tnc20210331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from ___________ to __________

Commission File Number 1-16191

____________________________________

TENNANT COMPANY

(Exact name of registrant as specified in its charter)

Minnesota	41-0572550
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10400 Clean Street

Eden Prairie, Minnesota 55344

(Address of principal executive offices)

(Zip Code)

(763) 540-1200

(Registrant’s telephone number, including area code)

______________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.375 per share		TNC		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☑

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☑

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☑

As of April 23, 2021, there were 18,610,727 shares of Common Stock outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		Page
Item 1.	Financial Statements	3
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Cash Flows	5
	Consolidated Statements of Equity	7
	Notes to Consolidated Financial Statements	8
	1. Summary of Significant Accounting Policies	8
	2. Newly Adopted Accounting Pronouncements	8
	3. Revenue	9
	4. Management Actions	11
	5. Acquisition and Divestiture	11
	6. Inventories	12
	7. Goodwill and Intangible Assets	12
	8. Debt	13
	9. Warranty	14
	10. Derivatives	14
	11. Fair Value Measurements	16
	12. Commitments and Contingencies	17
	13. Accumulated Other Comprehensive Loss	17
	14. Income Taxes	17
	15. Share-Based Compensation	18
	16. Earnings Attributable to Tennant Company Per Share	18
	17. Subsequent Event	19
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 6.	Exhibits	25
Signatures		26

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

TENNANT COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	*Three Months Ended*
(In millions, except shares and per share data)	*March 31*
	*2021*			*2020*
Net Sales	$	263.3		$	252.1
Cost of Sales		150.0			149.3
Gross Profit		113.3			102.8

Operating Expense:
Research and Development Expense		7.4			7.4
Selling and Administrative Expense		69.6			81.0
Total Operating Expense		77.0			88.4
Operating Income		36.3			14.4

Other Income (Expense):
Interest Income		0.7			0.9
Interest Expense		(4.6	)		(5.1	)
Net Foreign Currency Transaction Gain (Loss)		0.5			(4.1	)
Other Income, Net		0.1			0.2
Total Other Expense, Net		(3.3	)		(8.1	)

Income Before Taxes		33.0			6.3
Income Tax Expense		7.3			1.1
Net Income Including Noncontrolling Interest		25.7			5.2
Net Income Attributable to Tennant Company		25.7			5.2

Net Income Attributable to Tennant Company per Share:
Basic	$	1.39		$	0.28
Diluted	$	1.37		$	0.28

Weighted Average Shares Outstanding:
Basic		18,456,079			18,286,816
Diluted		18,831,423			18,666,238

See accompanying Notes to Consolidated Financial Statements.

TENNANT COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	*Three Months Ended*
(In millions)	*March 31*
	*2021*			*2020*
Net Income Including Noncontrolling Interest	$	25.7		$	5.2
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustments (net of related tax benefit of $0.1 million and $0 million, respectively)		(10.7	)		(11.3	)
Cash Flow Hedge (net of related tax expense of $0 million and $1.1 million, respectively)		—			3.7
Total Other Comprehensive Loss, Net of Tax		(10.7	)		(7.6	)

Total Comprehensive Income (Loss) Including Noncontrolling Interest		15.0			(2.4	)
Comprehensive Income (Loss) Attributable to Tennant Company	$	15.0		$	(2.4	)

See accompanying Notes to Consolidated Financial Statements.

TENNANT COMPANY

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	*March 31,*			*December 31,*
(In millions, except shares and per share data)	*2021*			*2020*
ASSETS
Current Assets:
Cash, Cash Equivalents, and Restricted Cash	$	175.2		$	141.0
Receivables:
Trade, less Allowances of $4.9 and $4.6, respectively		190.1			195.4
Other		4.5			4.5
Net Receivables		194.6			199.9
Inventories		137.5			127.7
Prepaid and Other Current Assets		23.2			25.0
Total Current Assets		530.5			493.6
Property, Plant and Equipment		425.6			437.5
Accumulated Depreciation		(254.7	)		(252.0	)
Property, Plant and Equipment, Net		170.9			185.5
Operating Lease Assets		43.3			44.5
Goodwill		199.2			207.8
Intangible Assets, Net		114.6			126.2
Other Assets		22.3			25.0
Total Assets	$	1,080.8		$	1,082.6
LIABILITIES AND TOTAL EQUITY
Current Liabilities:
Current Portion of Long-Term Debt	$	36.4		$	10.9
Accounts Payable		104.8			106.3
Employee Compensation and Benefits		49.0			53.7
Other Current Liabilities		87.0			83.4
Total Current Liabilities		277.2			254.3
Long-Term Liabilities:
Long-Term Debt		271.9			297.6
Long-Term Operating Lease Liabilities		27.7			28.7
Employee-Related Benefits		17.5			17.9
Deferred Income Taxes		33.8			39.1
Other Liabilities		31.3			38.9
Total Long-Term Liabilities		382.2			422.2
Total Liabilities		659.4			676.5
Commitments and Contingencies (Note 12)
Equity:
Common Stock, $0.375 par value; 60,000,000 shares authorized; 18,606,486 and 18,503,805 shares issued and outstanding, respectively		7.0			6.9
Additional Paid-In Capital		59.1			54.7
Retained Earnings		384.8			363.3
Accumulated Other Comprehensive Loss		(30.8	)		(20.1	)
Total Tennant Company Shareholders' Equity		420.1			404.8
Noncontrolling Interest		1.3			1.3
Total Equity		421.4			406.1
Total Liabilities and Total Equity	$	1,080.8		$	1,082.6

See accompanying Notes to Consolidated Financial Statements.

TENNANT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	*Three Months Ended*
(In millions)	*March 31*
	*2021*			*2020*
OPERATING ACTIVITIES
Net Income Including Noncontrolling Interest	$	25.7		$	5.2
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation		8.3			8.1
Amortization of Intangible Assets		5.3			5.0
Deferred Income Taxes		(1.5	)		(2.5	)
Share-Based Compensation Expense		3.1			2.8
Allowance for Doubtful Accounts and Returns		0.6			0.1
Gain on Sale of Business		(9.8	)		—
Other, Net		1.4			0.7
Changes in Operating Assets and Liabilities:
Receivables, Net		(0.7	)		15.9
Inventories		(18.3	)		(11.6	)
Accounts Payable		3.2			4.3
Employee Compensation and Benefits		(5.7	)		(20.8	)
Other Current Liabilities		5.6			2.6
Other Assets and Liabilities		1.2			(1.1	)
Net Cash Provided by Operating Activities		18.4			8.7
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment		(4.8	)		(12.4	)
Proceeds from Disposals of Property, Plant and Equipment		—			0.1
Proceeds from Sale of Business, Net of Cash Divested		24.7			—
Purchase of Intangible Assets		(0.1	)		(0.1	)
Net Cash Provided by (Used in) Investing Activities		19.8			(12.4	)
FINANCING ACTIVITIES
Proceeds from Borrowings		—			125.0
Repayments of Debt		(0.2	)		(0.3	)
Contingent Consideration Payment		(0.5	)		—
Change in Finance Lease Obligations		—			(0.1	)
Proceeds from Issuance of Common Stock		3.1			2.4
Dividends Paid		(4.2	)		(4.0	)
Net Cash (Used in) Provided by Financing Activities		(1.8	)		123.0
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash		(2.2	)		(1.8	)
Net Increase in Cash, Cash Equivalents and Restricted Cash		34.2			117.5
Cash, Cash Equivalents and Restricted Cash at Beginning of Period		141.0			74.6
Cash, Cash Equivalents and Restricted Cash at End of Period	$	175.2		$	192.1

SUPPLEMENTAL CASH FLOW INFORMATION	*Three Months Ended*
	*March 31*
	*2021*		*2020*
Cash Paid for Income Taxes	$	1.2	$	0.9
Cash Paid for Interest		0.3		0.2
Cash Paid for Amounts Included in the Measurement of Lease Liabilities:
Operating Cash Flows from Operating Leases		5.1		5.2
Lease Assets Obtained in Exchange for New Operating Lease Liabilities		4.3		2.4
Supplemental Non-cash Investing and Financing Activities:
Capital Expenditures in Accounts Payable	$	1.3	$	0.7

See accompanying Notes to Consolidated Financial Statements.

TENNANT COMPANY

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In millions, except shares and per share data)

	Tennant Company Shareholders
	Common Shares		Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Tennant Company Shareholders' Equity			Noncontrolling Interest		Total Equity
Balance, December 31, 2020		18,503,805	$	6.9	$	54.7	$	363.3		$	(20.1	)	$	404.8		$	1.3	$	406.1
Net Income				—		—		25.7			—			25.7			—		25.7
Other Comprehensive Loss				—		—		—			(10.7	)		(10.7	)		—		(10.7	)
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings and repurchases of 22,724 shares		102,681		0.1		1.3		—			—			1.4			—		1.4
Share-Based Compensation				—		3.1		—			—			3.1			—		3.1
Dividends paid $0.23 per Common Share				—		—		(4.2	)		—			(4.2	)		—		(4.2	)
Balance, March 31, 2021		18,606,486	$	7.0	$	59.1	$	384.8		$	(30.8	)	$	420.1		$	1.3	$	421.4

	Tennant Company Shareholders
	Common Shares		Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Tennant Company Shareholders' Equity			Noncontrolling Interest		Total Equity
Balance, December 31, 2019		18,336,010	$	6.9	$	45.5	$	346.0		$	(38.5	)	$	359.9		$	1.4	$	361.3
Net Income				—		—		5.2			—			5.2			—		5.2
Other Comprehensive Loss				—		—		—			(7.6	)		(7.6	)		—		(7.6	)
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 15,756 shares		98,805		—		1.1		—			—			1.1			—		1.1
Share-Based Compensation				—		2.8		—			—			2.8			—		2.8
Dividends paid $0.22 per Common Share				—		—		(4.0	)		—			(4.0	)		—		(4.0	)
Other				—		—		(0.1	)		—			(0.1	)		—		(0.1	)
Balance, March 31, 2020		18,434,815	$	6.9	$	49.4	$	347.1		$	(46.1	)	$	357.3		$	1.4	$	358.7

See accompanying Notes to Consolidated Financial Statements.

TENNANT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In millions, except shares and per share data)

1.	Summary of Significant Accounting Policies

Tennant Company ("the Company, we, us or our") is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance, significantly reduce environmental impact and help create a cleaner, safer, healthier world.

Basis of Presentation – The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the Securities and Exchange Commission (“SEC”) requirements for interim reporting. In our opinion, the Consolidated Financial Statements contain all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of our financial position and results of operations.

These statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our annual report on Form 10-K for the year ended December 31, 2020. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Reclassification – We reclassified $1.3 million of costs from Selling and Administrative Expense to Cost of Sales in the Consolidated Statements of Income for the three months ended March 31, 2020 as part of a global alignment of cost across all regions.

We documented the summary of significant accounting policies in the Notes to Consolidated Financial Statements of our annual report on Form 10-K for the fiscal year ended December 31, 2020. Other than the accounting policies noted above, there have been no material changes to our accounting policies since the filing of that report.

2.	Newly Adopted Accounting Pronouncements

Income Taxes

On January 1, 2021, we adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The impact of this amended guidance on our consolidated financial statements and related disclosures was immaterial.

3.	Revenue

Disaggregation of Revenue

The following tables illustrate the disaggregation of revenue by geographic area, groups of similar products and services and sales channels:

Net Sales by geographic area

		*Three Months Ended*
		*March 31*
		*2021*

SEC Form 10-Q filed by Tennant Company