TENNANT CO
10-Ks and 10-Qs
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UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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[
ü
]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2015
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OR
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___________ to __________
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Commission File Number 1-16191
____________________________________
TENNANT COMPANY
(Exact name of registrant as specified in its charter)
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Minnesota
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41-0572550
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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701 North Lilac Drive
P.O. Box 1452
Minneapolis, Minnesota 55440
(Address of principal executive offices)
(Zip Code)
(763) 540-1200
(Registrant’s telephone number, including area code)
______________________________________________
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.
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Yes
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ü
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
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Yes
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ü
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No
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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ü
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Accelerated filer
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||
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes
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No
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ü
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As of July 15, 2015, there were 18,249,135 shares of Common Stock outstanding.
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
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Page
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||||
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Item 1.
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|||||
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Item 2.
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|||||
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Item 3.
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|||||
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Item 4.
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|||||
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PART II - OTHER INFORMATION
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|||||
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Item 1.
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|||||
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Item 1A.
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|||||
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Item 2.
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|||||
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Item 6.
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|||||
2
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Item 1.
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Financial Statements
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TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
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||||||||||||||||
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Three Months Ended
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Six Months Ended
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|||||||||||||||
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(In thousands, except shares and per share data)
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June 30
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June 30
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||||||||||||||
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2015
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2014
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2015
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2014
|
|||||||||||||
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Net Sales
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$
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215,404
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$
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219,084
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$
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401,144
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$
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403,063
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||||
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Cost of Sales
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120,371
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123,821
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228,030
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230,883
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||||||||
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Gross Profit
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95,033
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95,263
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173,114
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172,180
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|||||||||
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Operating Expense:
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||||||||||||||||
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Research and Development Expense
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8,404
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7,651
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16,114
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15,132
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||||||||
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Selling and Administrative Expense
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64,042
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64,471
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126,159
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124,670
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||||||||
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Total Operating Expense
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72,446
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72,122
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142,273
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139,802
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|||||||||
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Profit from Operations
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22,587
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23,141
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30,841
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32,378
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||||||||
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Other Income (Expense):
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||||||||||||||||
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Interest Income
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53
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95
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103
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170
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||||||||
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Interest Expense
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(419
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)
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(419
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)
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(796
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)
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(905
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)
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||||||||
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Net Foreign Currency Transaction (Losses) Gains
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(225
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)
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328
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(668
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)
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120
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||||||||
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Other Expense, Net
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(185
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)
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(89
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)
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(237
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)
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(120
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)
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||||||||
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Total Other Expense, Net
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(776
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)
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(85
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)
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(1,598
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)
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(735
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)
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||||||||
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Profit Before Income Taxes
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21,811
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23,056
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29,243
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31,643
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||||||||
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Income Tax Expense
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6,994
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7,533
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9,400
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10,325
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||||||||
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Net Earnings
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$
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14,817
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$
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15,523
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$
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19,843
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$
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21,318
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||||
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Net Earnings per Share:
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||||||||||||||||
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Basic
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$
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0.81
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$
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0.85
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$
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1.09
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$1.17
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||||||
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Diluted
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$
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0.79
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$
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0.83
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$
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1.06
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$1.14
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||||||
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Weighted Average Shares Outstanding:
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||||||||||||||||
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Basic
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18,197,431
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18,167,054
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18,240,027
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18,242,240
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|||||||||
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Diluted
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18,672,040
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18,675,607
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18,724,859
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18,776,369
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|||||||||
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Cash Dividend Declared per Common Share
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$
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0.20
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$
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0.20
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$
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0.40
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$
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0.38
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||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
3
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TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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|||||||||||||||
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Three Months Ended
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Six Months Ended
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||||||||||||||
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(In thousands)
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June 30
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June 30
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|||||||||||||
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2015
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2014
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2015
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2014
|
||||||||||||
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Net Earnings
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$
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14,817
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$
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15,523
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$
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19,843
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$
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21,318
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|||
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Other Comprehensive Income (Loss):
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|||||||||||
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Foreign currency translation adjustments
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1,945
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814
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(6,196
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)
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1,851
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|||||||
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Pension and retiree medical benefits
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166
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47
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438
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92
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|||||||
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Income Taxes:
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|||||||||||||||
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Foreign currency translation adjustments
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—
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(1
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)
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(1
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)
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13
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|||||||
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Pension and retiree medical benefits
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(62
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)
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(17
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)
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(163
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)
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(34
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)
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|||||||
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Total Other Comprehensive Income (Loss), net of tax
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2,049
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843
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(5,922
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)
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1,922
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|||||||
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Comprehensive Income
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$
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16,866
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$
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16,366
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$
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13,921
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$
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23,240
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|||
See accompanying Notes to the Condensed Consolidated Financial Statements.
4
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TENNANT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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|||||||
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June 30,
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December 31,
|
||||||
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(In thousands, except shares and per share data)
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2015
|
2014
|
|||||
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ASSETS
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|||||||
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Current Assets:
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|||||||
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Cash and Cash Equivalents
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$
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67,638
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$
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92,962
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Restricted Cash
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349
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352
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|||
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Accounts Receivable, less Allowances of $4,366 and $3,936, respectively
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151,146
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152,383
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|||
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Inventories
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86,534
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80,511
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|||
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Prepaid Expenses
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11,357
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9,552
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|||
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Deferred Income Taxes, Current Portion
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9,747
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9,738
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|
|||
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Other Current Assets
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1,844
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1,591
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|
|||
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Total Current Assets
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328,615
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|
347,089
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|
|||
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Property, Plant and Equipment
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269,368
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262,214
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|
|||
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Accumulated Depreciation
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(180,207
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)
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(175,671
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)
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|||
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Property, Plant and Equipment, Net
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89,161
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86,543
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|||
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Deferred Income Taxes, Long-Term Portion
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7,625
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8,165
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|||
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Goodwill
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17,670
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18,355
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|
|||
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Intangible Assets, Net
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14,292
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15,588
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|
|||
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Other Assets
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12,379
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|
11,192
|
|
|||
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Total Assets
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$
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469,742
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$
|
486,932
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|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|||||||
|
Current Liabilities:
|
|||||||
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Short-Term Borrowings and Current Portion of Long-Term Debt
|
$
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3,435
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$
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3,566
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|
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Accounts Payable
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59,735
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61,627
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|
|||
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Employee Compensation and Benefits
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28,566
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|
33,842
|
|
|||
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Income Taxes Payable
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3,579
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|
1,087
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|
|||
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Other Current Liabilities
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41,494
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|
45,508
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|
|||
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Total Current Liabilities
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136,809
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|
145,630
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|
|||
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Long-Term Liabilities:
|
|||||||
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Long-Term Debt
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21,143
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|
24,571
|
|
|||
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Employee-Related Benefits
|
24,800
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|
25,711
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|
|||
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Deferred Income Taxes, Long-Term Portion
|
4,343
|
|
5,989
|
|
|||
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Other Liabilities
|
4,543
|
|
4,380
|
|
|||
|
Total Long-Term Liabilities
|
54,829
|
|
60,651
|
|
|||
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Total Liabilities
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191,638
|
|
206,281
|
|
|||
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Commitments and Contingencies (Note 10)
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|
|
|
|
|||
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Shareholders' Equity:
|
|||||||
|
Preferred Stock, $0.02 par value; 1,000,000 shares authorized; no shares issued or outstanding
|
—
|
|
—
|
|
|||
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Common Stock, $0.375 par value; 60,000,000 shares authorized; 18,261,832 and 18,415,047 shares issued and outstanding, respectively
|
6,848
|
|
6,906
|
|
|||
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Additional Paid-In Capital
|
17,185
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|
26,247
|
|
|||
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Retained Earnings
|
298,586
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|
286,091
|
|
|||
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Accumulated Other Comprehensive Loss
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(44,515
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)
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(38,593
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)
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|||
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Total Shareholders’ Equity
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278,104
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280,651
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|||
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Total Liabilities and Shareholders’ Equity
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$
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469,742
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$
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486,932
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See accompanying Notes to the Condensed Consolidated Financial Statements.
5
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TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|||||||
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Six Months Ended
|
|||||||
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(In thousands)
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June 30
|
||||||
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2015
|
2014
|
||||||
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OPERATING ACTIVITIES
|
|||||||
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Net Earnings
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$
|
19,843
|
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$
|
21,318
|
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|
|
Adjustments to reconcile Net Earnings to Net Cash Provided by Operating Activities:
|
|||||||
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Depreciation
|
8,155
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|
8,818
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|
|||
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Amortization
|
1,036
|
|
1,223
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|
|||
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Deferred Income Taxes
|
(1,754
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)
|
3,964
|
|
|||
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Share-Based Compensation Expense
|
4,889
|
|
3,756
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|
|||
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Allowance for Doubtful Accounts and Returns
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1,246
|
|
776
|
|
|||
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Other, Net
|
(74
|
)
|
13
|
|
|||
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Changes in Operating Assets and Liabilities:
|
|||||||
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Receivables
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(1,717
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)
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(18,649
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)
|
|||
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Inventories
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(11,002
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)
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(13,208
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)
|
|||
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Accounts Payable
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(3,440
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)
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7,540
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|||
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Employee Compensation and Benefits
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(5,970
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)
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(5,471
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)
|
|||
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Other Current Liabilities
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(3,174
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)
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(2,238
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)
|
|||
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Income Taxes
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1,668
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2,819
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|
|||
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Other Assets and Liabilities
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(3,133
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)
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(153
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)
|
|||
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Net Cash Provided by Operating Activities
|
6,573
|
|
10,508
|
|
|||
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INVESTING ACTIVITIES
|
|||||||
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Purchases of Property, Plant and Equipment
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(7,594
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)
|
(7,411
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)
|
|||
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Proceeds from Disposals of Property, Plant and Equipment
|
190
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|
118
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|
|||
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Increase in Restricted Cash
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(18
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)
|
(12
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)
|
|||
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Net Cash Used in Investing Activities
|
(7,422
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)
|
(7,305
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)
|
|||
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FINANCING ACTIVITIES
|
|||||||
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Payments of Short-Term Debt
|
—
|
|
(1,500
|
)
|
|||
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Payments of Long-Term Debt
|
(3,429
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)
|
(2,013
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)
|
|||
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Purchases of Common Stock
|
(14,229
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)
|
(13,609
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)
|
|||
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Proceeds from Issuance of Common Stock
|
802
|
|
705
|
|
|||
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Excess Tax Benefit on Stock Plans
|
669
|
|
1,329
|
|
|||
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Dividends Paid
|
(7,348
|
)
|
(7,172
|
)
|
|||
|
Net Cash Used in Financing Activities
|
(23,535
|
)
|
(22,260
|
)
|
|||
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
(940
|
)
|
676
|
|
|||
|
Net Decrease in Cash and Cash Equivalents
|
(25,324
|
)
|
(18,381
|
)
|
|||
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Cash and Cash Equivalents at Beginning of Period
|
92,962
|
|
80,984
|
|
|||
|
Cash and Cash Equivalents at End of Period
|
$
|
67,638
|
|
$
|
62,603
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|||||||
|
Cash Paid for Income Taxes
|
$
|
8,702
|
|
$
|
1,645
|
|
|
|
Cash Paid for Interest
|
$
|
718
|
|
$
|
775
|
|
|
|
Supplemental Non-cash Investing and Financing Activities:
|
|||||||
|
Capital Expenditures in Accounts Payable
|
$
|
3,652
|
|
$
|
715
|
|
|
See accompanying Notes to the Condensed Consolidated Financial Statements.
6
TENNANT COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except shares and per share data)
|
1.
|
Basis of Presentation
|
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the Securities and Exchange Commission (“SEC”) requirements for interim reporting, which allows certain footnotes and other financial information normally required by accounting principles generally accepted in the United States of America to be condensed or omitted. In our opinion, the Condensed 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, 2014
. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
|
2.
|
Management Action
|
During the fourth quarter of 2013, we implemented a restructuring action to right size the cost structure in our European operations, primarily as a result of the strategic decision to adjust our Direct versus Distribution selling efforts, to enhance our go-to-market approach which was designed to improve profitability and increase customer satisfaction. The pre-tax charge of
$1,577
recognized in the fourth quarter of 2013 consisted primarily of severance and was included within Selling and Administrative Expense in the Condensed Consolidated Statements of Earnings. The charge impacted our Europe, Middle East, Africa (EMEA) operating segment, which has no goodwill balance. We do not expect additional costs will be incurred related to this restructuring action.
A reconciliation of the beginning and ending liability balances is as follows:
|
Severance and Related Costs
|
||||
|
Q4 2013 restructuring action
|
$
|
1,577
|
|
|
|
December 31, 2013 balance
|
1,577
|
|
||
|
2014 utilization:
|
||||
|
Cash payments
|
(1,151
|
)
|
||
|
Foreign currency adjustments
|
(65
|
)
|
||
|
Change in estimate
|
5
|
|
||
|
December 31, 2014 balance
|
$
|
366
|
|
|
|
2015 utilization:
|
||||
|
Cash payments
|
(334
|
)
|
||
|
Foreign currency adjustments
|
(32
|
)
|
||
|
June 30, 2015 balance
|
$
|
—
|
|
|
7
|
3.
|
Divestiture
|
On
July 31, 2012
, we entered into a Share Purchase Agreement (“SPA”) with M&F Management and Financing GmbH (“M&F”) for the sale of ownership of our subsidiary, Tennant CEE GmbH, and our minority interest in a joint venture, OOO Tennant. In exchange for the ownership of these entities, we received
€815
, or
$1,014
, in cash, as of the date of sale and financed the remaining
€5,351
, for a total purchase price of
€6,166
. A total of
€2,126
, or
$2,826
, was received in equal quarterly payments during 2013 and the first anniversary payment of
€1,075
, or
$1,435
, was received on July 31, 2013. The second anniversary payment of
€1,075
, or
$1,418
, was received on July 31, 2014. The remaining
€1,075
, or
$1,198
, as of
June 30, 2015
, will be received on the third anniversary date of the divestiture, which is July 31, 2015. As a result of this divestiture, we recorded a pre-tax gain of
$784
in our Profit from Operations in the Condensed Consolidated Statements of Earnings for the year ended December 31, 2012.
M&F is now a master distributor of Tennant products in the Central Eastern Europe, Middle East and Africa markets. In addition, as further discussed in Note 16, M&F was a related party to Tennant at the time of the transaction. We have identified M&F as a variable interest entity (“VIE”) and have performed a qualitative assessment that considered M&F's purpose and design, our involvement and the risks and benefits and determined that we are not the primary beneficiary of this VIE. The only financing we have provided to M&F was related to the SPA, as noted above, and there are no arrangements that would require us to provide significant financial support in the future.
|
4.
|
Inventories
|
Inventories are valued at the lower of cost or market. Inventories at
June 30, 2015
and
December 31, 2014
consisted of the following:
|
June 30,
2015 |
December 31,
2014 |
||||||
|
Inventories carried at LIFO:
|
|||||||
|
Finished goods
|
$
|
44,468
|
|
$
|
41,687
|
|
|
|
Raw materials, production parts and work-in-process
|
25,428
|
|
24,458
|
|
|||
|
LIFO reserve
|
(28,166
|
)
|
(28,166
|
)
|
|||
|
Total LIFO inventories
|
41,730
|
|
37,979
|
|
|||
|
Inventories carried at FIFO:
|
|
|
|
|
|||
|
Finished goods
|
31,645
|
|
29,851
|
|
|||
|
Raw materials, production parts and work-in-process
|
13,159
|
|
12,681
|
|
|||
|
Total FIFO inventories
|
44,804
|
|
42,532
|
|
|||
|
Total inventories
|
$
|
86,534
|
|
$
|
80,511
|
|
|
The LIFO reserve approximates the difference between LIFO carrying cost and FIFO.
8
|
5.
|
Goodwill and Intangible Assets
|
The changes in the carrying value of Goodwill for the
six
months ended
June 30, 2015
were as follows:
|
Goodwill
|
Accumulated
Impairment
Losses
|
Total
|
|||||||||
|
Balance as of December 31, 2014
|
$
|
64,858
|
|
$
|
(46,503
|
)
|
$
|
18,355
|
|
||
|
Foreign currency fluctuations
|
(920
|
)
|
235
|
|
(685
|
)
|
|||||
|
Balance as of June 30, 2015
|
$
|
63,938
|
|
$
|
(46,268
|
)
|
$
|
17,670
|
|
||
The balances of acquired Intangible Assets, excluding Goodwill, as of
June 30, 2015
and
December 31, 2014
, were as follows:
|
Customer Lists
|
Trade
Name
|
Technology
|
Total
|
||||||||||||
|
Balance as of June 30, 2015
|
|||||||||||||||
|
Original cost
|
$
|
21,322
|
|
$
|
3,960
|
|
$
|
6,669
|
|
$
|
31,951
|
|
|||
|
Accumulated amortization
|
(12,209
|
)
|
(2,048
|
)
|
(3,402
|
)
|
(17,659
|
)
|
|||||||
|
Carrying value
|
$
|
9,113
|
|
$
|
1,912
|
|
$
|
3,267
|
|
$
|
14,292
|
|
|||
|
Weighted-average original life (in years)
|
15
|
|
14
|
|
13
|
|
|
|
|||||||
|
Balance as of December 31, 2014
|
|
|
|
|
|
|
|
|
|||||||
|
Original cost
|
$
|
21,946
|
|
$
|
4,300
|
|
$
|
6,915
|
|
$
|
33,161
|
|
|||
|
Accumulated amortization
|
(12,099
|
)
|
(2,068
|
)
|
(3,406
|
)
|
(17,573
|
)
|
|||||||
|
Carrying value
|
$
|
9,847
|
|
$
|
2,232
|
|
$
|
3,509
|
|
$
|
15,588
|
|
|||
|
Weighted-average original life (in years)
|
15
|
|
14
|
|
13
|
|
|
|
|||||||
Amortization expense on Intangible Assets for the
three and six
months ended
June 30, 2015
was
$516
and
$1,036
, respectively. Amortization expense on Intangible Assets for the
three and six
months ended
June 30, 2014
was
$612
and
$1,223
, respectively.
Estimated aggregate amortization expense based on the current carrying value of amortizable Intangible Assets for each of the five succeeding years and thereafter is as follows:
|
Remaining 2015
|
$
|
923
|
|
|
2016
|
1,705
|
|
|
|
2017
|
1,608
|
|
|
|
2018
|
1,602
|
|
|
|
2019
|
1,490
|
|
|
|
Thereafter
|
6,964
|
|
|
|
Total
|
$
|
14,292
|
|
9
|
6.
|
|
Debt outstanding is summarized as follows:
|
June 30,
2015 |
December 31,
2014 |
||||||
|
Long-Term Debt:
|
|
|
|||||
|
Credit facility borrowings
|
24,571
|
|
28,000
|
|
|||
|
Collateralized borrowings
|
7
|
|
7
|
|
|||
|
Capital lease obligations
|
—
|
|
130
|
|
|||
|
Total Debt
|
24,578
|
|
28,137
|
|
|||
|
Less: Current Portion
|
(3,435
|
)
|
(3,566
|
)
|
|||
|
Long-Term Portion
|
$
|
21,143
|
|
$
|
24,571
|
|
|
As of
June 30, 2015
, we had committed lines of credit totaling
$125,000
and uncommitted credit facilities totaling
$87,229
. There were
$10,000
in outstanding borrowings under our JPMorgan facility (described below) and
$14,571
in outstanding borrowings under our Prudential facility (described below) as of
June 30, 2015
. In addition, we had stand alone letters of credit of
$2,769
outstanding and bank guarantees in the amount of
$28
. Commitment fees on unused lines of credit for the
six
months ended
June 30, 2015
were
$163
.
Our most restrictive covenants are part of our 2015 Amended and Restated Credit Agreement (as defined below), which are the same covenants in the Shelf Agreement (as defined below) with Prudential (as defined below), and require us to maintain an indebtedness to EBITDA ratio of not greater than
3.25 to 1
and to maintain an EBITDA to interest expense ratio of no less than
3.50 to 1
as of the end of each quarter. As of
June 30, 2015
, our indebtedness to EBITDA ratio was
0.31 to 1
and our EBITDA to interest expense ratio was
54.38 to 1
.
Credit Facilities
JPMorgan Chase Bank, National Association
On June 30, 2015, we entered into an Amended and Restated Credit Agreement (the "Amended Credit Agreement") that amends and restates the Credit Agreement dated May 5, 2011 that was with JP Morgan Chase Bank, N.A. ("JPMorgan"), as administrative agent and collateral agent, U.S. Bank National Association, as syndication agent, Wells Fargo Bank, National Association, and RBS Citizens, N.A., as co-documentation agents, and the Lenders (including JPMorgan) from time to time party thereto, as amended by Amendment No. 1 dated April 25, 2013 (the "Credit Agreement").
The Amended Credit Agreement principally provides the following changes to the Credit Agreement:
|
•
|
extends the maturity date to
June 30, 2020
;
|
|
•
|
removes RBS Citizens, N.A. as a co-documentation agent;
|
|
•
|
changes the covenant regarding the Company's indebtedness to EBITDA ratio at the end of each quarter to not greater than
3.25 to 1
;
|
|
•
|
changes the covenant restricting the Company from paying dividends or repurchasing stock to allow no dividends or repurchases, if, after giving effect to such payments the Company’s leverage ratio is greater than
3.25 to 1
;
|
|
•
|
changes the covenant restricting the Company from making acquisitions, if after giving pro-forma effect to such acquisition, the Company’s leverage ratio is greater than
3.00 to 1
, in such case limiting acquisitions to
$25,000
;
|
|
•
|
changes the fees for committed funds under the Credit Agreement to an annual rate ranging from
0.175%
to
0.300%
, depending on the Company’s leverage ratio;
|
|
•
|
changes the rate at which Eurocurrency borrowings under the Credit Agreement bear interest to a rate per annum equal to adjusted LIBOR plus an additional spread of
1.075%
to
1.700%
, depending on the Company’s leverage ratio;
|
|
•
|
changes the rate at which ABR borrowings bear interest to a rate per annum equal to the greatest of (a) the prime rate, (b) the federal funds rate plus
0.50%
and (c) the adjusted LIBOR rate for a one month period plus
1.00%
, plus, in any such case, an additional spread of
0.075%
to
0.700%
, depending on the Company’s leverage ratio; and
|
|
•
|
changes related to new or recently revised financial regulations and other compliance matters.
|
10
The full terms and conditions are set forth in the Amended Credit Agreement, a copy of which is filed as Exhibit 10.1 to our Form 8-K dated June 30, 2015.
The original terms regarding our Credit Agreement are described in Note 8 of our annual report on Form 10-K for the year ended December 31, 2014.
As of
June 30, 2015
, we were in compliance with all covenants under the Amended Credit Agreement. There were
$10,000
in outstanding borrowings under this facility at
June 30, 2015
, with a weighted average interest rate of
1.48%
.
Prudential Investment Management, Inc.
On June 30, 2015, we entered into Amendment No. 3 to our Private Shelf Agreement (the "Amendment"), which amends the Private Shelf Agreement, dated as of July 29, 2009, by and among the Company, Prudential Investment Management, Inc. and Prudential affiliates from time to time party thereto, as amended by Amendment No. 1 dated May 5, 2011 and Amendment No. 2 dated July 24, 2012 (the "Shelf Agreement").
The principal changes effected by the Amendment are an extension of the Issuance Period for Shelf Notes under the Shelf Agreement and to make the same corresponding changes as those made to the Credit Agreement under the Amended Credit Agreement. The Issuance Period now expires on
June 30, 2018
.
The original terms regarding the Shelf Agreement are described in Note 8 of our annual report on Form 10-K for the year ended December 31, 2014.
As of
June 30, 2015
, there were
$14,571
in outstanding borrowings under this facility, consisting of
$6,000
of Series A notes issued in March 2011 with a fixed interest rate of
4.00%
and a
seven
year term serially maturing from
2016
to
2018
and the
$8,571
Series B notes issued in June 2011 with a fixed interest rate of
4.10%
and a
10
year term serially maturing from
2016
to
2021
. The second payment of
$2,000
on Series A notes was made during the first quarter of 2015. The first payment of
$1,429
on Series B notes was made during the second quarter of 2015. We were in compliance with all covenants under the Amendment as of
June 30, 2015
.
The Royal Bank of Scotland Citizens, N.A.
On
September 14, 2010
, we entered into an overdraft facility with The Royal Bank of Scotland Citizens, N.A. in the amount of
€2,000
, or approximately
$2,229
. There was
no
balance outstanding on this facility as of
June 30, 2015
.
HSBC Bank (China) Company Limited, Shanghai Branch
On June 20, 2012, we entered into a banking facility with the HSBC Bank (China) Company Limited, Shanghai Branch in the amount of
$5,000
. As of
June 30, 2015
, there were
no
outstanding borrowings on this facility.
|
7.
|
Warranty
|
We record a liability for warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. Warranty terms on machines generally range from
one
to
four
years. However, the majority of our claims are paid out within the first
six
to
nine
months following a sale. The majority of the liability for estimated warranty claims represents amounts to be paid out in the near term for qualified warranty issues, with immaterial amounts reserved to be paid for older equipment warranty issues.
The changes in warranty reserves for the
six
months ended
June 30, 2015
and
2014
were as follows:
|
Six Months Ended
|
|||||||
|
June 30
|
|||||||
|
2015
|
2014
|
||||||
|
Beginning balance
|
$
|
9,686
|
|
$
|
9,663
|
|
|
|
Additions charged to expense
|
5,670
|
|
5,127
|
|
|||
|
Foreign currency fluctuations
|
(118
|
)
|
33
|
|
|||
|
Claims paid
|
(5,209
|
)
|
(4,916
|
)
|
|||
|
Ending balance
|
$
|
10,029
|
|
$
|
9,907
|
|
|
11
|
8.
|
Fair Value Measurements
|
Estimates of fair value for financial assets and financial liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
|
•
|
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
•
|
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
|
•
|
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
|
Our population of assets and liabilities subject to fair value measurements at
June 30, 2015
is as follows:
|
Fair
Value
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Assets:
|
|||||||||||||||
|
Foreign currency forward exchange contracts
|
$
|
80
|
|
$
|
—
|
|
$
|
80
|
|
$
|
—
|
|
|||
|
Total Assets
|
$
|
80
|
|
$
|
—
|
|
$
|
80
|
|
$
|
—
|
|
|||
|
Liabilities:
|
|
|
|
|
|
|
|
|
|||||||
|
Foreign currency forward exchange contracts
|
$
|
46
|
|
$
|
—
|
|
$
|
46
|
|
$
|
—
|
|
|||
|
Total Liabilities
|
$
|
46
|
|
$
|
—
|
|
$
|
46
|
|
$
|
—
|
|
|||
Our foreign currency forward exchange contracts are valued based on quoted forward foreign exchange prices at the reporting date.
We use derivative instruments to manage exposures to foreign currency only in an attempt to limit underlying exposures from currency fluctuations and not for trading purposes. Gains or losses on forward foreign exchange contracts that hedge foreign currency-denominated assets and liabilities are recognized in Other Current Assets and Other Current Liabilities within the Condensed Consolidated Balance Sheets and are recognized in Other Income (Expense) under Net Foreign Currency Transaction (Losses) Gains within the Condensed Consolidated Statements of Earnings. As of
June 30, 2015
, the fair value of such contracts outstanding was an asset of
$80
and a liability of
$46
. As of
December 31, 2014
, the fair value of such contracts outstanding was an asset of
$130
. There were
no
outstanding liabilities. At
June 30, 2015
and
December 31, 2014
, the notional amounts of foreign currency forward exchange contracts outstanding were
$38,463
and
$34,631
, respectively. We recognized a net gain of
$1,753
and a net loss of
$902
on such contracts during the first
six
months of
2015
and
2014
, respectively.
The carrying amounts reported in the Condensed Consolidated Balance Sheets for Cash and Cash Equivalents, Accounts Receivable, Other Current Assets, Accounts Payable and Other Current Liabilities approximate fair value.
The fair value of our Long-Term Debt approximates cost based on the borrowing rates currently available to us for bank loans with similar terms and remaining maturities.
|
9.
|
Retirement Benefit Plans
|
Our defined benefit pension plans and postretirement medical plan are described in Note 11 of our annual report on Form 10-K for the year ended December 31, 2014. We have contributed
$76
and
$204
during the
second
quarter of
2015
and
$202
and
$584
during the first
six
months of
2015
to our pension plans and to our postretirement medical plan, respectively.
12
The components of the net periodic cost (benefit) for the
three and six
months ended
June 30, 2015
and
2014
were as follows:
|
Three Months Ended
|
||||||||||||||||||||||||
|
June 30
|
||||||||||||||||||||||||
|
Pension Benefits
|
Postretirement
|
|||||||||||||||||||||||
|
U.S. Plans
|
Non-U.S. Plans
|
Medical Benefits
|
||||||||||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||||||||
|
Service cost
|
$
|
134
|
|
$
|
123
|
|
$
|
36
|
|
$
|
38
|
|
$
|
17
|
|
$
|
32
|
|
||||||
|
Interest cost
|
423
|
|
488
|
|
125
|
|
134
|
|
87
|
|
118
|
|
||||||||||||
|
Expected return on plan assets
|
(655
|
)
|
(672
|
)
|
(146
|
)
|
(131
|
)
|
—
|
|
—
|
|
||||||||||||
|
Amortization of net actuarial loss (gain)
|
192
|
|
30
|
|
—
|
|
—
|
|
(35
|
)
|
(11
|
)
|
||||||||||||
|
Amortization of prior service cost (benefit)
|
10
|
|
10
|
|
65
|
|
47
|
|
—
|
|
(1
|
)
|
||||||||||||
|
Foreign currency
|
—
|
|
—
|
|
118
|
|
(2
|
)
|
—
|
|
—
|
|
||||||||||||
|
Net periodic cost (benefit)
|
$
|
104
|
|
$
|
(21
|
)
|
$
|
198
|
|
$
|
86
|
|
$
|
69
|
|
$
|
138
|
|
||||||
|
Six Months Ended
|
||||||||||||||||||
|
June 30
|
||||||||||||||||||
|
Pension Benefits
|
Postretirement
|
|||||||||||||||||
|
U.S. Plans
|
Non-U.S. Plans
|
Medical Benefits
|
||||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||
|
Service cost
|
240
|
|
247
|
|
72
|
|
76
|
|
48
|
|
64
|
|
||||||
|
Interest cost
|
855
|
|
982
|
|
248
|
|
266
|
|
196
|
|
249
|
|
||||||
|
Expected return on plan assets
|
(1,307
|
)
|
(1,342
|
)
|
(290
|
)
|
(260
|
)
|
—
|
|
—
|
|
||||||
|
Amortization of net actuarial loss
|
418
|
|
74
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
|
Amortization of prior service cost (benefit)
|
21
|
|
21
|
|
130
|
|
93
|
|
—
|
|
(3
|
)
|
||||||
|
Foreign currency
|
—
|
|
—
|
|
35
|
|
16
|
|
—
|
|
—
|
|
||||||
|
Net periodic cost (benefit)
|
227
|
|
(18
|
)
|
195
|
|
191
|
|
244
|
|
310
|
|
||||||
|
10.
|
Commitments and Contingencies
|
Certain operating leases for vehicles contain residual value guarantee provisions, which would become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. As of
June 30, 2015
, of those leases that contain residual value guarantees, the aggregate residual value at lease expiration was
$11,542
, of which we have guaranteed
$9,351
. As of
June 30, 2015
, we have recorded a liability for the estimated end of term loss related to this residual value guarantee of
$184
for certain vehicles within our fleet. Our fleet also contains vehicles we estimate will settle at a gain. Gains on these vehicles will be recognized at the end of the lease term.
|
11.
|
Accumulated Other Comprehensive Loss
|
Components of Accumulated Other Comprehensive Loss, net of tax, within the Condensed Consolidated Balance Sheets, are as follows:
|
June 30, 2015
|
December 31, 2014
|
||||||
|
Foreign currency translation adjustments
|
$
|
(38,287
|
)
|
$
|
(32,090
|
)
|
|
|
Pension and retiree medical benefits
|
(6,228
|
)
|
(6,503
|
)
|
|||
|
Total Accumulated Other Comprehensive Loss
|
$
|
(44,515
|
)
|
$
|
(38,593
|
)
|
|
13
The changes in components of Accumulated Other Comprehensive Loss, net of tax, are as follows:
|
Foreign Currency Translation Adjustments
|
Pension and Post Retirement Benefits
|
Total
|
|||||||||
|
December 31, 2014
|
$
|
(32,090
|
)
|
$
|
(6,503
|
)
|
$
|
(38,593
|
)
|
||
|
Other comprehensive loss before reclassifications
|
(6,197
|
)
|
—
|
|
(6,197
|
)
|
|||||
|
Amounts reclassified from Accumulated Other Comprehensive Loss
|
—
|
|
275
|
|
275
|
|
|||||
|
Net current period other comprehensive (loss) income
|
(6,197
|
)
|
275
|
|
(5,922
|
)
|
|||||
|
June 30, 2015
|
$
|
(38,287
|
)
|
$
|
(6,228
|
)
|
$
|
(44,515
|
)
|
||
|
12.
|
Income Taxes
|
We and our subsidiaries are subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. We are generally no longer subject to U.S. federal tax examinations for taxable years before
2011
and, with limited exceptions, state and foreign income tax examinations for taxable years before
2007
.
We recognize potential accrued interest and penalties related to unrecognized tax benefits in Income Tax Expense. In addition to the liability of
$2,897
for unrecognized tax benefits as of
June 30, 2015
, there was approximately
$605
for accrued interest and penalties. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of
June 30, 2015
was
$2,555
. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be revised and reflected as an adjustment of the Income Tax Expense.
Unrecognized tax benefits were reduced by
$131
during the first
six
months of
2015
for expiration of the statute of limitations in various jurisdictions.
We are currently undergoing income tax examinations in various state and foreign jurisdictions covering
2007
to
2013
. Although the final outcome of these examinations cannot be currently determined, we believe that we have adequate reserves with respect to these examinations.
|
13.
|
Share-Based Compensation
|
Our share-based compensation plans are described in Note 15 of our annual report on Form 10-K for the year ended December 31, 2014. During the three months ended
June 30, 2015
and
2014
, we recognized total Share-Based Compensation Expense of
$2,182
and
$2,216
, respectively. During the
six
months ended
June 30, 2015
and
2014
, we recognized total Share-Based Compensation Expense of
$4,889
and
$3,756
, respectively. The total excess tax benefit recognized for share-based compensation arrangements during the
six
months ended
June 30, 2015
and
2014
was
$669
and
$1,329
, respectively.
During the first
six
months of
2015
, we granted
23,048
restricted shares. The weighted average grant date fair value of each share awarded was
$66.33
. Restricted share awards generally have a
three
year vesting period from the effective date of the grant. The total fair value of shares vested during the
six
months ended
June 30, 2015
and
2014
was
$833
and
$827
, respectively.
14
|
14.
|
Earnings Per Share
|
The computations of Basic and Diluted Earnings per Share were as follows:
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||
|
June 30
|
June 30
|
||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
||||||||||||
|
Numerator:
|
|||||||||||||||
|
Net Earnings
|
$
|
14,817
|
|
$
|
15,523
|
|
$
|
19,843
|
|
$
|
21,318
|
|
|||
|
Denominator:
|
|||||||||||||||
|
Basic - Weighted Average Shares Outstanding
|
18,197,431
|
|
18,167,054
|
|
18,240,027
|
|
18,242,240
|
|
|||||||
|
Effect of dilutive securities:
|
|||||||||||||||
|
Share-based compensation plans
|
474,609
|
|
508,553
|
|
484,832
|
|
534,129
|
|
|||||||
|
Diluted - Weighted Average Shares Outstanding
|
18,672,040
|
|
18,675,607
|
|
18,724,859
|
|
18,776,369
|
|
|||||||
|
Basic Earnings per Share
|
$
|
0.81
|
|
$
|
0.85
|
|
$
|
1.09
|
|
$
|
1.17
|
|
|||
|
Diluted Earnings per Share
|
$
|
0.79
|
|
$
|
0.83
|
|
$
|
1.06
|
|
$
|
1.14
|
|
|||
Excluded from the dilutive securities shown above were options to purchase
237,405
and
154,897
shares of Common Stock during the three months ended
June 30, 2015
and
2014
, respectively. Excluded from the dilutive securities shown above were options to purchase
215,767
and
155,497
shares of Common Stock during the
six
months ended
June 30, 2015
and
2014
, respectively. These exclusions were made as the effects were anti-dilutive.
|
15.
|
Segment Reporting
|
We are organized into
four
operating segments: North America; Latin America; Europe, Middle East and Africa; and Asia Pacific. We combine our North America and Latin America operating segments into the “Americas” for reporting Net Sales by geographic area. In accordance with the objective and basic principles of the applicable accounting guidance, we aggregate our operating segments into
one
reportable segment that consists of the design, manufacture and sale of products used primarily in the maintenance of nonresidential surfaces.
Net Sales attributed to each geographic area for the
three and six
months ended
June 30, 2015
and
2014
were as follows:
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||
|
June 30
|
June 30
|
||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
||||||||||||
|
Americas
|
$
|
161,429
|
|
$
|
153,698
|
|
$
|
295,432
|
|
$
|
276,087
|
|
|||
|
Europe, Middle East and Africa
|
33,741
|
|
41,273
|
|
68,388
|
|
84,336
|
|
|||||||
|
Asia Pacific
|
20,234
|
|
24,113
|
|
37,324
|
|
42,640
|
|
|||||||
|
Total
|
$
|
215,404
|
|
$
|
219,084
|
|
$
|
401,144
|
|
$
|
403,063
|
|
|||
Net Sales are attributed to each geographic area based on the country from which the product was shipped and are net of intercompany sales.
|
16.
|
Related Party Transactions
|
On July 31, 2012, we entered into a share purchase agreement with M&F, as further discussed in Note 3. Two of the M&F shareholders are individuals who were employed by Tennant prior to the transaction date and were no longer employed by Tennant as of the transaction date.
During the first quarter of
2008
, we acquired Sociedade Alfa Ltda. and entered into lease agreements for certain properties owned by or partially owned by the former owners of this entity. Some of these individuals are current employees of Tennant. Lease payments made under these lease agreements are not material to our financial position or results of operations.
15
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
Overview
Tennant Company is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance, significantly reduce their environmental impact and help create a cleaner, safer, healthier world. Tennant is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products including: floor maintenance and outdoor cleaning equipment, chemical-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, and specialty surface coatings. Tennant products are used in retail establishments and distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, parking lots and streets, and other environments. Customers include building service contract cleaners to whom organizations outsource facilities maintenance, as well as businesses that perform facilities maintenance themselves. The Company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.
Net Earnings for the
second
quarter of
2015
were
$14.8 million
, or
$0.79
per diluted share, as compared to Net Earnings of
$15.5 million
, or
$0.83
per diluted share, in the
second
quarter of
2014
. Operating Profit for the
second
quarter of 2015 was
$22.6 million
, or
10.5%
of Net Sales, as compared to Operating Profit of
$23.1 million
, or
10.6%
of Net Sales, in the
second
quarter of 2014. Operating Profit during the
second
quarter of 2015 was unfavorably impacted by lower Net Sales, due to an unfavorable foreign currency exchange, and higher Research and Development ("R&D") Expense, somewhat offset by lower Selling and Administrative ("S&A") Expense. Due to the strength of the U.S. dollar in the 2015 second quarter, foreign currency exchange reduced Operating Profit by approximately $3.4 million.
Net Earnings for the first
six
months of
2015
were
$19.8 million
, or
$1.06
per diluted share, as compared to Net Earnings of
$21.3 million
, or
$1.14
per diluted share, in the first
six
months of
2014
. Operating Profit for the first
six
months of
2015
was
$30.8 million
, or
7.7%
of Net Sales, as compared to Operating Profit of
$32.4 million
, or
8.0%
of Net Sales, in the first
six
months of
2014
. Operating Profit during the first six months of 2015 was unfavorably impacted by lower Net Sales, due to an unfavorable foreign currency exchange, higher S&A Expense and higher R&D Expense. Due to the strength of the U.S. dollar in the first
six
months of 2015, foreign currency exchange reduced year to date Operating Profit by approximately $5.3 million.
Net Earnings for the second quarter of 2014 were $15.5 million, or $0.83 per diluted share, as compared to Net Earnings of $14.3 million, or $0.76 per diluted share, in the second quarter of 2013. Operating Profit for the second quarter of 2014 was $23.1 million, or 10.6% of Net Sales, as compared to Operating Profit of $21.6 million, or 10.8% of Net Sales, in the second quarter of 2013. Operating Profit during the second quarter of 2014 was favorably impacted by higher Net Sales and lower R&D Expense, somewhat offset by higher S&A Expense.
Net Earnings for the first six months of 2014 were $21.3 million, or $1.14 per diluted share, as compared to Net Earnings of $19.3 million, or $1.03 per diluted share, in the first six months of 2013. Operating Profit for the first six months of 2014 was $32.4 million, or 8.0% of Net Sales, as compared to Operating Profit of $28.5 million, or 7.7% of Net Sales, in the first six months of 2013. Operating Profit during the first six months of 2014 was favorably impacted by higher Net Sales, somewhat offset by higher S&A Expense.
16
Historical Results
The following table compares the historical results of operations for the
three and six
months ended
June 30, 2015
and
2014
, respectively, and as a percentage of Net Sales (in thousands, except per share data and percentages):
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||||||||||||||
|
June 30
|
June 30
|
||||||||||||||||||||||||||
|
2015
|
%
|
2014
|
%
|
2015
|
%
|
2014
|
%
|
||||||||||||||||||||
|
Net Sales
|
$
|
215,404
|
|
100.0
|
|
$
|
219,084
|
|
100.0
|
|
$
|
401,144
|
|
100.0
|
|
$
|
403,063
|
|
100.0
|
|
|||||||
|
Cost of Sales
|
120,371
|
|
55.9
|
|
123,821
|
|
56.5
|
|
228,030
|
|
56.8
|
|
230,883
|
|
57.3
|
|
|||||||||||
|
Gross Profit
|
95,033
|
|
44.1
|
|
95,263
|
|
43.5
|
|
173,114
|
|
43.2
|
|
172,180
|
|
42.7
|
|
|||||||||||
|
Operating Expense:
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Research and Development Expense
|
8,404
|
|
3.9
|
|
7,651
|
|
3.5
|
|
16,114
|
|
4.0
|
|
15,132
|
|
3.8
|
|
|||||||||||
|
Selling and Administrative Expense
|
64,042
|
|
29.7
|
|
64,471
|
|
29.4
|
|
126,159
|
|
31.4
|
|
124,670
|
|
30.9
|
|
|||||||||||
|
Total Operating Expense
|
72,446
|
|
33.6
|
|
72,122
|
|
32.9
|
|
142,273
|
|
35.5
|
|
139,802
|
|
34.7
|
|
|||||||||||
|
Profit from Operations
|
22,587
|
|
10.5
|
|
23,141
|
|
10.6
|
|
30,841
|
|
7.7
|
|
32,378
|
|
8.0
|
|
|||||||||||
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Interest Income
|
53
|
|
—
|
|
95
|
|
—
|
|
103
|
|
—
|
|
170
|
|
—
|
|
|||||||||||
|
Interest Expense
|
(419
|
)
|
(0.2
|
)
|
(419
|
)
|
(0.2
|
)
|
(796
|
)
|
(0.2
|
)
|
(905
|
)
|
(0.2
|
)
|
|||||||||||
|
Net Foreign Currency Transaction (Losses) Gains
|
(225
|
)
|
(0.1
|
)
|
328
|
|
0.1
|
|
(668
|
)
|
(0.2
|
)
|
120
|
|
—
|
|
|||||||||||
|
Other Expense, Net
|
(185
|
)
|
(0.1
|
)
|
(89
|
)
|
—
|
|
(237
|
)
|
(0.1
|
)
|
(120
|
)
|
—
|
|
|||||||||||
|
Total Other Expense, Net
|
(776
|
)
|
(0.4
|
)
|
(85
|
)
|
—
|
|
(1,598
|
)
|
(0.4
|
)
|
(735
|
)
|
(0.2
|
)
|
|||||||||||
|
Profit Before Income Taxes
|
21,811
|
|
10.1
|
|
23,056
|
|
10.5
|
|
29,243
|
|
7.3
|
|
31,643
|
|
7.9
|
|
|||||||||||
|
Income Tax Expense
|
6,994
|
|
3.2
|
|
7,533
|
|
3.4
|
|
9,400
|
|
2.3
|
|
10,325
|
|
2.6
|
|
|||||||||||
|
Net Earnings
|
$
|
14,817
|
|
6.9
|
|
$
|
15,523
|
|
7.1
|
|
$
|
19,843
|
|
4.9
|
|
$
|
21,318
|
|
5.3
|
|
|||||||
|
Net Earnings per Diluted Share
|
$
|
0.79
|
|
$
|
0.83
|
|
|
|
$
|
1.06
|
|
$
|
1.14
|
|
|||||||||||||
Net Sales
Consolidated Net Sales for the
second
quarter of
2015
totaled
$215.4 million
, a
1.7%
decrease as compared to consolidated Net Sales of
$219.1 million
in the
second
quarter of
2014
. Consolidated Net Sales for the first
six
months of
2015
totaled
$401.1 million
, a
0.5%
decrease as compared to consolidated Net Sales of
$403.1 million
for the first
six
months of
2014
.
The components of the consolidated Net Sales change for the
three and six
months ended
June 30, 2015
as compared to the same period in
2014
were as follows:
|
2015 v. 2014
|
|||
|
Three Months Ended
|
Six Months Ended
|
||
|
June 30
|
June 30
|
||
|
Organic Growth:
|
|||
|
Volume
|
2.8%
|
4.0%
|
|
|
Price
|
1.0%
|
1.0%
|
|
|
Organic Growth
|
3.8%
|
5.0%
|
|
|
Foreign Currency
|
(5.5%)
|
(5.5%)
|
|
|
Total
|
(1.7%)
|
(0.5%)
|
|
17
The
1.7%
decrease in consolidated Net Sales in the
second
quarter of
2015
as compared to the same period in
2014
was driven by:
|
•
|
An unfavorable direct foreign currency exchange impact of approximately
5.5%
.
|
|
•
|
An organic sales increase of approximately
3.8%
, which excludes the effects of foreign currency exchange (and acquisitions when applicable), due to an approximate
2.8%
volume increase and a
1.0%
price increase. The volume increase was primarily due to robust sales to strategic accounts in North America and global sales of new products, such as the T12 and T17 rider scrubbers, somewhat offset by lower sales of outdoor equipment. Sales of new products introduced within the past three years totaled 16% of equipment revenue for the second quarter of 2015. This compares to 10% of equipment revenue in the 2014 second quarter from sales of new products introduced since the 2012 fourth quarter. The price increase was the result of selling list price increases, typically in the range of 2 percent to 4 percent in most geographies, with an effective date of February 1, 2015. We expect the increase in selling prices to increase Net Sales in the range of 1 percent to 2 percent for the 2015 full year. The impact to gross margin is estimated to be minimal as these selling price increases were taken to offset inflation.
|
The
0.5%
decrease in consolidated Net Sales in the first
six
months of
2015
as compared to the same period in
2014
was driven by:
|
•
|
An unfavorable direct foreign currency exchange impact of approximately
5.5%
.
|
|
•
|
An organic sales increase of approximately
5.0%
, which excludes the effects of foreign currency exchange (and acquisitions when applicable), due to an approximate
4.0%
volume increase and a
1.0%
price increase. The volume increase was primarily due to robust sales to strategic accounts in the Americas region and continued demand for new products, such as the T12 and T17 rider scrubbers. Sales of new products introduced within the past three years totaled 15% of equipment revenue for the first six months of 2015. This compares to 9% of equipment revenue in the first six months of 2014 from sales of new products introduced since the 2012 fourth quarter. The price increase was the result of selling list price increases, typically in the range of 2 percent to 4 percent in most geographies, with an effective date of February 1, 2015. We expect the increase in selling prices to increase Net Sales in the range of 1 percent to 2 percent for the 2015 full year. The impact to gross margin is estimated to be minimal as these selling price increases were offset by inflation.
|
The following table sets forth the Net Sales by geographic area for the
three and six
months ended
June 30, 2015
and
2014
and the percentage change from the prior year (in thousands, except percentages):
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||||||||
|
June 30
|
June 30
|
||||||||||||||||||||
|
2015
|
2014
|
%
|
2015
|
2014
|
%
|
||||||||||||||||
|
Americas
|
$
|
161,429
|
|
$
|
153,698
|
|
5.0
|
|
$
|
295,432
|
|
$
|
276,087
|
|
7.0
|
||||||
|
Europe, Middle East and Africa
|
33,741
|
|
41,273
|
|
(18.2
|
)
|
68,388
|
|
84,336
|
|
(18.9)
|
||||||||||
|
Asia Pacific
|
20,234
|
|
24,113
|
|
(16.1
|
)
|
37,324
|
|
42,640
|
|
(12.5)
|
||||||||||
|
Total
|
$
|
215,404
|
|
$
|
219,084
|
|
(1.7
|
)
|
$
|
401,144
|
|
$
|
403,063
|
|
(0.5)
|
||||||
Americas
Net Sales in the Americas were
$161.4 million
and
$295.4 million
for the
second
quarter and first
six
months of
2015
, an increase of
5.0%
and
7.0%
, respectively, from the
second
quarter and first
six
months of
2014
. Organic sales in the
second
quarter and first
six
months of
2015
were favorably impacted by robust sales to strategic accounts in North America and sales of newly introduced products, including the T12 and T17 rider scrubbers. The direct impact of foreign currency translation exchange effects within the Americas unfavorably impacted Net Sales by approximately 2.5% during the
second
quarter and 2.0% during the first
six
months of
2015
. As a result, organic sales increased approximately 7.5% in the
second
quarter and 9.0% in the first
six
months of
2015
.
Europe, Middle East and Africa
In our markets within Europe, the Middle East and Africa (“EMEA”), Net Sales decreased
18.2%
and
18.9%
to
$33.7 million
and
$68.4 million
, respectively, for the
second
quarter and first
six
months of
2015
, compared to the
second
quarter and first
six
months of
2014
. Organic sales
decreased
approximately 1.7% in the
second
quarter with organic sales growth in Western Europe being more than offset by lower sales of outdoor equipment. Organic sales decreased
approximately
3.4%
in the first
six
months of
2015
, which reflected a fragile European economy. There was an unfavorable foreign currency exchange impact on Net Sales during the
second
quarter and first
six
months of
2015
of approximately
16.5%
and
15.5%
, respectively.
18
Asia Pacific
Net Sales in the Asia Pacific market for the
second
quarter and first
six
months of
2015
totaled
$20.2 million
and
$37.3 million
, respectively, a decrease of
16.1%
and
12.5%
from the
second
quarter and first
six
months of
2014
, respectively. Organic sales decreased approximately 8.1% in the
second
quarter and 5.0%
in the first
six
months of
2015
due primarily to organic sales growth in China being more than offset by slower economies, primarily in Australia, compared to the robust double-digit organic sales growth in the prior year quarter and first half. Direct foreign currency translation exchange effects unfavorably impacted Net Sales by approximately 8.0% and 7.5% in the
second
quarter and first
six
months of
2015
, respectively.
Gross Profit
Gross profit in the
second
quarter of
2015
was
$95.0 million
, or
44.1%
of Net Sales, as compared to
$95.3 million
, or
43.5%
of Net Sales, in the
second
quarter of
2014
. Gross profit dollars decreased
0.2%
versus the prior year period due to the lower Net Sales, primarily as a result of unfavorable foreign currency exchange, in the second quarter of 2015. Gross margin was
60
basis points
higher versus the prior year period
due to improved operating efficiencies in the direct service and manufacturing operations, and also a greater mix of higher margin business.
In addition, foreign currency headwinds unfavorably impacted gross margin by approximately 80 basis points.
Gross profit in the first
six
months of
2015
was
$173.1 million
, or
43.2%
of Net Sales, as compared to
$172.2 million
, or
42.7%
of Net Sales, in the first
six
months of 2014. Gross profit dollars increased
0.5%
versus the prior year period
due to
lower Cost of Sales in the first six months of 2015, partially offset by lower Net Sales.
Gross margin was
50
basis points
higher
versus the prior year primarily due to
improved operating efficiencies in the direct service and manufacturing operations. In addition, foreign currency headwinds unfavorably impacted gross margin by approximately 60 basis points.
Operating Expense
Research & Development Expense
R&D Expense in the
second
quarter of
2015
increased by
9.8%
to
$8.4
million as compared with
$7.7 million
in the
second
quarter of
2014
. R&D Expense as a percentage of Net Sales was
3.9%
for the
second
quarter of
2015
, an increase of
40
basis points as compared to
3.5%
in the
second
quarter of
2014
.
R&D Expense for the first
six
months of
2015
was
$16.1 million
, an increase of
6.5%
from
$15.1 million
in the same period in
2014
. R&D Expense as a percentage of Net Sales was
4.0%
for the first
six
months of
2015
as compared to
3.8%
for the first
six
months of
2014
.
We continued to invest in developing innovative new products for our traditional core business, as well as in our Orbio Technologies Group, which is focused on advancing a suite of sustainable cleaning technologies. New products are a key driver of sales growth. New products and product variants launched in the first half of 2015 totaled 33, including new ergonomic backpack vacuum models, our next generation ec-H2O NanoClean™ technology, and the T300 family of walk-behind commercial floor scrubbers. We plan to introduce an additional three new products in the second half of the year.
Selling & Administrative Expense
S&A Expense in the
second
quarter of
2015
decreased
0.7%
to
$64.0
million, as compared to
$64.5
million in the
second
quarter of
2014
. S&A Expense as a percentage of Net Sales was
29.7%
for the
second
quarter of
2015
, an increase of
30
basis points from
29.4%
in the comparable
2014
quarter.
For the
six
months ended
June 30, 2015
, S&A Expense increased to
$126.2 million
from
$124.7 million
in the comparable period last year. S&A Expense as a percentage of Net Sales was
31.4%
for the first half of
2015
versus
30.9%
in the comparable period last year.
The decrease in S&A Expense in the
second
quarter as compared to the same period in the prior year was primarily due to cost controls and improved operating efficiencies that favorably impacted S&A Expenses. This was somewhat offset by
investments in direct sales, distribution and marketing to build organic sales. The increase in S&A Expense in the first six months of 2015 as compared to the same period in the prior year was primarily due to investments in direct sales, distribution and marketing to build organic sales. This was somewhat offset by cost controls and improved operating efficiencies that favorably impacted S&A Expenses.
Other Income (Expense), Net
Interest Income
There was no significant change in Interest Income in the
second
quarter and first
six
months of
2015
as compared to the same periods in
2014
.
19
Interest Expense
There was no change in Interest Expense in the
second
quarter of
2015
as compared to the same period in
2014
. Interest Expense in the first
six
months of
2015
was
$0.8 million
as compared to
$0.9 million
in the first six months of
2014
. The lower Interest Expense in the first six months of 2015 was due to a lower level of debt.
Net Foreign Currency Transaction (Losses) Gains
Net Foreign Currency Transaction Losses in the
second
quarter and first
six
months of
2015
were
$0.2 million
and
$0.7 million
, respectively, as compared to Net Foreign Currency Transaction Gains of
$0.3 million
and
$0.1 million
in the same periods in the prior year. The unfavorable change in the impact from foreign currency transactions in
2015
was due to fluctuations in foreign currency rates and settlement of transactional hedging activity in the normal course of business.
Other Expense, Net
Other Expense, Net was
$0.2 million
for both the
second
quarter and first
six
months of
2015
as compared to Other Expense, Net of
$0.1 million
in the the same periods in
2014
. The increase in Other Expense in 2015 was primarily due to higher contributions to the Tennant Foundation.
Income Taxes
The effective tax rate in the
second
quarter of
2015
was 32.1% compared to the effective rate in the
second
quarter of the prior year of 32.7%.
The year-to-date overall effective tax rate was 32.1% for 2015 compared to 32.6% for 2014.
The decrease in the overall year-to-date effective tax rate was primarily related to the mix in expected full year taxable earnings by country.
The 2015 and 2014 second quarter and first half year-to-date tax rates did not include any benefit for Federal R&D tax credits as we are not allowed to consider these credits in our tax rate until they are formally reenacted.
We do not have any plans to repatriate the undistributed earnings of non-U.S. subsidiaries. Any repatriation from foreign subsidiaries that would result in incremental taxation is not being considered. It is management's belief that reinvesting these earnings outside the U.S. is the most efficient use of capital.
Liquidity and Capital Resources
Liquidity
Cash and Cash Equivalents totaled
$67.6
million at
June 30, 2015
, as compared to
$93.0
million as of
December 31, 2014
. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was
2.4
as of
June 30, 2015
and
December 31, 2014
, and our working capital was
$191.8
million and
$201.5
million, respectively. Our debt-to-capital ratio was
8.1%
and
9.1%
at
June 30, 2015
and
December 31, 2014
, respectively.
Cash Flow Summary
Cash provided by (used in) our operating, investing and financing activities is summarized as follows (in thousands):
|
Six Months Ended
|
|||||||
|
June 30
|
|||||||
|
|
2015
|
2014
|
|||||
|
Operating Activities
|
$
|
6,573
|
|
$
|
10,508
|
|
|
|
Investing Activities:
|
|||||||
|
Purchases of Property, Plant and Equipment, Net of Disposals
|
(7,404
|
)
|
(7,293
|
)
|
|||
|
Increase in Restricted Cash
|
(18
|
)
|
(12
|
)
|
|||
|
Financing Activities
|
(23,535
|
)
|
(22,260
|
)
|
|||
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
(940
|
)
|
676
|
|
|||
|
Net Decrease in Cash and Cash Equivalents
|
$
|
(25,324
|
)
|
$
|
(18,381
|
)
|
|
20
Operating Activities
Operating activities
provided
$6.6
million of cash for the
six
months ended
June 30, 2015
. Cash
provided by
operating activities was driven primarily by cash inflows resulting from Net Earnings of
$19.8 million
, partially offset by cash outflows from
an increase in Inventories of
$11.0 million
and a decrease in Employee Compensation and Benefits liabilities of
$6.0 million
.
Operating activities provided
$10.5 million
of cash for the
six
months ended
June 30, 2014
. Cash provided by operating activities was driven primarily from Net Earnings of
$21.3 million
and an increase in Accounts Payable of
$7.5 million
, partially offset by an increase in Accounts Receivable of
$18.6 million
, an increase in Inventories of
$13.2 million
, and a decrease in Employee Compensation and Benefits liabilities of
$5.5 million
.
Management evaluates how effectively we utilize two of our key operating assets, Accounts Receivable and Inventories, using Accounts Receivable “Days Sales Outstanding” (DSO) and “Days Inventory on Hand” (DIOH), on a FIFO basis. The metrics are calculated on a rolling three month basis in order to more readily reflect changing trends in the business. These metrics for the quarters ended were as follows (in days):
|
|
June 30,
2015 |
December 31,
2014 |
June 30,
2014 |
||
|
DSO
|
62
|
62
|
64
|
||
|
DIOH
|
89
|
84
|
79
|
||
As of
June 30, 2015
, DSO decreased 2 days as compared to
June 30, 2014
and was the same as compared to
December 31, 2014
. The decrease is primarily due to the trend of continued proactive management of our receivables by enforcing tighter credit limits and continuing to successfully collect past due balances having a larger favorable impact than the unfavorable variety of terms offered and mix of business.
As of
June 30, 2015
, DIOH increased 10 days as compared to
June 30, 2014
and increased 5 days as compared to
December 31, 2014
, primarily due to increased levels of inventory in support of higher sales levels and the launches of many new products, somewhat offset by progress from inventory reduction initiatives.
Investing Activities
Investing activities, consisting of capital expenditures, used
$7.4
million in cash during the
six
months ended
June 30, 2015
. Capital expenditures included investments in information technology process improvement projects, tooling related to new product development, and manufacturing equipment.
Investing activities, consisting of capital expenditures, used
$7.3 million
in cash during the
six
months ended
June 30, 2014
. Capital expenditures included investments in tooling related to new product development, and manufacturing and information technology process improvement projects.
Financing Activities
Net cash used by financing activities was
$23.5
million during the first
six
months of
2015
. The purchases of our Common Stock per our authorized repurchase program used
$14.2
million, dividend payments used
$7.3
million and the payment of Long-Term Debt used
$3.4 million
, partially offset by proceeds from the issuance of Common Stock of
$0.8
million and the excess tax benefit on stock plans of
$0.7
million.
Net cash used by financing activities was
$22.3 million
during the first
six
months of
2014
. The purchases of our Common Stock per our authorized repurchase program used
$13.6 million
, dividend payments used
$7.2 million
, the payment of Long-Term Debt used
$2.0 million
and the repayment of Short-Term borrowings used
$1.5 million
, partially offset by proceeds from the excess tax benefit on stock plans of
$1.3 million
and the issuance of Common Stock of
$0.7 million
.
Indebtedness
As of
June 30, 2015
, we had committed lines of credit totaling
$125.0 million
and uncommitted credit facilities totaling
$87.2 million
. There were
$10.0 million
in outstanding borrowings under our JPMorgan facility (described below) and
$14.6 million
in outstanding borrowings under our Prudential facility (described below) as of
June 30, 2015
. In addition, we had stand alone letters of credit of
$2.8 million
outstanding. Commitment fees on unused lines of credit for the
six
months ended
June 30, 2015
were
$0.2 million
.
21
Our most restrictive covenants are part of our 2015 Amended and Restated Credit Agreement (as defined below), which are the same covenants in the Shelf Agreement (as defined below) with Prudential (as defined below), and require us to maintain an indebtedness to EBITDA ratio of not greater than
3.25 to 1
and to maintain an EBITDA to interest expense ratio of no less than
3.50 to 1
as of the end of each quarter. As of
June 30, 2015
, our indebtedness to EBITDA ratio was
0.31 to 1
and our EBITDA to interest expense ratio was
54.38 to 1
.
Credit Facilities
JPMorgan Chase Bank, National Association
On June 30, 2015, we entered into an Amended and Restated Credit Agreement (the "Amended Credit Agreement") that amends and restates the Credit Agreement dated May 5, 2011 that was with JP Morgan Chase Bank, N.A. ("JPMorgan"), as administrative agent and collateral agent, U.S. Bank National Association, as syndication agent, Wells Fargo Bank, National Association, and RBS Citizens, N.A., as co-documentation agents, and the Lenders (including JPMorgan) from time to time party thereto, as amended by Amendment No. 1 dated April 25, 2013 (the "Credit Agreement").
The Amended Credit Agreement principally provides the following changes to the Credit Agreement:
|
•
|
extends the maturity date to June 30, 2020;
|
|
•
|
removes RBS Citizens, N.A. as a co-documentation agent;
|
|
•
|
changes the covenant regarding the Company's indebtedness to EBITDA ratio at the end of each quarter to not greater than 3.25 to 1;
|
|
•
|
changes the covenant restricting the Company from paying dividends or repurchasing stock to allow no dividends or repurchases, if, after giving effect to such payments the Company’s leverage ratio is greater than 3.25 to 1;
|
|
•
|
changes the covenant restricting the Company from making acquisitions, if after giving pro-forma effect to such acquisition, the Company’s leverage ratio is greater than 3.00 to 1, in such case limiting acquisitions to $25 million;
|
|
•
|
changes the fees for committed funds under the Credit Agreement to an annual rate ranging from 0.175% to 0.300%, depending on the Company’s leverage ratio;
|
|
•
|
changes the rate at which Eurocurrency borrowings under the Credit Agreement bear interest to a rate per annum equal to adjusted LIBOR plus an additional spread of 1.075% to 1.700%, depending on the Company’s leverage ratio;
|
|
•
|
changes the rate at which ABR borrowings bear interest to a rate per annum equal to the greatest of (a) the prime rate, (b) the federal funds rate plus 0.50% and (c) the adjusted LIBOR rate for a one month period plus 1.00%, plus, in any such case, an additional spread of 0.075% to 0.700%, depending on the Company’s leverage ratio; and
|
|
•
|
changes related to new or recently revised financial regulations and other compliance matters.
|
The full terms and conditions are set forth in the Amended Credit Agreement, a copy of which is filed as Exhibit 10.1 to our Form 8-K dated June 30, 2015.
The original terms regarding our Credit Agreement are described in Note 8 of our annual report on Form 10-K for the year ended December 31, 2014.
As of
June 30, 2015
, we were in compliance with all covenants under the Amended Credit Agreement. There were
$10.0 million
in outstanding borrowings under this facility at
June 30, 2015
, with a weighted average interest rate of
1.48%
.
Prudential Investment Management, Inc.
On June 30, 2015, we entered into Amendment No. 3 to our Private Shelf Agreement (the "Amendment"), which amends the Private Shelf Agreement, dated as of July 29, 2009, by and among the Company, Prudential Investment Management, Inc. and Prudential affiliates from time to time party thereto, as amended by Amendment No. 1 dated May 5, 2011 and Amendment No. 2 dated July 24, 2012 (the "Shelf Agreement").
The principal changes effected by the Amendment are an extension of the Issuance Period for Shelf Notes under the Shelf Agreement and to make the same corresponding changes as those made to the Credit Agreement under the Amended Credit Agreement. The Issuance Period now expires on June 30, 2018.
The original terms regarding the Shelf Agreement are described in Note 8 of our annual report on Form 10-K for the year ended December 31, 2014.
22
As of
June 30, 2015
, there were
$14.6 million
in outstanding borrowings under this facility, consisting of
$6.0 million
of Series A notes issued in March 2011 with a fixed interest rate of
4.00%
and a
seven
year term serially maturing from
2016
to
2018
and the
$8.6 million
Series B notes issued in June 2011 with a fixed interest rate of
4.10%
and a
10
year term serially maturing from
2016
to
2021
. The second payment of
$2.0 million
on Series A notes was made during the first quarter of 2015. The first payment of
$1.4 million
on Series B notes was made during the second quarter of 2015. We were in compliance with all covenants under the Amendment as of
June 30, 2015
.
The Royal Bank of Scotland Citizens, N.A.
On
September 14, 2010
, we entered into an overdraft facility with The Royal Bank of Scotland Citizens, N.A. in the amount of
2.0 million
Euros, or approximately
$2.2 million
. There was
no
balance outstanding on this facility as of
June 30, 2015
.
HSBC Bank (China) Company Limited, Shanghai Branch
On June 20, 2012, we entered into a banking facility with the HSBC Bank (China) Company Limited, Shanghai Branch in the amount of
$5.0 million
. As of
June 30, 2015
, there were
no
outstanding borrowings on this facility.
Contractual Obligations
There have been no material changes with respect to contractual obligations as disclosed in our 2014 annual report on Form 10-K.
Newly Issued Accounting Guidance
Within our annual report on Form 10-K for the year ended December 31, 2014, we discussed Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, including a description of the ASU, the effective date and the methods of transition.
On April 1, 2015, the FASB issued for public comment a proposed ASU,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, which would defer the effective date of the new revenue recognition standard by one year. At a meeting held on July 9, 2015, the FASB voted to approve this deferral. The final ASU would permit us to apply the new revenue standard to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The final ASU permits companies to adopt the new revenue standard early, but not before the original public organization effective date, which was for annual periods beginning after December 15, 2016. Management is currently evaluating the methods of adoption allowed by the new standard and the effect the standard is expected to have on our financial statements and related disclosures.
In April 2015, the FASB issued ASU No. 2015-03,
Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The provisions of the ASU are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early adoption is permitted. We do not anticipate the adoption of this guidance to have a material impact on our financial statements and related disclosures.
In April 2015, the FASB issued ASU No. 2015-05,
Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement
. This amended guidance requires customers to determine whether or not an arrangement includes a software license element. If the arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not contain a software license, the customer should account for the arrangement as a service contract. The provisions of the ASU are effective for annual periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted. An entity can elect to adopt the amendments either prospectively to all arrangements entered into or materially modified after the effective date; or retrospectively. We do not anticipate the adoption of this guidance will have a material impact on our financial statements and related disclosures.
23
Cautionary Statement Relevant to Forward-Looking Information
This Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or similar words or the negative thereof. These statements do not relate to strictly historical or current facts and provide current expectations of forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. Particular risks and uncertainties presently facing us include: the competition in our business; foreign currency exchange rate fluctuations, particularly the relative strength of the U.S. dollar against other major currencies; geopolitical and economic uncertainty throughout the world; our ability to attract and retain key personnel; our ability to successfully upgrade, evolve and protect our information technology systems; fluctuations in the cost, quality, or availability of raw materials and purchased components; our ability to effectively manage organizational changes; our ability to comply with laws and regulations; the occurrence of a significant business interruption;
our ability to develop and commercialize new innovative products and services; and unforeseen product liability claims or product quality issues. We caution that forward-looking statements must be considered carefully and that actual results may differ in material ways due to risks and uncertainties both known and unknown. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Additional information about factors that could materially affect our results can be found in Part I, Item 1A, Risk Factors in our annual report on Form 10-K for the year ended
December 31, 2014
and Part II, Item 1A of this Form 10-Q.
We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Investors are advised to consult any further disclosures by us in our filings with the Securities and Exchange Commission and in other written statements on related subjects. It is not possible to anticipate or foresee all risk factors, and investors should not consider any list of such factors to be an exhaustive or complete list of all risks or uncertainties.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
There have been no material changes in our market risk since
December 31, 2014
. For additional information, refer to Item 7A of our 2014 annual report on Form 10-K for the year ended
December 31, 2014
.
|
Item 4.
|
Controls and Procedures
|
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Principal Financial and Accounting Officer, have evaluated the effectiveness of our disclosure controls and procedures for the period ended
June 30, 2015
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and our Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and our principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There were no changes in our internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
Item 1.
|
Legal Proceedings
|
There are no material pending legal proceedings other than ordinary routine litigation incidental to the Company’s business.
We documented our risk factors in Item 1A of Part I of our annual report on Form 10-K for our fiscal year ended
December 31, 2014
. There have been no material changes to our risk factors since the filing of that report.
24
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
On June 22, 2015, the Board of Directors authorized the repurchase of 1,000,000 shares of our common stock. This was in addition to the 185,449 shares remaining under our prior repurchase program as of June 30, 2015. Share repurchases are made from time to time in the open market or through privately negotiated transactions, primarily to offset the dilutive effect of shares issued through our share-based compensation programs. Our Amended Credit Agreement and Shelf Agreement restrict the payment of dividends or repurchasing of stock if, after giving effect to such payments, our leverage ratio is greater than 3.25 to 1, in such case limiting such payments to an amount ranging from $50.0 million to $75.0 million during any fiscal year.
|
For the Quarter Ended
June 30, 2015
|
Total Number
of Shares
Purchased (1)
|
Average Price
Paid Per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
|
|||||||||
|
April 1 - 30, 2015
|
16,129
|
|
$
|
64.97
|
|
15,488
|
|
325,591
|
|
||||
|
May 1 - 31, 2015
|
112,374
|
|
65.00
|
|
112,374
|
|
213,217
|
|
|||||
|
June 1 - 30, 2015
|
28,389
|
|
64.20
|
|
27,768
|
|
1,185,449
|
|
|||||
|
Total
|
156,892
|
|
$
|
64.86
|
|
155,630
|
|
1,185,449
|
|
||||
(1) Includes 1,262 shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by employees who exercised stock options or restricted stock under employee share-based compensation plans.
25
|
Item 6.
|
Exhibits
|
|
Item #
|
Description
|
Method of Filing
|
|||
|
3i
|
|
Restated Articles of Incorporation
|
Incorporated by reference to Exhibit 3i to the Company’s report on Form 10-Q for the quarterly period ended June 30, 2006.
|
||
|
3ii
|
|
Certificate of Designation
|
Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-K for the year ended December 31, 2006.
|
||
|
3iii
|
|
Amended and Restated By-Laws
|
Incorporated by reference to Exhibit 3iii to the Company’s Form 8-K dated December 14, 2010.
|
||
|
10.1
|
|
Amended and Restated Credit Agreement dated June 30, 2015
|
Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K dated June 30, 2015.
|
||
|
10.2
|
|
Amendment No. 3 to Private Shelf Agreement dated June 30, 2015
|
Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K dated June 30, 2015.
|
||
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of CEO
|
Filed herewith electronically.
|
||
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of CFO
|
Filed herewith electronically.
|
||
|
32.1
|
|
Section 1350 Certification of CEO
|
Filed herewith electronically.
|
||
|
32.2
|
|
Section 1350 Certification of CFO
|
Filed herewith electronically.
|
||
|
101
|
|
The following financial information from Tennant Company's Quarterly Report on Form 10-Q for the period ended June 30, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Earnings for the three and six months ended June 30, 2015 and 2014; (ii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014; (iii) Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014; and (v) Notes to the Condensed Consolidated Financial Statements.
|
Filed herewith electronically.
|
||
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
TENNANT COMPANY
|
||
|
|
|
|
||
|
Date:
|
July 30, 2015
|
/s/ H. Chris Killingstad
|
||
|
|
|
H. Chris Killingstad
President and Chief Executive Officer
|
||
|
|
|
|
||
|
Date:
|
July 30, 2015
|
/s/ Thomas Paulson
|
||
|
|
|
Thomas Paulson
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
|
||
27
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. ExhibitsItem # Description Method Of Filing