Company Quick10K Filing
Tennant
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 18 $1,084
10-Q 2019-10-30 Quarter: 2019-09-30
10-Q 2019-08-01 Quarter: 2019-06-30
10-Q 2019-04-30 Quarter: 2019-03-31
10-K 2019-02-28 Annual: 2018-12-31
10-Q 2018-11-02 Quarter: 2018-09-30
10-Q 2018-08-01 Quarter: 2018-06-30
10-Q 2018-05-01 Quarter: 2018-03-31
10-K 2018-02-28 Annual: 2017-12-31
10-Q 2017-11-09 Quarter: 2017-09-30
10-Q 2017-08-09 Quarter: 2017-06-30
10-Q 2017-05-09 Quarter: 2017-03-31
10-K 2017-03-01 Annual: 2016-12-31
10-Q 2016-10-28 Quarter: 2016-09-30
10-Q 2016-07-28 Quarter: 2016-06-30
10-Q 2016-04-29 Quarter: 2016-03-31
10-K 2016-02-29 Annual: 2015-12-31
10-Q 2015-10-30 Quarter: 2015-09-30
10-Q 2015-07-30 Quarter: 2015-06-30
10-Q 2015-04-30 Quarter: 2015-03-31
10-K 2015-02-27 Annual: 2014-12-31
10-Q 2014-10-29 Quarter: 2014-09-30
10-Q 2014-07-30 Quarter: 2014-06-30
10-Q 2014-04-25 Quarter: 2014-03-31
10-K 2014-02-28 Annual: 2013-12-31
10-Q 2013-10-28 Quarter: 2013-09-30
10-Q 2013-07-30 Quarter: 2013-06-30
10-Q 2013-04-26 Quarter: 2013-03-31
10-K 2013-02-22 Annual: 2012-12-31
10-Q 2012-10-30 Quarter: 2012-09-30
10-Q 2012-08-02 Quarter: 2012-06-30
10-Q 2012-04-27 Quarter: 2012-03-31
10-K 2012-02-24 Annual: 2012-02-24
10-Q 2011-11-02 Quarter: 2011-09-30
10-Q 2011-08-04 Quarter: 2011-06-30
10-Q 2011-04-28 Quarter: 2011-03-31
10-K 2011-02-28 Annual: 2010-12-31
10-Q 2010-11-02 Quarter: 2010-09-30
10-Q 2010-08-03 Quarter: 2010-06-30
10-Q 2010-04-28 Quarter: 2010-03-31
10-K 2010-03-01 Annual: 2009-12-31
8-K 2019-10-30 Earnings, Exhibits
8-K 2019-08-27 Accountant, Exhibits
8-K 2019-07-31 Earnings, Exhibits
8-K 2019-05-08 Shareholder Vote
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-03-04 Officers, Exhibits
8-K 2019-02-21 Earnings, Exhibits
8-K 2018-11-27 Officers, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-10-04 Officers, Exhibits
8-K 2018-08-14 Officers, Exhibits
8-K 2018-07-25 Officers, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-05-22 Officers
8-K 2018-05-22 Officers
8-K 2018-04-25 Shareholder Vote
8-K 2018-04-23 Earnings, Exhibits
8-K 2018-02-22 Earnings, Exhibits
8-K 2018-01-08 Other Events, Exhibits
TNC 2019-09-30
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-31.1 exhibit31-19302019.htm
EX-31.2 exhibit31-29302019.htm
EX-32.1 exhibit32-19302019.htm
EX-32.2 exhibit32-29302019.htm

Tennant Earnings 2019-09-30

TNC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
ATKR 1,193 1,413 1,210 1,892 465 126 228 1,977 25% 8.7 9%
IMAX 1,181 876 265 376 202 38 60 1,098 54% 18.4 4%
ALG 1,156 867 324 1,061 266 76 122 1,274 25% 10.5 9%
VREX 1,152 1,044 595 783 244 8 74 1,538 31% 20.8 1%
MTSC 1,136 1,257 763 866 327 49 98 1,532 38% 15.6 4%
TNC 1,084 1,071 736 1,121 449 38 120 1,374 40% 11.4 4%
ESIO 1,081 408 84 378 173 129 143 1,040 46% 7.3 32%
MRC 1,047 2,629 1,957 4,034 691 76 159 1,750 17% 11.0 3%
KAI 1,022 966 567 678 289 65 123 1,310 43% 10.7 7%
MLAB 969 160 41 104 62 1 18 982 59% 55.2 1%

