What changed in this filing

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Item 1. Financial Statements

2023-04-28 compared with 2022-10-27 · 92 added, 206 removed, 408 unchanged (42% of the section changed)

3 unchanged sentences

(In millions, except shares and per share data) Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net sales $ 305.8 $ 258.1

3 unchanged sentences

Research and development expense 7.9 7.7

Gain on sale of assets — — ( 3.7 ) ( 9.8 )

Operating income 35.9 14.6

Interest expense, net ( 3.7 ) ( 0.3 )

Net foreign currency transaction loss — ( 0.7 ) ( 0.4 ) ( 0.2 )

Loss on extinguishment of debt — — — ( 11.3 )

Other income (expense), net 0.6 ( 0.3 ) 0.1 —

Net foreign currency transaction (loss) gain ( 0.1 ) 0.6

Other expense, net ( 0.1 ) ( 0.2 )

Income before income taxes 32.0 14.7

8 unchanged sentences

TENNANT COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions) Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income $ 24.3 $ 10.3

Other comprehensive (loss) income:

Foreign currency translation adjustments (net of related tax (expense) benefit of $( 1.2 ), $ 0.6 , $( 2.6 ), and $ 0.4 , respectively)

( 20.1 ) ( 7.3 ) ( 40.8 ) ( 13.1 )

Pension and postretirement medical benefits (net of related tax benefit of $ — , $ — , $ — , and $ 0.1 , respectively)

Cash flow hedge (net of related tax expense of $ — , $ 0.1 , $ 0.2 , and $ 0.1 , respectively)

Other comprehensive income (loss):

Foreign currency translation adjustments (net of related tax benefit (expense) of $ 0.1 and $( 0.4 ), respectively)

Derivative financial instruments (net of related tax benefit of $ 0.2 and $ 0.1 , respectively)

( 0.6 ) ( 0.2 )

Total other comprehensive loss, net of tax ( 20.2 ) ( 7.5 ) ( 40.3 ) ( 13.3 )

Comprehensive (loss) income $ ( 4.6 ) $ 14.0 $ 2.2 $ 43.7

Total other comprehensive income (loss), net of tax 4.7 ( 4.0 )

Comprehensive income $ 29.0 $ 6.3

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

(In millions, except shares and per share data) September 30,

(In millions, except shares and per share data) March 31,

2023 December 31,

37 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions) Nine Months Ended

September 30,

(In millions) Three Months Ended

OPERATING ACTIVITIES

Net income $ 24.3 $ 10.3

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation expense 8.3 8.2

3 unchanged sentences

Bad debt and returns expense 1.0 0.4

Acquisition contingent consideration adjustment — 0.7

Gain on sale of assets ( 3.7 ) ( 9.8 )

Debt extinguishment cost — 11.3

Other, net 0.2 0.2

5 unchanged sentences

Other assets and liabilities 4.3 ( 4.7 )

Net cash (used in) provided by operating activities ( 38.8 ) 62.9

Net cash provided by (used in) operating activities 31.1 ( 10.1 )

INVESTING ACTIVITIES

Purchases of property, plant and equipment ( 6.8 ) ( 5.0 )

Proceeds from sale of assets, net of cash divested 4.1 24.7

Purchase of intangible assets — ( 0.1 )

Investment in leased assets ( 0.2 ) ( 3.7 )

Cash received from leased assets 0.2 0.1

Net cash (used in) provided by investing activities ( 19.0 ) 12.6

Net cash used in investing activities ( 6.8 ) ( 8.6 )

FINANCING ACTIVITIES

1 unchanged sentence

Repayments of borrowings ( 21.4 ) ( 0.9 )

Debt extinguishment payment — ( 8.4 )

Contingent consideration payments — ( 2.5 )

Change in finance lease obligations 0.2 —

(Repurchases) proceeds from exercise of stock options, net of employee tax withholdings obligations ( 1.2 ) 4.2

Proceeds (repurchases) from exercise of stock options, net of employee tax withholdings obligations 0.8 ( 1.2 )

Repurchases of common stock ( 5.0 ) —

Dividends paid ( 4.9 ) ( 4.6 )

Net cash used in financing activities ( 1.2 ) ( 72.3 )

Net cash (used in) provided by financing activities ( 10.3 ) 8.3

Effect of exchange rate changes on cash, cash equivalents and restricted cash — ( 2.8 )

Net (decrease) in cash, cash equivalents and restricted cash ( 64.4 ) ( 0.4 )

Net increase (decrease) in cash, cash equivalents and restricted cash 14.0 ( 13.2 )

Cash, cash equivalents and restricted cash at beginning of period 77.4 123.6

Cash, cash equivalents and restricted cash at end of period $ 91.4 $ 110.4

SUPPLEMENTAL CASH FLOW INFORMATION Nine Months Ended

September 30,

SUPPLEMENTAL CASH FLOW INFORMATION Three Months Ended

Cash paid for income taxes $ 0.8 $ 1.3

22 unchanged sentences

Net income — — 24.3 — 24.3 — 24.3

Other comprehensive loss — — — ( 4.0 ) ( 4.0 ) — ( 4.0 )

Other comprehensive income — — — 4.7 4.7 — 4.7

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings and repurchases of 18,468 shares

1 unchanged sentence

Share-based compensation — 1.2 — — 1.2 — 1.2

Repurchases of common stock ( 73,525 ) — ( 5.0 ) — — ( 5.0 ) — ( 5.0 )

Dividends paid $ 0.265 per common share

1 unchanged sentence

Balance, March 31, 2023 18,541,033 $ 7.0 $ 53.0 $ 477.4 $ ( 45.5 ) $ 491.9 $ 1.3 $ 493.2

Net income — — 16.6 — 16.6 — 16.6

Other comprehensive income — — — ( 16.1 ) ( 16.1 ) — ( 16.1 )

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 2,071 shares

9,859 — ( 0.1 ) — — ( 0.1 ) — ( 0.1 )

Share-based compensation — 0.9 — — 0.9 — 0.9

Dividends paid $ 0.25 per common share

— — ( 4.6 ) — ( 4.6 ) — ( 4.6 )

Balance, June 30, 2022 18,589,675 $ 7.0 $ 55.4 $ 428.3 $ ( 58.0 ) $ 432.7 $ 1.3 $ 434.0

Net income — — 15.6 — 15.6 — 15.6

Other comprehensive income — — — ( 20.2 ) ( 20.2 ) — ( 20.2 )

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 54 shares

6,714 — 0.2 — — 0.2 — 0.2

Share-based compensation — 1.7 — — 1.7 — 1.7

Dividends paid $ 0.25 per common share

— — ( 4.8 ) — ( 4.8 ) — ( 4.8 )

Balance, September 30, 2022 18,596,389 $ 7.0 $ 57.3 $ 439.1 $ ( 78.2 ) $ 425.2 $ 1.3 $ 426.5

Tennant Company Shareholders

10 unchanged sentences

Other comprehensive loss — — — ( 4.0 ) ( 4.0 ) — ( 4.0 )

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 22,724 shares

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings and repurchases of 24,025 shares

44,700 — ( 1.3 ) — — ( 1.3 ) — ( 1.3 )

3 unchanged sentences

Balance, March 31, 2022 18,579,816 $ 7.0 $ 54.6 $ 416.3 $ ( 41.9 ) $ 436.0 $ 1.3 $ 437.3

Net income — — 9.8 — 9.8 — 9.8

Other comprehensive loss — — — 4.9 4.9 — 4.9

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 3,305 shares

58,579 — 1.9 — — 1.9 — 1.9

Share-based compensation — 3.9 — — 3.9 — 3.9

Dividends paid $ 0.23 per common share

— — ( 4.4 ) — ( 4.4 ) — ( 4.4 )

Balance, June 30, 2021 18,665,065 $ 7.0 $ 64.9 $ 390.2 $ ( 25.9 ) $ 436.2 $ 1.3 $ 437.5

Net income — — 21.5 — 21.5 — 21.5

Other comprehensive loss — — — ( 7.5 ) ( 7.5 ) — ( 7.5 )

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 18 shares

20,401 — 0.9 — — 0.9 — 0.9

Share-based compensation — 2.5 2.5 2.5

Dividends paid $ 0.23 per common share

— — ( 4.3 ) — ( 4.3 ) — ( 4.3 )

Repurchases of common stock ( 102,229 ) — ( 7.5 ) ( 7.5 ) — ( 7.5 )

Balance, September 30, 2021 18,583,237 $ 7.0 $ 60.8 $ 407.4 $ ( 33.4 ) $ 441.8 $ 1.3 $ 443.1

See accompanying notes to consolidated financial statements.

15 unchanged sentences

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) No.

