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Item 8. Financial Statements and Supplementary Data

2024-02-22 compared with 2023-02-23 · 116 added, 126 removed, 1184 unchanged (17% of the section changed)

22 unchanged sentences

Critical Audit Matter Description

The Company’s annual evaluation of goodwill for impairment involved the comparison of the EMEA reporting unit’s fair value to its carrying value.

The Company determined the fair value of the reporting unit using the combination of an income and a market approach.

The income approach utilizes a discounted cash flow model which requires management to make significant estimates and assumptions related to forecasts of future

revenues, profit margins, and discount rates.

The determination of the fair value using the market approach requires management to make significant assumptions related to earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples.

The EMEA goodwill balance was $145.8 million as of December 31, 2022.

The fair value of the EMEA reporting unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized.

Changes in these estimates and related assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

Given the significant judgments made by management to estimate the fair value of the EMEA reporting unit and the differences between its fair value and carrying value, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future revenues, profit margins, discount rates, and EBITDA multiples, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

The Company performed a qualitative goodwill test on all reporting units.

The tests indicated that there was no goodwill impairment as of the annual assessment date.

The Company analyzed qualitative factors to determine whether it was more likely than not that the fair value of the reporting units was less than their carrying amounts as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

Given the amount of goodwill within the EMEA reporting unit, the judgment used in the EMEA reporting unit’s qualitative assessment, and the difference between the most recent fair value estimate and the carrying amount of the EMEA reporting unit, auditing management’s conclusions related to the EMEA qualitative goodwill impairment assessment involved subjective judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to forecasts of future revenues, reporting unit profit margins, selection of discount rates, and EBITDA multiples for the EMEA reporting unit included the following, among others:

• We tested the effectiveness of controls over goodwill, including the underlying assumptions to forecast future revenue and profit margins, and the selection of the discount rate and EBITDA multiples.

• We evaluated management’s ability to accurately forecast future revenues and profit margins by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s forecasted revenue and profit margins by comparing the forecasts to (1) historical results, (2) internal communications between management and the Board of Directors, and (3) information included in Company press releases as well as in analyst and industry reports of the Company and companies in its peer group.

• With the assistance of our fair value specialists, we evaluated the discount rate, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management.

• With the assistance of our fair value specialists, we evaluated the EBITDA multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline companies.

Our audit procedures related to management’s qualitative assessment of goodwill impairment for the EMEA reporting unit included the following, among others:

• We tested the effectiveness of controls over goodwill, including those over management’s judgments related to macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, and capital markets pricing.

• We evaluated the reasonableness of management’s qualitative assessment of factors affecting forecasted revenue and profit margins by comparing the forecasts to (1) historical results, (2) internal communications between management and the Board of Directors, and (3) information included in Company press releases.

• With the assistance of our fair value specialists, we evaluated the reasonableness of management’s qualitative assessment by performing the following:

(1) evaluated GDP growth, inflation and other macroeconomic variables, as well as industry growth rates, (2) estimated industry discount rates, (3) analyzed growth, margin, and valuation multiple trends of guideline public companies, (4) compared recent fair value estimate and carrying amount, and (5) analyzed the trend of market capitalization of the entity and public peer companies.

• Assessed for potential indicators of impairment such as macroeconomic and industry conditions, financial performance, and events affecting the reporting unit such as a change in the carrying amount of its net assets or asset impairments at components of the reporting unit.

• We evaluated the financial results of the EMEA reporting unit compared to forecasts from the October 1, 2023 annual measurement date to December 31, 2023.

/s/ Deloitte & Touche LLP

39 unchanged sentences

Interest expense, net ( 13.5 ) ( 7.1 ) ( 7.3 )

Net foreign currency transaction loss ( 1.2 ) ( 0.7 ) ( 5.3 )

Net foreign currency transaction gain (loss) 0.3 ( 1.2 ) ( 0.7 )

Loss on extinguishment of debt — — ( 11.3 )

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

Other (expense) income, net ( 1.6 ) 0.6 ( 0.3 )

Income before income taxes 123.8 79.5 74.1

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Net income $ 109.5 $ 66.3 $ 64.9

Other comprehensive (loss) income:

Foreign currency translation adjustments (net of related tax (expense) benefit of $( 1.2 ), $ 0.4 , and $ 0.8 , respectively)

Other comprehensive income (loss):

Foreign currency translation adjustments (net of related tax benefit (expense) of $ 0.8 , $( 1.2 ), and $ 0.4 , respectively)

8.3 ( 17.9 ) ( 16.9 )

Pension and postretirement medical benefits (net of related tax (expense) benefit of $( 1.6 ), $ 0.3 , and $ 0.3 , respectively)

Pension and postretirement medical benefits (net of related tax benefit (expense) of $( 0.3 ), $( 1.6 ), and $ 0.3 , respectively)

1.0 4.8 ( 0.4 )

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( 1.4 ) 0.8 ( 0.5 )

Total other comprehensive (loss) income, net of tax ( 12.3 ) ( 17.8 ) 18.4

Total other comprehensive income (loss), net of tax 7.9 ( 12.3 ) ( 17.8 )

Comprehensive income $ 117.4 $ 54.0 $ 47.1

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Net income $ 109.5 $ 66.3 $ 64.9

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 36.4 32.8 33.1

4 unchanged sentences

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

Acquisition contingent consideration adjustment — 0.7 ( 0.4 )

Debt extinguishment cost — — 11.3

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Other assets and liabilities 13.0 ( 10.2 ) 0.5

Net cash (used in) provided by operating activities ( 25.1 ) 69.4 133.8

Net cash provided by (used in) operating activities 188.4 ( 25.1 ) 69.4

INVESTING ACTIVITIES

Purchases of property, plant and equipment ( 22.8 ) ( 25.0 ) ( 19.4 )

Proceeds from disposals of property, plant and equipment — — 0.1

Purchase of intangible asset — ( 0.1 ) ( 0.1 )

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

Investment in leased assets ( 1.2 ) ( 4.3 ) ( 3.7 )

Cash received from leased assets 0.8 0.6 —

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

Other, net — 0.1 ( 0.1 )

Net cash (used in) provided by investing activities ( 23.2 ) ( 24.5 ) 1.7

5 unchanged sentences

Change in finance lease obligations 0.2 — 0.1

(Repurchases) proceeds from exercise of stock options, net of employee tax withholdings obligations ( 0.9 ) 5.0 4.9

Purchase of noncontrolling owner interest — — ( 0.1 )

Proceeds (repurchases) from exercise of stock options, net of employee tax withholdings obligations 19.0 ( 0.9 ) 5.0

Dividends paid ( 20.1 ) ( 18.9 ) ( 17.5 )

Repurchases of common stock ( 21.7 ) ( 5.0 ) ( 15.0 )

Net cash provided by (used in) financing activities 8.1 ( 84.5 ) ( 42.8 )

Net cash (used in) provided by financing activities ( 122.6 ) 8.1 ( 84.5 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 2.9 ) ( 4.7 ) ( 4.0 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 46.2 ) ( 17.4 ) 66.4

Net increase (decrease) in cash, cash equivalents and restricted cash 39.7 ( 46.2 ) ( 17.4 )

Cash, cash equivalents and restricted cash at beginning of year 77.4 123.6 141.0

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Net income — — — 64.9 — 64.9 — 64.9

Other comprehensive income — — — — 18.4 18.4 — 18.4

Other comprehensive loss — — — — ( 17.8 ) ( 17.8 ) — ( 17.8 )

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 35,061 shares

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— — — ( 17.5 ) — ( 17.5 ) — ( 17.5 )

Purchase of noncontrolling interests — — ( 0.1 ) — — ( 0.1 ) — ( 0.1 )

Repurchases of common stock ( 196,982 ) — ( 15.0 ) — — ( 15.0 ) — ( 15.0 )

Other — — — ( 0.1 ) — ( 0.1 ) — ( 0.1 )

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Repurchases of common stock ( 79,756 ) — ( 5.0 ) — — ( 5.0 ) — ( 5.0 )

Other — — — ( 0.1 ) — ( 0.1 ) — ( 0.1 )

Balance, December 31, 2022 18,521,485 $ 7.0 $ 56.0 $ 458.0 $ ( 50.2 ) $ 470.8 $ 1.3 $ 472.1

Net income — — — 109.5 — 109.5 — 109.5

Other comprehensive loss — — — — ( 12.3 ) ( 12.3 ) — ( 12.3 )

Other comprehensive income — — — — 7.9 7.9 — 7.9

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 23,622 shares

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Cash and Cash Equivalents – We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents.

Restricted Cash – We have a total of $ 0.2 million and $ 0.5 million as of December 31, 2022 and 2021 that serves as collateral backing certain bank guarantees and is therefore restricted.

Restricted Cash – We have a total of $ 0.2 million as of December 31, 2023 and 2022 that serves as collateral backing certain bank guarantees and is therefore restricted.

This money is invested in time deposits.

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However, we may elect to perform a quantitative goodwill impairment test in lieu of the qualitative test.

In 2022, we performed a quantitative goodwill test on all reporting units.

In 2023, we performed a qualitative goodwill test on all reporting units.

Our tests indicated that there was no goodwill impairment in any of our reporting units as of our annual assessment date.

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Upon retirement or disposition, the asset cost and related accumulated depreciation or amortization are removed from the accounts and a gain or loss is recognized based on the difference between the fair value of proceeds received and carrying value of the assets held for sale.

Purchase of Common Stock – We repurchase our common stock under 2016 and 2015 repurchase programs authorized by our Board of Directors.

These programs allow us to repurchase up to an aggregate of 1,112,333 shares of our common stock.

Purchase of Common Stock – We repurchase our common stock under 2016 repurchase program authorized by our Board of Directors.

This program allows us to repurchase up to an aggregate of 821,413 shares of our common stock.

Upon repurchase, the par value is charged to common stock and the remaining purchase price is charged to additional paid-in capital.

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Newly Adopted Accounting Pronouncements

On January 1, 2021, we adopted Accounting Standards Update ("ASU") No.

In January 2021, we adopted Accounting Standards Update ("ASU") No.

2019-12, Income Taxes (Topic 740):

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See Note 9 for information on the replacement of LIBOR with the Secured Overnight Financing Rate ("SOFR") in our Credit Agreements (defined below) on November 17, 2022.

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 was immaterial.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products and services.

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Net sales are attributed to each geographic area based on the end user country and are net of intercompany sales.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Net sales by groups of similar products and services

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Total $ 1,243.6 $ 1,092.2 $ 1,090.8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Contract Liabilities

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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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Our deferred revenue balance is primarily attributed to prepaid maintenance contracts on our machines ranging from 12 months to 60 months.

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Ending balance $ 10.3 $ 9.3

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

As of December 31, 2023, $ 7.9 million and $ 2.4 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:

Thereafter 0.1

As of December 31, 2022, $ 6.6 million and $ 2.7 million of deferred revenue was reported in other current liabilities and other liabilities, respectively, on our consolidated balance sheets.

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(a) Includes facility exit costs associated with facility moves.

The charges in 2023 impacted the Europe, Middle East (EMEA) and Asia Pacific (APAC) operating segments.

The charges in 2022 impacted all operating segments.

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

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

Our restructuring actions represent the

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

continued execution of a multi-year enterprise strategy to drive increased productivity throughout our operations.

A reconciliation to the ending liability balance of severance and related costs as of December 31, 2023 is as follows:

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Ending balance $ 2.4 $ 1.7

Other Actions

In 2019, we made the decision to exit certain product lines to reflect our estimate of inventory that would not be sold.

During the year ended December 31, 2020, we recorded an additional $ 1.7 million in cost of sales in

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

the consolidated statements of income to reflect our estimate of inventory that would not be sold, all of which was recorded in the first quarter of 2020.

Acquisitions and Divestitures

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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.

Proceeds from sale of assets were $ 4.1 million.

Sale of Coatings Business

1 unchanged sentence

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

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

Proceeds from sale of business, net of cash divested, were $ 24.7 million.

Acquisition of Gaomei

4 unchanged sentences

The total purchase price included $ 22.4 million of payments and related adjustments paid in 2019 and contingent consideration payments totaling $ 2.5 million paid in 2021.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Inventories as of December 31 consisted of the following:

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

Our LIFO charge for the twelve months ended December 31, 2022 was $ 6.7 million compared to $ 10.6 million for the twelve months ended December 31, 2021.

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Property, Plant and Equipment

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Property, plant and equipment, net $ 187.7 $ 179.9

Depreciation expense was $ 32.8 million in 2022, $ 33.1 million in 2021 and $ 32.6 million in 2020.

Depreciation expense was $ 36.4 million, $ 32.8 million and $ 33.1 million in 2023, 2022 and 2021, respectively.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Goodwill and Intangible Assets

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We have the option of first analyzing qualitative factors to determine whether it is more likely than not that the fair value of any reporting unit is less than its carrying amount.

We may elect to perform a quantitative goodwill impairment test in lieu of the qualitative test, and in 2022 we performed the quantitative goodwill test on all reporting units.

In 2021, we elected to perform the quantitative goodwill test on our EMEA reporting unit and a qualitative test on our North America, Latin America and APAC reporting units.

We may elect to perform a quantitative goodwill impairment test in lieu of the qualitative test, and in 2023 we performed the qualitative goodwill test on all reporting units.

In 2022, we elected to perform the quantitative goodwill test on all reporting units.

Based on our analysis, we determined that there was no impairment of goodwill as of December 31, 2023 and 2022.

4 unchanged sentences

Balance as of December 31, 2022 $ 218.8 $ ( 36.8 ) $ 182.0

Divestiture $ ( 1.7 ) $ — $ ( 1.7 )

Foreign currency fluctuations ( 15.1 ) 4.0 ( 11.1 )

Balance as of December 31, 2021 $ 233.9 $ ( 40.8 ) $ 193.1

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

The balances of acquired intangible assets, excluding goodwill, are as follows:

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Amortization expense of intangible assets was $ 14.7 million, $ 15.9 million and $ 20.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Estimated aggregate amortization expense based on the current carrying amount of amortizable intangible assets for each of the five succeeding years is as follows:

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On November 10, 2022, Tennant Company 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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

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 Amendement), 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.

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.

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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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

The 2021 Credit Agreement contains customary representations, warranties and covenants, including but not limited to covenants restricting our ability to incur indebtedness and liens and merge or consolidate with another entity.

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Debt outstanding as of December 31 consisted of the following:

2 unchanged sentences

Term loan facility borrowings 90.0 95.0

Secured borrowings 0.2 0.7

Finance lease liabilities 0.6 0.3

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Long-term debt $ 194.2 $ 295.1

As of December 31, 2022, the Company is required to repay $ 5.0 million in outstanding credit facility borrowings and $ 0.2 million of current maturities of secured borrowings over the next 12 months.

As of December 31, 2023, the Company is required to repay $ 6.3 million in outstanding credit facility borrowings and $ 0.1 million of current maturities of finance lease liabilities over the next 12 months.

As of December 31, 2023, we had outstanding borrowings of $ 90.0 million and $ 110.0 million under our term loan facility and revolving facility, respectively.

3 unchanged sentences

Further details regarding the cross-currency swap instrument are discussed in Note 11.

The aggregate maturities of our outstanding debt, excluding unamortized debt issuance costs, as of December 31, 2022, are as follows:

Total aggregate maturities $ 300.3

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

The aggregate maturities of our outstanding debt, excluding unamortized debt issuance costs, as of December 31, 2023, are as follows:

Total aggregate maturities $ 200.6

Other Current Liabilities

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Taxes $ 11.3 $ 11.1

Warranty 7.8 10.4

Warranty reserve 7.4 7.8

Deferred revenue 7.9 6.6

3 unchanged sentences

Operating leases 14.4 15.0

Cash flow hedge liabilities — 10.4

Miscellaneous accrued expenses 20.0 17.7

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Our hedging policy establishes maximum limits for each counterparty to mitigate any concentration of risk.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Balance Sheet Hedges

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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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

associated with this intercompany loan, and accordingly, they are not speculative in nature.

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.

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As of December 31, 2023, the aggregated scheduled interest payments over the course of the loan and related swaps amounted to € 7.5 million.

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

The scheduled maturity and principal payment of the loan and related interest payments of € 82.5 million are due in April 2027.

Net Investment Hedges

12 unchanged sentences

Derivatives designated as cash flow hedges:

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

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

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Interest expense, net ( 13.5 ) 1.1 ( 7.1 ) 0.9

Net foreign currency transaction loss ( 1.2 ) 2.0 ( 0.7 ) —

Net foreign currency transaction loss (gain) 0.3 ( 1.9 ) ( 1.2 ) 2.0

Derivatives designated as net investment hedges:

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Fair Value Level 1 Level 2 Level 3

Foreign currency forward exchange contracts $ 0.1 — $ 0.1 —

Cross-currency swaps $ 2.5 $ — $ 2.5 $ —

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Foreign currency forward exchange contracts 1.6 — 1.6 —

Cross-currency swaps 6.7 — 6.7 —

Interest rate swaps 1.9 — 1.9 —

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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 $ —

1 unchanged sentence

Further details regarding our foreign currency forward exchange and option contracts are discussed in Note 11.

Contingent consideration is valued using a probability-weighted analysis of projected gross profit and integration milestones.

Contingent consideration payments totaling $ 2.5 million were paid in 2021.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Contingent consideration is valued using a probability-weighted analysis of projected gross profit and integration milestones.

Contingent consideration payments totaling $ 2.5 million were paid in 2021.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, receivables, other current assets, accounts payable and other current liabilities approximate fair value due to their short-term nature.

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Pension Benefits disclosures have been updated to include the Italian Pension Plan.

We expect to contribute approximately $ 0.1 million to our U.S.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

We expect to contribute less than $ 0.1 million to our U.S.

Nonqualified Plan and $ 0.6 million to our U.S.

2 unchanged sentences

Pension Plan, German Pension Plan, French Pension Plan and Italian Pension Plans to be $ 0.2 million in 2024.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Weighted-average asset allocations by asset category of the U.K.

Pension Plan as of December 31, 2022 is as follows:

Pension Plan as of December 31, 2023 are as follows:

Quoted Prices in Active Markets for

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Weighted-average asset allocations by asset category of the U.K.

Pension Plan as of December 31, 2021 is as follows:

Pension Plan as of December 31, 2022 are as follows:

Quoted Prices in Active Markets for

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This objective is accomplished through growth of capital and safety of funds invested.

Assets are invested in securities to achieve growth of capital over inflation through appreciation and accumulation and reinvestment of dividend and interest income.

Investments are diversified to control risk.

Pension Plan is invested in insurance

Assets are invested in securities to

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

contracts with underlying investments primarily in equity and fixed income securities.

achieve growth of capital over inflation through appreciation and accumulation and reinvestment of dividend and interest income.

Investments are diversified to control risk.

Pension Plan is invested in insurance contracts with underlying investments primarily in equity and fixed income securities.

Our German Pension Plan is unfunded, which is customary in that country.

31 unchanged sentences

Italian Pension Plan 2.5 2.4

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Information for our plans with an accumulated benefit obligation in excess of plan assets as of December 31 is as follows:

1 unchanged sentence

Fair value of plan assets — —

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

As of December 31, 2023 and 2022, the U.S.

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Repurchase of Common Stock

The Board of Directors has authorized the repurchase of 1,112,333 of our common stock.

On October 31, 2016, the Board of Directors authorized the repurchase of 1,000,000 shares of our common stock.

During the year ended December 31, 2023, the Company paid $ 21.7 million to repurchase 290,920 shares of its common stock at an average price of $ 74.57 per share.

16 unchanged sentences

Total lease liabilities $ 42.4 $ 32.2

Finance lease assets are recorded net of accumulated amortization of less than $ 0.1 million as of December 31, 2022 and December 31, 2021.

Finance lease assets are recorded net of accumulated amortization of $ 0.1 million and less than $ 0.1 million as of December 31, 2023 and December 31, 2022, respectively.

The lease cost for the three years ended December 31 was as follows:

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Legal costs associated with such matters are expensed as incurred.

Income (loss) before income taxes for the three years ended December 31 was as follows:

Income before income taxes for the three years ended December 31 was as follows:

2023 2022 2021

20 unchanged sentences

Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our approximately $ 102.5 million of undistributed earnings from foreign subsidiaries to the United States as those earnings continue to be permanently reinvested.

In December 2021, the Organization for Economic Cooperation and Development (OECD), which is an international public policy setting organization comprised of member countries including the U.S., published a proposal for the establishment of a global minimum tax rate of 15% (the "Pillar Two rule").

The OECD has recommended that the Pillar Two rule become effective for fiscal years beginning on or after January 1, 2024.

To date member states are in various stages of implementing the rules through local legislation and the OECD continues to refine technical guidance.

We are closely monitoring developments of the Pillar Two rule and are currently evaluating the potential effect in each of the countries we operate in.

We do not expect this rule to have a material impact on our consolidated financial statements.

Our effective income tax rate varied from the U.S.

13 unchanged sentences

(Tables in millions, except shares and per share data)

The effect of foreign operations line item includes ( 12.0 %) and ( 7.2 %) benefits for 2023 and 2022, respectively, associated with reductions to deferred tax liabilities on undistributed foreign earnings as those cumulative earnings were reduced by current year statutory book losses.

Deferred tax assets and liabilities were comprised of the following as of December 31:

8 unchanged sentences

Capitalized research and development costs 12.3 6.6

Goodwill and intangible assets 4.5 —

Other 1.2 ( 0.9 )

7 unchanged sentences

Total deferred tax liabilities $ 19.0 $ 31.1

Net deferred tax assets (liabilities) $ 8.9 $ ( 4.8 )

Net deferred tax assets $ 37.5 $ 8.9

Tax credit carryforwards consist of $ 3.0 million of U.S.

1 unchanged sentence

We have non-U.S.

cumulative tax losses of $ 30.7 million in various countries.

cumulative tax losses of $ 26.0 million in various countries ($ 6.9 million tax effected).

Cumulative losses can be used to offset the income tax liabilities on future income in these countries.

$ 30.7 million of these losses have unlimited carryforward periods.

Of these losses, $ 26.0 million have unlimited carryforward periods.

Less than $ 0.1 million of these losses have a limited carryforward period.

6 unchanged sentences

and the Netherlands.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Beginning balance $ 4.2 $ 4.7

(Decreases) increases as a result of tax positions taken during a prior period ( 0.1 ) ( 0.1 )

(Decreases) as a result of tax positions taken during a prior period — ( 0.1 )

Increases as a result of tax positions taken during the current year 1.2 0.8

3 unchanged sentences

Ending balance $ 4.1 $ 4.2

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

Included in the balance of unrecognized tax benefits as of December 31, 2023 and 2022 are potential benefits of $ 3.7 million and $ 3.9 million, respectively, that if recognized, would affect the effective tax rate.

23 unchanged sentences

Treasury rate over the expected life at the time of grant.

Expected volatilities are based upon historical volatility of our stock over a period equal to the expected life of each stock option grant.

Dividend yield is estimated over the expected life based on our dividend policy and historical dividends paid.

To determine the amount of compensation cost to be recognized in each period, we account for forfeitures as they occur.

Expected volatilities are based upon historical volatility of our stock over a period equal to the expected

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

life of each stock option grant.

Dividend yield is estimated over the expected life based on our dividend policy and historical dividends paid.

To determine the amount of compensation cost to be recognized in each period, we account for forfeitures as they occur.

The following table illustrates the valuation assumptions used for the 2023, 2022 and 2021 grants:

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or removal by shareholders.

We use the closing share price the day before the grant date to determine the fair value of our restricted share awards.

Expenses on these awards are recognized over the vesting period.

We use the closing share price the day before the grant date to

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

determine the fair value of our restricted share awards.

Expenses for these awards are recognized over the vesting period.

The following table summarizes the activity during the year ended December 31, 2023 for nonvested restricted share awards:

23 unchanged sentences

During the year ended December 31, 2022, 43,198 performance shares vested.

29,595 performance shares vested during the year ended December 31, 2020.

There were 43,621 performance shares vested during the year ended December 31, 2021.

As of December 31, 2023, we expect to recognize $ 7.8 million of total compensation costs over a weighted-average period of 1.8 years.

2 unchanged sentences

Vested restricted stock units are paid out in stock.

We use the closing share price the day before the grant date to determine the fair value of our restricted stock units.

Expenses on these awards are recognized on a straight-line basis over the vesting period of the award.

We use the closing share

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tables in millions, except shares and per share data)

price the day before the grant date to determine the fair value of our restricted stock units.

Expenses on these awards are recognized on a straight-line basis over the vesting period of the award.

The following table summarizes the activity during the year ended December 31, 2023 for nonvested restricted stock units:

55 unchanged sentences

Apart from the United States and Italy shown in the table above, there are no other individual foreign locations which have long-lived assets which represent more than 10% of our consolidated long-lived assets.

Subsequent Events

On February 21, 2024, we entered into an agreement to acquire a non-controlling preferred equity share investment in Brain Corp., a privately held autonomous technology company in San Diego, California.

The investment will drive the development and adoption of the next generation of robotic and AI technologies.

The purchase of the investment was completed on February 21, 2024 for $ 32.1 million.

The Company is currently evaluating the accounting treatment and financial statement impact of the investment.

ITEM 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data