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 September 30, 2019
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
____________________________________
image2a06.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
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
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
 
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

As of October 18, 2019, there were 18,266,899 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
 
Nine Months Ended
(In millions, except shares and per share data)
 
September 30
 
September 30
 
 
2019
 
2018
 
2019
 
2018
Net Sales
 
$
280.7

 
$
273.3

 
$
842.8

 
$
838.3

Cost of Sales
 
166.7

 
166.7

 
499.8

 
505.4

Gross Profit
 
114.0

 
106.6

 
343.0

 
332.9

 
 
 
 
 
 
 
 
 
Operating Expense:
 
 
 
 
 
 
 
 
Research and Development Expense
 
8.2

 
7.5

 
23.8

 
23.4

Selling and Administrative Expense
 
84.3

 
83.7

 
267.0

 
264.7

Total Operating Expense
 
92.5

 
91.2

 
290.8


288.1

Profit from Operations
 
21.5

 
15.4

 
52.2


44.8

 
 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
Interest Income
 
0.8

 
0.8

 
2.5

 
2.5

Interest Expense
 
(5.2
)
 
(6.0
)
 
(15.7
)
 
(17.7
)
Net Foreign Currency Transaction Losses
 
(0.6
)
 
(0.3
)
 
(0.6
)
 
(1.4
)
Other Income (Expense), Net
 
0.1

 

 
1.4

 
(0.8
)
Total Other Expense, Net
 
(4.9
)
 
(5.5
)
 
(12.4
)

(17.4
)
 
 
 
 
 
 
 
 
 
Profit Before Income Taxes
 
16.6

 
9.9

 
39.8


27.4

Income Tax Expense
 
2.0

 
0.2

 
5.0

 
1.6

Net Earnings Including Noncontrolling Interest
 
$
14.6

 
$
9.7

 
$
34.8

 
$
25.8

Net Earnings Attributable to Noncontrolling Interest
 
$

 
$

 
$

 
$
0.1

Net Earnings Attributable to Tennant Company
 
$
14.6

 
$
9.7

 
$
34.8

 
$
25.7

 
 
 
 
 
 
 
 
 
Net Earnings Attributable to Tennant Company per Share:
 
 
 
 
 
 
 
 
Basic
 
$
0.81

 
$
0.54

 
$
1.93

 
$
1.43

Diluted
 
$
0.79

 
$
0.52

 
$
1.89

 
$
1.40

 
 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
 
 
 
 
 
Basic
 
18,134,909

 
17,998,917

 
18,086,962

 
17,911,880

Diluted
 
18,487,948

 
18,439,621

 
18,402,929

 
18,344,813


See accompanying Notes to the Consolidated Financial Statements.

4



TENNANT COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
(In millions)
September 30
 
September 30
 
2019
 
2018
 
2019
 
2018
Net Earnings Including Noncontrolling Interest
$
14.6

 
$
9.7

 
$
34.8

 
$
25.8

Other Comprehensive Loss:
 

 
 

 
 
 
 
Foreign currency translation adjustments
(12.6
)
 
(3.1
)
 
(13.5
)
 
(14.2
)
Pension and retiree medical benefits

 

 

 
0.1

Cash flow hedge
1.7

 

 
4.3

 
(1.4
)
Income Taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
0.1

 
0.3

 
0.1

 
0.6

Pension and retiree medical benefits

 

 

 
(0.2
)
Cash flow hedge
(0.4
)
 

 
(1.0
)
 
(0.8
)
Total Other Comprehensive Loss, net of tax
(11.2
)
 
(2.8
)
 
(10.1
)

(15.9
)
 
 
 
 
 
 
 
 
Total Comprehensive Income Including Noncontrolling Interest
3.4

 
6.9

 
24.7

 
9.9

Comprehensive Income Attributable to Noncontrolling Interest

 

 

 
0.1

Comprehensive Income Attributable to Tennant Company
$
3.4

 
$
6.9

 
$
24.7

 
$
9.8

See accompanying Notes to the Consolidated Financial Statements.

5



TENNANT COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
 
December 31,
(In millions, except shares and per share data)
2019
 
2018
ASSETS
 
 
 
Current Assets:
 
 
 
Cash, Cash Equivalents, and Restricted Cash
$
71.7

 
$
86.1

Receivables:
 
 
 
Trade, less Allowances of $3.2 and $2.5, respectively
204.9

 
208.0

Other
7.8

 
8.2

Net Receivables
212.7

 
216.2

Inventories
160.9

 
135.1

Prepaid and Other Current Assets
34.2

 
31.2

Total Current Assets
479.5

 
468.6

Property, Plant and Equipment
411.6

 
386.6

Accumulated Depreciation
(244.1
)
 
(223.2
)
Property, Plant and Equipment, Net
167.5

 
163.4

Operating Lease Assets
46.2

 

Goodwill
185.4

 
182.7

Intangible Assets, Net
139.5

 
146.5

Other Assets
27.0

 
31.3

Total Assets
$
1,045.1

 
$
992.5

LIABILITIES AND TOTAL EQUITY
 
 
 
Current Liabilities:
 
 
 
Current Portion of Long-Term Debt
$
20.2

 
$
27.0

Accounts Payable
93.9

 
98.4

Employee Compensation and Benefits
52.9

 
56.1

Other Current Liabilities
102.9

 
67.4

Total Current Liabilities
269.9

 
248.9

Long-Term Liabilities:
 
 
 
Long-Term Debt
322.2

 
328.1

Long-Term Operating Lease Liabilities
29.8

 

Employee-Related Benefits
19.5

 
21.1

Deferred Income Taxes
42.4

 
46.0

Other Liabilities
21.5

 
32.1

Total Long-Term Liabilities
435.4

 
427.3

Total Liabilities
705.3

 
676.2

Commitments and Contingencies (Note 14)


 


Equity:
 
 
 
Common Stock, $0.375 par value; 60,000,000 shares authorized; 18,254,017 and 18,125,201 shares issued and outstanding, respectively
6.8

 
6.8

Additional Paid-In Capital
39.7

 
28.5

Retained Earnings
339.1

 
316.3

Accumulated Other Comprehensive Loss
(47.3
)
 
(37.2
)
Total Tennant Company Shareholders' Equity
338.3

 
314.4

   Noncontrolling Interest
1.5

 
1.9

Total Equity
339.8

 
316.3

Total Liabilities and Total Equity
$
1,045.1

 
$
992.5

See accompanying Notes to the Consolidated Financial Statements.

6



TENNANT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
(In millions)
September 30
 
2019
 
2018
OPERATING ACTIVITIES
 
 
 
Net Earnings Including Noncontrolling Interest
$
34.8

 
$
25.8

Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
 
 
 
Depreciation
24.0

 
24.1

Amortization of Intangible Assets
16.6

 
17.4

Amortization of Debt Issuance Costs
1.0

 
1.9

Fair Value Step-Up Adjustment to Acquired Inventory
0.9

 

Deferred Income Taxes
(2.7
)
 
(9.9
)
Share-Based Compensation Expense
8.7

 
6.0

Allowance for Doubtful Accounts and Returns
1.6

 
0.8

Acquisition Contingent Consideration Adjustment
(1.8
)
 

Note Receivable Write-down
2.7

 

Other, Net
(0.7
)
 
(0.5
)
Changes in Operating Assets and Liabilities, Net of Assets Acquired:
 
 
 
Receivables, Net
(0.8
)
 
(0.3
)
Inventories
(31.4
)
 
(19.5
)
Accounts Payable
(2.3
)
 
(1.8
)
Employee Compensation and Benefits
(0.8
)
 
4.2

Other Current Liabilities
(0.8
)
 
(0.2
)
Other Assets and Liabilities
(2.8
)
 
(4.4
)
Net Cash Provided by Operating Activities
46.2

 
43.6

INVESTING ACTIVITIES
 
 
 
Purchases of Property, Plant and Equipment
(28.3
)
 
(12.7
)
Proceeds from Disposals of Property, Plant and Equipment
0.1

 
0.1

Proceeds from Principal Payments Received on Long-Term Note Receivable
0.1

 
0.8

Acquisition of Businesses, Net of Cash, Cash Equivalents and Restricted Cash Acquired
(8.9
)
 

Proceeds from Sale of Business

 
4.0

Purchase of Intangible Assets
(0.5
)
 
(2.6
)
Net Cash Used in Investing Activities
(37.5
)
 
(10.4
)
FINANCING ACTIVITIES
 
 
 
Proceeds from Credit Facility Borrowings
25.0

 

Repayments of Debt
(37.9
)
 
(30.2
)
Change in Finance Lease Obligations
(0.2
)
 

Proceeds from Issuance of Common Stock
2.8

 
5.7

Purchase of Noncontrolling Owner Interest
(0.5
)
 

Dividends Paid
(12.0
)
 
(11.3
)
Net Cash Used in Financing Activities
(22.8
)
 
(35.8
)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
(0.3
)
 
(2.3
)
Net Decrease in Cash, Cash Equivalents and Restricted Cash
(14.4
)
 
(4.9
)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
86.1

 
59.0

Cash, Cash Equivalents and Restricted Cash at End of Period
$
71.7

 
$
54.1


7



Supplemental Disclosure of Cash Flow Information:
 
 
 
Cash Paid for Income Taxes
$
12.6

 
$
7.3

Cash Paid for Interest
$
10.6

 
$
11.3

Supplemental Non-cash Investing and Financing Activities:
 
 
 
Capital Expenditures in Accounts Payable
$
1.1

 
$
0.6

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, 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 Loss
 



(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

Net Earnings
 


14.6


14.6


14.6

Other Comprehensive Loss
 



(11.2
)
(11.2
)

(11.2
)
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 1,560 shares
61,531


1.5



1.5


1.5

Share-Based Compensation
 

3.7



3.7


3.7

Dividends paid $0.22 per Common Share
 


(4.0
)

(4.0
)

(4.0
)
Balance, September 30, 2019
18,254,017

$
6.8

$
39.7

$
339.1

$
(47.3
)
$
338.3

$
1.5

$
339.8



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, 2017
17,881,177

$
6.7

$
15.1

$
297.0

$
(22.3
)
$
296.5

$
2.0

$
298.5

Net Earnings
 


3.3


3.3


3.3

Other Comprehensive Income
 



5.1

5.1


5.1

Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 4,151 shares
29,263


0.5



0.5


0.5

Share-Based Compensation
 

2.7



2.7


2.7

Dividends paid $0.21 per Common Share
 


(3.8
)

(3.8
)

(3.8
)
Recognition of Noncontrolling Interests
 





(0.1
)
(0.1
)
Adjustments to Beginning Retained Earnings
 


1.2


1.2


1.2

Balance, March 31, 2018
17,910,440

$
6.7

$
18.3

$
297.7

$
(17.2
)
$
305.5

$
1.9

$
307.4

Net Earnings
 


12.7


12.7


12.7

Other Comprehensive Loss
 



(18.2
)
(18.2
)

(18.2
)
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 3,360 shares
163,273

0.1

2.6



2.7


2.7

Share-Based Compensation
 

1.4



1.4


1.4

Dividends paid $0.21 per Common Share
 


(3.8
)

(3.8
)

(3.8
)
Balance, June 30, 2018
18,073,713

$
6.8

$
22.3

$
306.6

$
(35.4
)
$
300.3

$
1.9

$
302.2

Net Earnings
 


9.7


9.7


9.7

Other Comprehensive Loss
 



(2.8
)
(2.8
)