2020-04, Reference Rate Reform (Topic 848) .

This ASU provides optional expedients to applying generally accepted accounting principles to certain contract modifications, hedging relationships, and other transactions affected by the reference rate reform, which affects the London Interbank Offered ("LIBO") Rate, if certain criteria are met.

The amendments are effective March 12, 2020 through December 31, 2022.

We continue to monitor our contracts and transactions for potential application of this ASU.

In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU No.

2020-04, Reference Rate Reform (Topic 848), and in December 2022 subsequently issued ASU 2022-06, to temporarily ease the potential burden in accounting for reference rate reform.

The standard provides optional expedients and exceptions for 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 ("LIBOR"), if certain criteria are met.

The guidance was effective upon issuance and can generally be applied through December 31, 2024.

There has been no material impact to our financial condition, results of operations, or cash flows from reference rate reform as of March 31, 2023.

See Note 7 for information on the replacement of LIBOR with the Secured Overnight Financing Rate ("SOFR") in our Credit Agreements (defined below).

Disaggregation of Revenue

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Americas $ 204.4 $ 160.3

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Equipment $ 186.4 $ 158.1

1 unchanged sentence

Service and other 46.0 39.4

Specialty surface coatings (a)

Total $ 305.8 $ 258.1

(a) On February 1, 2021, we sold our Coatings business.

Further details regarding the sale are discussed in Note 5.

Net sales by sales channel

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Sales direct to consumer $ 205.1 $ 163.8

10 unchanged sentences

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.

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.

1 unchanged sentence

The change in our sales incentive accrual balance was as follows:

Nine Months Ended

September 30,

Three Months Ended

Beginning balance $ 20.0 $ 19.9

8 unchanged sentences

The change in the deferred revenue balance was as follows:

Nine Months Ended

September 30,

Three Months Ended

Beginning balance $ 9.3 $ 11.2

3 unchanged sentences

Ending balance $ 10.2 $ 12.2

At September 30, 2022, $ 6.9 million and $ 3.1 million of deferred revenue was reported in other current liabilities and other liabilities, respectively, on our consolidated balance sheets.

At March 31, 2023, $ 7.9 million and $ 2.3 million of deferred revenue was reported in other current liabilities and other liabilities, respectively, on our consolidated balance sheets.

Of these amounts, we expect to recognize the following approximate amounts in net sales in the following periods:

4 unchanged sentences

Restructuring Actions

During the three and nine months ended September 30, 2022 and September 30, 2021, we incurred restructuring expenses as part of our ongoing global reorganization efforts.

The following pre-tax restructuring charges were included in selling and administrative expense in the consolidated statements of income:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Severance-related costs $ — $ — $ 0.3 $ 0.9

Other costs 0.5 — 0.8 —

Total pre-tax restructuring costs $ 0.5 $ — $ 1.1 $ 0.9

The charges in 2022 primarily impacted the Americas and APAC operating segments.

The charges in 2021 primarily impacted the EMEA and APAC operating segments.

During the three months ended March 31, 2022, we incurred restructuring expenses as part of our ongoing global reorganization efforts.

The pre-tax charge of $ 0.8 million consisted of severance-related costs included in selling and administrative expense in the consolidated statements of income.

The charge in 2022 primarily impacted the Americas operating segments.

Our restructuring actions represent the continued execution of a multi-year enterprise strategy to drive increased productivity throughout our operations.

A reconciliation of the beginning and ending liability balances for severance-related costs is as follows:

Nine Months Ended

September 30,

Three Months Ended

Beginning balance $ 1.7 $ 4.9

4 unchanged sentences

Ending balance $ 1.2 $ 4.3

Acquisition and Divestitures

Sale of building

During the second quarter of 2022, we sold a building located in Golden Valley, Minnesota.

The resulting pre-tax gain was $ 3.7 million and is reflected within gain on sale of assets in the consolidated statements of income.

Proceeds from sale of assets was $ 4.1 million.

Sale of Coatings business

During the first quarter of 2021, we sold the Coatings business.

The resulting pre-tax gain was $ 9.8 million and is reflected within gain on sale of assets in the consolidated statements of income.

Proceeds from sale of assets, net of cash divested, was $ 24.7 million.

Acquisition of 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 our consolidated financial results since the date of closing.

The purchase price included contingent consideration payments totaling $ 2.5 million paid in 2021.

