TENNANT CO (TNC)

ITEM 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") provides a comparison of the Company's results of operations, as well as liquidity and capital resources for the years ended December 31, 2024 and 2023. The MD&A should be read in conjunction with the Company's consolidated financial statements and notes included in Item 8 of this Annual Report. Throughout this MD&A, the Company refers to measures used by management to evaluate performance, including financial measures that are not defined under generally accepted accounting principles ("GAAP") in the U.S. Net sales excluding foreign currency translation (i.e., organic sales) is not a measure of financial performance under GAAP; however, the Company believes it is useful in understanding its financial results and provides comparable measures for understanding the operating results of the Company between different periods.

The year-over-year comparisons in this MD&A are as of and for the years ended December 31, 2024 and December 31, 2023, unless stated otherwise. The discussion of 2022 results and related year-over-year comparisons as of and for the years ended December 31, 2023 and December 31, 2022 are found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Form 10-K for the year ended December 31, 2023.

Overview

Tennant Company is a world leader in designing, manufacturing and marketing solutions that help create a cleaner, safer, healthier world. The Company is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including floor maintenance and cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, and asset management solutions. Our products are used in many types of environments, including factories and warehouses, distribution centers, office buildings, public venues such as arenas and stadiums, schools and universities, hospitals and clinics, and more. Customers include 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.

Macroeconomic Events

Recent geopolitical and macroeconomic events have led to economic uncertainty and volatility globally. Additionally, shifts in the U.S. and international government policies and priorities such as changes in tariffs, trade barriers, and price and exchange controls could impact demand for our products and services, disrupt supply chain, and ultimately have an adverse effect on our business.

Our business is influenced by customer spending and global demand for our products. We are closely monitoring challenging business conditions in APAC, especially in China, which continues to experience market saturation, leading to decreased demand for our mid-tier products and heightened pricing pressures in the region. In Australia, there are signals of reduced demand as customers are delaying equipment orders or moving to rental units. To address these pressures, we've implemented adaptive measures, such as streamlining operations and refining cost management strategies.

Amid the uncertainty of a slowing global economy, global inflation, and geopolitical challenges, we continue to remain focused on long-term resilience. While we are unable to predict the full effect of these geopolitical and macroeconomic events and how they might evolve, we are committed to supporting our customers, maintaining operational stability, and navigating the volatile global landscape with a focus on sustainable growth.

See the "Risk Factors" section in Part I, Item 1A of this Annual Report for further discussion of the possible impact of the above conflicts and macroeconomic events on our business and financial results.

Outlook

As we look ahead to 2025, while we expect to face a significant backlog headwind in 2025, the underlying business continues to drive year-over-year order growth. Given the robust reception to our recent product

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introductions and a solid pipeline of upcoming products, combined with expanded go-to-market strategies and a disciplined pricing approach, we are well positioned to continue to execute our enterprise growth strategy effectively.

Historical Results

The following table compares the historical results of operations for the years ended December 31, 2024, and 2023 in dollars and as a percentage of net sales (in millions, except per share amounts and percentages):

Net Sales

Consolidated net sales in 2024 totaled $1,286.7 million, a 3.5% increase as compared to consolidated net sales of $1,243.6 million in 2023. The components of the consolidated net sales change were as follows:

The 3.5% increase in consolidated net sales was driven by:

•Organic sales growth of 3.2% attributed to price realization across all regions, favorable product and channel mix, and higher equipment sales in the Americas, partly offset by volume declines in the EMEA and APAC regions;

•Inorganic sales growth of 0.7% driven by the acquisition of TCS; partly offset by

•A net unfavorable impact from foreign currency exchange of approximately 0.4%.

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The following table sets forth annual net sales by geographic area and the related percentage change from the prior year (in millions, except percentages):

Americas

Net sales in the Americas were $888.5 million in 2024, an increase of 5.7% from 2023 driven by:

•Organic sales growth of 6.3%, primarily due to price realization and volume increases in equipment and service, partly offset by volume declines in parts and consumables in North America; and

•A net unfavorable impact from foreign currency exchange of approximately 0.6%.

Europe, Middle East and Africa ("EMEA")

EMEA net sales were $318.5 million in 2024, an increase of 1.3% from 2023 driven by:

•Inorganic sales growth of 2.6% driven by the acquisition of TCS;

•A net favorable impact from foreign currency exchange of approximately 0.3%; partly offset by

•Organic sales decrease of 1.6%, primarily due to volume declines in both equipment sales and parts and consumables, partly offset by price realization in all categories. EMEA volumes were impacted by weak economic conditions and a small contribution from backlog reduction.

Asia Pacific ("APAC")

APAC net sales were $79.7 million in 2024, a decrease of 10.3% from 2023 driven by:

•Organic sales decrease of 9.5%, primarily driven by volume declines partly offset by price realization in China and Australia; and

•A net unfavorable impact from foreign currency exchange of approximately 0.8%.

Backlog

Backlog is one of the many indicators of business conditions in the Company's markets. Our order backlog was approximately $61.5 million at December 31, 2024, compared to $186.2 million at December 31, 2023. From 2020 to 2022, our backlog grew to unusually high levels due to supply chain constraints resulting from the COVID-19 pandemic. This trend began to reverse in 2023 as supply chain conditions improved, allowing us to obtain key component parts and increase production levels. As a result, our order backlog at December 31, 2024 reflects a return to normalized levels.

Gross Profit

Gross profit margin of 42.7% was 30 basis points higher in 2024 compared to 2023. The margin rate increase was the result of pricing and cost-out initiative efforts, which outpaced the impact of inflation in the year. Strong margin rates are also supported by favorable product mix, including the reduction of industrial equipment backlog in the first half of 2024.

Operating Expenses

Selling and Administrative Expense

Selling and Administrative expense ("S&A expense") was $391.9 million in 2024, an increase of $39.3 million compared to 2023. As a percentage of net sales, S&A expense in 2024 increased 210 basis points to 30.5% from 28.4% in 2023. The S&A expense increase was primarily driven by Enterprise Resource Planning

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("ERP") modernization costs, legal contingency costs related to an intellectual property dispute, restructuring-related charges associated with our global workforce realignment, and transaction and integration costs.

Research and Development Expense

Research and Development ("R&D") expense was $43.8 million, or 3.4% of net sales, in 2024, with R&D as a percentage of sales increasing 50 basis points compared to 2023.

We continue to invest in developing innovative products and technologies at levels necessary to propel our technology, innovative leadership position and drive growth.

Total Other Expense, Net

Interest Expense, Net

Interest expense, net was $9.1 million in 2024, a decrease of $4.4 million compared to 2023. The decrease was the result of lower weighted average outstanding borrowings. The following table compares the weighted average outstanding borrowings, average interest rate, interest expense and interest income for the years ended December 31 (in millions, except percentages):

Our debt portfolio as of December 31, 2024 was comprised of debt predominately in U.S. dollars. The Company manages its floating rate debt exposure using fixed rate interest rate swaps to reduce the Company's risk of the possibility of increased interest costs.

Foreign Currency Transaction Gain/Loss

Net foreign currency transaction gain was $0.1 million in 2024, compared to a $0.3 million gain in 2023. The favorable impact was primarily due to hedging gains on foreign denominated receivables.

Income Taxes

The effective tax rate for 2024 was 20.1% compared to 11.6% in 2023. The increase in the effective tax rate was primarily driven by the value of certain non-cash exceptional tax items. Both the 2024 and 2023 tax rates include benefits related to a reduction to a deferred tax liability on undistributed foreign earnings as those cumulative earnings were reduced by current year statutory book losses. We do not expect similar benefits in future years. These non-cash events had impacts of (3.7%) in 2024 and (12.0%) in 2023. Absent these benefits the effective tax rate for 2024 and 2023 would be 23.8% and 23.6%, respectively.

In December 2021, the Organization for Economic Cooperation and Development ("OECD"), which is an international public policy setting organization comprised of member countries including the U.S., published a proposal for the establishment of a global minimum tax rate of 15% (the "Pillar Two rule"). Member states have begun implementing the rules through local legislation and the OECD continues to refine technical guidance. Member states have begun implementing the rules through local legislation and the OECD continues to refine technical guidance. We have considered the applicable developments under the Pillar Two rules and there is no material impact on the 2024 consolidated financial statements.

In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial. No deferred taxes have been provided for withholding taxes or other taxes that would result in repatriation of our foreign investments to the U.S.

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Liquidity and Capital Resources

Liquidity

Our primary liquidity needs are to fund working capital, fund investments, service our debt, maintain cash reserves and invest in capital expenditures. Our sources of liquidity include cash generated from operations, borrowings under our revolving credit facility and from time to time, debt and equity offerings. We believe our current resources are sufficient to meet our working capital requirements for our current business for at least the next 12 months and thereafter for the foreseeable future.

Cash, cash equivalents and restricted cash totaled $99.8 million at December 31, 2024, as compared to $117.1 million as of December 31, 2023. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 2.0 as of December 31, 2024 and 2.1 as of December 31, 2023. Our primary working capital, which is comprised of accounts receivable, inventories and accounts payable was $316.0 million as of December 31, 2024 and $312.1 million as of December 31, 2023. Our debt-to-capital ratio was 24.3% as of December 31, 2024, compared to 25.8% as of December 31, 2023.

As of December 31, 2024, we had letters of credit and bank guarantees outstanding in the amount of $3.2 million, leaving approximately $449.3 million of unused borrowing capacity on our revolving facility.

On February 11, 2025, the Company's Board of Directors authorized a quarterly cash dividend of $0.295 per share payable on March 14, 2025, to shareholders of record at the close of business on February 28, 2025.

Cash Flow from Operating Activities

Net cash provided by operating activities in 2024 was $89.7 million compared to net cash provided by operating activities of $188.4 million in 2023. The decrease in cash provided was the result of consumption of working capital, mainly related to inventories, accounts receivable and bonus payouts, and spend on our ERP modernization project of $37.3 million.

Cash Flow from Investing Activities

Net cash used in investing activities in 2024 was $78.4 million compared to net cash used in investing activities of $23.2 million in 2023. The increase in cash outflows was primarily driven by cash used for the investment in Brain Corp of $32.1 million and cash used, net of cash acquired, for the acquisition of TCS of $25.7 million.

Cash Flow from Financing Activities

Net cash used in financing activities in 2024 was $25.2 million compared to net cash used in financing activities of $122.6 million in 2023. The decrease in cash outflows was primarily driven by proceeds from exercises of stock options decreased net repayments of borrowings, partly offset by dividend payments and share repurchases.

Stock Repurchase Program

On February 11, 2025, our board of directors authorized the repurchase of up to 2,000,000 shares of our common stock. This increase was in addition to the remaining authorized shares under our prior common stock repurchase program that was authorized on October 31, 2016 (the "Program"). Share repurchases may be made on an opportunistic basis through open market transactions, privately negotiated transactions, or by other means in accordance with applicable federal securities laws. We are not obligated to purchase any shares, and there is no set date that the program will expire. Our board of directors, at its discretion, may increase or decrease the number of authorized shares or terminate the Program at any time.

During the year ended December 31, 2024, we repurchased 198,352 shares under the Program, with 623,061 shares of common stock remaining.

For more information related to our stock repurchases, see Note 14, Shareholders' Equity, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

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Cash Requirements

The Company believes the liquidity available from the combination of expected cash generated by operating activities, existing cash and available credit under existing credit facilities will be sufficient to meet its short-term and long-term cash requirements. Significant contractual obligations include principal and interest payments on long-term debt (Note 9) and operating lease commitments (Note 15). We also have contractual purchase obligations of approximately $62 million for 2025.

Newly Issued Accounting Guidance

See Note 2 to the consolidated financial statements for information on newly adopted accounting pronouncements.

In October 2023, the FASB issued ASU 2023-06 Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative, which aims to clarify or improve disclosure and presentation requirements on a variety of topics and align the requirements in the FASB accounting standard with the Securities and Exchange Commission regulations. This guidance is effective for the Company no later than June 30, 2027. We do not expect the amendments in this update to have a material impact on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. We are currently evaluating the impact of adoption on our financial disclosures.

In November 2024, the FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Topic 220) - Disaggregation of Income Statement Expenses, which requires disaggregation of certain income statement expense captions into specified categories to be disclosed within the notes to the financial statements, but does not change the expense captions on the consolidated income statement. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements. We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

No other new accounting pronouncements issued but not yet effective have had, or are expected to have, a material impact on our results of operations or financial position.

Critical Accounting Policies and Estimates

Our consolidated financial statements are based on the selection and application of accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and the accompanying notes. Our significant accounting policies are described in Note 1 to the consolidated financial statements. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to the consolidated financial statements. We believe that the following policies may involve a higher degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our consolidated financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results.

Goodwill – Goodwill represents the excess of cost over the fair value of net assets of businesses acquired and is allocated to our reporting units at the time of the acquisition. We analyze goodwill on an annual basis and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount. We have the option of first analyzing qualitative factors to determine whether it is more likely

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than not that the fair value of any reporting unit is less than its carrying amount. However, we may elect to perform a quantitative goodwill impairment test in lieu of the qualitative test. An entity must recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Subsequent reversal of goodwill impairment charges is not permitted.

When we perform a qualitative goodwill test, we analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative test indicates there may be an impairment, we perform the quantitative test, which measures the amount of the goodwill impairment, if any. To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach and market approach. The income approach is based on discounted cash flow models that use reporting unit estimates for forecasted future financial performance, including revenues, margins, operating expenses, capital expenditures, depreciation, amortization, tax and discount rates. The market approach is based on assumptions related to earnings before interest, taxes, depreciation, and amortization ("EBITDA") multiples. These estimates are developed as part of our planning process based on assumed growth rates, along with historical data and various internal estimates. Projected future cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated risk-adjusted weighted-average cost of capital relevant to each reporting unit.

We perform our annual goodwill impairment analysis as of October 1 and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount.

In 2024, we elected to perform the quantitative test on the EMEA and APAC reporting units. Our test indicated that the fair value was substantially in excess of its carrying value. There was no goodwill impairment in any of our reporting units as of our annual assessment date.

We had goodwill of $185.6 million and $187.4 million at December 31, 2024 and 2023, respectively.

Income Taxes – We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax obligations based on expected income, statutory tax rates and tax planning opportunities in the various jurisdictions. We also establish reserves for uncertain tax matters that are complex in nature and uncertain as to the ultimate outcome. Although we believe that our tax return positions are fully supportable, we consider our ability to ultimately prevail in defending these matters when establishing these reserves. We adjust our reserves in light of changing facts and circumstances, such as the closing of a tax audit. We believe that our current reserves are adequate. However, the ultimate outcome may differ from our estimates and assumptions and could impact the income tax expense reflected in our consolidated statements of income.

Tax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation expense on property, plant and equipment. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years but have already been recorded as an expense in our consolidated statements of income. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, based on management’s judgment, to the extent we believe that recovery is not more likely than not, we establish a valuation allowance against those deferred tax assets. The deferred tax asset valuation allowance could be materially different from actual results because of changes in the mix of future taxable income, the relationship between book and taxable income and our tax planning strategies. As of December 31, 2024, a valuation allowance of $3.3 million was recorded against foreign and state tax credit carryforwards.

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Cautionary Factors Relevant to Forward-Looking Information

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, contains certain statements that are considered “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:

•Geopolitical and economic uncertainty throughout the world.

•Ability to comply with global laws and regulations.

•Changes in foreign currency translation rates.

•Ability to adapt to price sensitivity.

•Competition in our business.

•Fluctuations in the cost, quality or availability of raw materials and purchased components.

•Ability to adjust pricing to respond to cost pressures.

•Unforeseen product liability claims or product quality issues.

•Ability to attract, retain and develop key personnel and create effective succession planning strategies.

•Ability to effectively manage strategic plan or growth processes.

•Ability to implement our new ERP system.

•Ability to successfully protect our information technology systems from cybersecurity risks.

•Occurrence of a significant business interruption.

•Ability to maintain the health and safety of our workforce.

•Ability to complete and integrate acquisitions.

•Ability to develop and commercialize new innovative products and services.

•Ability to execute our business transformation strategy.

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. Information about factors that could materially affect our results can be found in Part I, Item 1A "Risk Factors" of this Form 10-K. 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.

We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Investors are advised to consult any further disclosures by us in our filings with the SEC 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.

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ITEM 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides a comparison of the Company's results of operations, as well as liquidity and capital resources for the years ended December 31, 2023 and 2022. The MD&A should be read in conjunction with the Company's consolidated financial statements and notes included in Item 8 of this Annual Report. Throughout this MD&A, the Company refers to measures used by management to evaluate performance, including financial measures that are not defined under generally accepted accounting principles (GAAP) in the U.S. Net sales excluding foreign currency translation (i.e., organic sales) is not a measure of financial performance under GAAP; however, the Company believes it is useful in understanding its financial results and provides comparable measures for understanding the operating results of the Company between different periods.

The year-over-year comparisons in this MD&A are as of and for the years ended December 31, 2023 and December 31, 2022, unless stated otherwise. The discussion of 2021 results and related year-over-year comparisons as of and for the years ended December 31, 2022 and December 31, 2021 are found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Form 10-K for the year ended December 31, 2022.

Overview

Tennant Company is a world leader in designing, manufacturing and marketing solutions that help create a cleaner, safer, healthier world. The Company is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including floor maintenance and cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, and asset management solutions. Our products are used in many types of environments, including factories and warehouses, distribution centers, office buildings, public venues such as arenas and stadiums, schools and universities, hospitals and clinics, and more. Customers include 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.

Macroeconomic Events

Supply chain challenges continue to impact the global economy. Our operating performance throughout 2023 has benefited from fewer supply chain disruptions enabling us to obtain key component parts, increase production and reduce backlog. We continue to address and adapt to these temporary supply chain disruptions by employing local-for-local and region-for-region manufacturing and sourcing strategies, which allows us to contain costs and manufacture our products closer to our customers. At the same time, our engineering teams are evaluating our platform design to increase our sourcing flexibility.

We are impacted by customer spend and global demand for our products. We have been able to successfully manage volatility in demand through our broad and expanding product offerings.

The global nature of our operations subjects us to exposures resulting from both foreign currency exchange fluctuations in the normal course of business and geopolitical risks stemming from global conflicts. While we do not have any direct operations or employees in areas experiencing conflict, our operating results have been and may continue to be negatively impacted by supply chain constraints and inflationary pressures stemming from these conflicts.

As described in Part I, Item 1A - Risk Factors, we may encounter financial difficulties if the United States or other global economies experience an additional or continued long-term economic downturn as our product sales are sensitive to declines in capital spending by our customers. Any sustained adverse impacts to our business, the industries in which we operate, market demand for our products, and/or certain suppliers or customers may also affect our future results of operations, financial position, or cash flows. We are actively monitoring the macroeconomic environment, especially the potential impact of global supply chain constraints on cost inflation, and the potential decreased demand for our products.

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Outlook

While global economic conditions continue to be uncertain, including the ability to attract and retain skilled labor, lingering and targeted supply chain disruptions, and evolving compliance regulations, we remain agile as we continue to manage evolving conditions. We are confident in the long-term growth trends for all our products and services in the markets we serve.

Historical Results

The following table compares the historical results of operations for the years ended December 31, 2023, and 2022 in dollars and as a percentage of net sales (in millions, except per share amounts and percentages):

Net Sales

Consolidated net sales in 2023 totaled $1,243.6 million, a 13.9% increase as compared to consolidated net sales of $1,092.2 million in 2022.

The 13.9% increase in consolidated net sales was driven by:

•Organic sales increase of approximately 13.6% primarily due to the impact of higher selling prices across all regions and volume increases; and

•A net favorable impact from foreign currency exchange across all business units of approximately 0.3%.

Our strong organic sales increase was mainly supported by our ability to reduce backlog through the procurement of key component parts to facilitate increased production output.

The following table sets forth annual net sales by geographic area and the related percentage change from the prior year (in millions, except percentages):

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Americas

Net sales in the Americas were $840.3 million in 2023, an increase of 19.0% from 2022. Organic sales grew 18.9%, driven equally by price realization and increased volume across all geographies. Foreign currency exchange within the Americas favorably impacted net sales by approximately 0.1%.

Europe, Middle East and Africa ("EMEA")

EMEA net sales were $314.4 million in 2023, an increase of 4.2% from 2022. Organic sales grew 2.6% in EMEA, driven by price realization in all product categories, partially offset by lower EMEA volumes that were impacted by weaker-than-expected market conditions. Foreign currency exchange within EMEA favorably impacted net sales by approximately 1.6%.

Asia Pacific ("APAC")

APAC net sales were $88.9 million in 2023, an increase of 5.0% from 2022. Organic sales grew 8.6% in APAC, driven by price realization in Australia and volume increases in Australia and China. Foreign currency exchange within APAC unfavorably impacted net sales by approximately 3.6% in 2023.

Backlog

Backlog is one of the many indicators of business conditions in the Company's markets. Our order backlog was approximately $186.2 million at December 31, 2023 compared to $326.4 million at December 31, 2022. The decrease in our order backlog is the result of the Company's ability to obtain key component parts and increase production levels. Backlog includes orders that can be cancelled or postponed at the option of the customer at any time without penalty.

Gross Profit

Gross profit margin of 42.4% was 390 basis points higher in 2023 compared to 2022. The margin rate increase was the result of price realization and cost saving initiatives, which more than offset the multi-year impact of inflation.

Operating Expenses

Selling and Administrative Expense

Selling and Administrative expense ("S&A expense") was $352.6 million in 2023, an increase of $46.3 million compared to 2022. As a percentage of net sales, S&A expense in 2023 increased 40 basis points to 28.4% from 28.0% in 2022. The S&A expense increase was driven by higher variable costs linked to improved operating performance as well as strategic investments aimed at fostering future growth.

Research and Development Expense

Research and Development ("R&D") expense was $36.6 million, or 2.9% of net sales, in 2023, nearly flat as a percentage of net sales compared to 2022.

We conduct research and development activities to develop new products and to enhance the functionality, effectiveness, ease of use and reliability of our existing products. We believe that our research and development efforts have been, and continue to be, key drivers of our success in the marketplace.

Total Other Expense, Net

Interest Expense, Net

Interest expense, net was $13.5 million in 2023, an increase of $6.4 million compared to 2022. The increase was the result of rising interest rates on our variable interest rate debt, partially offset by lower debt levels.

Our debt portfolio as of December 31, 2023 was comprised of debt predominately in U.S. dollars. The Company manages its floating rate debt exposure using fixed rate interest rate swaps to reduce the Company's risk of the possibility of increased interest costs.

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Foreign Currency Transaction Gain/Loss

Net foreign currency transaction gain was $0.3 million in 2023, compared to a $1.2 million loss in 2022. The favorable impact was primarily due to weakening of the Chinese Renminbi relative to the U.S. dollar on foreign U.S. dollar denominated receivables during 2023, compared to strengthening of the U.S. dollar relative to the Brazilian real on foreign denominated liabilities in 2022.

Income Taxes

The effective tax rate for 2023 was 11.6% compared to 16.6% in 2022. The decrease in the effective tax rate was primarily driven by certain nonrecurring tax items. Both the 2023 and 2022 tax rates include benefits related to a reduction to a deferred tax liability on undistributed foreign earnings as those cumulative earnings were reduced by current year statutory book losses. These nonrecurring events had one-time impacts of (12.0%) in 2023 and (7.2%) in 2022.

In December 2021, the Organization for Economic Cooperation and Development (OECD), which is an international public policy setting organization comprised of member countries including the U.S., published a proposal for the establishment of a global minimum tax rate of 15% (the "Pillar Two rule"). The OECD has recommended that the Pillar Two rule become effective for fiscal years beginning on or after January 1, 2024. To date, member states are in various stages of implementing the rules through local legislation, and the OECD continues to refine the technical guidance. We are closely monitoring developments of the Pillar Two rule and are currently evaluating the potential effect in each of the countries we operate in.

In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial. No deferred taxes have been provided for withholding taxes or other taxes that would result in repatriation of our foreign investments to the U.S.

Liquidity and Capital Resources

Liquidity

Our primary liquidity needs are to fund working capital, fund investments, service our debt, maintain cash reserves and invest in capital expenditures. Our sources of liquidity include cash generated from operations, borrowings under our revolving credit facility and from time to time, debt and equity offerings. We believe our current resources are sufficient to meet our working capital requirements for our current business for at least the next 12 months and thereafter for the foreseeable future.

Cash, cash equivalents and restricted cash totaled $117.1 million at December 31, 2023, as compared to $77.4 million as of December 31, 2022. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 2.1 as of December 31, 2023 and 2.2 as of December 31, 2022. Our primary working capital, which is comprised of accounts receivable, inventories and accounts payable was $312.1 million as of December 31, 2023 and $332.0 million as of December 31, 2022. Our debt-to-capital ratio was 25.8% as of December 31, 2023, compared to 40.9% as of December 31, 2022.

On February 13, 2024, the Company's Board of Directors authorized a quarterly cash dividend of $0.28 per share payable on March 15, 2024, to shareholders of record at the close of business on February 29, 2024.

Cash Flow from Operating Activities

Net cash provided by operating activities in 2023 was $188.4 million compared to net cash provided by operating activities of $25.1 million in 2022. The increase in cash provided was the result of strong operating performance and managed reductions in working capital investments.

Cash Flow from Investing Activities

Net cash used in investing activities in 2023 was $23.2 million compared to net cash used in investing activities of $24.5 million in 2022. The decrease in cash outflows was primarily driven by reduced property, plant and equipment investments as the Company continues to deploy cash flow toward operational capital needs.

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Cash Flow from Financing Activities

Net cash used in financing activities in 2023 was $122.6 million compared to net cash provided by financing activities of $8.1 million in 2022. The increase in cash used was primarily driven by repayments of borrowings and share repurchases.

Cash Requirements

The Company believes the liquidity available from the combination of expected cash generated by operating activities, existing cash and available credit under existing credit facilities will be sufficient to meet its short-term and long-term cash requirements. Significant contractual obligations include principal and interest payments on long-term debt (Note 9) and operating lease commitments (Note 15). We also have contractual purchase obligations of approximately $76 million for 2024.

Newly Issued Accounting Guidance

See Note 2 to the consolidated financial statements for information on new accounting pronouncements.

In October 2023, the FASB issued ASU 2023-06 Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative, which aims to clarify or improve disclosure and presentation requirements on a variety of topics and align the requirements in the FASB accounting standard with the Securities and Exchange Commission regulations. This guidance is effective for the Company no later than June 30, 2027. We do not expect the amendments in this update to have a material impact on our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires an entity to disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact of adoption on our financial disclosures.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. We are currently evaluating the impact of adoption on our financial disclosures.

No other new accounting pronouncements issued but not yet effective have had, or are expected to have, a material impact on our results of operations or financial position.

Critical Accounting Policies and Estimates

Our consolidated financial statements are based on the selection and application of accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and the accompanying notes. Our significant accounting policies are described in Note 1 to the consolidated financial statements. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to the consolidated financial statements. We believe that the following policies may involve a higher degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our consolidated financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results.

Goodwill – Goodwill represents the excess of cost over the fair value of net assets of businesses acquired and is allocated to our reporting units at the time of the acquisition. We analyze goodwill on an annual basis and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its

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carrying amount. We have the option of first analyzing qualitative factors to determine whether it is more likely than not that the fair value of any reporting unit is less than its carrying amount. However, we may elect to perform a quantitative goodwill impairment test in lieu of the qualitative test. An entity must recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Subsequent reversal of goodwill impairment charges is not permitted.

When we perform a qualitative goodwill test, we analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative test indicates there may be an impairment, we perform the quantitative test, which measures the amount of the goodwill impairment, if any. To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach. The income approach is based on discounted cash flow models that use reporting unit estimates for forecasted future financial performance, including revenues, margins, operating expenses, capital expenditures, depreciation, amortization, tax and discount rates. These estimates are developed as part of our planning process based on assumed growth rates, along with historical data and various internal estimates. Projected future cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated risk-adjusted weighted-average cost of capital relevant to each reporting unit.

We perform our annual goodwill impairment analysis as of October 1 and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount.

In 2023, we elected to perform the qualitative test on all reporting units. Our test indicated that there is no goodwill impairment in any of our reporting units as of our annual assessment date.

We had goodwill of $187.4 million and $182.0 million at December 31, 2023 and 2022, respectively.

Income Taxes – We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax obligations based on expected income, statutory tax rates and tax planning opportunities in the various jurisdictions. We also establish reserves for uncertain tax matters that are complex in nature and uncertain as to the ultimate outcome. Although we believe that our tax return positions are fully supportable, we consider our ability to ultimately prevail in defending these matters when establishing these reserves. We adjust our reserves in light of changing facts and circumstances, such as the closing of a tax audit. We believe that our current reserves are adequate. However, the ultimate outcome may differ from our estimates and assumptions and could impact the income tax expense reflected in our consolidated statements of income.

Tax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation expense on property, plant and equipment. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years but have already been recorded as an expense in our consolidated statements of income. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, based on management’s judgment, to the extent we believe that recovery is not more likely than not, we establish a valuation allowance against those deferred tax assets. The deferred tax asset valuation allowance could be materially different from actual results because of changes in the mix of future taxable income, the relationship between book and taxable income and our tax planning strategies. As of December 31, 2023, a valuation allowance of $3.2 million was recorded against foreign and state tax credit carryforwards.

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Cautionary Factors Relevant to Forward-Looking Information

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, contains certain statements that are considered “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:

•Geopolitical and economic uncertainty throughout the world.

•Ability to comply with global laws and regulations.

•Ability to adapt to price sensitivity.

•Competition in our business.

•Fluctuations in the cost, quality or availability of raw materials and purchased components.

•Ability to adjust pricing to respond to cost pressures.

•Unforeseen product liability claims or product quality issues.

•Ability to attract, retain and develop key personnel and create effective succession planning strategies.

•Ability to effectively manage strategic plan or growth processes.

•Ability to successfully upgrade and evolve our information technology systems.

•Ability to successfully protect our information technology systems from cybersecurity risks.

•Occurrence of a significant business interruption.

•Ability to maintain the health and safety of our workforce.

•Ability to complete and integrate acquisitions.

•Ability to develop and commercialize new innovative products and services.

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. Information about factors that could materially affect our results can be found in Part I, Item 1A "Risk Factors" of this Form 10-K. 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.

We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Investors are advised to consult any further disclosures by us in our filings with the SEC 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.

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ITEM 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides a comparison of the Company's results of operations, as well as liquidity and capital resources for the years ended December 31, 2022 and 2021. The MD&A should be read in conjunction with the Company's consolidated financial statements and notes included in Item 8 of this Annual Report. Throughout this MD&A, the Company refers to measures used by management to evaluate performance, including financial measures that are not defined under generally accepted accounting principles (GAAP) in the U.S. Net sales excluding foreign currency translation (i.e. organic sales) is not a measure of financial performance under GAAP; however, the Company believes it is useful in understanding its financial results and provides comparable measures for understanding the operating results of the Company between different periods.

The year-over-year comparisons in this MD&A are as of and for the years ended December 31, 2022 and December 31, 2021, unless stated otherwise. The discussion of 2020 results and related year-over-year comparisons as of and for the years ended December 31, 2021 and December 31, 2020 are found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Form 10-K for the year ended December 31, 2021.

Overview

Tennant Company is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance, reduce environmental impact and help create a cleaner, safer, healthier world. The Company is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including floor maintenance and cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, and asset management solutions. Our products are used in many types of environments, including factories and warehouses, distribution centers, office buildings, public venues such as arenas and stadiums, schools and universities, hospitals and clinics, and more. Customers include 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.

Macroeconomic Events

We continue to actively manage our business to respond to the COVID-19 pandemic and related impacts. Governments across the world have taken actions, including stay-at-home orders, to limit the spread of COVID-19. These actions, specifically in China, have and may continue to reduce operating activities and negatively impact financial results.

We continue to experience disruption in the supply of key component parts, as well as inflation and inefficiencies as a result of supply chain issues. We have established frequent communications with suppliers to review, track and prioritize high-risk components. We have also identified and activated alternative suppliers, materials and components as needed. We continue to work closely with our suppliers to achieve a deeper integration into our suppliers' supply chains, including the procurement of sub-component parts. The Company continues work to minimize the impact of inflation on inputs and market supply challenges by employing local-for-local and region-for-region manufacturing and sourcing to allow us to manufacture our products closer to our customers. At the same time, our engineering teams are evaluating platform design to increase our sourcing flexibility.

In February 2022, the United States announced targeted economic sanctions on Russia in response to the military conflict in Ukraine. While we do not have any direct operations or employees in Russia or Ukraine and have suspended sales to Russia and Belarus, our operating results have been and may continue to be negatively impacted by supply chain constraints and inflationary pressures stemming from this conflict. In addition to fully adhering to all sanctions, we will continue to monitor developments in the region, including the impact of rising commodity and energy prices.

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Due to the global nature of our operations, we are subject to exposures resulting from foreign currency exchange fluctuations in the normal course of business. The direct financial impact of foreign currency exchange includes the effect of translating profits from local currencies to U.S. dollars, the impact of currency fluctuations on the transfer of goods between our operations in the United States and our international operations and transaction gains and losses. Volatility in the foreign exchange market has and may continue to negatively impact the financial results of our international operations.

As described in Part I, Item 1A - Risk Factors, we may encounter financial difficulties if the United States or other global economies experience an additional or continued long-term economic downturn as our product sales are sensitive to declines in capital spending by our customers. Any sustained adverse impacts to our business, the industries in which we operate, market demand for our products, and/or certain suppliers or customers may also affect our future results of operations, financial position, or cash flows. We are actively monitoring the macroeconomic environment, especially the potential impact of global supply chain constraints on cost inflation, and the potential decreased demand for our products.

Outlook

Global economic conditions continue to be highly volatile and uncertainty remains regarding the timing of a full recovery from supply chain challenges and inflationary trends. We continue to monitor costs in the current inflationary environment and will take pricing actions and manage costs accordingly. We anticipate that we will need to remain agile as we continue to manage evolving challenges. We remain confident in the long-term growth trends for all our products and services in the markets we serve.

Historical Results

The following table compares the historical results of operations for the years ended December 31, 2022, and 2021 in dollars and as a percentage of net sales (in millions, except per share amounts and percentages):

Net Sales

Consolidated net sales in 2022 totaled $1,092.2 million, a 0.1% increase as compared to consolidated net sales of $1,090.8 million in 2021.

The 0.1% increase in consolidated net sales was driven by:

•Organic sales increase of approximately 4.2% primarily due to the impact of higher selling prices across all regions partially offset by volume declines due mostly to supply chain constraints impacting the availability of key component parts;

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•A net unfavorable impact from foreign currency exchange across all business units of approximately 4.0%; and

•An unfavorable impact from the divestiture of our Coatings business in 2021 of 0.1%.

The following table sets forth annual net sales by geographic area and the related percentage change from the prior year (in millions, except percentages):

Americas

Net sales in the Americas were $705.9 million in 2022, an increase of 7.2% from 2021. Organic sales grew 7.4%, mainly due to higher selling prices in all categories across the region and volume increases in Latin America. Diminished parts availability on certain component parts due to supply chain constraints limited the Company’s ability to increase production and address elevated backlog levels in the region. The divestiture of the Coatings business resulted in a decline in net sales of approximately 0.2% in 2022.

Europe, Middle East and Africa ("EMEA")

EMEA net sales were $301.6 million in 2022, a decrease of 9.1% from 2021. Foreign currency exchange within EMEA unfavorably impacted net sales by approximately 11.6%. Organic sales grew 2.5% in EMEA, primarily driven by higher selling prices in equipment and parts and consumables across the region, partially offset by volume declines due to supply chain constraints and softening demand in the region.

Asia Pacific ("APAC")

APAC net sales were $84.7 million in 2022, a decrease of 15.8% from 2021. Organic sales declined 11.4% in APAC, primarily due to volume declines in China as government shutdowns related to COVID-19 unfavorably impacted demand. This was partly offset by volume growth in Australian markets. Foreign currency exchange within APAC unfavorably impacted net sales by approximately 4.4% in 2022.

Gross Profit

Gross profit margin of 38.5% was 170 basis points lower in 2022 compared to 2021. The margin rate decrease was primarily attributable to the broad effects of inflation on materials, labor, and freight costs, partly offset by higher selling prices and favorable sales mix.

Operating Expenses

Selling and Administrative Expense

Selling and Administrative expense ("S&A expense") was $306.3 million in 2022, a decrease of $15.6 million compared to 2021. As a percentage of net sales, S&A expense in 2022 decreased 150 basis points to 28.0% from 29.5% in 2021. The S&A expense decrease was driven by lower variable employee compensation expenses partially offset by increased costs related to incremental consulting costs to address parts shortages.

Research and Development Expense

Research and Development ("R&D") expense was $31.1 million, or 2.8% of net sales, in 2022, nearly flat as a percentage of net sales compared to 2021.

We conduct research and development activities to develop new products and to enhance the functionality, effectiveness, ease of use and reliability of our existing products. We believe that our research and development efforts have been, and continue to be, key drivers of our success in the marketplace.

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Total Other Expense, Net

Interest Expense, Net

Interest expense, net was $7.1 million in 2022, a decrease of $0.2 million compared to 2021. The decrease reflected lower average outstanding debt in 2022, partially offset by higher interest rates.

Our debt portfolio as of December 31, 2022 was comprised of debt predominately in U.S. dollars. The Company manages its floating rate debt exposure using fixed rate interest rate swaps to reduce the Company's risk of the possibility of increased interest costs. On December 1, 2022, the Company entered into an aggregate $120 million notional amount of interest rate swaps that exchange a variable rate of interest for a fixed rate of interest of 4.076% over the term of the agreements.

Foreign Currency Transaction Loss

Net foreign currency transaction loss was $1.2 million in 2022, compared to $0.7 million in 2021. The unfavorable impact was primarily due to strengthening of the U.S. dollar relative to the Brazilian real on foreign denominated liabilities.

Income Taxes

The effective tax rate for 2022 was 16.6% compared to 12.5% in 2021. The increase in the effective tax rate was primarily driven by certain nonrecurring tax items. The 2022 tax rate includes benefits related to a reduction to a deferred tax liability on undistributed foreign earnings. The 2021 tax rate included benefits from a foreign tax basis step-up election and a valuation allowance related to net operating loss carryovers. These nonrecurring events had a one-time impact of (7.2%) in 2022 and (11.5%) in 2021.

In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial. No deferred taxes have been provided for withholding taxes or other taxes that would result in repatriation of our foreign investments to the U.S.

Backlog

Backlog is one of the many indicators of business conditions in the Company's markets. Our order backlog was approximately $326.4 million at December 31, 2022 compared to $169.7 million at December 31, 2021. The increase in our order backlog is primarily due to higher order rates coupled with persistent supply chain challenges that impacted our ability to obtain key component parts and increase production. We expect this level of backlog to continue in 2023. Backlog includes orders that can be cancelled or postponed at the option of the customer at any time without penalty.

Liquidity and Capital Resources

Liquidity

Our primary liquidity needs are to fund working capital, fund investments, service our debt, maintain cash reserves and invest in capital expenditures. Our sources of liquidity include cash generated from operations, borrowings under our revolving credit facility and from time to time, debt and equity offerings. We believe our current resources are sufficient to meet our working capital requirements for our current business for at least the next 12 months and thereafter for the foreseeable future.

Cash, cash equivalents and restricted cash totaled $77.4 million at December 31, 2022, as compared to $123.6 million as of December 31, 2021. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 2.2 as of December 31, 2022 and 1.8 as of December 31, 2021. Our primary working capital, which is comprised of accounts receivable, inventories and accounts payable was $332.0 million as of December 31, 2022 and $250.5 million as of December 31, 2021. Our debt-to-capital ratio was 40.9% as of December 31, 2022, compared to 38.1% as of December 31, 2021.

The Company's Board of Directors authorized a quarterly cash dividend of $0.265 per share payable on March 15, 2023, to shareholders of record at the close of business on March 3, 2023.

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Cash Flow from Operating Activities

Net cash used in operating activities in 2022 was $25.1 million compared to net cash provided by operating activities of $69.4 million in 2021. The increase in cash used was primarily driven by an increase in working capital attributable to investments in inventory required to support an anticipated ramp in production; higher accounts receivables due to increased sales to customers with extended payment terms; and increased cash payments for employee compensation and benefits and income taxes.

Cash Flow from Investing Activities

Net cash used in investing activities in 2022 was $24.5 million compared to net cash provided by investing activities of $1.7 million in 2021. In 2022, we used $25.0 million for capital expenditures compared to $19.4 million in 2021. The prior year period included $24.7 million of cash proceeds from sale of assets, net of cash divested in 2021 compared to $4.1 million of cash proceeds from sale of asset, net of cash divested in 2022.

Cash Flow from Financing Activities

Net cash provided by financing activities in 2022 was $8.1 million compared to net cash used in financing activities of $84.5 million in 2021. The increase in cash provided was primarily due to a decrease in repayments of borrowing and share repurchases in 2022, partly offset by increased dividend payments.

Cash Requirements

The company believes the liquidity available from the combination of expected cash generated by operating activities, existing cash and available credit under existing credit facilities will be sufficient to meet its short-term and long-term cash requirements. Significant contractual obligations include principal and interest payments on long-term debt (Note 9) and operating lease commitments (Note 15). We also have contractual purchase obligations of approximately $113 million for 2023.

Newly Issued Accounting Guidance

See Note 2 to the consolidated financial statements for information on new accounting pronouncements.

No other new accounting pronouncements issued but not yet effective have had, or are expected to have, a material impact on our results of operations or financial position.

Critical Accounting Policies and Estimates

Our consolidated financial statements are based on the selection and application of accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and the accompanying notes. Our significant accounting policies are described in Note 1 to the consolidated financial statements. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to the consolidated financial statements. We believe that the following policies may involve a higher degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our consolidated financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results.

Goodwill – Goodwill represents the excess of cost over the fair value of net assets of businesses acquired and is allocated to our reporting units at the time of the acquisition. We analyze goodwill on an annual basis and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount. We have the option of first analyzing qualitative factors to determine whether it is more likely than not that the fair value of any reporting unit is less than its carrying amount. However, we may elect to perform a quantitative goodwill impairment test in lieu of the qualitative test. An entity must recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Subsequent reversal of goodwill impairment charges is not permitted.

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When we perform a qualitative goodwill test, we analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative test indicates there may be an impairment, we perform the quantitative test, which measures the amount of the goodwill impairment, if any. To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach. The income approach is based on discounted cash flow models that use reporting unit estimates for forecasted future financial performance, including revenues, margins, operating expenses, capital expenditures, depreciation, amortization, tax and discount rates. These estimates are developed as part of our planning process based on assumed growth rates, along with historical data and various internal estimates. Projected future cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated risk-adjusted weighted-average cost of capital relevant to each reporting unit.

We perform our annual goodwill impairment analysis as of October 1 and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount. In 2020, we changed the goodwill impairment assessment date from December 31 to October 1 to better align with the timing of our annual planning process. The change did not result in any adjustments to our consolidated financial statements.

In 2022, we elected to perform the quantitative goodwill test in lieu of the qualitative test on all reporting units. Our tests indicated the fair value in each reporting unit was substantially in excess of its carrying value. There was no goodwill impairment in any of our reporting units as of our annual assessment date.

We had goodwill of $182.0 million and $193.1 million at December 31, 2022 and 2021, respectively.

Income Taxes – We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax obligations based on expected income, statutory tax rates and tax planning opportunities in the various jurisdictions. We also establish reserves for uncertain tax matters that are complex in nature and uncertain as to the ultimate outcome. Although we believe that our tax return positions are fully supportable, we consider our ability to ultimately prevail in defending these matters when establishing these reserves. We adjust our reserves in light of changing facts and circumstances, such as the closing of a tax audit. We believe that our current reserves are adequate. However, the ultimate outcome may differ from our estimates and assumptions and could impact the income tax expense reflected in our consolidated statements of income.

Tax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation expense on property, plant and equipment. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years but have already been recorded as an expense in our consolidated statements of income. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, based on management’s judgment, to the extent we believe that recovery is not more likely than not, we establish a valuation allowance against those deferred tax assets. The deferred tax asset valuation allowance could be materially different from actual results because of changes in the mix of future taxable income, the relationship between book and taxable income and our tax planning strategies. As of December 31, 2022, a valuation allowance of $3.3 million was recorded against foreign and state tax credit carryforwards.

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Cautionary Factors Relevant to Forward-Looking Information

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, contains certain statements that are considered “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:

•Geopolitical and economic uncertainty throughout the world.

•Uncertainty surrounding the COVID-19 pandemic.

•Ability to comply with global laws and regulations.

•Ability to adapt to price sensitivity.

•Competition in our business.

•Fluctuations in the cost, quality or availability of raw materials and purchased components.

•Ability to adjust pricing to respond to cost pressures.

•Unforeseen product liability claims or product quality issues.

•Ability to attract, retain and develop key personnel and create effective succession planning strategies.

•Ability to effectively manage strategic plan or growth processes.

•Ability to successfully upgrade and evolve our information technology systems.

•Ability to successfully protect our information technology systems from cybersecurity risks.

•Occurrence of a significant business interruption.

•Ability to maintain the health and safety of our workforce.

•Ability to complete and integrate acquisitions.

•Ability to develop and commercialize new innovative products and services.

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. Information about factors that could materially affect our results can be found in Part I, Item 1A "Risk Factors" of this Form 10-K. 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.

We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Investors are advised to consult any further disclosures by us in our filings with the SEC 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.

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ITEM 7 – 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, reduce environmental impact and help create a cleaner, safer, healthier world. The Company is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including floor maintenance and cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, and asset management solutions. Our products are used in many types of environments, including retail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, and more. Customers include 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.

The year-over-year comparisons in this Management's Discussion and Analysis of Financial Condition and Results of Operations are as of and for the years ended December 31, 2021 and December 31, 2020, unless stated otherwise. The discussion of 2019 results and related year-over-year comparisons as of and for the years ended December 31, 2020 and December 31, 2019 are found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Form 10-K for the year ended December 31, 2020.

Impact of COVID-19

We continue to actively manage our business to respond to the COVID-19 pandemic and related impacts.

Throughout 2021 and into 2022, we have experienced disruption in the supply of raw materials and component parts, as well as raw material price inflation and inefficiencies as a result of supply chain issues. Although we regularly monitor the financial health and operations of companies in our supply chain, financial hardship or government restrictions on our suppliers or sub-suppliers caused by the COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or component parts required to manufacture our products and adversely affect our operations. We have established frequent communications with suppliers to review, track and prioritize high-risk components. We have also identified and activated alternative suppliers, materials and components as needed. The Company continues work to minimize the impact of price inflation in inputs and market supply challenges by employing local-for-local and region-for-region manufacturing and sourcing to allow us to manufacture our products closer to our customers. At the same time, our engineering teams are evaluating platform design to allow for available parts and to increase our sourcing flexibility. Regarding transportation, we have set up tracking, reporting and communication channels with carriers to understand their risks and to evaluate available options where necessary. We expect the supply chain challenges and inflationary trends to continue into 2022.

We maintain our commitment to protect the health and safety of our employees and customers. We have continued our enhanced safety protocols for those on-site at our manufacturing facilities, and we have implemented work-from home processes for much of our workforce which partially remain in effect. We continue to monitor the evolving situation and guidance from local authorities.

All indications are that 2022 will require us to be agile as we manage through the year. However, as many governments shift their COVID-19 governance strategies from pandemic to endemic, and demand for our products remains strong, we remain confident in the long-term growth trends for all our products and locations.

For more information regarding factors and events that may impact our business, results of operations and financial condition as a result of the COVID-19 pandemic, see Item 1A. Risk Factors

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Historical Results

The following table compares the historical results of operations for the years ended December 31, 2021, 2020 and 2019 in dollars and as a percentage of Net Sales (in millions, except per share amounts and percentages):

Net Sales

Consolidated net sales in 2021 totaled $1,090.8 million, a 9.0% increase as compared to consolidated net sales of $1,001.0 million in 2020.

The 9.0% increase in consolidated net sales for 2021 as compared to 2020 was driven by:

The following table sets forth annual net sales by geographic area and the related percentage change from the prior year (in millions, except percentages):

Americas

Net sales in the Americas were $658.3 million in 2021, an increase of 4.3% from 2020. Organic sales growth in the Americas favorably impacted net sales by approximately 7.4% due to volume growth in most business units and product categories compared to 2020, which was more impacted by COVID-19. Price increases also contributed to organic sales growth. Foreign currency exchange within the Americas favorably impacted net sales by approximately 0.2% in 2021. The growth was partly offset by declines in the Company's AMR business, due to the lapping of a large order in North America in the prior year. At the same time, the business unit was directly impacted by global supply chain and labor constraints, which resulted in lower revenue than expected and increased backlog levels. The divestiture of the Coatings business resulted in a decline in net sales of approximately 3.3% in 2021.

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Europe, Middle East and Africa ("EMEA")

EMEA net sales were $331.9 million in 2021, an increase of 19.3% from 2020. Organic sales growth in EMEA favorably impacted net sales by approximately 14.2% in 2021 primarily due to market growth across the business unit and product categories compared to 2020, which was more impacted by COVID-19. Foreign currency exchange within EMEA favorably impacted net sales by approximately 5.1% in 2021.

Asia Pacific ("APAC")

APAC net sales were $100.6 million in 2021, an increase of 9.6% from 2020. Organic sales growth in APAC favorably impacted net sales by approximately 5.6% in 2021 primarily due to growth in Korea and Australia, partly offset by supply chain and labor challenges in our North American plants that supply APAC. Foreign currency exchange within APAC favorably impacted net sales by approximately 4.0% in 2021.

Gross Profit

Gross profit margin of 40.2% was 50 basis points lower in 2021 compared to 2020. The margin rate decrease was primarily driven by significant raw material and component parts inflation and higher freight costs, partly offset by higher selling prices.

Operating Expenses

Selling and Administrative Expense

Selling and Administrative ("S&A") expense was $321.9 million in 2021, an increase of $7.9 million compared to 2020. As a percentage of net sales, S&A expense in 2021 decreased 190 basis points to 29.5% from 31.4% in 2020. The S&A increase in 2021 was primarily driven by more normalized spending as profitability improved compared to 2020, when the Company took cost containment actions, including employee furloughs, reduction in travel spending, and temporary pay reductions, as well as benefits from government programs received related to COVID-19. The benefits represented wage subsidies received from various European and Canadian authorities that are not required to be repaid.

Research and Development Expense

Research and Development ("R&D") expense was $32.2 million, or 3% of net sales, in 2021, nearly flat as a percentage of net sales compared to 2020.

We believe that our research and development efforts have been, and continue to be, key drivers of our success in the marketplace.

Gain on Sale of Business

Gain on sale of business was $9.8 million in 2021 as a result of the sale of the Coatings business that occurred in the first quarter of 2021.

Total Other Expense, Net

Interest Expense, Net

Interest expense, net was $7.3 million of net expense in 2021, compared to $17.4 million in 2020, respectively. The decrease in 2021 was due to the restructuring of debt in the second quarter of 2021, which resulted in lower interest expense from more favorable interest rates and a lower amount of outstanding debt.

Net Foreign Currency Transaction Loss

Net foreign currency transaction loss was $0.7 million in 2021, compared to $5.3 million in 2020. The unfavorable impact from foreign currency transactions in 2021 and 2020 was primarily due to strengthening of the U.S. dollar relative to the Brazilian real. The reduction of losses recognized in 2021 compared to 2020 is driven by stabilization in the currency markets in the current year versus the previous year.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $11.3 million in 2021 due to the restructuring of debt that occurred in the second quarter of 2021.

Income Taxes

The effective tax rate for 2021 was 12.5% compared to 17.9% in 2020. The effective tax rate in 2021 decreased primarily due to a tax benefit resulting from an election to step-up the tax basis of certain assets for Italian tax purposes, as well as the release of certain valuation allowances related to net operating loss carryovers.

In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial. No deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our foreign investments to the U.S.

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Backlog

Backlog is one of the many indicators of business conditions in the Company's markets.  Our order backlog at December 31, 2021 was approximately 3x - 5x larger compared to previous years.  The increase in our order backlog year over year was primarily due to higher order rates coupled with persistent supply chain challenges and labor constraints. We expect this level of backlog to continue in 2022. Backlog includes orders that can be cancelled or postponed at the option of the customer at any time without penalty.

Liquidity and Capital Resources

Liquidity

Our primary liquidity needs are to fund working capital, fund investments, service our debt, maintain cash reserves and capital expenditures. Our sources of liquidity include cash generated from operations, borrowings under our revolving credit facility and from time to time, debt and equity offerings. We believe our current resources are sufficient to meet our working capital requirements for our current business for at least the next 12 months and thereafter for the foreseeable future.

Cash, cash equivalents and restricted cash totaled $123.6 million at December 31, 2021, as compared to $141.0 million as of December 31, 2020. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 1.8 as of December 31, 2021 and 1.9 as of December 31, 2020, and our primary working capital, which is comprised of accounts receivable, inventories and accounts payable was $250.5 million and $221.3 million, respectively. Our debt-to-capital ratio was 38.1% as of December 31, 2021, compared to 43.2% as of December 31, 2020.

In the second quarter of 2021, we signed an agreement (the "2021 Credit Agreement") that restructured our previous credit agreement. The 2021 Credit Agreement provides greater flexibility with fewer restrictive covenants and more favorable interest rates than the previous arrangement, consisting of a term loan facility in an amount up to $100.0 million and a revolving facility in an amount up to $450.0 million with an option to expand the revolving facility by up to $275.0 million with the consent of the lenders willing to provide additional borrowings in the form of increases to their revolving facility commitment or funding of incremental term loans. As a result, we expect future interest expense to be lower by approximately $1.0 million per month as compared to periods prior to the debt restructuring. In the second quarter of 2021, we used the proceeds from the 2021 Credit Agreement to retire our 5.625% Senior Notes due 2025. As of December 31, 2021, we had outstanding borrowings of $98.8 million and $168.0 million under our term loan facility and revolving facility, respectively. As of December 31, 2021, we had letters of credit and bank guarantees outstanding in the amount of $2.9 million, leaving approximately $279.1 million of unused borrowing capacity on our revolving facility. See Note 9 to the consolidated financial statements for more detail on the 2021 Credit Agreement.

The Company's Board of Directors has authorized a quarterly cash dividend of $0.25 per share payable March 15, 2022, to shareholders of record on March 3, 2022.

Cash Flow from Operating Activities

Operating activities provided $69.4 million of cash in 2021. Cash provided by operating activities was driven primarily by inflows from a strong performance influencing net income, by adding back non-cash items of $52.9 million and an increase in accounts payable of $19.1 million offset by outflows from an increase in inventory of $56.0 million and an increase in receivables of $20.3 million.

Cash Flow from Investing Activities

Investing activities in 2021 provided $1.7 million, resulting from $24.7 million of proceeds from the sale of our Coatings business net of cash divested, partially offset by $19.4 million of capital expenditures and $3.7 million from investments in leased assets. Cash used for capital expenditures decreased from 2020 due to the investments in the new corporate headquarters that occurred in 2020.

Cash Flow from Financing Activities

Net cash used in financing activities was $84.5 million in 2021. Proceeds from borrowings of $315.8 million and issuance of common stock of $5.0 million were mainly offset by payments of debt of $362.0 million, dividend payments of $17.5 million, repurchases of common stock of $15.0 million, a debt extinguishment payment of $8.4 million, and a contingent consideration payment of $2.5 million.

Contractual Obligations

The company believes the liquidity available from the combination of expected cash generated by operating activities, existing cash and available credit under existing credit facilities will be sufficient to meet its short-term and long-term cash requirements. Significant contractual obligations include principal and interest payments on long-term debt (Note 9) and operating lease commitments (Note 15).  We also have contractual purchase obligations of $125.7 million for 2022.

Newly Issued Accounting Guidance

See Note 2 to the consolidated financial statements for information on new accounting pronouncements.

No other new accounting pronouncements issued but not yet effective have had, or are expected to have, a material impact on our results of operations or financial position.

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Critical Accounting Policies and Estimates

Our consolidated financial statements are based on the selection and application of accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and the accompanying notes. Our significant accounting policies are described in Note 1 to the consolidated financial statements. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to the consolidated financial statements. We believe that the following policies may involve a higher degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our consolidated financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results.

Goodwill – Goodwill represents the excess of cost over the fair value of net assets of businesses acquired and is allocated to our reporting units at the time of the acquisition. We analyze goodwill on an annual basis and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount. We have the option of first analyzing qualitative factors to determine whether it is more likely than not that the fair value of any reporting unit is less than its carrying amount. However, we may elect to perform a quantitative goodwill impairment test in lieu of the qualitative test. An entity must recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Subsequent reversal of goodwill impairment charges is not permitted.

When we perform a qualitative goodwill test, we analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative test indicates there may be an impairment, we perform the quantitative test, which measures the amount of the goodwill impairment, if any. To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach. The income approach is based on discounted cash flow models that use reporting unit estimates for forecasted future financial performance, including revenues, margins, operating expenses, capital expenditures, depreciation, amortization, tax and discount rates. These estimates are developed as part of our planning process based on assumed growth rates, along with historical data and various internal estimates. Projected future cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated risk-adjusted weighted-average cost of capital relevant to each reporting unit.

We perform our annual goodwill impairment analysis as of October 1 and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount. In 2020, we changed the goodwill impairment assessment date from December 31 to October 1 to better align with the timing of our annual planning process. The change did not result in any adjustments to our consolidated financial statements.

In 2021, we performed the qualitative goodwill test on all reporting units except on Europe, Middle East and Africa (EMEA) for which we performed a quantitative goodwill test. Our tests indicated that there was no goodwill impairment in any of our reporting units as of our annual assessment date.

We had goodwill of $193.1 million and $207.8 million at December 31, 2021 and 2020, respectively.

Income Taxes – We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax obligations based on expected income, statutory tax rates and tax planning opportunities in the various jurisdictions. We also establish reserves for uncertain tax matters that are complex in nature and uncertain as to the ultimate outcome. Although we believe that our tax return positions are fully supportable, we consider our ability to ultimately prevail in defending these matters when establishing these reserves. We adjust our reserves in light of changing facts and circumstances, such as the closing of a tax audit. We believe that our current reserves are adequate. However, the ultimate outcome may differ from our estimates and assumptions and could impact the income tax expense reflected in our consolidated statements of income.

Tax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation expense on property, plant and equipment. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years but have already been recorded as an expense in our consolidated statements of income. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, based on management’s judgment, to the extent we believe that recovery is not more likely than not, we establish a valuation allowance against those deferred tax assets. The deferred tax asset valuation allowance could be materially different from actual results because of changes in the mix of future taxable income, the relationship between book and taxable income and our tax planning strategies. As of December 31, 2021, a valuation allowance of $4.8 million was recorded against foreign and state tax credit carryforwards.

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Cautionary Factors Relevant to Forward-Looking Information

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, contains certain statements that are considered “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:

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. Information about factors that could materially affect our results can be found in Part I, Item 1A "Risk Factors" of this Form 10-K. 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.

We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Investors are advised to consult any further disclosures by us in our filings with the SEC 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.

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