What changed in this filing

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Item 1. Financial Statements

2023-10-31 compared with 2023-08-04 · 90 added, 57 removed, 508 unchanged (22% of the section changed)

3 unchanged sentences

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

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

7 unchanged sentences

Interest expense, net ( 3.3 ) ( 2.2 ) ( 11.0 ) ( 3.7 )

Net foreign currency transaction gain (loss) 1.0 ( 1.0 ) 0.9 ( 0.4 )

Other expense, net ( 0.6 ) ( 0.3 ) ( 0.7 ) ( 0.5 )

Net foreign currency transaction (loss) gain ( 0.4 ) — 0.5 ( 0.4 )

Other (expense) income, net ( 1.1 ) 0.6 ( 1.8 ) 0.1

Income before income taxes 29.9 19.8 101.8 54.8

10 unchanged sentences

(In millions) Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

6 unchanged sentences

Total other comprehensive income (loss), net of tax ( 10.4 ) ( 20.2 ) ( 4.5 ) ( 40.3 )

Comprehensive income $ 32.5 $ 0.5 $ 61.5 $ 6.8

Comprehensive income (loss) $ 12.5 $ ( 4.6 ) $ 74.0 $ 2.2

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

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

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

2023 December 31,

37 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions) Six Months Ended

(In millions) Nine Months Ended

September 30,

OPERATING ACTIVITIES

32 unchanged sentences

Cash, cash equivalents and restricted cash at end of period $ 97.0 $ 59.2

SUPPLEMENTAL CASH FLOW INFORMATION Six Months Ended

SUPPLEMENTAL CASH FLOW INFORMATION

Nine Months Ended

September 30,

(In millions) 2023 2022

Cash paid for income taxes $ 29.1 $ 21.9

39 unchanged sentences

Balance, June 30, 2023 18,540,598 $ 7.0 $ 54.1 $ 503.8 $ ( 44.3 ) $ 520.6 $ 1.3 $ 521.9

Net income — — 22.9 — 22.9 — 22.9

Other comprehensive income — — — ( 10.4 ) ( 10.4 ) — ( 10.4 )

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 148 shares

222,566 — 13.9 — — 13.9 — 13.9

Share-based compensation — 4.7 — — 4.7 — 4.7

Repurchases of common stock ( 21,793 ) — ( 1.7 ) — — ( 1.7 ) — ( 1.7 )

Dividends paid $ 0.265 per common share

— — ( 5.0 ) — ( 5.0 ) — ( 5.0 )

Balance, September 30, 2023 18,741,371 $ 7.0 $ 71.0 $ 521.7 $ ( 54.7 ) $ 545.0 $ 1.3 $ 546.3

Tennant Company Shareholders

24 unchanged sentences

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

See accompanying notes to consolidated financial statements.

19 unchanged sentences

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 June 30, 2023.

There has been no material impact to our financial condition, results of operations, or cash flows from reference rate reform as of September 30, 2023.

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

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

6 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

15 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

Beginning balance $ 20.0 $ 19.9

8 unchanged sentences

The change in the deferred revenue balance was as follows:

Six Months Ended

Nine Months Ended

September 30,

Beginning balance $ 9.3 $ 11.2

3 unchanged sentences

Ending balance $ 8.8 $ 10.0

At June 30, 2023, $ 6.7 million and $ 2.2 million of deferred revenue was reported in other current liabilities and other liabilities, respectively, on our consolidated balance sheets.

At September 30, 2023, $ 6.8 million and $ 2.0 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 six months ended June 30, 2023 and June 30, 2022, we incurred restructuring expenses as part of our ongoing global reorganization efforts.