Inventories are valued at the lower of cost or net realizable value and consisted of the following:

September 30,

2023 December 31,

14 unchanged sentences

(b) The difference between replacement cost and the stated LIFO inventory value is not materially different from the reserve for the LIFO valuation method.

We are currently operating in a more volatile inflationary environment and we experienced higher product cost inflation in most categories during 2022.

Our LIFO charge for the three and nine months ended September 30, 2022 was $ 2.1 million and $ 8.1 million, respectively, compared to $ 3.7 million and $ 5.9 million in the three and nine months ended September 30, 2021, respectively.

The increase in each period was attributable to the broad effects of inflation.

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2022 were as follows:

The changes in the carrying amount of goodwill for the three months ended March 31, 2023 were as follows:

Goodwill Accumulated

2 unchanged sentences

Foreign currency fluctuations 4.5 ( 1.5 ) 3.0

Balance as of September 30, 2022

Balance as of March 31, 2023

$ 223.3 $ ( 38.3 ) $ 185.0

1 unchanged sentence

Customer Lists Trade Names Technology Total

Balance as of September 30, 2022

Balance as of March 31, 2023

Original cost $ 148.5 $ 28.9 $ 16.1 $ 193.5

7 unchanged sentences

Weighted average original life (in years) 15 11 11

Amortization expense on intangible assets for the three and nine months ended September 30, 2022 was $ 3.7 million and $ 12.1 million, respectively.

Amortization expense on intangible assets for the three and nine months ended September 30, 2021 was $ 4.8 million and $ 15.1 million, respectively.

Amortization expense on intangible assets for the three months ended March 31, 2023 and 2022 was $ 3.9 million and $ 4.5 million, respectively.

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:

4 unchanged sentences

as administrative agent.

The 2021 Credit Agreement provides us and certain of our foreign subsidiaries access to a senior secured credit facility until April 3, 2026, consisting of a term loan facility in an amount up to $ 100.0 million and a revolving facility in an amount up to $ 450.0 million with an option to expand the credit facility by up to $ 275.0 million, with the consent of the lenders willing to provide additional borrowings in the form of increases to their revolving facility commitment or funding of incremental term loans.

commitment or funding of incremental term loans.

Borrowings may be denominated in U.S.

dollars or certain other currencies.

The fee for committed funds under the revolving facility of the 2021 Credit Agreement ranges from an annual rate of 0.15 % to 0.30 %, depending on our leverage ratio.

Borrowings denominated in U.S.

dollars under the 2021 Credit Agreement bear interest at a rate per annum equal to (a) the Adjusted LIBO Rate, as adjusted for statutory reserve requirements for eurocurrency liabilities, but in any case, not less than 0 %, plus an additional spread of 1.10 % to 1.70 %, depending on our leverage ratio or (b) the Alternate Base Rate which is the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50 % and (iii) the adjusted LIBO rate for a one-month period, but in any case, not less than 1.0 %, plus, in any such case, 1.0 %, plus an additional spread of 0.10 % to 0.70 %, depending on our leverage ratio.

On November 10, 2022, we further amended the 2021 Credit Agreement (the "Amendment") to update the benchmark provisions to replace LIBOR with Term SOFR (as defined in the Amendment) as the reference rate for purposes of calculating interest under the 2021 Credit Agreement.

Pursuant to the Amendment, borrowings denominated in U.S.

dollars bear interest at a rate per annum equal to (a) the Term SOFR Rate (as defined in the Amendment) plus a credit spread adjustment of 0.10 % per annum, but in any case, not less than 0 %, plus an additional spread of 1.10 % to 1.70 %, depending on the Company’s leverage ratio, or (b) the Alternate Base Rate (as defined in the Amendment), which is the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50 % and (iii) the adjusted Term SOFR Rate for a one month period, but in any case, not less than 1.0 %, plus, in any such case, 1.0 %, plus an additional spread of 0.10 % to 0.70 %, depending on the Company’s leverage ratio.

All other material terms included in the 2021 Credit Agreement remain unchanged as a result of the Amendment.

In connection with the 2021 Credit Agreement, we reaffirmed our security interest in favor of the lenders in substantially all our personal property and pledged the stock of our domestic subsidiaries and 65 % of the stock of our first-tier foreign subsidiaries.

The obligations under the 2021 Credit Agreement are also guaranteed by certain of our first-tier domestic subsidiaries, and those subsidiaries also provided a security interest in their similar personal property.

Our 2021 Credit Agreement restricts the payment of dividends or repurchasing of stock requiring that, after giving effect to such payments, no default exists or would result from such payment.

The 2021 Credit Agreement restricts the payment of dividends or repurchasing of stock requiring that, after giving effect to such payments, no default exists or would result from such payment.

Additionally, cash dividends are restricted to $ 7.5 million per quarter and approved levels of other restricted payments range from $ 60.0 million to unlimited based on our net leverage ratio (not taking into account any acquisition holiday) after giving effect to such payment.

4 unchanged sentences

• A covenant restricting us from paying dividends or repurchasing stock if, after giving effect to such payments and assuming no default exists or would result from such payment, our leverage ratio is greater than 2.50 to 1.00, in such case limiting such payments to $ 60.0 million during any fiscal year.

Redemption of Senior Notes

In the second quarter of 2021, the Company redeemed $ 300.0 million principal amount outstanding of its 5.625 % Senior Notes due 2025 ("Senior Notes").

We used the proceeds from the borrowings under the 2021 Credit Agreement to retire our Senior Notes and pay the $ 8.4 million call premium due upon redemption in the second quarter of 2021.

In addition, we wrote off $ 2.9 million of unamortized debt issuance costs in the second quarter of 2021.

Debt Outstanding

Debt outstanding consisted of the following:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Credit facility borrowings:

7 unchanged sentences

Long-term debt $ 293.8 $ 295.1

(a) As of September 30, 2022, the Company is required to repay $ 5.0 million in outstanding credit facility borrowings, $ 0.2 million of current maturities of secured borrowings and $ 0.1 million of finance lease liabilities over the next 12 months.

As of September 30, 2022, we had outstanding borrowings of $ 185.0 and $ 96.3 under our revolving facility and term loan facility, respectively.

We had letters of credit and bank guarantees outstanding in the amount of $ 3.1 million, leaving approximately $ 261.9 of unused borrowing capacity on our revolving facility.

Commitment fees on unused lines of credit for the nine months ended September 30, 2022 were $ 0.6 million.

(a) As of March 31, 2023, the Company is required to repay $ 5.0 million in outstanding credit facility borrowings and $ 0.3 million of finance lease liabilities over the next 12 months.

As of March 31, 2023, we had outstanding borrowings of $ 205.0 million and $ 93.7 million under our revolving facility and term loan facility, respectively.

We had letters of credit and bank guarantees outstanding in the amount of $ 2.7 million, leaving approximately $ 242.3 million of unused borrowing capacity on our revolving facility.

Commitment fees on unused lines of credit for the three months ended March 31, 2023 were $ 0.2 million.

The overall weighted average cost of debt was approximately 5.8 % and net of related cross-currency swap instruments was approximately 4.9 %.

3 unchanged sentences

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 majority of the liability for estimated warranty claims represents amounts to be paid out in the near term for qualified warranty issues.

The changes in warranty reserves were as follows:

Nine Months Ended

September 30,

Three Months Ended

Beginning balance $ 10.9 $ 10.4

10 unchanged sentences

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 gain in our consolidated statements of income.

These contracts do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being hedged.

At September 30, 2022 and December 31, 2021, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $ 80.0 million and $ 45.0 million, respectively.

March 31, 2023 and December 31, 2022, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $ 100.1 million and $ 83.7 million, respectively.

Cash Flow Hedges

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 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 December 31, 2021 included € 152.4 million of total notional values.

The loan and related swaps matured in April 2022.

We manage our floating rate debt exposure using interest rate swaps.

Fixed rate swaps are used to reduce our risk of the possibility of increased interest costs.

We entered into an aggregate $ 120 million notional amount of interest rate swaps effective December 1, 2022 that exchange a variable rate of interest for a fixed rate of interest of 4.076 %.

These interest rate swaps are designated as cash flow hedges.

These swaps are scheduled to mature on December 1, 2026.

Fair Value Hedges

3 unchanged sentences

These cross-currency swaps are designated as fair value hedges.

As of September 30, 2022 these cross-currency swaps included € 85.3 million of total notional value.

As of September 30, 2022, the aggregated scheduled interest payments over the course of the loan and related swaps amounted to € 10.3 million.

As of March 31, 2023 and December 31, 2022, these cross-currency swaps included € 84.2 million and € 84.8 million of total notional value, respectively.

