|
(12.4
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds from Credit Facility Borrowings
|
125.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
125.0
|
|
Loan Payments from Subsidiaries
|
0.9
|
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
Repayments of Debt
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
Change in Finance Lease Obligations
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Proceeds from Issuances of Common Stock
|
2.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.4
|
|
Dividends Paid
|
(4.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.0
|
)
|
Net Cash Provided by (Used in) Financing Activities
|
124.3
|
|
|
—
|
|
|
(0.4
|
)
|
|
(0.9
|
)
|
|
123.0
|
|
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
|
0.4
|
|
|
—
|
|
|
(2.2
|
)
|
|
—
|
|
|
(1.8
|
)
|
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
|
122.6
|
|
|
(0.3
|
)
|
|
(4.8
|
)
|
|
—
|
|
|
117.5
|
|
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
|
27.7
|
|
|
1.3
|
|
|
45.6
|
|
|
—
|
|
|
74.6
|
|
Cash, Cash Equivalents and Restricted Cash at End of Period
|
$
|
150.3
|
|
|
$
|
1.0
|
|
|
$
|
40.8
|
|
|
$
|
—
|
|
|
$
|
192.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows
|
For the three months ended March 31, 2019
|
(in millions)
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total Tennant Company
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities
|
$
|
(4.2
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
(7.0
|
)
|
|
$
|
—
|
|
|
$
|
(11.6
|
)
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchases of Property, Plant and Equipment
|
(16.6
|
)
|
|
(0.1
|
)
|
|
(3.8
|
)
|
|
—
|
|
|
(20.5
|
)
|
Proceeds from Principal Payments Received on Long-Term Note Receivable
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Acquisition of Business, Net of Cash, Cash Equivalents and Restricted Cash Acquired
|
—
|
|
|
—
|
|
|
(9.0
|
)
|
|
—
|
|
|
(9.0
|
)
|
Purchase of Intangible Asset
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
Loan Payments to Parent
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
0.2
|
|
|
—
|
|
Net Cash Used in Investing Activities
|
(16.6
|
)
|
|
(0.1
|
)
|
|
(13.1
|
)
|
|
0.2
|
|
|
(29.6
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds from Credit Facility Borrowings
|
13.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13.0
|
|
Repayment of Debt
|
(4.0
|
)
|
|
—
|
|
|
(4.0
|
)
|
|
—
|
|
|
(8.0
|
)
|
Change in Finance Lease Obligations
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Loan Payments from Subsidiaries
|
0.2
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
Proceeds from Issuance of Common Stock
|
0.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
Dividends Paid
|
(4.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.0
|
)
|
Net Cash Provided by (Used in) Financing Activities
|
5.8
|
|
|
—
|
|
|
(4.1
|
)
|
|
(0.2
|
)
|
|
1.5
|
|
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
|
—
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
0.5
|
|
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
|
(15.0
|
)
|
|
(0.5
|
)
|
|
(23.7
|
)
|
|
—
|
|
|
(39.2
|
)
|
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
|
24.8
|
|
|
1.6
|
|
|
59.7
|
|
|
—
|
|
|
86.1
|
|
Cash, Cash Equivalents and Restricted Cash at End of Period
|
$
|
9.8
|
|
|
$
|
1.1
|
|
|
$
|
36.0
|
|
|
$
|
—
|
|
|
$
|
46.9
|
|