Tennant Company (NYSE:TNC) Q2 2023 Earnings Conference Call August 4, 2023 11:00 AM ET Company Participants Lorenzo Bassi - VP of Finance and IR Dave Huml - President and CEO Fay West - SVP and CFO Conference Call Participants Chris Moore - CJS Securities Steve Ferazani - Sidoti and Company Tim Moore - EF Hutton Operator Good morning. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to Tennant Company's 2023 Second Quarter Earnings Conference Call ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Table of Contents For the quarterly period ended June 30, 2023 OR o 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 specifi ...

Tennant Company (NYSE:TNC) Q1 2023 Results Conference Call April 28, 2022 10:00 AM ET Company Participants Lorenzo Bassi - Vice President of Finance Dave Huml - President and Chief Executive Officer Fay West - Senior Vice President and Chief Financial Officer Conference Call Participants Christopher Moore - CJS Securities Steve Ferazani - Sidoti Tim Moore - EF Hutton Brett Kearney - Gabelli Funds Operator Good morning. My name is Devon and I will be your conference operator today. At this time, I would like ...

PART I - FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Tennant Company's unaudited consolidated financial statements for Q1 2023 and 2022, including income, balance sheets, cash flows, equity, and detailed accounting notes [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Q1 2023 saw significant growth in net sales, gross profit, operating income, and net income, with diluted EPS rising to **$1.30** from **$0.55** year-over-year Q1 2023 vs Q1 2022 Income Statement Highlights | Metric | Q1 2023 (In millions) | Q1 2022 (In millions) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $305.8 | $258.1 | +18.5% | | Gross Profit | $125.5 | $98.9 | +26.9% | | Operating Income | $35.9 | $14.6 | +145.9% | | Net Income | $24.3 | $10.3 | +135.9% | | Diluted EPS | $1.30 | $0.55 | +136.4% | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2023, total assets increased to **$1.1 billion**, total liabilities marginally decreased, and total equity rose to **$493.2 million** from **$472.1 million** at year-end 2022 Balance Sheet Summary | Metric (In millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $582.4 | $575.3 | | Total Assets | $1,100.7 | $1,085.1 | | Total Current Liabilities | $256.8 | $261.6 | | Long-term Debt | $293.8 | $295.1 | | Total Liabilities | $607.5 | $613.0 | | Total Equity | $493.2 | $472.1 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 2023 operating cash flow significantly improved to **$31.1 million** from a **$10.1 million** use in Q1 2022, driven by higher net income and better working capital management Cash Flow Summary (Q1 2023 vs Q1 2022) | Activity (In millions) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $31.1 | $(10.1) | | Net cash used in investing activities | $(6.8) | $(8.6) | | Net cash (used in) provided by financing activities | $(10.3) | $8.3 | | Net increase (decrease) in cash | $14.0 | $(13.2) | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail significant accounting policies, revenue disaggregation, debt structure, and derivative instruments, highlighting strong revenue growth across all regions and product categories Q1 Net Sales by Geographic Area (In millions) | Region | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Americas | $204.4 | $160.3 | | Europe, Middle East and Africa | $82.1 | $78.7 | | Asia Pacific | $19.4 | $19.1 | | **Total** | **$305.8** | **$258.1** | Q1 Net Sales by Product/Service (In millions) | Category | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Equipment | $186.4 | $158.1 | | Parts and consumables | $73.4 | $60.6 | | Service and other | $46.0 | $39.4 | | **Total** | **$305.8** | **$258.1** | - As of March 31, 2023, total debt outstanding was **$299.1 million**, with **$242.3 million** of unused borrowing capacity on the revolving credit facility[52](index=52&type=chunk)[53](index=53&type=chunk) - The company uses interest rate swaps to manage floating rate debt exposure, with an aggregate notional amount of **$120 million** effective December 1, 2022, exchanging a variable rate for a fixed rate of **4.076%**[60](index=60&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q1 2023 performance to **21.0%** organic sales growth, driven by price and volume, with gross profit margin improving to **41.0%** due to effective pricing [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Q1 2023 consolidated net sales increased **18.5%** to **$305.8 million**, driven by **21.0%** organic growth, with gross margin expanding to **41.0%** and operating income rising to **$35.9 million** Components of Consolidated Net Sales Change (Q1 2023 vs. Q1 2022) | Component | Percentage Change | | :--- | :--- | | Price | 10.7% | | Volume | 10.3% | | **Organic growth** | **21.0%** | | Foreign currency | (2.5)% | | **Total growth** | **18.5%** | - Gross profit margin increased by **270 basis points** to **41.0%** in Q1 2023, driven by pricing realization that offset multi-year inflation on materials and labor[86](index=86&type=chunk) - S&A expense as a percentage of net sales decreased by **300 basis points** to **26.7%**, driven by sales leverage and cost-containment initiatives[87](index=87&type=chunk) - The order backlog decreased to approximately **$298.5 million** at March 31, 2023, from **$326.4 million** at December 31, 2022, as the company improved its ability to obtain key components and increase production[94](index=94&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) Q1 2023 liquidity strengthened with cash increasing to **$91.4 million**, operating cash flow improving to **$31.1 million**, and the debt-to-capital ratio improving to **37.8%** - Net cash provided by operating activities was **$31.1 million** for Q1 2023, a significant improvement from a net cash use of **$10.1 million** in Q1 2022, driven by improved operating performance and moderating working capital investments[97](index=97&type=chunk) - The company repurchased **73,525 shares** of common stock for **$5.0 million** during the first quarter of 2023[99](index=99&type=chunk) Key Liquidity Metrics | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash, cash equivalents and restricted cash | $91.4M | $77.4M | | Current Ratio | 2.3 | 2.2 | | Debt-to-Capital Ratio | 37.8% | 38.9% | [Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk have occurred since the end of fiscal year 2022, with further details available in the annual Form 10-K - There have been no material changes in the company's market risk since December 31, 2022[105](index=105&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) As of March 31, 2023, disclosure controls and procedures were deemed effective, with no material changes in internal controls over financial reporting during the quarter - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective[106](index=106&type=chunk) - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal control[107](index=107&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material pending legal proceedings beyond ordinary routine litigation incidental to its business - There are no material pending legal proceedings other than ordinary routine litigation incidental to the business[108](index=108&type=chunk) [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors have occurred since the filing of the annual report on Form 10-K for December 31, 2022 - No material changes to risk factors have occurred since the filing of the 2022 Form 10-K[109](index=109&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2023, the company repurchased **91,993** shares at an average price of **$68.91**, with **1,038,808** shares remaining authorized for future repurchase Share Repurchases for Q1 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased Under Plan | | :--- | :--- | :--- | :--- | | January 2023 | 34,637 | $65.90 | 34,637 | | February 2023 | 37,188 | $71.00 | 21,355 | | March 2023 | 20,168 | $70.23 | 17,533 | | **Total** | **91,993** | **$68.91** | **73,525** | - As of March 31, 2023, **1,038,808 shares** remain available for repurchase under the company's authorized plans[112](index=112&type=chunk) [Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and iXBRL financial data - Exhibits filed with the report include CEO and CFO certifications under Rule 13a-14(a)/15d-14(a) and Section 1350, as well as iXBRL financial statements[113](index=113&type=chunk)

Tennant Company (NYSE:TNC) Q4 2022 Earnings Conference Call February 23, 2023 11:00 AM ET Company Participants Lorenzo Bassi - Vice President, Finance Dave Huml - President and Chief Executive Officer Fay West - Senior Vice President and Chief Financial Officer Conference Call Participants Chris Moore - CJS Securities Steve Ferazani - Sidoti Tim Moore - EF Hutton Operator Good morning. My name is Devon and I will be your conference operator today. At this time, I would like to welcome everyone to Tennant Co ...