During the three and nine months ended September 30, 2023 and September 30, 2022, we incurred the following 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

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

6 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

Beginning balance $ 1.7 $ 4.9

5 unchanged sentences

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

September 30,

2023 December 31,

15 unchanged sentences

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the six months ended June 30, 2023 were as follows:

The changes in the carrying amount of goodwill for the nine months ended September 30, 2023 were as follows:

Goodwill Accumulated

2 unchanged sentences

Foreign currency fluctuations ( 6.3 ) 4.8 ( 1.5 )

Balance as of June 30, 2023

Balance as of September 30, 2023

$ 212.5 $ ( 32.0 ) $ 180.5

1 unchanged sentence

Customer Lists Trade Names Technology Total

Balance as of June 30, 2023

Balance as of September 30, 2023

Original cost $ 144.6 $ 28.1 $ 15.9 $ 188.6

7 unchanged sentences

Weighted average original life (in years) 15 11 11

Amortization expense on intangible assets for the three and six months ended June 30, 2023 was $ 3.6 million and $ 7.5 million, respectively.

Amortization expense on intangible assets for the three and six months ended June 30, 2022 was $ 3.9 million and $ 8.4 million, respectively.

Amortization expense on intangible assets for the three and nine months ended September 30, 2023 was $ 3.5 million and $ 11.0 million, respectively.

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

7 unchanged sentences

dollars or certain other currencies.

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.

On November 10, 2022, we 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.

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.

10 unchanged sentences

Debt outstanding consisted of the following:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Credit facility borrowings:

7 unchanged sentences

Long-term debt $ 215.9 $ 295.1

(a) As of June 30, 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 June 30, 2023, we had outstanding borrowings of $ 185.0 million and $ 92.5 million under our revolving facility and term loan facility, respectively.

(a) As of September 30, 2023, the Company is required to repay $ 5.6 million in outstanding credit facility borrowings and $ 0.3 million of finance lease liabilities over the next 12 months.

As of September 30, 2023, we had outstanding borrowings of $ 130.0 million and $ 91.3 million 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 $ 316.9 million of unused borrowing capacity on our revolving facility.

Commitment fees on unused lines of credit for the six months ended June 30, 2023 were $ 0.4 million.

Commitment fees on unused lines of credit for the nine months ended September 30, 2023 were $ 0.6 million.

The overall weighted average cost of debt was approximately 6.5 % and net of related cross-currency swap instruments and fixed rate interest rate swap instruments was approximately 5.1 %.

5 unchanged sentences

The changes in warranty reserves were as follows:

Six Months Ended

Nine Months Ended

September 30,

Beginning balance $ 10.9 $ 10.4

12 unchanged sentences

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 June 30, 2023 and December 31, 2022, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $ 106.7 million and $ 83.7 million, respectively.

At September 30, 2023 and December 31, 2022, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $ 74.1 million and $ 83.7 million, respectively.

Cash Flow Hedges

9 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, these cross-currency swaps included € 83.6 million and € 84.8 million of total notional value, respectively.

As of June 30, 2023, the aggregated scheduled interest payments over the course of the loan and related swaps amounted to € 8.6 million.

As of September 30, 2023 and December 31, 2022, these cross-currency swaps included € 83.1 million and € 84.8 million of total notional value, respectively.

As of September 30, 2023, the aggregated scheduled interest payments over the course of the loan and related swaps amounted to € 8.1 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 June 30, 2023 and December 31, 2022, the cross-currency swaps included € 75.0 million of total notional values.

As of September 30, 2023 and December 31, 2022, the cross-currency swaps included € 75.0 million of total notional value.

These swaps are scheduled to mature in April 2027.

1 unchanged sentence

Derivative Assets Derivative Liabilities

Balance Sheet Location June 30, 2023 December 31, 2022 Balance Sheet Location June 30, 2023 December 31, 2022

Balance Sheet Location September 30, 2023 December 31, 2022 Balance Sheet Location September 30, 2023 December 31, 2022

Derivatives designated as cash flow hedges:

9 unchanged sentences

Foreign currency forward contracts Other current assets $ 1.0 $ 0.1 Other current liabilities $ 0.1 $ 0.3

As of June 30, 2023, we anticipate reclassifying $ 2.7 million of gains from accumulated other comprehensive loss to net income during the next 12 months.

As of September 30, 2023, we anticipate reclassifying $ 2.4 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:

Three Months Ended June 30,

Three Months Ended September 30,

Total Gain (Loss) on Hedging Total Gain (Loss) on Hedging

7 unchanged sentences

Interest expense, net $ ( 3.3 ) $ 0.2 $ ( 2.2 ) $ 0.3

Six Months Ended

Nine Months Ended

September 30,

Total Gain (Loss) on Hedging Total Gain (Loss) on Hedging

Derivatives designated as cash flow hedges:

Net sales $ 627.5 $ — $ 538.3 $ —

Interest expense, net $ ( 11.0 ) $ 0.6 $ ( 3.7 ) $ 0.7

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

22 unchanged sentences

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.

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:

3 unchanged sentences

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

Our population of assets and liabilities subject to fair value measurements at June 30, 2023 was as follows:

Our population of assets and liabilities subject to fair value measurements at September 30, 2023 was as follows:

Value Level 1 Level 2 Level 3

18 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 $ 277.1 million and $ 278.0 million, respectively, as of June 30, 2023.

The fair value and carrying value of total debt, including current portion, was $ 221.3 million and $ 221.8 million, respectively, as of September 30, 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.

2 unchanged sentences

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.

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.

2 unchanged sentences

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

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Foreign Currency

3 unchanged sentences

Beginning balance $ ( 53.9 ) $ 2.7 $ 1.0 $ ( 50.2 )

Other comprehensive income before reclassifications 5.9 — 1.4 7.3

Other comprehensive (loss) income before reclassifications ( 4.5 ) — 2.1 ( 2.4 )

Amounts reclassified from accumulated other comprehensive loss ( 0.7 ) — ( 1.4 ) ( 2.1 )

1 unchanged sentence

Ending balance $ ( 59.1 ) $ 2.7 $ 1.7 $ ( 54.7 )

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Foreign Currency

16 unchanged sentences

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

In addition to the liability of $ 3.6 million for unrecognized tax benefits as of June 30, 2023, there was approximately $ 0.4 million for accrued interest and penalties.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of June 30, 2023 was $ 3.3 million.

In addition to the liability of $ 3.6 million for unrecognized tax benefits as of September 30, 2023, there was approximately $ 0.4 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, 2023 was $ 3.3 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.

1 unchanged sentence

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 June 30, 2023 and 2022, we recognized total share-based compensation expense of $ 2.7 million and $ 0.9 million, respectively.

During the six months ended June 30, 2023 and 2022, we recognized total share-based compensation expense of $ 3.9 million and $ 2.7 million, respectively.

The total excess tax recognized for share-based compensation arrangements during the six months ended June 30, 2023 and 2022 was a tax deficiency of $ 0.2 million and tax benefit of $ 0.3 million, respectively.

During the three months ended September 30, 2023 and 2022, we recognized total share-based compensation expense of $ 4.7 million and $ 1.7 million, respectively.

During the nine months ended September 30, 2023 and 2022, we recognized total share-based compensation expense of $ 8.6 million and $ 4.4 million, respectively.

The total excess tax recognized for share-based compensation arrangements during the nine months ended September 30, 2023 and 2022 was a tax expense of $ 0.1 million and tax benefit of $ 0.3 million, respectively.

Earnings Per Share

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

2 unchanged sentences

Effect of dilutive securities 308,018 176,065 261,322 217,697

277,088 176,725 248,874 250,546

Diluted - weighted average shares outstanding 18,878,311 18,691,916 18,747,128 18,713,337

1 unchanged sentence

Diluted earnings per share $ 1.21 $ 0.83 $ 4.19 $ 2.27

Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 261,376 and 698,378 shares of common stock during the three months ended June 30, 2023 and 2022, respectively.

Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 449,763 and 402,696 shares of common stock during the six months ended June 30, 2023 and 2022, respectively.

Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 169,458 and 766,235 shares of common stock during the three months ended September 30, 2023 and 2022, respectively.

Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 325,862 and 425,920 shares of common stock during the nine months ended September 30, 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