Tennant Company (NYSE: TNC) — 2021 Form 10-K
Business context and reporting period. Tennant designs, manufactures, sells and services commercial and industrial cleaning equipment and related products and services. This annual report covers the fiscal year ended December 31, 2021; it is not a standalone fourth-quarter report. The filing text does not provide a clear set of fourth-quarter-only financial results. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $1,090.8 | $1,001.0 |
| Gross profit / margin | $438.0 / 40.2% | $407.8 / 40.7% |
| Operating income / margin | $93.7 / 8.6% | $63.7 / 6.4% |
| Net income attributable to Tennant | $64.9 | $33.7 |
| Diluted earnings per share | $3.44 | $1.81 |
| Cash from operating activities | $69.4 | $133.8 |
| Capital expenditures | $19.4 | $29.9 |
| Cash, cash equivalents and restricted cash at year-end | $123.6 | $141.0 |
| Total debt at year-end | $267.6 | $308.5 |
| Current ratio | 1.8 | 1.9 |
Sales rose 9.0% year over year, reflecting volume recovery across business units and higher pricing, plus a favorable 2.0% foreign-exchange impact; the Coatings divestiture reduced sales by 2.1%. Sales remained below 2019’s $1,137.6 million. EMEA sales increased 19.3%, APAC 9.6%, and the Americas 4.3%.
Gross margin declined 50 basis points, primarily due to raw-material and component inflation and higher freight costs, partly offset by pricing. Operating income included a $9.8 million gain on the Coatings sale. Net income also reflects an $11.3 million debt-extinguishment loss and a lower effective tax rate of 12.5%, versus 17.9% in 2020.
Operating cash flow fell to $69.4 million, driven in part by inventory growth of $56.0 million and receivables growth of $20.3 million. Capital expenditures were $19.4 million. The company reported a 38.1% debt-to-capital ratio, down from 43.2% in 2020.
Material changes and unusual items
- In April 2021, Tennant refinanced under a new credit agreement, redeemed $300.0 million of 5.625% senior notes due 2025, and recorded an $11.3 million extinguishment loss. Year-end borrowings included $98.8 million under the term loan and $168.0 million under the revolving facility. Approximately $279.1 million of revolving capacity remained available.
- The company sold its Coatings business in the first quarter for net proceeds of $24.7 million and recorded a $9.8 million pretax gain.
- Restructuring charges were $4.1 million in 2021, mainly severance costs, compared with $8.6 million in 2020.
- Year-end order backlog was approximately three to five times the level of previous years, driven by stronger orders and persistent supply and labor constraints. Orders may be cancelled or postponed by customers without penalty.
Outlook, risks and contingencies
Management said demand remained strong and expressed confidence in long-term growth trends, while cautioning that 2022 would require agility. It expected supply-chain challenges, input-cost inflation and labor constraints to persist into 2022, and expected backlog to remain elevated. No quantified earnings or revenue guidance is provided in the filing text.
- Key risks include COVID-19-related disruption, supplier and component shortages, raw-material, freight and wage inflation, and the possibility that competitive conditions limit the company’s ability to pass costs through to customers.
- Other disclosed risks include customer capital-spending sensitivity, competition and product-quality or liability claims, cybersecurity and IT disruptions, regulatory compliance, talent retention, and acquisition integration.
- The company said existing cash, expected operating cash flow and available credit should meet short- and long-term requirements, and believed resources were sufficient for at least the next 12 months. Contractual purchase obligations for 2022 were $125.7 million.
- Debt covenants include a maximum indebtedness-to-EBITDA ratio of 3.50 to 1.00 and a minimum EBITDA-to-interest ratio of 3.00 to 1.00. Variable-rate debt exposure was $266.8 million; a hypothetical 50-basis-point rate increase was estimated to add about $1.0 million to 2021 interest expense.
- Management reported no material pending legal proceedings beyond routine matters and did not expect current claims or litigation to materially affect financial position or results. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of earnings growth is sustainable excluding the Coatings gain, debt-extinguishment charge and tax benefits.
- Whether pricing and cost actions can offset ongoing materials, freight and labor inflation without impairing demand or margins.
- How quickly the unusually large, potentially cancellable backlog converts to revenue, and whether supply constraints continue to limit shipments.
- Working-capital and cash-flow trends, particularly inventory and receivables, alongside planned capital spending and the 2022 purchase commitments.
- Debt covenant headroom, variable-rate exposure, and the ability to maintain dividends and repurchases under the credit agreement.