| --- | --- | --- | |-------|-------|-------| | | | | | | | | | | | | | | | | 2 Forward-Looking Statements & Non-GAAP Measures Certain statements contained in this document are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements do not relate to strictly historical or current facts and provide current expectations or forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. The ...

Part I [Item 1 Business](index=5&type=section&id=Item%201%20Business) Tennant Company is a global leader in designing, manufacturing, and marketing nonresidential cleaning solutions across Americas, EMEA, and APAC - Tennant Company is a world leader in designing, manufacturing, and marketing cleaning solutions for nonresidential surfaces, operating in Americas, EMEA, and APAC[14](index=14&type=chunk)[15](index=15&type=chunk) - Product offerings include mechanized cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair services, and business solutions (financing, rental, leasing, asset management)[16](index=16&type=chunk) - The company serves over **40,000 customers**, including contract cleaners and businesses performing facilities maintenance themselves, through direct sales in 15 countries and distributors in over 100 countries[17](index=17&type=chunk) - The company has experienced **cost inflation** and constrained supply of primary raw materials (steel, metal alloys, resin) and component parts, which are expected to continue into 2023[18](index=18&type=chunk) - Quarterly revenues typically range from **22% to 28%** of the total year, with the first quarter usually at the low end and the second and fourth quarters toward the high end[21](index=21&type=chunk) [Item 1A Risk Factors](index=9&type=section&id=Item%201A%20Risk%20Factors) The company faces macroeconomic, industry, and operational risks, including economic downturns, competitive pressures, supply chain disruptions, and talent retention challenges - Macroeconomic risks include potential financial difficulties from economic downturns, uncertainty surrounding the COVID-19 pandemic, and significant compliance costs from global laws and regulations[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) - Industry risks involve inability to take advantage of product pricing due to competitive markets and price sensitivity, challenges in developing innovative products and technologies, and disruptions in the availability, quality, or cost of raw materials, components, or labor[45](index=45&type=chunk)[46](index=46&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) - Operational risks include challenges in attracting and retaining key personnel, managing strategic planning and growth processes, upgrading IT systems, protecting against cybersecurity threats, potential business interruptions, managing workforce health and safety, and successfully integrating acquisitions[53](index=53&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) [Item 1B Unresolved Staff Comments](index=14&type=section&id=Item%201B%20Unresolved%20Staff%20Comments) There are no unresolved staff comments - No unresolved staff comments[66](index=66&type=chunk) [Item 2 Properties](index=14&type=section&id=Item%202%20Properties) Tennant Company owns corporate offices and manufacturing facilities globally, with additional leased facilities for manufacturing, sales, and warehousing, all in good operating condition - The company owns its corporate offices in Minneapolis, Minnesota, and manufacturing facilities in Minneapolis, Holland (Michigan), Uden (The Netherlands), and several Italian cities (Venice, Cremona, Reggio Emilia, Province of Padua)[67](index=67&type=chunk) - Leased manufacturing facilities are located in Louisville (Kentucky), São Paulo (Brazil), Hefei (China), and another facility in the Province of Padua, with sales offices, warehouses, and storage facilities leased in various locations globally[67](index=67&type=chunk)[68](index=68&type=chunk) - All company facilities are in good operating condition, suitable for their respective uses, and adequate for current needs[67](index=67&type=chunk)[68](index=68&type=chunk) [Item 3 Legal Proceedings](index=14&type=section&id=Item%203%20Legal%20Proceedings) The company is not involved in any material pending legal proceedings beyond ordinary business litigation - There are no material pending legal proceedings other than ordinary litigation incidental to the Company's business[70](index=70&type=chunk) [Item 4 Mine Safety Disclosures](index=14&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to Tennant Company - Not applicable[71](index=71&type=chunk) Part II [Item 5 Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=15&type=section&id=Item%205%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Tennant's common stock trades on the NYSE, with a history of 78 consecutive years of cash dividends and 51 years of increases, alongside share repurchase programs - Tennant's common stock is traded on the New York Stock Exchange under the ticker symbol **TNC**, with **269 shareholders** of record as of January 31, 2023[74](index=74&type=chunk) Dividend Information | Metric | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Consecutive years of cash dividends paid | 78 | 77 | | Consecutive years of annual dividend increase | 51 | 50 | | Annual cash dividend payout per share | $1.015 | $0.94 | | Quarterly cash dividend (declared Feb 14, 2023) | $0.265 | N/A | Share Repurchases for Q4 2022 | For the Quarter Ended | Total Number of Shares Purchased | Average Price Per Share | | :-------------------- | :------------------------------- | :---------------------- | | October 1–31, 2022 | 18 | $56.56 | | November 1–30, 2022 | 50,067 | $62.80 | | December 1–31, 2022 | 29,849 | $62.46 | | **Total** | **79,934** | **$62.67** | - During the twelve months ended December 31, 2022, the Company paid **$5.0 million** to repurchase **79,756 shares** of its common stock, with **1,112,333 shares** remaining authorized for repurchase[76](index=76&type=chunk)[77](index=77&type=chunk) Stock Performance Graph (Cumulative Total Shareholder Return, $100 invested on Dec 31, 2017) | Year | Tennant Company | S&P SmallCap 600 | S&P 500 Industrials (Sector) (TR) | | :--- | :-------------- | :--------------- | :------------------------------- | | 2017 | $100 | $100 | $100 | | 2018 | $73 | $92 | $87 | | 2019 | $110 | $112 | $112 | | 2020 | $100 | $125 | $125 | | 2021 | $117 | $159 | $151 | | 2022 | $91 | $133 | $143 | [Item 6 [Reserved]](index=16&type=section&id=Item%206%20%5BReserved%5D) This item is reserved and contains no information - Item 6 is reserved[81](index=81&type=chunk) [Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%207%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews Tennant Company's financial performance, liquidity, and capital resources, highlighting macroeconomic challenges and the focus on sustainable innovations and long-term growth - Tennant Company is a world leader in designing, manufacturing, and marketing solutions that empower customers to achieve quality cleaning performance, reduce environmental impact, and create a cleaner, safer, healthier world, with a commitment to breakthrough, sustainable cleaning innovations[85](index=85&type=chunk) - The company continues to actively manage its business in response to the COVID-19 pandemic, supply chain disruptions, inflation, and foreign currency exchange fluctuations, which have negatively impacted financial results[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) - Global economic conditions remain highly volatile, with ongoing uncertainty regarding supply chain challenges and inflationary trends, requiring agile management and pricing actions for long-term growth[91](index=91&type=chunk) [Historical Results](index=18&type=section&id=7.1%20Historical%20Results) Consolidated net sales slightly increased in 2022, but gross profit margin decreased due to inflation, leading to lower operating income and a significant increase in order backlog Consolidated Statements of Income (in millions, except per share amounts and percentages) | Metric | 2022 | % of Net Sales | 2021 | % of Net Sales | | :-------------------------------- | :----- | :------------- | :----- | :------------- | | Net sales | $1,092.2 | 100.0 | $1,090.8 | 100.0 | | Cost of sales | 671.3 | 61.5 | 652.8 | 59.8 | | Gross profit | 420.9 | 38.5 | 438.0 | 40.2 | | Selling and administrative expense | 306.3 | 28.0 | 321.9 | 29.5 | | Research and development expense | 31.1 | 2.8 | 32.2 | 3.0 | | Gain on sale of assets | (3.7) | (0.3) | (9.8) | (0.9) | | Operating income | 87.2 | 8.0 | 93.7 | 8.6 | | Interest expense, net | (7.1) | (0.7) | (7.3) | (0.7) | | Net foreign currency transaction loss | (1.2) | (0.1) | (0.7) | (0.1) | | Loss on extinguishment of debt | — | — | (11.3) | (1.0) | | Other income (expense), net | 0.6 | 0.1 | (0.3) | — | | Income before income taxes | 79.5 | 7.3 | 74.1 | 6.8 | | Income tax expense | 13.2 | 1.2 | 9.2 | 0.8 | | Net income | 66.3 | 6.1 | 64.9 | 5.9 | | Net income per share - diluted | $3.55 | N/A | $3.44 | N/A | - Consolidated net sales increased by **0.1%** in 2022 to **$1,092.2 million**, driven by a **4.2% organic sales increase** (higher selling prices) partially offset by a **4.0% unfavorable foreign currency impact** and a 0.1% unfavorable impact from the divestiture of the Coatings business[93](index=93&type=chunk)[100](index=100&type=chunk) Net Sales by Geographic Area (in millions, except percentages) | Geographic Area | 2022 | % Change YoY | 2021 | | :---------------------- | :----- | :------------- | :----- | | Americas | $705.9 | 7.2 | $658.3 | | Europe, Middle East and Africa (EMEA) | $301.6 | (9.1) | $331.9 | | Asia Pacific (APAC) | $84.7 | (15.8) | $100.6 | | **Total** | **$1,092.2** | **0.1** | **$1,090.8** | - Gross profit margin decreased by **170 basis points** to **38.5%** in 2022 (from 40.2% in 2021), primarily due to broad effects of inflation on materials, labor, and freight costs, partly offset by higher selling prices and favorable sales mix[98](index=98&type=chunk) - Selling and administrative expense decreased by **$15.6 million** to **$306.3 million** in 2022, representing **28.0% of net sales** (down 150 basis points from 29.5% in 2021), mainly due to lower variable employee compensation expenses[99](index=99&type=chunk) - The effective tax rate increased to **16.6%** in 2022 from 12.5% in 2021, primarily driven by certain nonrecurring tax items[104](index=104&type=chunk) - Order backlog increased significantly to **$326.4 million** at December 31, 2022, compared to **$169.7 million** at December 31, 2021, due to higher order rates and persistent supply chain challenges, and is expected to continue at this level in 2023[106](index=106&type=chunk) [Liquidity and Capital Resources](index=20&type=section&id=7.2%20Liquidity%20and%20Capital%20Resources) The company's liquidity needs are met through operations and credit facilities, with cash decreasing in 2022 due to increased working capital investments and higher payments - Primary liquidity needs include funding working capital, investments, debt service, cash reserves, and capital expenditures, with sources from operations, revolving credit facility, and debt/equity offerings[107](index=107&type=chunk) Cash, Cash Equivalents, and Restricted Cash (in millions) | Year | Amount | | :--- | :----- | | Dec 31, 2022 | $77.4 | | Dec 31, 2021 | $123.6 | - The current ratio was **2.2** as of December 31, 2022, up from 1.8 in 2021, and the debt-to-capital ratio was **40.9%** in 2022, up from 38.1% in 2021[108](index=108&type=chunk) Net Cash Flow from Operating Activities (in millions) | Year | Amount | | :--- | :----- | | 2022 | $(25.1) | | 2021 | $69.4 | - The increase in cash used in operating activities in 2022 was primarily driven by an increase in working capital (investments in inventory, higher accounts receivables) and increased cash payments for employee compensation, benefits, and income taxes[110](index=110&type=chunk) Net Cash Flow from Investing Activities (in millions) | Year | Amount | | :--- | :----- | | 2022 | $(24.5) | | 2021 | $1.7 | Net Cash Flow from Financing Activities (in millions) | Year | Amount | | :--- | :----- | | 2022 | $8.1 | | 2021 | $(84.5) | - Significant contractual purchase obligations for 2023 are approximately **$113 million**[113](index=113&type=chunk) [Newly Issued Accounting Guidance](index=21&type=section&id=7.3%20Newly%20Issued%20Accounting%20Guidance) The company adopted several ASUs (Income Taxes, Defined Benefit Plans, Reference Rate Reform, Financial Instruments-Credit Losses) in recent years, all with immaterial impacts - ASU No. 2019-12 (Income Taxes) was adopted on January 1, 2021, with an immaterial impact on consolidated financial statements[208](index=208&type=chunk) - ASU No. 2018-14 (Defined Benefit Plans) was adopted in December 2022, with an immaterial impact on consolidated financial statements[209](index=209&type=chunk) - ASU No. 2020-04 (Reference Rate Reform) was effective through December 31, 2022, with no material impact on financial condition, results of operations, or cash flows[210](index=210&type=chunk) - ASU No. 2016-13 (Financial Instruments-Credit Losses) was adopted on January 1, 2020, with an immaterial impact on consolidated financial statements[211](index=211&type=chunk) [Critical Accounting Policies and Estimates](index=21&type=section&id=7.4%20Critical%20Accounting%20Policies%20and%20Estimates) The company's financial statements rely on estimates for goodwill impairment and income taxes, with annual goodwill tests showing no impairment in 2022 - Goodwill is analyzed annually (as of October 1) and when events or circumstances change, with a quantitative goodwill impairment test performed in 2022 on all reporting units, indicating no impairment[116](index=116&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) Goodwill Balance (in millions) | December 31 | Amount | | :------------ | :----- | | 2022 | $182.0 | | 2021 | $193.1 | - Income taxes require estimating current tax obligations, establishing reserves for uncertain tax matters, and assessing deferred tax assets, with a valuation allowance provided when recovery is not more likely than not[121](index=121&type=chunk)[122](index=122&type=chunk) [Item 7A Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%207A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Tennant Company manages commodity, interest rate, and foreign currency exchange rate risks through supplier negotiations, hedging instruments, and pricing actions - The company is subject to commodity risk from potential cost increases for raw materials (steel, metal alloys, resin) and petroleum-related components, mitigated through supplier negotiations, supply chain optimization, cost-reduction actions, and product pricing[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) - Interest rate risk from variable-rate debt is managed using interest rate swaps to reduce increased interest costs; as of December 31, 2022, **$120 million** notional amount of swaps exchange a variable rate for a fixed rate of **4.076%** (maturing Dec 2026)[131](index=131&type=chunk)[132](index=132&type=chunk) - Foreign currency exchange rate risk from global operations (Euro, AUD, CAD, GBP, JPY, CNY, BRL, MXN against USD) is actively managed using hedging instruments such as foreign exchange purchased options, forward contracts, and cross-currency swaps for forecasted revenues, sales, net assets/liabilities, intercompany loans, and net investments[133](index=133&type=chunk)[134](index=134&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) [Item 8 Financial Statements and Supplementary Data](index=26&type=section&id=Item%208%20Financial%20Statements%20and%20Supplementary%20Data) This section includes the independent auditor's report with an unqualified opinion, consolidated financial statements, and detailed notes covering accounting policies and various financial accounts - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[141](index=141&type=chunk)[142](index=142&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - Goodwill for the EMEA reporting unit was identified as a critical audit matter due to significant management judgments in estimating fair value, though no impairment was recognized[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk) [Report of Independent Registered Public Accounting Firm](index=26&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP issued an unqualified opinion on Tennant Company's financial statements and internal controls, highlighting EMEA goodwill as a critical audit matter - Deloitte & Touche LLP issued an unqualified opinion on the Company's consolidated financial statements and internal control over financial reporting as of December 31, 2022[141](index=141&type=chunk)[142](index=142&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - Goodwill for the EMEA reporting unit was identified as a critical audit matter due to significant management estimates and assumptions related to forecasts of future revenues, profit margins, discount rates, and EBITDA multiples in determining its fair value[146](index=146&type=chunk)[147](index=147&type=chunk)[149](index=149&type=chunk) - The EMEA goodwill balance was **$145.8 million** as of December 31, 2022, and no impairment was recognized[148](index=148&type=chunk) [Consolidated Financial Statements](index=29&type=section&id=Consolidated%20Financial%20Statements) This section presents the core consolidated financial statements for Tennant Company, including Statements of Income, Comprehensive Income, Balance Sheets, Cash Flows, and Equity for 2020-2022 Consolidated Statements of Income (in millions, except shares and per share data) | Years ended December 31 | 2022 | 2021 | 2020 | | :------------------------ | :----- | :----- | :----- | | Net sales | $1,092.2 | $1,090.8 | $1,001.0 | | Gross profit | $420.9 | $438.0 | $407.8 | | Operating income | $87.2 | $93.7 | $63.7 | | Income before income taxes | $79.5 | $74.1 | $41.1 | | Net income | $66.3 | $64.9 | $33.7 | | Diluted EPS | $3.55 | $3.44 | $1.81 | Consolidated Statements of Comprehensive Income (in millions) | Years ended December 31 | 2022 | 2021 | 2020 | | :------------------------ | :----- | :----- | :----- | | Net income | $66.3 | $64.9 | $33.7 | | Total other comprehensive (loss) income, net of tax | $(12.3) | $(17.8) | $18.4 | | Comprehensive income | $54.0 | $47.1 | $52.1 | Consolidated Balance Sheets (in millions) | December 31 | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Total current assets | $575.3 | $526.8 | | Total assets | $1,085.1 | $1,061.7 | | Total current liabilities | $261.6 | $290.3 | | Total liabilities | $613.0 | $626.6 | | Total equity | $472.1 | $435.1 | Consolidated Statements of Cash Flows (in millions) | Years ended December 31 | 2022 | 2021 | 2020 | | :------------------------------------------ | :----- | :----- | :----- | | Net cash (used in) provided by operating activities | $(25.1) | $69.4 | $133.8 | | Net cash (used in) provided by investing activities | $(24.5) | $1.7 | $(29.9) | | Net cash provided by (used in) financing activities | $8.1 | $(84.5) | $(42.8) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(46.2) | $(17.4) | $66.4 | | Cash, cash equivalents and restricted cash at end of year | $77.4 | $123.6 | $141.0 | Consolidated Statements of Equity (in millions, except shares and per share data) | December 31 | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Tennant Company Shareholders' Equity | Total Equity | | :------------------------ | :----------- | :----------------------- | :---------------- | :----------------------------------- | :--------------------------------------- | :----------- | | 2022 | $7.0 | $56.0 | $458.0 | $(50.2) | $470.8 | $472.1 | | 2021 | $7.0 | $54.1 | $410.6 | $(37.9) | $433.8 | $435.1 | | 2020 | $6.9 | $54.7 | $363.3 | $(20.1) | $404.8 | $406.1 | [Notes to the Consolidated Financial Statements](index=36&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) This sub-section provides detailed explanations for various accounts and policies in the consolidated financial statements, covering operations, accounting policies, revenue, assets, liabilities, and equity [1 Summary of Significant Accounting Policies](index=36&type=section&id=1%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines Tennant Company's key accounting policies, including consolidation, foreign currency translation, inventory valuation, goodwill impairment, and revenue recognition - Tennant Company designs, manufactures, and markets solutions for quality cleaning performance, reduced environmental impact, and a cleaner, safer, healthier world, including floor maintenance equipment, sustainable cleaning technologies, aftermarket parts, and services[170](index=170&type=chunk) - Foreign currency-denominated assets and liabilities are translated at year-end exchange rates, while income and expense items are translated at average exchange rates, with gains or losses included in accumulated other comprehensive loss[174](index=174&type=chunk) - Inventories are valued at the lower of cost or net realizable value, determined on a first-in, first-out (FIFO) basis, except for North America inventories, which are determined on a last-in, first-out (LIFO) basis[179](index=179&type=chunk) - Goodwill is analyzed annually as of October 1 and when events or circumstances change, with a quantitative goodwill impairment test performed in 2022 on all reporting units, indicating no impairment[184](index=184&type=chunk)[185](index=185&type=chunk) - Revenue is recognized when control of promised products or services transfers to customers, generally at the point of shipment for products, and in the period the service is performed or ratably over the contract period for service revenue[195](index=195&type=chunk)[196](index=196&type=chunk) [2 Newly Adopted Accounting Pronouncements](index=41&type=section&id=2%20Newly%20Adopted%20Accounting%20Pronouncements) Tennant Company adopted several ASUs (Income Taxes, Defined Benefit Plans, Reference Rate Reform, Financial Instruments-Credit Losses) in recent years, all with immaterial impacts - ASU No. 2019-12, Income Taxes, was adopted on January 1, 2021, with an immaterial impact on consolidated financial statements[208](index=208&type=chunk) - ASU No. 2018-14, Defined Benefit Plans, was adopted in December 2022, with an immaterial impact on consolidated financial statements[209](index=209&type=chunk) - ASU No. 2020-04, Reference Rate Reform, was effective through December 31, 2022, with no material impact on financial condition, results of operations, or cash flows[210](index=210&type=chunk) - ASU No. 2016-13, Financial Instruments-Credit Losses, was adopted on January 1, 2020, with an immaterial impact on consolidated financial statements[211](index=211&type=chunk) [3 Revenue](index=42&type=section&id=3%20Revenue) Revenue is recognized upon transfer of control, disaggregated by geographic area, product/service, and sales channel, with total net sales of **$1,092.2 million** in 2022 - Revenue is recognized upon transfer of control of promised products or services to customers, measured as the consideration expected to be received[213](index=213&type=chunk) Net Sales by Geographic Area (in millions) | Geographic Area | 2022 | 2021 | 2020 | | :---------------------- | :----- | :----- | :----- | | Americas | $705.9 | $658.3 | $631.0 | | Europe, Middle East and Africa (EMEA) | $301.6 | $331.9 | $278.2 | | Asia Pacific (APAC) | $84.7 | $100.6 | $91.8 | | **Total** | **$1,092.2** | **$1,090.8** | **$1,001.0** | Net Sales by Groups of Similar Products and Services (in millions) | Product/Service Group | 2022 | 2021 | 2020 | | :---------------------- | :----- | :----- | :----- | | Equipment | $664.0 | $679.9 | $629.7 | | Parts and consumables | $263.1 | $249.3 | $205.8 | | Specialty surface coatings | — | $1.5 | $22.7 | | Service and other | $165.1 | $160.1 | $142.8 | | **Total** | **$1,092.2** | **$1,090.8** | **$1,001.0** | Net Sales by Sales Channel (in millions) | Sales Channel | 2022 | 2021 | 2020 | | :-------------------- | :----- | :----- | :----- | | Sales direct to consumer | $712.6 | $692.4 | $664.9 | | Sales to distributors | $379.6 | $398.4 | $336.1 | | **Total** | **$1,092.2** | **$1,090.8** | **$1,001.0** | - Deferred revenue, primarily from prepaid maintenance contracts (12 to 60 months), had an ending balance of **$9.3 million** as of December 31, 2022, with **$6.6 million** expected to be recognized in net sales in 2023[220](index=220&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) [4 Management Actions](index=44&type=section&id=4%20Management%20Actions) Tennant Company incurred **$4.1 million** in pre-tax restructuring costs in both 2022 and 2021 as part of global reorganization efforts to increase productivity Total Pre-Tax Restructuring Costs (in millions) | Cost Type | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Severance-related costs - Selling and administrative expense | $2.2 | $3.3 | | Severance-related costs - Cost of sales | — | $0.8 | | Other costs - Selling and administrative expense | $1.6 | — | | Other costs - Cost of sales | $0.3 | — | | **Total** | **$4.1** | **$4.1** | - Restructuring charges in 2022 impacted all operating segments, while charges in 2021 primarily impacted the EMEA and APAC operating segments[223](index=223&type=chunk) Reconciliation of Severance and Related Costs Liability (in millions) | Year | Beginning balance | New charges | Cash payments | Ending balance | | :--- | :---------------- | :---------- | :------------ | :------------- | | 2022 | $4.9 | $2.2 | $(2.9) | $1.7 | | 2021 | $4.5 | $4.1 | $(2.9) | $4.9 | [5 Acquisitions and Divestitures](index=45&type=section&id=5%20Acquisitions%20and%20Divestitures) In 2022, the company sold a building for a **$3.7 million** gain, following the 2021 divestiture of its Coatings business for a **$9.8 million** gain - In 2022, the company sold a building in Golden Valley, Minnesota, resulting in a pre-tax gain of **$3.7 million** and proceeds of **$4.1 million**[227](index=227&type=chunk) - In 2021, the Coatings business was sold, resulting in a pre-tax gain of **$9.8 million** and cash proceeds of **$24.7 million**[228](index=228&type=chunk) - On January 4, 2019, Tennant Company acquired Hefei Gaomei Cleaning Machines Co., Ltd. and Anhui Rongen Environmental Protection Technology Co., Ltd. (collectively "Gaomei")[229](index=229&type=chunk) [6 Inventories](index=45&type=section&id=6%20Inventories) Inventories are valued at the lower of cost or net realizable value, with total inventories increasing to **$206.6 million** in 2022, and a LIFO charge of **$6.7 million** - Inventories are valued at the lower of cost or net realizable value, with cost determined on a FIFO basis except for North America, which uses LIFO[179](index=179&type=chunk) Inventories as of December 31 (in millions) | Category | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Inventories carried at LIFO: | | | | Finished goods | $85.0 | $54.0 | | Raw materials and work-in-process | $46.4 | $42.4 | | Excess of FIFO over LIFO cost | $(49.7) | $(43.0) | | **Total LIFO inventories** | **$81.7** | **$53.4** | | Inventories carried at FIFO: | | | | Finished goods | $68.9 | $53.8 | | Raw materials and work-in-process | $56.0 | $53.4 | | **Total FIFO inventories** | **$124.9** | **$107.2** | | **Total inventories** | **$206.6** | **$160.6** | - The LIFO charge for the twelve months ended December 31, 2022, was **$6.7 million**, compared to **$10.6 million** in 2021, with increases in both periods attributable to the broad effects of inflation[230](index=230&type=chunk) [7 Property, Plant and Equipment](index=46&type=section&id=7%20Property%2C%20Plant%20and%20Equipment) Net property, plant and equipment increased to **$179.9 million** in 2022, with depreciation expense of **$32.8 million** Property, Plant and Equipment, Net (in millions) | December 31 | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Property, plant and equipment | $459.2 | $431.2 | | Less: accumulated depreciation | $(279.3) | $(258.4) | | **Property, plant and equipment, net** | **$179.9** | **$172.8** | Depreciation Expense (in millions) | Year | Amount | | :--- | :----- | | 2022 | $32.8 | | 2021 | $33.1 | | 2020 | $32.6 | [8 Goodwill and Intangible Assets](index=46&type=section&id=8%20Goodwill%20and%20Intangible%20Assets) Goodwill, allocated to reporting units, decreased to **$182.0 million** in 2022 due to foreign currency, with no impairment recognized after annual testing - Goodwill is allocated to North America, Latin America, EMEA, and APAC reporting units and tested annually for impairment, with a quantitative test in 2022 finding no impairment[232](index=232&type=chunk)[233](index=233&type=chunk) Changes in Carrying Amount of Goodwill (in millions) | December 31 | Goodwill | Accumulated Impairment Losses | Total | | :------------ | :------- | :---------------------------- | :---- | | 2022 | $218.8 | $(36.8) | $182.0 | | 2021 | $233.9 | $(40.8) | $193.1 | | **Change (2022 vs 2021)** | **$(15.1)** | **$4.0** | **$(11.1)** | Balances of Acquired Intangible Assets, Excluding Goodwill (in millions) | Category | 2022 | 2021 | | :-------------------- | :----- | :----- | | Customer Lists | $59.1 | $75.4 | | Trade Names | $12.7 | $16.4 | | Technology | $4.6 | $6.2 | | **Total Carrying Amount** | **$76.4** | **$98.0** | Amortization Expense of Intangible Assets (in millions) | Year | Amount | | :--- | :----- | | 2022 | $15.9 | | 2021 | $20.0 | | 2020 | $20.8 | [9 Debt](index=47&type=section&id=9%20Debt) Tennant Company's total debt was **$300.3 million** in 2022, primarily from a senior secured credit facility amended to use Term SOFR, with a weighted average cost of **5.0%** - The 2021 Credit Agreement provides a senior secured credit facility until April 3, 2026, consisting of a term loan facility up to **$100.0 million** and a revolving facility up to **$450.0 million**[237](index=237&type=chunk) - The 2021 Credit Agreement was amended on November 10, 2022, to replace LIBOR with Term SOFR as the reference rate for calculating interest[238](index=238&type=chunk)[239](index=239&type=chunk) Debt Outstanding as of December 31 (in millions) | Category | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Revolving credit facility borrowings | $205.0 | $168.0 | | Term loan facility borrowings | $95.0 | $98.8 | | Secured borrowings | $0.2 | $0.7 | | Finance lease liabilities | $0.1 | $0.1 | | **Total debt** | **$300.3** | **$267.6** | - As of December 31, 2022, the company had approximately **$242.2 million** of unused borrowing capacity on its revolving facility, and the overall weighted average cost of debt was approximately **5.0%** (4.1% net of a related cross-currency swap)[245](index=245&type=chunk) [10 Other Current Liabilities](index=50&type=section&id=10%20Other%20Current%20Liabilities) Other current liabilities totaled **$86.3 million** in 2022, down from **$104.0 million** in 2021, including taxes, warranty reserves, and deferred revenue Other Current Liabilities as of December 31 (in millions) | Category | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Taxes | $11.1 | $13.8 | | Warranty | $7.8 | $10.4 | | Deferred revenue | $6.6 | $7.7 | | Customer sales incentives | $20.0 | $19.9 | | Freight | $6.4 | $7.1 | | Restructuring | $1.7 | $4.9 | | Operating leases | $15.0 | $16.4 | | Cash flow hedge liabilities | — | $10.4 | | Miscellaneous accrued expenses | $17.7 | $13.4 | | **Total other current liabilities** | **$86.3** | **$104.0** | [11 Derivatives](index=50&type=section&id=11%20Derivatives) Tennant Company uses derivative instruments (cross-currency swaps, interest rate swaps, foreign exchange contracts) to manage foreign exchange and interest rate volatility, recognized at fair value - The company uses cross-currency swaps, interest rate swaps, and foreign exchange forward and option contracts to manage risks associated with foreign exchange rate and interest rate volatility, recognizing all derivative instruments at fair value on the consolidated balance sheets[193](index=193&type=chunk)[248](index=248&type=chunk) - Hedging programs include balance sheet hedges (foreign exchange forward contracts for net recognized foreign currency assets/liabilities), cash flow hedges (foreign currency exchange rate derivatives for anticipated intercompany cash transactions and interest rate swaps for floating rate debt), fair value hedges (Euro to U.S. dollar cross-currency swaps for intercompany loans), and net investment hedges (Euro to U.S. dollar cross-currency swaps for net investment in Euro functional currency subsidiary)[251](index=251&type=chunk)[252](index=252&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk)[256](index=256&type=chunk) Fair Value of Derivative Instruments on Consolidated Balance Sheets (in millions) | Category | Dec 31, 2022 (Assets) | Dec 31, 2021 (Assets) | Dec 31, 2022 (Liabilities) | Dec 31, 2021 (Liabilities) | | :------------------------------------------ | :-------------------- | :-------------------- | :------------------------- | :------------------------- | | Derivatives designated as cash flow hedges: | | | | | | Foreign currency forward contracts | — | — | — | $10.4 | | Interest rate swaps | $0.8 | — | $1.8 | — | | Derivatives designated as fair value hedges: | | | | | | Cross-currency swaps | $2.2 | — | — | — | | Derivatives designated as net investment hedges: | | | | | | Cross-currency swaps | $1.7 | — | — | — | | Derivatives not designated as hedging instruments: | | | | | | Foreign currency forward contracts | $0.1 | $0.3 | $0.3 | $0.4 | | **Total Assets** | **$4.8** | **$0.9** | | | | **Total Liabilities** | | | **$2.1** | **$11.4** | [12 Fair Value Measurements](index=54&type=section&id=12%20Fair%20Value%20Measurements) Fair value measurements for financial assets and liabilities are categorized into a three-level hierarchy, with most derivatives valued using Level 2 observable market inputs - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[262](index=262&type=chunk) Assets and Liabilities Subject to Fair Value Measurements (in millions, as of Dec 31, 2022) | Category | Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------------------ | :--------- | :------ | :------ | :------ | | **Assets:** | | | | | | 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** | **—** | | **Liabilities:** | | | | | | Foreign currency forward exchange contracts | $0.3 | — | $0.3 | — | | Interest rate swaps | $1.8 | — | $1.8 | — | | **Total liabilities** | **$2.1** | **—** | **$2.1** | **—** | - The fair value of total debt, including the current portion, was **$301.8 million**, approximating its carrying value of **$300.3 million** as of December 31, 2022, calculated based on Level 2 inputs (borrowing rates for similar bank loans)[264](index=264&type=chunk) [13 Retirement Benefit Plans](index=55&type=section&id=13%20Retirement%20Benefit%20Plans) Tennant Company provides various retirement benefits, including 401(k) and defined benefit pension plans in the UK, Germany, France, and Italy, with total benefit costs of **$11.6 million** in 2022 Total Cost of Benefits (in millions) | Year | Amount | | :--- | :----- | | 2022 | $11.6 | | 2021 | $14.8 | | 2020 | $12.3 | - U.S. employees are covered by a 401(k) plan (expenses **$6.0 million** in 2022), a postretirement medical benefit plan for those hired before 1999, and a nonqualified supplemental benefit plan[267](index=267&type=chunk)[268](index=268&type=chunk)[269](index=269&type=chunk) - Defined benefit pension plans exist in the United Kingdom, Germany, France, and Italy, all closed to new participants, with the German Pension Plan being unfunded[270](index=270&type=chunk)[274](index=274&type=chunk) - The U.K. Pension Plan's investment account, held in insurance contracts, had a fair value of **$11.3 million** as of December 31, 2022, classified as Level 3[272](index=272&type=chunk) Funded Status of Defined Benefit and Postretirement Medical Benefit Plans (in millions, as of Dec 31, 2022) | Plan | Funded Status | | :---------------------------- | :------------ | | U.S. Nonqualified Plan | $(0.9) | | Non-U.S. Pension Benefits | $1.0 | | Postretirement Medical Benefits | $(5.4) | Expected Benefit Payments (in millions) | Year | U.S. Nonqualified Plan | Non-U.S. Pension Benefits | Postretirement Medical Benefits | | :--- | :--------------------- | :------------------------ | :------------------------------ | | 2023 | $0.1 | $0.5 | $0.7 | | Total (2023-2030) | $0.9 | $6.6 | $5.4 | [14 Shareholders' Equity](index=61&type=section&id=14%20Shareholders'%20Equity) Total shareholders' equity increased to **$470.8 million** in 2022, with accumulated other comprehensive loss increasing due to foreign currency, and **$5.0 million** in share repurchases - The company is authorized to issue an aggregate of **60,000,000 shares** of Common Stock, with a par value of **$0.375 per share**[283](index=283&type=chunk) Total Tennant Company Shareholders' Equity (in millions) | December 31 | Amount | | :------------ | :----- | | 2022 | $470.8 | | 2021 | $433.8 | Changes in Accumulated Other Comprehensive Loss, Net of Tax (in millions) | December 31 | Foreign Currency Translation Adjustments | Pension and Postretirement Medical Benefits | Derivative Financial Instruments | Total | | :------------ | :----------------------------------- | :---------------------------------------- | :----------------------------- | :------ | | 2022 | $(53.9) | $2.7 | $1.0 | $(50.2) | | 2021 | $(36.0) | $(2.1) | $0.2 | $(37.9) | | **Change (2022 vs 2021)** | **$(17.9)** | **$4.8** | **$0.8** | **$(12.3)** | - During 2022, the company repurchased **79,756 shares** of common stock for **$5.0 million**, with **1,112,333 shares** remaining authorized for repurchase[285](index=285&type=chunk) [15 Leases](index=61&type=section&id=15%20Leases) Tennant Company leases facilities, vehicles, and equipment, with operating lease assets decreasing to **$31.8 million** in 2022 and total lease cost of **$26.3 million** Lease Assets and Liabilities as of December 31 (in millions) | Category | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Operating lease assets | $31.8 | $41.3 | | Finance lease assets | $0.2 | $0.1 | | **Total leased assets** | **$32.0** | **$41.4** | | Operating lease liabilities (current + noncurrent) | $32.1 | $41.8 | | Finance lease liabilities (current + noncurrent) | $0.1 | $0.1 | | **Total lease liabilities** | **$32.2** | **$41.9** | Total Lease Cost (in millions) | Year | Amount | | :--- | :----- | | 2022 | $26.3 | | 2021 | $26.7 | | 2020 | $25.3 | - As of December 31, 2022, the aggregate residual value at lease expiration for certain vehicle operating leases was **$11.4 million**, of which the company guaranteed **$5.5 million**[287](index=287&type=chunk) [16 Commitments and Contingencies](index=63&type=section&id=16%20Commitments%20and%20Contingencies) The company does not expect pending litigation, tax, environmental, and other matters to materially affect its financial position or results of operations - The company does not expect pending and threatened litigation, tax, environmental, and other matters to have a material adverse effect on its consolidated financial position or results of operations[290](index=290&type=chunk) - Legal costs associated with such matters are expensed as incurred[290](index=290&type=chunk) [17 Income Taxes](index=63&type=section&id=17%20Income%20Taxes) Income tax expense increased to **$13.2 million** in 2022, with an effective tax rate of **16.6%**, primarily due to nonrecurring tax items Total Income Tax Expense (in millions) | Year | Amount | | :--- | :----- | | 2022 | $13.2 | | 2021 | $9.2 | | 2020 | $7.4 | Effective Income Tax Rate | Year | Rate | | :--- | :----- | | 2022 | 16.6% | | 2021 | 12.5% | | 2020 | 17.9% | - The increase in the effective tax rate in 2022 was primarily driven by certain nonrecurring tax items[104](index=104&type=chunk) Net Deferred Tax Assets (Liabilities) as of December 31 (in millions) | Category | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Gross deferred tax assets | $43.3 | $44.1 | | Less: valuation allowance | $(3.3) | $(4.8) | | **Total net deferred tax assets** | **$40.0** | **$39.3** | | Total deferred tax liabilities | $31.1 | $44.1 | | **Net deferred tax assets (liabilities)** | **$8.9** | **$(4.8)** | - A valuation allowance of **$3.3 million** was recorded as of December 31, 2022, principally against tax credit carryforwards in the Netherlands and certain U.S. states, with a net valuation allowance release of **$1.5 million** occurring in 2022[295](index=295&type=chunk)[296](index=296&type=chunk) - Unrecognized tax benefits totaled **$4.2 million** as of December 31, 2022, down from **$4.7 million** in 2021[297](index=297&type=chunk) [18 Share-Based Compensation](index=66&type=section&id=18%20Share-Based%20Compensation) Total share-based compensation expense was **$7.8 million** in 2022, covering stock options, restricted shares, performance shares, and restricted stock units with various vesting periods Total Share-Based Compensation Expense (in millions) | Year | Amount | | :--- | :----- | | 2022 | $7.8 | | 2021 | $9.5 | | 2020 | $6.0 | - Stock option awards are valued using the Black-Scholes model; **931,843 shares** were outstanding at year-end 2022, with **$1.5 million** in unrecognized compensation cost[304](index=304&type=chunk)[307](index=307&type=chunk) - Restricted share awards for employees generally have a three-year vesting period; **75,412 nonvested shares** remained at year-end 2022, with **$1.5 million** in unrecognized compensation cost[308](index=308&type=chunk)[309](index=309&type=chunk) - Performance share awards (PSUs) are earned based on financial performance targets over a three-year period; **134,763 nonvested shares** remained at year-end 2022, with **$3.6 million** in unrecognized compensation cost[310](index=310&type=chunk)[311](index=311&type=chunk) - Restricted stock units (RSUs) generally vest within three years; **114,704 nonvested units** remained at year-end 2022, with **$3.1 million** in unrecognized compensation cost[312](index=312&type=chunk)[313](index=313&type=chunk) [19 Income Attributable to Tennant Company Per Share](index=69&type=section&id=19%20Income%20Attributable%20to%20Tennant%20Company%20Per%20Share) Diluted earnings per share for Tennant Company was **$3.55** in 2022, an increase from **$3.44** in 2021, including the effect of dilutive securities Earnings Per Share | Year | Basic EPS | Diluted EPS | | :--- | :-------- | :---------- | | 2022 | $3.58 | $3.55 | | 2021 | $3.51 | $3.44 | | 2020 | $1.84 | $1.81 | Weighted Average Shares Outstanding (Diluted) | Year | Basic | Effect of Dilutive Securities | Diluted | | :--- | :---------- | :-------------------------- | :---------- | | 2022 | 18,494,356 | 202,899 | 18,697,255 | | 2021 | 18,499,674 | 349,543 | 18,849,217 | | 2020 | 18,349,724 | 285,278 | 18,635,002 | - Excluded from dilutive securities were **649,054 shares** in 2022 (171,273 in 2021, 610,118 in 2020) that were anti-dilutive due to exercise prices greater than market price, repurchase method exceeding weighted shares, or a net loss[315](index=315&type=chunk) [20 Segment Reporting](index=70&type=section&id=20%20Segment%20Reporting) Tennant Company is organized into four operating segments (North America, Latin America, EMEA, APAC), aggregated into one reportable segment focused on nonresidential surface maintenance products - The company is organized into four operating segments: North America, Latin America, Europe, Middle East, Africa (EMEA), and Asia Pacific (APAC)[316](index=316&type=chunk) - Operating segments are aggregated into one reportable segment focused on the design, manufacture, and sale of products for the maintenance of nonresidential surfaces[316](index=316&type=chunk) Net Sales by Geographic Area (in millions) | Geographic Area | 2022 | 2021 | 2020 | | :------------------------ | :----- | :----- | :----- | | United States | $618.8 | $566.4 | $546.2 | | Other Americas | $87.1 | $91.9 | $84.8 | | **Americas** | **$705.9** | **$658.3** | **$631.0** | | Europe, Middle East, Africa | $301.6 | $331.9 | $278.2 | | Asia Pacific | $84.7 | $100.6 | $91.8 | | **Total** | **$1,092.2** | **$1,090.8** | **$1,001.0** | Long-Lived Assets by Geographic Area (in millions, as of Dec 31) | Geographic Area | 2022 | 2021 | 2020 | | :------------------------ | :----- | :----- | :----- | | United States | $105.9 | $106.6 | $121.9 | | Other Americas | $26.4 | $18.8 | $14.7 | | **Americas** | **$132.3** | **$125.4** | **$136.6** | | Italy | $223.5 | $280.4 | $321.5 | | Other Europe, Middle East, Africa | $69.6 | $36.2 | $34.0 | | **Europe, Middle East, Africa** | **$293.1** | **$316.6** | **$355.5** | | Asia Pacific | $32.1 | $35.8 | $37.5 | | **Total** | **$457.5** | **$477.8** | **$529.6** | Part III [Item 10 Directors, Executive Officers and Corporate Governance](index=73&type=section&id=Item%2010%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section incorporates director information from the Proxy Statement, lists executive officers, and references the company's Business Ethics Guide applicable to all personnel - Key executive officers include Barb Balinski (SVP, Innovation and Technology), David W. Huml (President and CEO), Carol E. McKnight (SVP, Chief Administrative Officer), Kristin A. Erickson (SVP, General Counsel and Corporate Secretary), Fay West (SVP, Chief Financial Officer), and Richard H. Zay (SVP, Chief Commercial Officer)[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) - The Tennant Company Business Ethics Guide applies to all employees, directors, consultants, and agents, including specific provisions for senior financial management, and is available on the Investor Relations website[334](index=334&type=chunk) [Item 11 Executive Compensation](index=73&type=section&id=Item%2011%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2023 Proxy Statement - Information required under this item is contained in the sections entitled "Director Compensation," "Executive Compensation Information" and "Pay Ratio" as part of the 2023 Proxy Statement and is incorporated herein by reference[335](index=335&type=chunk) [Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=73&type=section&id=Item%2012%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) Information regarding security ownership of beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2023 Proxy Statement - Information required under this item is contained in the sections entitled "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" as part of the 2023 Proxy Statement and is incorporated herein by reference[336](index=336&type=chunk) [Item 13 Certain Relationships and Related Transactions, and Director Independence](index=73&type=section&id=Item%2013%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information concerning director independence and the related-person transaction approval policy is incorporated by reference from the company's 2023 Proxy Statement - Information required under this item is contained in the sections entitled "Director Independence" and "Related-Person Transaction Approval Policy" as part of the 2023 Proxy Statement and is incorporated herein by reference[337](index=337&type=chunk) [Item 14 Principal Accountant Fees and Services](index=73&type=section&id=Item%2014%20Principal%20Accountant%20Fees%20and%20Services) Information regarding fees paid to the independent registered public accounting firm is incorporated by reference from the company's 2023 Proxy Statement - Information required under this item is contained in the section entitled "Fees Paid to Independent Registered Public Accounting Firm" as part of the 2023 Proxy Statement and is incorporated herein by reference[338](index=338&type=chunk) Part IV [Item 15 Exhibits and Financial Statement Schedules](index=74&type=section&id=Item%2015%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the 10-K report, including consolidated financial statements and a comprehensive exhibit list - Consolidated financial statements and related notes, along with reports of Deloitte & Touche LLP, are filed as part of this report in Part II, Item 8[341](index=341&type=chunk) Schedule II - Valuation and Qualifying Accounts (in millions) | Category | 2022 | 2021 | 2020 | | :------------------------------------------ | :----- | :----- | :----- | | Allowance for doubtful accounts | $6.1 | $5.3 | $4.6 | | Sales returns reserve | $1.4 | $1.0 | $1.0 | | Allowance for excess and obsolete inventories | $14.2 | $14.3 | $13.6 | | Valuation allowance for deferred tax assets | $3.3 | $4.8 | $7.5 | | Warranty reserve | $10.9 | $10.4 | $11.1 | - A comprehensive list of exhibits is provided, including Restated Articles of Incorporation, Amended and Restated By-Laws, various Stock Incentive Plans, and the Credit Agreement, with many incorporated by reference[344](index=344&type=chunk)[346](index=346&type=chunk)[349](index=349&type=chunk) [Item 16 Form 10-K Summary](index=78&type=section&id=Item%2016%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[350](index=350&type=chunk)

| --- | --- | --- | |-------|-------|-------| | | | | | | | | | | | | | | | | 2 Forward-Looking Statements & Non-GAAP Measures Certain statements contained in this document are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements do not relate to strictly historical or current facts and provide current expectations or forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. The ...

Tennant Company (NYSE:TNC) Q3 2022 Earnings Conference Call October 27, 2022 11:00 AM ET Company Participants Lorenzo Bassi - VP, Finance David Huml - President and CEO Fay West - SVP and CFO Conference Call Participants Chris Moore - CJS Securities Steve Ferazani - Sidoti & Company Tim Moore - EF Hutton Operator Good morning. My name is Rob, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Tennant Company's 2022 Third Quarter Earnings Conference Call. This c ...

Reinventing how the world cleans TENNANTCO.COM INVESTOR COMPANY PRESENTATION 2 SAFE HARBOR STATEMENT Certain statements contained in this document are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements do not relate to strictly historical or current facts and provide current expectations or forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. These include factors that af ...