(2.8
)
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 1,327 shares
48,863


1.9



1.9


1.9

Share-Based Compensation
 

1.9



1.9


1.9

Dividends paid $0.21 per Common Share
 


(3.8
)

(3.8
)

(3.8
)
Balance, September 30, 2018
18,122,576

$
6.8

$
26.1

$
312.5

$
(38.2
)
$
307.2

$
1.9

$
309.1

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, 2018. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
Reclassification We reclassified $6.6 million of payroll tax accruals from Other Current Liabilities to Employee Compensation and Benefits in the Consolidated Balance Sheet at December 31, 2018 to conform to the current year presentation. This reclassification is also reflected in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2018 in Note 19.
Leases – We assess whether an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We have elected the practical expedient to not separate lease and non-lease components for all assets. Operating lease assets and operating lease liabilities are calculated based on the present value of the future minimum lease payments over the lease term at the lease start date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease start date in determining the present value of future payments. The operating lease asset is increased by any lease payments made at or before the lease start date and reduced by lease incentives and initial direct costs incurred. The lease term includes options to renew or terminate the lease when it is reasonably certain that we will exercise that option. The exercise of lease renewal options is at our sole discretion. The depreciable life of lease assets and leasehold improvements are limited by the lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain leases also include options to purchase the leased asset. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
Further details regarding leases are discussed in Notes 2 and 13.
New Accounting Pronouncements – 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, 2018. 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
Leases
On January 1, 2019, we adopted Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842). This ASU requires lessees to recognize lease assets and lease liabilities on the balance sheet. Under the new guidance, lessor accounting is largely unchanged.
We have elected to adopt the standard on the modified retrospective basis. We have also elected the package of practical expedients, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the short-term lease recognition whereby we will not recognize operating lease related assets or liabilities for leases with a lease term less than one year. We have also elected the practical expedient to not separate lease and non-lease components for all of our leases. We did not elect the hindsight practical expedient to determine the reasonably certain term of existing leases.
The impact of adopting the new lease standard was the recognition of $44.8 million of lease assets and lease liabilities related to our operating leases. The adoption of the new lease standard had no impact to our Consolidated Statements of Earnings, Consolidated Statements of Cash Flows or Consolidated Statements of Equity.
Derivatives and Hedging
On January 1, 2019, we adopted ASU No. 2017-12, Derivatives and Hedging, and all the related amendments to Accounting Standards Codification Topic 815 which aligns hedge accounting with risk management activities and simplifies the requirements to qualify for hedge accounting. Adoption did not have a material impact on our financial statements. We continue to assess opportunities enabled by the new standard to expand our risk management strategies.

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3. Revenue from Contracts with Customers
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 nine months ended September 30, 2019 and 2018:
Net Sales by geographic area
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2019
 
2018
 
2019
 
2018
Americas
$
186.1

 
$
175.3

 
$
536.4

 
$
516.7

Europe, Middle East and Africa
69.7

 
74.3

 
228.6

 
250.5

Asia Pacific
24.9

 
23.7

 
77.8

 
71.1

Total
$
280.7

 
$
273.3

 
$
842.8

 
$
838.3

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
 
Nine Months Ended
 
September 30
 
September 30
 
2019
 
2018
 
2019
 
2018
Equipment
$
169.3

 
$
178.2

 
$
519.2

 
$
542.3

Parts and Consumables
44.1

 
53.7

 
163.1

 
168.5

Specialty Surface Coatings
6.9

 
7.1

 
20.2

 
21.4

Service and Other
60.4

 
34.3

 
140.3

 
106.1

Total
$
280.7

 
$
273.3

 
$
842.8

 
$
838.3

Net Sales by sales channel
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2019
 
2018
 
2019
 
2018
Sales Direct to Consumer
$
189.7

 
$
180.9

 
$
563.5

 
$
547.1

Sales to Distributors
91.0

 
92.4

 
279.3

 
291.2

Total
$
280.7

 
$
273.3

 
$
842.8

 
$
838.3


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.

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The change in our sales incentive accrual balance for the nine months ended September 30, 2019 and 2018 was as follows:
 
Nine Months Ended
 
September 30
 
2019
 
2018