As of March 31, 2023, the aggregated scheduled interest payments over the course of the loan and related swaps amounted to € 9.2 million.

The scheduled maturity and principal payment of the loan and related swaps of € 75.0 million are due in April 2027.

5 unchanged sentences

These cross-currency swaps are designated as net investment hedges.

As of September 30, 2022, the cross-currency swaps included € 75.0 million of total notional values.

As of December 31, 2022 and March 31, 2023, the cross-currency swaps included € 75.0 million of total notional values.

These swaps are scheduled to mature in April 2027.

1 unchanged sentence

Derivative Assets Derivative Liabilities

Balance Sheet Location September 30, 2022 December 31, 2021 Balance Sheet Location September 30, 2022 December 31, 2021

Balance Sheet Location March 31, 2023 December 31, 2022 Balance Sheet Location March 31, 2023 December 31, 2022

Derivatives designated as cash flow hedges:

Foreign currency forward contracts Other current assets $ — $ — Other current liabilities $ — $ 10.4

Interest rate swaps Other current assets $ 0.7 $ 0.8 Other current liabilities $ — $ —

Interest rate swaps Other assets — — Other liabilities 3.0 1.8

Derivatives designated as fair value hedges:

6 unchanged sentences

Foreign currency forward contracts Other current assets $ — $ 0.1 Other current liabilities $ 1.1 $ 0.3

As of September 30, 2022, we anticipate reclassifying $ 2.6 million of gains from accumulated other comprehensive loss to net income during the next 12 months.

The following tables include the amounts in the consolidated statements of income in which the effects of derivatives designated as hedging instruments are recorded:

As of March 31, 2023, we anticipate reclassifying $ 1.9 million of gains from accumulated other comprehensive loss to net income during the next 12 months.

The following tables includes the amounts in the consolidated statements of income in which the effects of derivatives designated as hedging instruments are recorded:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Total Amount of Gain

(Loss) on Hedging

Activity Total Amount of Gain

(Loss) on Hedging

Activity Total Amount of Gain

(Loss) on Hedging

Activity Total Amount of Gain

(Loss) on Hedging

Total Amount of Gain on Hedging

Activity Total Amount of Gain on Hedging

Derivatives designated as cash flow hedges:

Net sales $ 262.9 $ — $ 272.0 $ — $ 801.2 $ — $ 814.4 $ ( 0.3 )

Interest expense, net $ ( 3.7 ) $ 0.1 $ ( 0.3 ) $ 0.7

7 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Derivatives designated as cash flow hedges:

Net gain recognized in other comprehensive loss, net of tax (a)

Net (loss) gain recognized in other comprehensive income (loss), net of tax (a)

$ ( 0.9 ) $ 3.8

Net loss reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net sales — — — ( 0.2 )

Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net 0.1 0.5

1 unchanged sentence

Derivatives designated as fair value hedges:

Net gain recognized in other comprehensive loss, net of tax (a)

Net gain recognized in other comprehensive income (loss), net of tax (a)

Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net 0.3 —

Derivatives designated as net investment hedges:

Net gain recognized in other comprehensive loss, net of tax (a)

Net loss recognized in other comprehensive income (loss), net of tax (a)

Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net 0.2 —

1 unchanged sentence

Net gain recognized in income (b)

$ 4.0 $ 0.8 $ 6.6 $ 2.2

(a) Net change in the fair value of the effective portion classified in other comprehensive loss.

(b) Classified in net foreign currency transaction loss.

(a) Net change in the fair value of the effective portion classified in other comprehensive income (loss).

(b) Classified in net foreign currency transaction (loss) gain.

Fair Value Measurements

8 unchanged sentences

Unobservable inputs that reflect the reporting entity’s own assumptions.

Our population of assets and liabilities subject to fair value measurements at September 30, 2022 was as follows:

Our population of assets and liabilities subject to fair value measurements at March 31, 2023 was as follows:

Value Level 1 Level 2 Level 3

Foreign currency forward exchange contracts $ 2.7 $ — $ 2.7 $ —

Cross-currency swaps $ 3.0 $ — $ 3.0 $ —

Interest rate swaps 0.7 — 0.7 —

Total assets 3.7 — 3.7 —

Foreign currency forward exchange contracts 1.1 — 1.1 —

Interest rate swaps 3.0 — 3.0 —

Total liabilities $ 4.1 $ — $ 4.1 $ —

2 unchanged sentences

Foreign currency forward exchange contracts $ 0.1 $ — $ 0.1 $ —

Cross-currency swaps 3.9 — 3.9 —

Interest rate swaps 0.8 — 0.8 —

Total assets 4.8 — 4.8 —

Foreign currency forward exchange contracts 0.3 — 0.3 —

Interest rate swaps 1.8 — 1.8 —

Total liabilities $ 2.1 $ — $ 2.1 $ —

2 unchanged sentences

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, was $ 282.4 million and $ 281.6 million, respectively, as of September 30, 2022.

The fair value and carrying value of total debt, including current portion, was $ 297.8 million and $ 299.1 million, respectively, as of March 31, 2023.

The fair value and carrying value of total debt, including current portion, was $ 301.8 million and $ 300.3 million, respectively, as of December 31, 2022.

7 unchanged sentences

The changes in components of accumulated other comprehensive loss, net of tax, are as follows:

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022

Foreign Currency

1 unchanged sentence

Retirement Medical

Benefits Cash Flow Hedge Total Foreign Currency

Benefits Derivative Financial Instruments Total Foreign Currency

Adjustments Pension and Post-

Retirement Medical

Benefits Cash Flow Hedge Total

Benefits Derivative Financial Instruments Total

Beginning balance $ ( 53.9 ) $ 2.7 $ 1.0 $ ( 50.2 ) $ ( 36.0 ) $ ( 2.1 ) $ 0.2 $ ( 37.9 )

Other comprehensive (loss) income before reclassifications ( 40.3 ) — 5.2 ( 35.1 ) ( 13.1 ) 0.1 8.1 ( 4.9 )

Other comprehensive income (loss) before reclassifications 5.5 — ( 0.2 ) 5.3 ( 3.8 ) — 3.8 —

Amounts reclassified from accumulated other comprehensive loss ( 0.2 ) — ( 0.4 ) ( 0.6 ) — — ( 4.0 ) ( 4.0 )

Net current period other comprehensive (loss) income ( 40.8 ) — 0.5 ( 40.3 ) ( 13.1 ) 0.1 ( 0.3 ) ( 13.3 )

Net current period other comprehensive income (loss) 5.3 — ( 0.6 ) 4.7 ( 3.8 ) — ( 0.2 ) ( 4.0 )

Ending balance $ ( 48.6 ) $ 2.7 $ 0.4 $ ( 45.5 ) $ ( 39.8 ) $ ( 2.1 ) $ — $ ( 41.9 )

8 unchanged sentences

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.

In addition to the liability of $ 4.0 million for unrecognized tax benefits as of September 30, 2022, there was approximately $ 0.6 million for accrued interest and penalties.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of September 30, 2022 was $ 3.7 million.

In addition to the liability of $ 4.1 million for unrecognized tax benefits as of March 31, 2023, there was approximately $ 0.6 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, 2023 was $ 3.9 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.

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into U.S.

Under this law, there is a new 15% corporate minimum tax, which we do not believe will have an impact on the Company.

In addition, beginning after December 31, 2022, there will be a 1% excise tax on certain share repurchases, which is not expected to have a material impact on the Company's consolidated financial statements.

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, 2022.

During the three months ended September 30, 2022 and 2021, we recognized total share-based compensation expense of $ 1.7 million and $ 2.5 million, respectively.

During the nine months ended September 30, 2022 and 2021, we recognized total share-based compensation expense of $ 4.4 million and $ 9.5 million, respectively.

The total excess tax benefit recognized for share-based compensation arrangements during the nine months ended September 30, 2022 and 2021 was $ 0.3 million and $ 0.4 million, respectively.

During the three months ended March 31, 2023 and 2022, we recognized total share-based compensation expense of $ 1.2 million and $ 1.8 million, respectively.

The total excess tax benefit recognized for share-based compensation arrangements during the three months ended March 31, 2023 and 2022 was less than $ 0.1 million and $ 0.3 million, respectively.

Earnings Per Share

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income $ 24.3 $ 10.3

5 unchanged sentences

Diluted earnings per share $ 1.30 $ 0.55

Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 766,235 and 148,747 shares of common stock during the three months ended September 30, 2022 and 2021, respectively.

Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 425,920 and 198,853 shares of common stock during the nine months ended September 30, 2022 and 2021, respectively.

Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 393,242 and 191,587 shares of common stock during the three months ended March 31, 2023 and 2022, 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 would be anti-dilutive.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements