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Item 1. Financial Statements

2021-08-03 compared with 2021-05-04 · 382 added, 157 removed, 459 unchanged (54% of the section changed)

3 unchanged sentences

Three Months Ended

Six Months Ended

(In millions, except shares and per share data)

$ 279.1  

$ 214.0  

$ 542.4  

$ 466.1  

Cost of sales

Operating Expense:

Research and development expense

Selling and administrative expense

Total Operating Expense

Operating income

Other Income (Expense):

Interest Income

Interest Expense

Interest expense, net

( 2.1 )  

( 4.8 )  

( 6.0 )  

Net foreign currency transaction gain (loss)

Other Income, Net

Total Other Expense, Net

Income Before Taxes

Income Tax Expense

Loss on extinguishment of debt

( 11.3 )  

Other income (expense), net

( 0.2 )  

Income before income taxes

Income tax (benefit) expense

( 2.6 )  

Net income including noncontrolling interest

Net income attributable to Tennant Company

$ 14.3  

$ 35.5  

$ 19.5  

Net income attributable to Tennant Company per share

$ 0.53  

$ 0.78  

$ 1.92  

$ 1.06  

$ 0.51  

$ 0.77  

$ 1.88  

$ 1.05  

Weighted average shares outstanding

18,547,276  

18,347,189  

18,501,930  

18,317,003  

18,931,703  

18,584,693  

18,879,616  

18,614,527  

See accompanying notes to consolidated financial statements.

3 unchanged sentences

Three Months Ended

Six Months Ended

(In millions)

1 unchanged sentence

$ 14.3  

Other Comprehensive (Loss) Income:

Foreign Currency Translation Adjustments (net of related tax benefit of $ 0.1 million and $ 0 million, respectively)

$ 35.5  

Cash Flow Hedge (net of related tax expense of $ 0 million and $ 1.1 million, respectively)

Total Other Comprehensive Loss, Net of Tax

$ 19.5  

Total Comprehensive Income (Loss) Including Noncontrolling Interest

Comprehensive Income (Loss) Attributable to Tennant Company

Other comprehensive income (loss):

Foreign currency translation adjustments (net of related tax benefit (expense) of $ (0.3) million, $ 0.7 million, $ (0.2) million and $ 0.7 million, respectively)

( 5.8 )  

Pension and postretirement medical benefits (net of related tax benefit of $ 0.1 million, $ 0 million, $ 0.1 million, and $ 0 million, respectively)

Cash flow hedge (net of related tax benefit (expense) of $ 0 million, $ 0.1 million, $ 0 million, and $ (1.0) million, respectively)

( 0.1 )  

( 0.4 )  

( 0.1 )  

Total other comprehensive income (loss), net of tax

( 5.8 )  

Total comprehensive income including noncontrolling interest

Comprehensive income attributable to Tennant Company

$ 14.7  

$ 18.4  

$ 29.7  

$ 16.0  

See accompanying notes to consolidated financial statements.

3 unchanged sentences

(In millions, except shares and per share data)

Current Assets:

Cash, cash equivalents, and restricted cash

1 unchanged sentence

$ 141.0  

Trade, less Allowances of $ 4.9 and $ 4.6 , respectively

Net Receivables

Receivables, less allowances of $ 5.1 and $ 4.6 , respectively

Prepaid and other current assets

Total current assets

Property, Plant and Equipment

Accumulated Depreciation

( 254.7 )  

Property, Plant and Equipment, Net

Property, plant and equipment, less accumulated depreciation of $ 262.5 and $ 252.0 , respectively

Operating lease assets

3 unchanged sentences

LIABILITIES AND TOTAL EQUITY

Current Liabilities:

Current portion of long-term debt

$ 10.9  

Accounts payable

2 unchanged sentences

Total current liabilities

Long-Term Liabilities:

Long-term debt

5 unchanged sentences

Total liabilities

$ 643.9  

$ 676.5  

Commitments and contingencies (Note 12)

14 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(In millions)

1 unchanged sentence

Net income including noncontrolling interest

$ 35.5  

$ 19.5  

Adjustments to reconcile net income to net cash provided by operating activities:

1 unchanged sentence

Deferred income taxes

( 5.9 )  

Share-based compensation expense

Allowance for Doubtful Accounts and Returns

Bad debt and returns expense

Acquisition contingent consideration adjustment

Gain on sale of business

( 9.8 )  

Debt extinguishment cost

Changes in operating assets and liabilities:

Receivables, Net

( 13.5 )  

( 32.3 )  

Accounts payable

Employee compensation and benefits

Other Current Liabilities

Other assets and liabilities

( 8.3 )  

Net cash provided by operating activities

1 unchanged sentence

Purchases of property, plant and equipment

( 8.0 )  

Proceeds from disposals of property, plant and equipment

5 unchanged sentences

Repayments of debt

( 360.4 )  

Debt extinguishment payment

( 8.4 )  

Contingent consideration payment

( 0.5 )  

Change in finance lease obligations

1 unchanged sentence

Dividends paid

Net Cash (Used in) Provided by Financing Activities

( 8.6 )  

Net cash used in financing activities

( 58.6 )  

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Net Increase in Cash, Cash Equivalents and Restricted Cash

( 1.8 )  

Net (decrease) increase in cash, cash equivalents and restricted cash

( 5.9 )  

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

$ 135.1  

$ 99.3  

SUPPLEMENTAL CASH FLOW INFORMATION

Three Months Ended

Six Months Ended

Cash paid for income taxes

2 unchanged sentences

Operating cash flows from operating leases

Financing cash flows from financing leases

Lease assets obtained in exchange for new operating lease liabilities

19 unchanged sentences

$ 406.1  

Net Income  

Other Comprehensive Loss  

Other comprehensive loss

( 10.7 )  

2 unchanged sentences

102,681  

Share-Based Compensation  

Dividends paid $ 0.23 per Common Share  

Share-based compensation

Dividends paid $ 0.23 per common share

( 4.2 )  

7 unchanged sentences

$ 421.4  

Other comprehensive income

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 3,305 shares

58,579  

Share-based compensation

Dividends paid $ 0.23 per common share

( 4.4 )  

Balance, June 30, 2021

18,665,065  

$ 64.9  

$ 390.2  

$ ( 25.9 )  

$ 436.2  

$ 437.5  

Tennant Company Shareholders

30 unchanged sentences

$ 358.7  

Other comprehensive income

Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 3,399 shares

20,647  

Dividends paid $ 0.22 per common share

( 4.0 )  

Balance, June 30, 2020

18,455,462  

$ 49.4  

$ 357.4  

$ ( 42.0 )  

$ 371.7  

$ 373.1  

See accompanying notes to consolidated financial statements.

10 unchanged sentences

Reclassification –

We reclassified $ 1.3 million of costs from Selling and Administrative Expense to Cost of Sales in the Consolidated Statements of Income for the three months ended March 31, 2020 as part of a global alignment of cost across all regions.

We documented the summary of significant accounting policies in the Notes to Consolidated Financial Statements of our annual report on Form 10 -K for the fiscal year ended December 31, 2020 .

Other than the accounting policies noted above, there have been no material changes to our accounting policies since the filing of that report.

We reclassified $ 1.1 million and $ 2.4 million of costs from selling and administrative expense to cost of sales in the consolidated statements of income for the three and six months ended June 30, 2020, respectively.

These reclassifications were made as part of a global alignment of cost across all regions.

We documented the summary of significant accounting policies in the notes to consolidated financial statements in our annual report on Form 10 -K for the fiscal year ended December 31, 2020 .

There have been no material changes to our accounting policies since the filing of that report.

Newly Adopted Accounting Pronouncements

On January 1, 2021, we adopted ASU 

On January 1, 2021, we adopted Accounting Standards Update ("ASU") No.

2019 - 12,  

6 unchanged sentences

Three Months Ended

Six Months Ended

$ 167.2  

$ 136.3  

$ 325.0  

$ 298.9  

Europe, Middle East and Africa

1 unchanged sentence

$ 214.0  

$ 542.4  

$ 466.1  

Net sales are attributed to each geographic area based on the end user country and are net of intercompany sales.

1 unchanged sentence

Three Months Ended

Six Months Ended

$ 177.1  

$ 134.6  

$ 338.0  

$ 288.7  

Parts and consumables

3 unchanged sentences

$ 214.0  

$ 542.4  

$ 466.1  

(a) On February 1, 2021, we sold our Coatings business. 

2 unchanged sentences

Three Months Ended

Six Months Ended

Sales direct to consumer

1 unchanged sentence

$ 143.3  

$ 341.9  

$ 310.9  

Sales to distributors

1 unchanged sentence

$ 214.0  

$ 542.4  

$ 466.1  

Contract Liabilities

11 unchanged sentences

The change in our sales incentive accrual balance was as follows:

Three Months Ended

Six Months Ended

Beginning balance

6 unchanged sentences

( 0.1 )  

Divestiture of business  

( 0.1 )  

7 unchanged sentences

The change in the deferred revenue balance was as follows:

Three Months Ended

Six Months Ended

Beginning balance

7 unchanged sentences

$ 10.4  

At March 31, 2021 , $ 6.5 million and $ 3.5 million of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Consolidated Balance Sheets.

Of this, we expect to recognize the following approximate amounts in Net Sales in the following periods:

At June 30, 2021 , $ 6.6 million and $ 3.5 million of deferred revenue was reported in other current liabilities and other liabilities, respectively, on our consolidated balance sheets.

Of these amounts, we expect to recognize the following approximate amounts in net sales in the following periods:

Remaining 2021

3 unchanged sentences

Restructuring Actions

In the second quarter of 2021, we implemented a restructuring action impacting our Europe, Middle East and Africa ("EMEA") operating segment. The pre-tax charge of $ 0.9 million consisted of severance-related costs included in selling and administrative expense in the consolidated statements of income in 2021.

We expect no further charges related to this restructuring action. We estimate the savings will offset the pre-tax charge approximately one year from the date of the action.

In the fourth quarter of 2020, we implemented a restructuring action as part of our global reorganization efforts. The pre-tax charge of $ 3.5 million consisted of severance-related costs included in selling and administrative expense in the consolidated statements of income in 2020.

 The charge primarily impacted our Europe, Middle East and Africa ("EMEA") operating segment but also impacted the Americas and Asia Pacific ("APAC") operating segments. We expect no further charges related to this restructuring action. We estimate the savings will offset the pre-tax charge approximately one year from the date of the action.

 The charge primarily impacted our EMEA operating segment but also impacted the Americas and Asia Pacific ("APAC") operating segments. We expect no further charges related to this restructuring action. We estimate the savings will offset the pre-tax charge approximately one year from the date of the action.

In the third quarter of 2020, we implemented a restructuring action to consolidate our Gaomei business and our existing China business in order to deliver cost synergies and improve profitability.

6 unchanged sentences

Of the restructuring costs, $ 0.3 million were included in cost of sales and $ 1.7 million in selling and administrative expense in the consolidated statements of income. The charge impacted our APAC operating segment.

We expect no further charges related to this restructuring action. We estimate the savings will offset the pre-tax charge approximately one year from the date of the action.

We expect no further charges related to this restructuring action.

Our restructuring actions represent the continued execution of a multi-year enterprise strategy to drive increased productivity in all aspects of our operations.

A reconciliation of the beginning and ending liability balances is as follows:

3 unchanged sentences

Cash payments

Foreign currency adjustments

Foreign currency fluctuations

Adjustments to accrual

3 unchanged sentences

Foreign currency fluctuations

March 31, 2021 balance

June 30, 2021 balance

Other Actions

2 unchanged sentences

Acquisition and Divestiture

During the first quarter of 2021, we sold the Coatings business. The resulting pre-tax gain was $ 9.8 million and is reflected within Selling and Administrative Expense in our Consolidated Statements of Income.

During the first quarter of 2021, we sold the Coatings business. The resulting pre-tax gain was $ 9.8 million and is reflected within selling and administrative expense in the consolidated statements of income.

On January 4, 2019, we completed the acquisition of Hefei Gaomei Cleaning Machines Co., Ltd.

1 unchanged sentence

(collectively "Gaomei"), privately held designers and manufacturers of commercial cleaning solutions based in China.

The financial results for Gaomei have been included in the consolidated financial results since the date of closing.

The financial results for Gaomei have been included in our consolidated financial results since the date of closing.

The purchase price included contingent consideration. A payment of $ 0.5 million was paid in the first quarter of 2021.

 The final payment of $ 1.3 million is expected to be paid in the second quarter of 2021.

Final payments totaling $ 2.0 million are expected to be paid in the second half of 2021.

Inventories are valued at the lower of cost or net realizable value and consisted of the following:

1 unchanged sentence

Finished goods

$ 44.8  

$ 42.4  

Raw materials, production parts and work-in-process

Excess of FIFO over LIFO cost (a)

( 34.4 )  

Total LIFO inventories

$ 40.9  

$ 32.6  

Inventories carried at FIFO:

Finished goods

$ 50.4  

$ 55.0  

Raw materials, production parts and work-in-process

Total FIFO inventories

$ 107.3  

$ 95.1  

Total inventories

(a) Inventories of $ 36.4 million as of March 31, 2021 , and $ 32.6 million as of December 31, 2020 , were valued at LIFO.

The difference between replacement cost and the stated LIFO inventory value is not materially different from the reserve for the LIFO valuation method.

$ 148.2  

$ 127.7  

(a) The difference between replacement cost and the stated LIFO inventory value is not materially different from the reserve for the LIFO valuation method.

Goodwill and Intangible Assets

The changes in the carrying value of Goodwill for the three months ended March 31, 2021 were as follows:

The changes in the carrying value of goodwill for the six months ended June 30, 2021 were as follows:

Balance as of December 31, 2020

$ 249.5  

$ ( 41.7 )  

$ 207.8  

( 1.7 )  

Foreign currency fluctuations

Balance as of March 31, 2021

( 3.9 )  

( 0.2 )  

Balance as of June 30, 2021

$ 243.9  

$ ( 41.9 )  

$ 202.0  

The divestiture of goodwill during the first quarter of 2021 was the result of the sale of the Coatings business discussed in Note 5.

The balances of acquired intangible assets, excluding goodwill, were as follows:

Customer Lists

Balance as of March 31, 2021

Balance as of June 30, 2021

Original cost

$ 161.1  

$ 31.6  

$ 17.6  

$ 210.3  

Accumulated amortization

( 75.9 )  

( 13.0 )  

( 10.3 )  

Carrying value

$ 85.2  

$ 18.6  

$ 111.1  

Weighted average original life (in years)

1 unchanged sentence

Original cost

$ 166.2  

$ 34.4  

$ 17.9  

$ 218.5  

Accumulated amortization

( 70.3 )  

( 12.3 )  

( 9.7 )  

Carrying value

$ 95.9  

$ 22.1  

$ 126.2  

Weighted average original life (in years)

The divestiture of Goodwill during the first quarter of 2021 was the result of the sale of the coatings business disclosed in Note 5.

During the first quarter of 2021, we divested Identified Intangible Assets, excluding Goodwill, with a carrying value of $ 0.9 million and $ 1.4 million in the categories of Customer Lists and Trade Names, respectively, as a result of the sale of the coatings business disclosed in Note 5.

During the first quarter of 2021, we divested identified intangible assets, excluding goodwill, with a carrying value of $ 0.9 million and $ 1.4 million in the categories of customer lists and trade names, respectively, as a result of the sale of the Coatings business discussed in Note 5.

Amortization expense on intangible assets for the 

three months ended March 31, 2021  and March 31, 2020  was $ 5.3 million and $ 5.0 million, respectively.

three and six months ended June 30, 2021 was $ 5.0 million and $ 10.3 million, respectively. 

Amortization expense on intangible assets for the 

three and six months ended June 30, 2020 was $ 5.0 million and $ 10.0 million, respectively.

Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets for each of the five succeeding years and thereafter is as follows:

Remaining 2021

Financial Covenants

In 2017, the Company and certain of our foreign subsidiaries entered into a secured Credit Agreement (the "2017 Credit Agreement") with JPMorgan, as administrative agent, Goldman Sachs Bank USA, as syndication agent, Wells Fargo National Association, U.S.

Bank National Association, and HSBC Bank USA, National Association, as co-documentation agents, and the lenders (including JPMorgan) from time to time party thereto.

The 2017 Credit Agreement contains customary representations, warranties and covenants, including, but not limited to, covenants restricting the Company’s ability to incur indebtedness and liens and merge or consolidate with another entity, and expires in April 2022.

The 2017 Credit Agreement also contains financial covenants requiring us to maintain a net leverage ratio of consolidated net indebtedness to consolidated earnings before income, taxes, depreciation and amortization, subject to certain adjustments ("Adjusted EBITDA") of not greater than 4.00 to 1, as well as requiring us to maintain an interest coverage ratio of consolidated Adjusted EBITDA to consolidated interest expense of no less than 3.50 to 1 for the quarter ended March 31, 2021 .

The 2017 Credit Agreement also contains a financial covenant requiring us to maintain a senior secured net leverage ratio of consolidated senior secured net indebtedness to consolidated Adjusted EBITDA ratio of not greater than 3.50 to 1.

These financial covenants may restrict our ability to pay dividends and purchase outstanding shares of our common stock.

We were in compliance with our financial covenants at March 31, 2021 .

Senior Notes Guarantees

Our Senior Notes (the "Notes") are unconditionally and jointly and severally guaranteed by Tennant Sales and Service Company (the "Guarantor" or "Guarantor Subsidiary"), which is a 100 % owned subsidiary of the Company.

The Notes and the guarantees constitute senior unsecured obligations of the Company and the Guarantor, respectively.

The Notes and the guarantees, respectively, are:

(a) equal in right of payment with all of the Company's and the Guarantor senior debt, without giving effect to collateral arrangements;

(b) senior in right of payment to all of the Company's and the Guarantor future subordinated debt, if any;

(c) effectively subordinated in right of payment to all of the Company's and the Guarantor debt and obligations that are secured, including borrowings under the Company's senior secured credit facilities for so long as the senior secured credit facilities are secured, to the extent of the value of the assets securing such liens, and (d) structurally subordinated in right of payment to all liabilities (including trade payables) of the Company's and the Guarantor subsidiary that do not guarantee the Notes.

In the second quarter of 2020, the Company early adopted the SEC's rule titled "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant's Securities," which simplifies the disclosure requirements related to the Notes under Rule 3 - 10 of Regulation S- X.

Under this amended rule, the Company is not required to disclose separate financial statements for the guarantee as it no longer has a reporting requirement.

The Company has filed a Form 15 for the Guarantor to suspend the Company's duty to file reports on the guarantor financial statements.

$ 111.1  

2021 Credit Agreement

April 5, 2021, 

we and certain of our foreign subsidiaries entered into an Amended and Restated Credit Agreement (the 

“2021  Credit Agreement”) with JPMorgan Chase Bank, N.A.

as administrative agent.

2021  Credit Agreement provides us and certain of our foreign subsidiaries access to a senior secured credit facility until 

April 3, 2026, 

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 credit 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.

Borrowings 

be denominated in U.S.

dollars or certain other currencies.

The fee for committed funds under the revolving facility of the 

2021  Credit Agreement ranges from an annual rate of 

0.15 % to 

0.30 %, depending on our leverage ratio.

Borrowings denominated in U.S.

dollars under the 

2021  Credit Agreement bear interest at a rate per annum equal to (a) the greatest of (i) the prime rate, (ii) the federal funds rate plus 

0.50 % and (iii) the adjusted LIBO rate for a 

one  month period, but in any case, 

not  less than 

1 %, plus, in any such case, 

1.0 %, plus an additional spread of 

0.10 % to 

0.70 %, depending on our leverage ratio, or (b) the LIBO Rate, as adjusted for statutory reserve requirements for eurocurrency liabilities, but in any case, 

not  less than 

0 %, plus an additional spread of 

1.10 % to 

1.70 %, depending on our leverage ratio.

In connection with the 

2021  Credit Agreement, we reaffirmed our security interest in favor of the lenders in substantially all our personal property and pledged the stock of our domestic subsidiaries and 

65 % of the stock of our 

first -tier foreign subsidiaries.

The obligations under the 

2021  Credit Agreement are also guaranteed by certain of our 

first -tier domestic subsidiaries, and those subsidiaries also provided a security interest in their similar personal property.

2021  Credit Agreement contains customary representations, warranties and covenants, including but 

not  limited to covenants restricting our ability to incur indebtedness and liens and merge or consolidate with another entity.

Further, the 

2021  Credit Agreement contains the following covenants:

a covenant requiring us to maintain an indebtedness to EBITDA ratio, determined as of the end of each of our fiscal quarters, of 

no  greater than 

3.50  to 

1.00,  with certain alternative requirements for permitted acquisitions greater than $ 50.0  million;

a covenant requiring us to maintain an EBITDA to interest expense ratio for a period of 

four  consecutive fiscal quarters as of the end of each quarter of 

no  less than 

3.00  to 

a covenant restricting us from paying dividends or repurchasing stock if, after giving effect to such payments and assuming 

no  default exists or would result from such payment, our leverage ratio is greater than 

2.50  to 

1,  in such case limiting such payments to $ 60.0  million during any fiscal year.

Redemption of Senior Notes

In the second quarter of 2021, the Company redeemed $ 300.0 million principal amount outstanding of its 5.625 % Senior Notes due 2025 ("Senior Notes"). We used the proceeds from the borrowings under the 2021 Credit Agreement to retire our Senior Notes and pay the $ 8.4 million call premium due upon redemption in the second quarter of 2021.

In addition, we wrote off $ 2.9 million of unamortized debt issuance costs in the second quarter of 2021.

Debt Outstanding

2 unchanged sentences

$ 300.0  

Credit facility borrowings:

Revolving credit facility borrowings

Term loan facility borrowings

Secured borrowings

1 unchanged sentence

Unamortized debt issuance costs

( 3.0 )  

current portion of long-term debt (a)

3 unchanged sentences

$ 297.6  

The Company has the ability and intent to repay $ 35.6 million in outstanding credit facility borrowings, $ 0.7 million of current maturities of secured borrowings and $ 0.1 million of current maturities of finance lease liabilities over the next 12 months.

Therefore, $ 36.4 million of debt has been classified as a current liability on the Consolidated Balance Sheet at March 31, 2021 .

As of March 31, 2021 , we had outstanding borrowings under our Senior Unsecured Notes of $ 300.0 million.

In addition, we had outstanding borrowings of $ 10.0 million under our revolving facility and had letters of credit and bank guarantees outstanding in the amount of $ 3.2 million, leaving approximately 

$ 186.8 million of unused borrowing capacity on our revolving facility.

Commitment fees on unused lines of credit for the three months ended March 31, 2021 were $ 0.2 million.

As of June 30, 2021 , the Company is required to repay $ 2.5 million in outstanding credit facility borrowings, $ 0.6 million of current maturities of secured borrowings and $ 0.1 million of current maturities of finance lease liabilities over the next 12 months.

As of June 30, 2021 , we had outstanding borrowings of $ 100.0 million and $ 168.0 million under our term loan facility and revolving facility, respectively.

We had letters of credit and bank guarantees outstanding in the amount of $ 3.2 million, leaving approximately $ 278.8 million of unused borrowing capacity on our revolving facility.

Commitment fees on unused lines of credit for the six months ended June 30, 2021 were $ 0.5 million.

The overall weighted average cost of debt is approximately 

1 unchanged sentence

Further details regarding the cross-currency swap instrument are discussed in Note 10.

In April 2021, we signed an agreement that restructured our existing credit agreement.

In May 2021, we plan to use the proceeds from the amended agreement to retire our Senior Notes.

See Note 17 to the Consolidated Financial Statements for more detail on the amended credit agreement. 

We record a liability for warranty claims at the time of sale.

4 unchanged sentences

The changes in warranty reserves were as follows:

Three Months Ended

Six Months Ended

Beginning balance

$ 11.1  

$ 12.7  

Additions charged to expense

Foreign currency fluctuations

( 0.1 )  

( 4.7 )  

Ending balance

$ 10.6  

$ 11.1  

Hedge Accounting and Hedging Programs

8 unchanged sentences

These contracts do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being hedged.

At March 31, 2021 and December 31, 2020 , the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $ 50.7 million and $ 57.3 million, respectively.

At June 30, 2021 and December 31, 2020 , the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $ 44.3 million and $ 57.3 million, respectively.

Cash Flow Hedging

5 unchanged sentences

We enter into these foreign exchange contracts to hedge a portion of our forecasted foreign currency denominated revenue in the normal course of business, and accordingly, they are not speculative in nature.

The notional amounts of outstanding foreign currency forward contracts designated as cash flow hedges were $ 2.8 million as of March 31, 2021 and $ 2.7 million as of December 31, 2020 .

The notional amounts of outstanding foreign currency option contracts designated as cash flow hedges were $ 7.6 million and $ 8.2 million as of March 31, 2021 and December 31, 2020 , respectively.

The notional amounts of outstanding foreign currency forward contracts designated as cash flow hedges were $ 2.9 million as of June 30, 2021 and $ 2.7 million as of December 31, 2020 .

The notional amounts of outstanding foreign currency option contracts designated as cash flow hedges were $ 5.9 million and $ 8.2 million as of June 30, 2021 and December 31, 2020 , respectively.

Foreign Currency Derivatives

4 unchanged sentences

These cross-currency swaps are designated as cash flow hedges.

The hedged cash flows as of March 31, 2021 and December 31, 2020 included 

€157.8 million and 

€159.6 million of total notional values, respectively.

As of March 31, 2021 , the aggregate scheduled interest payments over the course of the loan and related swaps amounted to 

€7.8 million.

The hedged cash flows as of June 30, 2021 and December 31, 2020 included 

156.0 million and 

159.6 million of total notional values, respectively.

As of June 30, 2021 , the aggregate scheduled interest payments over the course of the loan and related swaps amounted to 

The scheduled maturity and principal payment of the loan and related swaps of 

€150.0 million are due in April 2022.

There were no new cross-currency swaps designated as cash flow hedges as of March 31, 2021 .

150.0 million are due in April 2022.

There were no new cross-currency swaps designated as cash flow hedges as of June 30, 2021 .

The fair value of derivative instruments on our consolidated balance sheets was as follows:

2 unchanged sentences

Balance Sheet Location

March 31, 2021

June 30, 2021

December 31, 2020

Balance Sheet Location

March 31, 2021

June 30, 2021

December 31, 2020

3 unchanged sentences

Other current liabilities

$ 17.1  

Foreign currency forward contracts

4 unchanged sentences

Other current liabilities

As of March 31, 2021 , we anticipate reclassifying approximately $ 2.1 million of gains from Accumulated Other Comprehensive Loss to net income during the next 12 months.

As of June 30, 2021 , we anticipate reclassifying approximately $ 0.8 million of gains from accumulated other comprehensive loss to net income during the next 12 months.

The following tables include the amounts in the consolidated statements of income in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items:

Three Months Ended

Six Months Ended

Amount of Gain (Loss) on Cash Flow Hedge Activity

Interest Income

Amount of Gain (Loss) on Cash Flow Hedge Activity

$ 279.1  

$ ( 0.2 )  

$ 214.0  

$ 542.4  

$ ( 0.3 )  

$ 466.1  

Interest expense, net

( 2.1 )  

( 4.8 )  

( 6.0 )  

( 9.0 )  

Net foreign currency transaction (loss) gain

( 1.9 )  

( 3.0 )  

( 4.1 )  

The effect of foreign currency derivative instruments designated as hedges and of foreign currency derivative instruments not designated as hedges in our consolidated statements of income was as follows:

Three Months Ended

March 31, 2021

Six Months Ended

June 30, 2021

Foreign Currency Option Contracts

Foreign Currency Forward Contracts

Foreign Currency Option Contracts

Foreign Currency Forward Contracts

Derivatives in cash flow hedging relationships:

Net gain recognized in Other Comprehensive Loss, net of tax (a)

Net gain reclassified from Accumulated Other Comprehensive Loss into income, net of tax, effective portion to Interest Income

Net gain reclassified from Accumulated Other Comprehensive Loss into income, net of tax, effective portion to Net Foreign Currency Transaction Gain

Net (loss) gain recognized in other comprehensive loss, net of tax (a)

$ ( 1.3 )  

Net loss reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net sales

( 0.2 )  

Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net

Net (loss) gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net foreign currency transaction gain

( 1.5 )  

Derivatives not designated as hedging instruments:

Net gain recognized in income (b)

Net (loss) gain recognized in income (b)

( 0.7 )  

Three Months Ended

March 31, 2020

Six Months Ended

June 30, 2020

Foreign Currency Option Contracts

Foreign Currency Forward Contracts

Foreign Currency Option Contracts

Foreign Currency Forward Contracts

Derivatives in cash flow hedging relationships:

Net gain recognized in Other Comprehensive Income (Loss), net of tax (a)

Net gain reclassified from Accumulated Other Comprehensive Loss into income, net of tax, effective portion to Interest Income

Net gain reclassified from Accumulated Other Comprehensive Loss into income, net of tax, effective portion to Net Foreign Currency Transaction Loss

Net (loss) gain recognized in other comprehensive income (loss), net of tax (a)

$ ( 0.3 )  

$ ( 1.8 )  

Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net

Net loss reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net foreign currency transaction loss

( 2.3 )  

Derivatives not designated as hedging instruments:

Net gain recognized in income (b)

Net (loss) gain recognized in income (b)

( 1.6 )  

Net change in the fair value of the effective portion classified in other comprehensive loss.

13 unchanged sentences

Unobservable inputs that reflect the reporting entity’s own assumptions.

Our population of assets and liabilities subject to fair value measurements at March 31, 2021 is as follows:

Our population of assets and liabilities subject to fair value measurements at June 30, 2021 is as follows:

Foreign currency forward exchange contracts

$ 18.9  

Total liabilities

$ 18.9  

Our population of assets and liabilities subject to fair value measurements at 

2 unchanged sentences

Foreign currency forward exchange contracts

$ 25.5  

Contingent consideration

Total liabilities

$ 27.3  

$ 25.5  

Our foreign currency forward exchange contracts are valued using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present value amount.

2 unchanged sentences

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable, other current assets, accounts payable and other current liabilities approximate fair value due to their short-term nature.

The fair value and carrying value of total debt, including current portion, were $ 320.3 million and $ 308.3 million, respectively, as of March 31, 2021 .

The fair value and carrying value of total debt, including current portion, were $ 268.0 million and $ 269.2 million, respectively, as of June 30, 2021 .

The fair value and carrying value of total debt, including current portion, were $ 323.4 million and $ 308.5 million, respectively, as of December 31, 2020 .

5 unchanged sentences

Accumulated Other Comprehensive Loss

Components of Accumulated Other Comprehensive Loss, net of tax, within the Consolidated Balance Sheets, are as follows:

March 31, 2021

December 31, 2020

Foreign currency translation adjustments

Pension and postretirement medical benefits

Cash flow hedge

Total Accumulated Other Comprehensive Loss

The changes in components of accumulated other comprehensive loss, net of tax, are as follows:

3 unchanged sentences

December 31, 2020

$ ( 19.1 )  

$ ( 1.7 )  

Other comprehensive (loss) income before reclassifications

( 5.8 )  

Amounts reclassified from accumulated other comprehensive loss

( 4.8 )  

Net current period other comprehensive (loss) income

March 31, 2021

( 5.8 )  

( 0.1 )  

June 30, 2021

$ ( 24.9 )  

$ ( 1.6 )  

The effective tax rate for the second quarter of 

2021 was ( 37.0% ) compared to 19.7 % for the second quarter of 2020.

The negative effective tax rate for the current quarter was primarily driven by a tax benefit of $ 3.4 million associated with the reversal of a valuation allowance related to tax loss carryovers in the Netherlands. The reversal was driven by a law change allowing an unlimited loss carryover period.

We and our subsidiaries are subject to U.S.

4 unchanged sentences

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.

In addition to the liability of $ 5.4 million for unrecognized tax benefits as of March 31, 2021 , there was approximately $ 0.7 million for accrued interest and penalties.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of March 31, 2021 was $ 5.3 million.

In addition to the liability of $ 4.7 million for unrecognized tax benefits as of June 30, 2021 , there was approximately $ 0.6 million for accrued interest and penalties.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of June 30, 2021 was $ 4.6 million.

To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be revised and reflected as an adjustment of the income tax expense.

1 unchanged sentence

Our share-based compensation plans are described in Note 18 of our annual report on Form 10 -K for the year ended December 31, 2020 .

During the three months ended March 31, 2021 and 2020 , we recognized total Share-Based Compensation Expense of $ 3.1 million and $ 2.8 million, respectively.

The total excess tax benefit recognized for share-based compensation arrangements during the three months ended March 31, 2021 and 2020 was $ 0.2 million and $ 0.4 million, respectively.

During the three months ended June 30, 2021 and 2020 , we recognized total share-based compensation expense of $ 3.9 million and less than $ 0.1 million, respectively.

During the six months ended 

June 30, 2021 and 2020 , we recognized total share-based compensation expense of $ 7.0 million and $ 2.8 million, respectively.

The total excess tax benefit recognized for share-based compensation arrangements during the six months ended June 30, 2021 and 2020 was $ 0.4 million and $ 0.3 million, respectively.

Earnings Attributable to Tennant Company Per Share

1 unchanged sentence

Three Months Ended

Six Months Ended

Net income attributable to Tennant Company

$ 14.3  

$ 35.5  

$ 19.5  

Basic - weighted average shares outstanding

18,547,276  

18,347,189  

18,501,930  

18,317,003  

Effect of dilutive securities:

Share-based compensation plans

384,427  

237,504  

377,686  

297,524  

Diluted - weighted average shares outstanding

Basic Earnings per Share

Diluted Earnings per Share

18,931,703  

18,584,693  

18,879,616  

18,614,527  

Basic earnings per share attributable to Tennant Company

$ 0.53  

$ 0.78  

$ 1.92  

$ 1.06  

Diluted earnings per share attributable to Tennant Company

$ 0.51  

$ 0.77  

$ 1.88  

$ 1.05  

Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 

143,505 and 

206,680 shares of common stock during the three months ended March 31, 2021 and 2020 , respectively.

818,912 shares of common stock during the three months ended June 30, 2021 and 2020 , respectively.

Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 

146,191 and 

532,564 shares of common stock during the six months ended 

June 30, 2021 and 2020 , respectively.

These exclusions were made if the exercise prices of the options are greater than the average market price of our common stock for the period, if the number of shares we can repurchase under the treasury stock method exceeds the weighted average shares outstanding in the options or if we have a net loss, as these effects are anti-dilutive.

Subsequent Event

Credit Facility

On April 5, 2021, we and certain of our foreign subsidiaries entered into an Amended and Restated Credit Agreement (the “2021 Credit Agreement”) with JPMorgan Chase Bank, N.A.

(“JPMorgan”), as administrative agent, U.S.

Bank National Association, and HSBC Bank USA, National Association, as co-syndication agents, Bank of the West, BMO Harris Bank, N.A., and Wells Fargo Bank, National Association, as co-documentation agents, and the Lenders (including JPMorgan) as defined in the 2021 Credit Agreement (the “Lenders”).

The 2021 Credit Agreement provides us and certain of our foreign subsidiaries access to a senior secured credit facility until April 3, 2026, 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 credit 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.

Borrowings may be denominated in U.S.

dollars or certain other currencies.

The fee for committed funds under the revolving facility of the 2021 Credit Agreement ranges from an annual rate of 0.15 % to 0.30 %, depending on our leverage ratio.

Borrowings denominated in U.S.

dollars under the 2021 Credit Agreement bear interest at a rate per annum equal to (a) the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50 % and (iii) the adjusted LIBO rate for a one month period, but in any case, not less than 1 %, plus, in any such case, 1.0 %, plus an additional spread of 0.10 % to 0.70 %, depending on our leverage ratio, or (b) the LIBO Rate, as adjusted for statutory reserve requirements for eurocurrency liabilities, but in any case, not less than 0 %, plus an additional spread of 1.10 % to 1.70 %, depending on our leverage ratio.

In connection with the 2021 Credit Agreement, we reaffirmed our security interest in favor of the lenders in substantially all our personal property, and pledged the stock of our domestic subsidiaries and 65 % of the stock of our first tier foreign subsidiaries.

The obligations under the 2021 Credit Agreement are also guaranteed by certain of our first tier domestic subsidiaries and those subsidiaries also provided a security interest in their similar personal property.

The 2021 Credit Agreement contains customary representations, warranties and covenants, including but not limited to covenants restricting our ability to incur indebtedness and liens and merge or consolidate with another entity.

Further, the 2021 Credit Agreement contains the following covenants:

• 

a covenant requiring us to maintain an indebtedness to EBITDA ratio, determined as of the end of each of its fiscal quarters, of no greater than 3.50 to 1.00, with certain alternative requirements for permitted acquisitions greater than $ 50.0 million;

• 

a covenant requiring us to maintain an EBITDA to interest expense ratio for a period of four consecutive fiscal quarters as of the end of each quarter of no less than 3.00 to 1;

• 

a covenant restricting us from paying dividends or repurchasing stock if, after giving effect to such payments and assuming no default exists or would result from such payment, our leverage ratio is greater than 2.50 to 1, in such case limiting such payments to $ 60.0 million during any fiscal year.

Redemption of Senior Notes

On April 2, 2021, we issued a conditional notice of redemption for $ 300.0 million principal amount outstanding of our 5.625 % Senior Notes due 2025 (CUSIP 880345 AB29 ) (the "Notes") in May 2021, subject to the satisfaction of the conditions.

The redemption of the Notes is subject to and conditioned upon Tennant’s receipt prior to the redemption date of funds from its term and revolving loan facility, that together with cash on hand, are sufficient to pay, in the sole discretion of the Company, the redemption price.

We plan to use the proceeds from the borrowings under the amended credit agreement to retire our Senior Notes and pay the $ 8.4 million call premium due upon redemption.

In addition, at the time of redemption of the Senior Notes, we will be writing off $ 2.8 million of unamortized debt issuance costs.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements