Company Quick10K Filing
Tennant
Price70.48 EPS2
Shares18 P/E31
MCap1,303 P/FCF28
Net Debt250 EBIT66
TEV1,554 TEV/EBIT24
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-07-30
10-Q 2020-03-31 Filed 2020-05-06
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-10-30
10-Q 2019-06-30 Filed 2019-08-01
10-Q 2019-03-31 Filed 2019-04-30
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-11-02
10-Q 2018-06-30 Filed 2018-08-01
10-Q 2018-03-31 Filed 2018-05-01
10-K 2017-12-31 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-09
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-09-30 Filed 2016-10-28
10-Q 2016-06-30 Filed 2016-07-28
10-Q 2016-03-31 Filed 2016-04-29
10-K 2015-12-31 Filed 2016-02-29
10-Q 2015-09-30 Filed 2015-10-30
10-Q 2015-06-30 Filed 2015-07-30
10-Q 2015-03-31 Filed 2015-04-30
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-10-29
10-Q 2014-06-30 Filed 2014-07-30
10-Q 2014-03-31 Filed 2014-04-25
10-K 2013-12-31 Filed 2014-02-28
10-Q 2013-09-30 Filed 2013-10-28
10-Q 2013-06-30 Filed 2013-07-30
10-Q 2013-03-31 Filed 2013-04-26
10-K 2012-12-31 Filed 2013-02-22
10-Q 2012-09-30 Filed 2012-10-30
10-Q 2012-06-30 Filed 2012-08-02
10-Q 2012-03-31 Filed 2012-04-27
10-K 2012-02-24 Filed 2012-02-24
10-Q 2011-09-30 Filed 2011-11-02
10-Q 2011-06-30 Filed 2011-08-04
10-Q 2011-03-31 Filed 2011-04-28
10-K 2010-12-31 Filed 2011-02-28
10-Q 2010-09-30 Filed 2010-11-02
10-Q 2010-06-30 Filed 2010-08-03
10-Q 2010-03-31 Filed 2010-04-28
10-K 2009-12-31 Filed 2010-03-01
8-K 2020-07-30 Earnings, Exhibits
8-K 2020-07-08 Officers, Exhibits
8-K 2020-05-06
8-K 2020-04-29
8-K 2020-04-20
8-K 2020-03-17
8-K 2020-02-20
8-K 2020-01-22
8-K 2019-10-30
8-K 2019-08-27
8-K 2019-07-31
8-K 2019-05-08
8-K 2019-04-30
8-K 2019-03-04
8-K 2019-02-21
8-K 2018-11-27
8-K 2018-10-24
8-K 2018-10-04
8-K 2018-08-14
8-K 2018-07-25
8-K 2018-07-25
8-K 2018-05-22
8-K 2018-05-22
8-K 2018-04-25
8-K 2018-04-23
8-K 2018-02-22
8-K 2018-01-08

TNC 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 exhibit10-16302020.htm
EX-10.2 exhibit10-26302020.htm
EX-10.4 exhibit10-4nqso6302020.htm
EX-10.5 exhibit10-56302020.htm
EX-10.6 exhibit10-66302020.htm
EX-10.7 exhibit10-76302020.htm
EX-10.8 exhibit10-86302020.htm
EX-10.9 exhibit10-96302020.htm
EX-31.1 exhibit31-16302020.htm
EX-31.2 exhibit31-26302020.htm
EX-32.1 exhibit32-16302020.htm
EX-32.2 exhibit32-26302020.htm

Tennant Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
1.10.90.70.40.20.02012201420172020
Assets, Equity
0.30.20.10.1-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.40.20.1-0.1-0.2-0.42012201420172020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to __________

Commission File Number 1-16191
____________________________________
tennantcompanylogoa02.jpg
TENNANT COMPANY
(Exact name of registrant as specified in its charter)
Minnesota
41-0572550
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

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)
______________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.375 per share
 
TNC
 
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
þ
No
¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
þ
No
¨


1



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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
þ

As of July 24, 2020, there were 18,462,466 shares of Common Stock outstanding.

 



2


TABLE OF CONTENTS
 PART I - FINANCIAL INFORMATION
 
 
Page
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
 
Item 4.
 
 
PART II - OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
Item 6.
 
 
 
 
 
 
 


3



PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
TENNANT COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
(In millions, except shares and per share data)
 
June 30
 
June 30
 
 
2020
 
2019
 
2020
 
2019
Net Sales
 
$
214.0

 
$
299.7

 
$
466.1

 
$
562.1

Cost of Sales
 
123.4

 
178.9

 
271.4

 
333.1

Gross Profit
 
90.6

 
120.8

 
194.7

 
229.0

 
 
 
 
 
 
 
 
 
Operating Expense:
 
 
 
 
 
 
 
 
Research and Development Expense
 
6.6

 
8.4

 
14.0

 
15.6

Selling and Administrative Expense
 
61.1

 
92.5

 
143.4

 
182.7

Total Operating Expense
 
67.7

 
100.9

 
157.4

 
198.3

Profit from Operations
 
22.9

 
19.9

 
37.3

 
30.7

 
 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
Interest Income
 
0.8

 
0.9

 
1.7

 
1.7

Interest Expense
 
(5.6
)
 
(5.4
)
 
(10.7
)
 
(10.5
)
Net Foreign Currency Transaction Loss
 

 
(0.2
)
 
(4.1
)
 

Other (Expense) Income, Net
 
(0.2
)
 
1.4

 

 
1.3

Total Other Expense, Net
 
(5.0
)
 
(3.3
)
 
(13.1
)
 
(7.5
)
 
 
 
 
 
 
 
 
 
Profit Before Income Taxes
 
17.9

 
16.6

 
24.2

 
23.2

Income Tax Expense
 
3.6

 
1.8

 
4.7

 
3.0

Net Earnings Including Noncontrolling Interest
 
14.3

 
14.8

 
19.5

 
20.2

Net Earnings Attributable to Tennant Company
 
14.3

 
14.8

 
19.5

 
20.2

 
 
 
 
 
 
 
 
 
Net Earnings Attributable to Tennant Company per Share:
 
 
 
 
 
 
 
 
Basic
 
$
0.78

 
$
0.82

 
$
1.06

 
$
1.12

Diluted
 
$
0.77

 
$
0.81

 
$
1.05

 
$
1.10

 
 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
 
 
 
 
 
Basic
 
18,347,189

 
18,082,492

 
18,317,003

 
18,062,591

Diluted
 
18,584,693

 
18,394,865

 
18,614,527

 
18,367,384


See accompanying Notes to the Consolidated Financial Statements.

4



TENNANT COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
 
Six Months Ended
(In millions)
June 30
 
June 30
 
2020
 
2019
 
2020
 
2019
Net Earnings Including Noncontrolling Interest
$
14.3

 
$
14.8

 
$
19.5

 
$
20.2

Other Comprehensive Income (Loss):
 

 
 

 
 
 
 
Foreign currency translation adjustments
3.8

 
1.3

 
(7.5
)
 
(0.9
)
Cash flow hedge
(0.5
)
 
1.3

 
4.3

 
2.7

Income Taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
0.7

 
0.1

 
0.7

 

Cash flow hedge
0.1

 
(0.3
)
 
(1.0
)
 
(0.7
)
Total Other Comprehensive Income (Loss), net of tax
4.1

 
2.4

 
(3.5
)
 
1.1

 
 
 
 
 
 
 
 
Total Comprehensive Income Including Noncontrolling Interest
18.4

 
17.2

 
16.0

 
21.3

Comprehensive Income Attributable to Tennant Company
$
18.4

 
$
17.2

 
$
16.0

 
$
21.3

See accompanying Notes to the Consolidated Financial Statements.

5



TENNANT COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
June 30,
 
December 31,
(In millions, except shares and per share data)
2020
 
2019
ASSETS
 
 
 
Current Assets:
 
 
 
Cash, Cash Equivalents, and Restricted Cash
$
99.3

 
$
74.6

Receivables:
 
 
 
Trade, less Allowances of $3.9 and $3.6, respectively
180.3

 
216.5

Other
3.9

 
6.8

Net Receivables
184.2

 
223.3

Inventories
149.9

 
150.1

Prepaid and Other Current Assets
27.5

 
33.0

Total Current Assets
460.9

 
481.0

Property, Plant and Equipment
428.4

 
412.5

Accumulated Depreciation
(249.8
)
 
(239.2
)
Property, Plant and Equipment, Net
178.6

 
173.3

Operating Lease Assets
42.4

 
46.6

Goodwill
193.9

 
195.1

Intangible Assets, Net
126.7

 
137.7

Other Assets
25.7

 
29.2

Total Assets
$
1,028.2

 
$
1,062.9

LIABILITIES AND TOTAL EQUITY
 
 
 
Current Liabilities:
 
 
 
Current Portion of Long-Term Debt
$
42.5

 
$
31.3

Accounts Payable
77.4

 
94.1

Employee Compensation and Benefits
45.0

 
63.5

Other Current Liabilities
86.6

 
86.0

Total Current Liabilities
251.5

 
274.9

Long-Term Liabilities:
 
 
 
Long-Term Debt
297.5

 
307.5

Long-Term Operating Lease Liabilities
27.1

 
30.3

Employee-Related Benefits
18.0

 
19.4

Deferred Income Taxes
38.7

 
41.7

Other Liabilities
22.3

 
27.8

Total Long-Term Liabilities
403.6

 
426.7

Total Liabilities
655.1

 
701.6

Commitments and Contingencies (Note 13)


 


Equity:
 
 
 
Common Stock, $0.375 par value; 60,000,000 shares authorized; 18,455,462 and 18,336,010 shares issued and outstanding, respectively
6.9

 
6.9

Additional Paid-In Capital
49.4

 
45.5

Retained Earnings
357.4

 
346.0

Accumulated Other Comprehensive Loss
(42.0
)
 
(38.5
)
Total Tennant Company Shareholders' Equity
371.7

 
359.9

   Noncontrolling Interest
1.4

 
1.4

Total Equity
373.1

 
361.3

Total Liabilities and Total Equity
$
1,028.2

 
$
1,062.9

See accompanying Notes to the Consolidated Financial Statements.

6



TENNANT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
(In millions)
June 30
 
2020
 
2019
OPERATING ACTIVITIES
 
 
 
Net Earnings Including Noncontrolling Interest
$
19.5

 
$
20.2

Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
 
 
 
Depreciation
15.7

 
15.9

Amortization of Intangible Assets
10.0

 
11.5

Amortization of Debt Issuance Costs
0.7

 
0.6

Fair Value Step-Up Adjustment to Acquired Inventory

 
0.9

Deferred Income Taxes
(2.7
)
 
(4.2
)
Share-Based Compensation Expense
2.8

 
5.0

Allowance for Doubtful Accounts and Returns
0.7

 
0.9

Acquisition Contingent Consideration Adjustment
(0.3
)
 
2.0

Note Receivable Write-down

 
2.7

Other, Net
1.3

 
0.1

Changes in Operating Assets and Liabilities, Net of Assets Acquired:
 
 
 
Receivables, Net
38.3

 
(16.3
)
Inventories
(5.1
)
 
(23.1
)
Accounts Payable
(17.8
)
 
0.5

Employee Compensation and Benefits
(16.4
)
 
(4.4
)
Other Current Liabilities
2.3

 
(2.1
)
Other Assets and Liabilities
(0.5
)
 
0.7

Net Cash Provided by Operating Activities
48.5

 
10.9

INVESTING ACTIVITIES
 
 
 
Purchases of Property, Plant and Equipment
(18.4
)
 
(25.4
)
Proceeds from Disposals of Property, Plant and Equipment
0.1

 

Proceeds from Principal Payments Received on Long-Term Note Receivable

 
0.1

Acquisition of Businesses, Net of Cash, Cash Equivalents and Restricted Cash Acquired

 
(8.9
)
Purchase of Intangible Assets
(0.1
)
 
(0.4
)
Net Cash Used in Investing Activities
(18.4
)
 
(34.6
)
FINANCING ACTIVITIES
 
 
 
Proceeds from Borrowings
126.4

 
25.0

Repayments of Debt
(125.5
)
 
(25.9
)
Change in Finance Lease Obligations
(0.1
)
 
(0.1
)
Proceeds from Issuance of Common Stock
2.6

 
1.2

Purchase of Noncontrolling Owner Interest

 
(0.5
)
Dividends Paid
(8.1
)
 
(8.0
)
Net Cash Used in Financing Activities
(4.7
)
 
(8.3
)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
(0.7
)
 
1.3

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
24.7

 
(30.7
)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
74.6

 
86.1

Cash, Cash Equivalents and Restricted Cash at End of Period
$
99.3

 
$
55.4


7



SUPPLEMENTAL CASH FLOW INFORMATION
Six Months Ended
 
June 30, 2020

 
June 30, 2019

Cash Paid for Income Taxes
$
0.8

 
$
5.6

Cash Paid for Interest
9.4

 
9.8

Cash Paid for Amounts Included in the Measurement of Lease Liabilities:
 
 
 
Operating cash flows from operating leases
9.8

 
11.3

Financing cash flows from finance leases
0.1

 
0.2

Lease assets obtained in exchange for new finance lease liabilities

 
0.1

Lease assets obtained in exchange for new operating lease liabilities
4.7

 
12.7

Supplemental Non-cash Investing and Financing Activities:
 
 
 
Capital Expenditures in Accounts Payable
$
5.4

 
$
1.1

See accompanying Notes to the Consolidated Financial Statements.

8



TENNANT COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In millions, except shares and per share data)
 
Tennant Company Shareholders
 
 
 
Common Shares
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Tennant Company Shareholders' Equity
Noncontrolling Interest
Total Equity
Balance, December 31, 2019
18,336,010

$
6.9

$
45.5

$
346.0

$
(38.5
)
$
359.9

$
1.4

$
361.3

Net Earnings
 


5.2


5.2


5.2

Other Comprehensive Loss
 



(7.6
)
(7.6
)

(7.6
)
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 15,756 shares
98,805


1.1



1.1


1.1

Share-Based Compensation
 

2.8



2.8


2.8

Dividends paid $0.22 per Common Share
 


(4.0
)

(4.0
)

(4.0
)
Other
 


(0.1
)

(0.1
)

(0.1
)
Balance, March 31, 2020
18,434,815

$
6.9

$
49.4

$
347.1

$
(46.1
)
$
357.3

$
1.4

$
358.7

Net Earnings
 


14.3


14.3


14.3

Other Comprehensive Income
 



4.1

4.1


4.1

Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 3,399 shares
20,647








Dividends paid $0.22 per Common Share
 


(4.0
)

(4.0
)

(4.0
)
Balance, June 30, 2020
18,455,462

$
6.9

$
49.4

$
357.4

$
(42.0
)
$
371.7

$
1.4

$
373.1



9



 
Tennant Company Shareholders
 
 
 
Common Shares
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Tennant Company Shareholders' Equity
Noncontrolling Interest
Total Equity
Balance, December 31, 2018
18,125,201

$
6.8

$
28.5

$
316.3

$
(37.2
)
$
314.4

$
1.9

$
316.3

Net Earnings
 


5.4


5.4


5.4

Other Comprehensive Income
 



(1.3
)
(1.3
)

(1.3
)
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 6,952 shares
35,338


0.2



0.2


0.2

Share-Based Compensation
 

3.3



3.3


3.3

Dividends paid $0.22 per Common Share
 


(4.0
)

(4.0
)

(4.0
)
Recognition of Noncontrolling Interests
 





0.3

0.3

Balance, March 31, 2019
18,160,539

$
6.8

$
32.0

$
317.7

$
(38.5
)
$
318.0

$
2.2

$
320.2

Net Earnings
 


14.8


14.8


14.8

Other Comprehensive Income
 



2.4

2.4


2.4

Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 3,310 shares
31,947


0.3



0.3


0.3

Share-Based Compensation
 

1.7



1.7


1.7

Dividends paid $0.22 per Common Share
 


(4.0
)

(4.0
)

(4.0
)
Recognition of Noncontrolling Interests
 





(0.3
)
(0.3
)
Purchase of Noncontrolling Owner Interest
 

0.5



0.5

(0.5
)

Other
 





0.1

0.1

Balance, June 30, 2019
18,192,486

$
6.8

$
34.5

$
328.5

$
(36.1
)
$
333.7

$
1.5

$
335.2

See accompanying Notes to the Consolidated Financial Statements.

10



TENNANT COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions, except shares and per share data)
1.
Summary of Significant Accounting Policies
Basis of Presentation – The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the Securities and Exchange Commission (“SEC”) requirements for interim reporting. In our opinion, the Consolidated Financial Statements contain all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of our financial position and results of operations.
These statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our annual report on Form 10-K for the year ended December 31, 2019. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
New Accounting Pronouncements – In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848). This ASU provides optional expedients to applying generally accepted accounting principles to certain contract modifications, hedging relationships, and other transactions affected by the reference rate reform, which affects the London Inter-bank Offered Rate, if certain criteria are met. The amendments are effective as of March 12, 2020 through December 31, 2022. We are evaluating whether to apply any of the expedients and/or exceptions.
Further details regarding the adoption of new accounting standards are discussed in Note 2.
We documented the summary of significant accounting policies in the Notes to the Consolidated Financial Statements of our annual report on Form 10-K for the fiscal year ended December 31, 2019. Other than the accounting policies noted above, there have been no material changes to our accounting policies since the filing of that report.
2.
Newly Adopted Accounting Pronouncements
Financial Instruments

On January 1, 2020, we adopted ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and all related amendments. This ASU improves financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Under the new guidance, the ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. We evaluated the impact of this amended guidance on our consolidated financial statements and related disclosures and concluded that it is immaterial.

We estimate an allowance for doubtful accounts using a loss rate method. We considered the following in determining the expected loss rate: (1) historical loss rate, (2) macroeconomic factors, and (3) creditworthiness of customers.

The historical loss rate is calculated by taking the yearly write-off expense, net of collections, as a percentage of the annual average balance of trade receivables for each of the past three years.

A reconciliation of the beginning and ending allowance for doubtful accounts is as follows:

 
 
Allowance for Doubtful Accounts:
December 31, 2019 balance
 
$
3.6

Charged to costs and expenses
 
0.8

Deductions(a)
 
(0.5
)
June 30, 2020 balance
 
$
3.9

(a) 
Includes accounts determined to be uncollectible and charged against reserves.
3. Revenue
Disaggregation of Revenue
The following tables illustrate the disaggregation of revenue by geographic area, groups of similar products and services and sales channels for the three and six months ended June 30, 2020 and 2019:

11



Net Sales by geographic area
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2020
 
2019
 
2020
 
2019
Americas
$
136.3

 
$
189.5

 
$
298.9

 
$
350.3

Europe, Middle East and Africa
54.8

 
80.9

 
126.8

 
158.9

Asia Pacific
22.9

 
29.3

 
40.4

 
52.9

Total
$
214.0

 
$
299.7

 
$
466.1

 
$
562.1

Net Sales are attributed to each geographic area based on the end user country and are net of intercompany sales.
Net Sales by groups of similar products and services
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2020
 
2019
 
2020
 
2019
Equipment
$
134.6

 
$
200.0

 
$
288.7

 
$
362.9

Parts and Consumables
43.2

 
55.4

 
97.5

 
111.3

Specialty Surface Coatings
5.2

 
7.1

 
11.3

 
13.3

Service and Other
31.0

 
37.2

 
68.6

 
74.6

Total
$
214.0

 
$
299.7

 
$
466.1

 
$
562.1

For the three months ended June 30, 2019, we reclassified $7.8 million from Parts and Consumables to Equipment and $3.8 million from Service and Other to Equipment. For the six months ended June 30, 2019, we reclassified $7.7 million from Parts and Consumables to Equipment and $5.3 million from Service and Other to Equipment.
Net Sales by sales channel
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2020
 
2019
 
2020
 
2019
Sales Direct to Consumer
$
143.3

 
$
201.4

 
$
310.9

 
$
373.8

Sales to Distributors
70.7

 
98.3

 
155.2

 
188.3

Total
$
214.0

 
$
299.7

 
$
466.1

 
$
562.1


Contract Liabilities
Sales Returns
The right of return may exist explicitly or implicitly with our customers. When the right of return exists, we adjust the transaction price for the estimated effect of returns. We estimate the expected returns using the expected value method by assessing historical sales levels and the timing and magnitude of historical sales return levels as a percent of sales and projecting this experience into the future.
Sales Incentives
Our sales contracts may contain various customer incentives, such as volume-based rebates or other promotions. We reduce the transaction price for certain customer programs and incentive offerings that represent variable consideration. Sales incentives given to our customers are recorded using the most likely amount approach for estimating the amount of consideration to which the Company will be entitled. We forecast the most likely amount of the incentive to be paid at the time of sale, update this forecast quarterly, and adjust the transaction price accordingly to reflect the new amount of incentives expected to be earned by the customer. A majority of our customer incentives are settled within one year. We record our accruals for volume-based rebates and other promotions in Other Current Liabilities on our Consolidated Balance Sheets.

12



The change in our sales incentive accrual balance for the six months ended June 30, 2020 and 2019 was as follows:
 
Six Months Ended
 
June 30
 
2020
 
2019
Beginning balance
$
13.7

 
$
16.7

Additions to sales incentive accrual
9.1

 
14.6

Contract payments
(11.8
)
 
(19.4
)
Foreign currency fluctuations
(0.1
)
 
0.1

Ending balance
$
10.9

 
$
12.0


Deferred Revenue
We sell separately priced prepaid contracts to our customers where we receive payment at the inception of the contract and defer recognition of the consideration received because we have to satisfy future performance obligations. Our deferred revenue balance is primarily attributed to prepaid maintenance contracts on our machines ranging from 12 months to 60 months. In circumstances where prepaid contracts are bundled with machines, we use an observable price to determine stand-alone selling price for separate performance obligations.
The change in the deferred revenue balance for the six months ended June 30, 2020 and 2019 was as follows:
 
Six Months Ended
 
June 30
 
2020
 
2019
Beginning balance
$
10.7

 
$
8.5

Increase in deferred revenue representing our obligation to satisfy future performance obligations
7.2

 
5.9

Deferred revenue addition from the acquisition of Gaomei

 
1.4

Decrease in deferred revenue for amounts recognized in Net Sales for satisfied performance obligations
(7.3
)
 
(5.9
)
Foreign currency fluctuations
(0.2
)
 

Ending balance
$
10.4

 
$
9.9


At June 30, 2020, $6.9 million and $3.5 million of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Consolidated Balance Sheets. Of this, we expect to recognize the following approximate amounts in Net Sales in the following periods:
Remaining 2020
$
5.5

2021
2.4

2022
1.4

2023
0.7

2024
0.3

Thereafter
0.1

Total
$
10.4


At December 31, 2019, $6.8 million and $3.9 million of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Consolidated Balance Sheets.
4.
Management Actions
Restructuring Actions
In the first quarter of 2020, we implemented a restructuring action in an effort to streamline our operating model in Japan. In the second quarter of 2020, we recorded a pre-tax charge of $0.7 million, which included severance-related and other costs primarily associated with lease break fees. The pre-tax charge of $1.5 million in the first six months of 2020 consisted of $1.1 million of severance-related costs and $0.4 million of other costs. These costs were included in Selling and Administrative Expense in the Consolidated Statements of Earnings. We expect to incur up to $2 million of costs related to this restructuring. The charge impacted our Asia Pacific (APAC) operating segment. We estimate the savings will offset the pre-tax charge approximately one year from the date of the action.
During 2019, we implemented a restructuring action to further our integration efforts related to the IPC Group. The pre-tax charge of $4.8 million consisted of severance, with $0.3 million in Cost of Sales and $4.5 million in Selling and Administrative Expense in the Consolidated Statements of Earnings. The charge impacted our Europe, Middle East and Africa (EMEA) as well as our Americas operating segments. We expect no further charges related to this restructuring action. We estimate the savings have offset the pre-tax charges incurred to date.

13



A reconciliation of the beginning and ending liability balances is as follows:
 
 
Severance and Related Costs
December 31, 2018 balance
 
$
2.2

2019 charges and utilization:
 
 
   New charges
 
6.1

   Cash payments