TENNANT CO 10-Q

Item 1. Financial Statements   TENNANT COMPANY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)       Three Months Ended     Six Months Ended   (In millions, except shares and per share data)   June 30,     June 30,       2021     2020     2021     2020   Net sales   $ 279.1     $ 214.0     $ 542.4     $ 466.1   Cost of sales     164.2       124.5       314.2       273.8   Gross profit     114.9       89.5       228.2       192.3   Research and development expense     8.3       6.6       15.7       14.0   Selling and administrative expense     86.2       60.0       155.8       141.0   Operating income     20.4       22.9       56.7       37.3   Interest expense, net     ( 2.1 )     ( 4.8 )     ( 6.0 )     ( 9.0 ) Net foreign currency transaction gain (loss)     —       —       0.5       ( 4.1 ) Loss on extinguishment of debt     ( 11.3 )     —       ( 11.3 )     —   Other income (expense), net     0.2       ( 0.2 )     0.3       —   Income before income taxes     7.2       17.9       40.2       24.2   Income tax (benefit) expense     ( 2.6 )     3.6       4.7       4.7   Net income including noncontrolling interest     9.8       14.3       35.5       19.5   Net income attributable to Tennant Company   $ 9.8     $ 14.3     $ 35.5     $ 19.5                                     Net income attributable to Tennant Company per share                                 Basic   $ 0.53     $ 0.78     $ 1.92     $ 1.06   Diluted   $ 0.51     $ 0.77     $ 1.88     $ 1.05                                     Weighted average shares outstanding                                 Basic     18,547,276       18,347,189       18,501,930       18,317,003   Diluted     18,931,703       18,584,693       18,879,616       18,614,527     See accompanying notes to consolidated financial statements.       TENNANT COMPANY CONSOLIDATED   STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)       Three Months Ended     Six Months Ended   (In millions)   June 30,     June 30,       2021     2020     2021     2020   Net income including noncontrolling interest   $ 9.8     $ 14.3     $ 35.5     $ 19.5   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)     4.9       4.5       ( 5.8 )     ( 6.8 ) Pension and postretirement medical benefits (net of related tax benefit of $ 0.1 million, $ 0 million, $ 0.1 million, and $ 0 million, respectively)     0.1       —       0.1       —   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 )     3.3   Total other comprehensive income (loss), net of tax     4.9       4.1       ( 5.8 )     ( 3.5 )                                   Total comprehensive income including noncontrolling interest     14.7       18.4       29.7       16.0   Comprehensive income attributable to Tennant Company   $ 14.7     $ 18.4     $ 29.7     $ 16.0     See accompanying notes to consolidated financial statements.   3 Table of Contents     TENNANT COMPANY CONSOLIDATED BALANCE SHEETS         (Unaudited)               June 30,     December 31,   (In millions, except shares and per share data)   2021     2020   ASSETS                 Cash, cash equivalents, and restricted cash   $ 135.1     $ 141.0   Receivables, less allowances of $ 5.1 and $ 4.6 , respectively     207.6       199.9   Inventories     148.2       127.7   Prepaid and other current assets     31.5       25.0   Total current assets     522.4       493.6   Property, plant and equipment, less accumulated depreciation of $ 262.5 and $ 252.0 , respectively     172.1       185.5   Operating lease assets     45.6       44.5   Goodwill     202.0       207.8   Intangible assets, net     111.1       126.2   Other assets     28.2       25.0   Total assets   $ 1,081.4     $ 1,082.6   LIABILITIES AND TOTAL EQUITY                 Current portion of long-term debt   $ 3.2     $ 10.9   Accounts payable     118.5       106.3   Employee compensation and benefits     61.0       53.7   Other current liabilities     101.6       83.4   Total current liabilities     284.3       254.3   Long-term debt     266.0       297.6   Long-term operating lease liabilities     29.5       28.7   Employee-related benefits     17.3       17.9   Deferred income taxes     33.4       39.1   Other liabilities     13.4       38.9   Total long-term liabilities     359.6       422.2   Total liabilities   $ 643.9     $ 676.5   Commitments and contingencies (Note 12)                     Common Stock, $ 0.375 par value; 60,000,000 shares authorized; 18,665,065 and 18,503,805 shares issued and outstanding, respectively   $ 7.0     $ 6.9   Additional paid-in capital     64.9       54.7   Retained earnings     390.2       363.3   Accumulated other comprehensive loss     ( 25.9 )     ( 20.1 ) Total Tennant Company shareholders' equity     436.2       404.8   Noncontrolling interest     1.3       1.3   Total equity     437.5       406.1   Total liabilities and total equity   $ 1,081.4     $ 1,082.6     See accompanying notes to consolidated financial statements.   4 Table of Contents     TENNANT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)       Six Months Ended   (In millions)   June 30,       2021     2020   OPERATING ACTIVITIES                 Net income including noncontrolling interest   $ 35.5     $ 19.5   Adjustments to reconcile net income to net cash provided by operating activities:                 Depreciation     16.2       15.7   Amortization of intangible assets     10.3       10.0   Deferred income taxes     ( 5.9 )     ( 2.7 ) Share-based compensation expense     7.0       2.8   Bad debt and returns expense     0.9       0.7   Acquisition contingent consideration adjustment     0.7       ( 0.3 ) Gain on sale of business     ( 9.8 )     —   Debt extinguishment cost     11.3       —   Other, net     1.3       2.0   Changes in operating assets and liabilities:                 Receivables     ( 13.5 )     38.3   Inventories     ( 32.3 )     ( 5.1 ) Accounts payable     16.9       ( 17.8 ) Employee compensation and benefits     7.5       ( 16.4 ) Other assets and liabilities     ( 8.3 )     1.8   Net cash provided by operating activities     37.8       48.5   INVESTING ACTIVITIES                 Purchases of property, plant and equipment     ( 8.0 )     ( 18.4 ) Proceeds from disposals of property, plant and equipment     —       0.1   Proceeds from sale of business, net of cash divested     24.7       —   Purchase of intangible assets     —       ( 0.1 ) Net cash provided by (used in) investing activities     16.7       ( 18.4 ) FINANCING ACTIVITIES                 Proceeds from borrowings     315.8       126.4   Repayments of debt     ( 360.4 )     ( 125.5 ) Debt extinguishment payment     ( 8.4 )     —   Contingent consideration payment     ( 0.5 )     —   Change in finance lease obligations     0.2       ( 0.1 ) Proceeds from issuance of common stock     3.3       2.6   Dividends paid     ( 8.6 )     ( 8.1 ) Net cash used in financing activities     ( 58.6 )     ( 4.7 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash     ( 1.8 )     ( 0.7 ) Net (decrease) increase in cash, cash equivalents and restricted cash     ( 5.9 )     24.7   Cash, cash equivalents and restricted cash at beginning of period     141.0       74.6   Cash, cash equivalents and restricted cash at end of period   $ 135.1     $ 99.3     5 Table of Contents   SUPPLEMENTAL CASH FLOW INFORMATION   Six Months Ended       June 30,       2021     2020   Cash paid for income taxes   $ 9.5     $ 0.8   Cash paid for interest     9.6       9.4   Cash paid for amounts included in the measurement of lease liabilities:                 Operating cash flows from operating leases     10.5       9.8   Financing cash flows from financing leases     —       0.1   Lease assets obtained in exchange for new operating lease liabilities     11.5       4.7   Supplemental non-cash investing and financing activities:                 Capital expenditures in accounts payable     0.7       5.4     See accompanying notes to consolidated financial statements.   6 Table of Contents     TENNANT COMPANY CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)   (In millions, except shares and per share data)       Tennant Company Shareholders                       Common Shares     Common Stock     Additional Paid-in Capital     Retained Earnings     Accumulated Other Comprehensive Loss     Tennant Company Shareholders' Equity     Noncontrolling Interest     Total Equity   Balance, December 31, 2020     18,503,805     $ 6.9     $ 54.7     $ 363.3     $ ( 20.1 )   $ 404.8     $ 1.3     $ 406.1   Net income             —       —       25.7       —       25.7       —       25.7   Other comprehensive loss             —       —       —       ( 10.7 )     ( 10.7 )     —       ( 10.7 ) Issue stock for directors, employee benefit and stock plans, net of related tax withholdings and repurchases of 22,724 shares     102,681       0.1       1.3       —       —       1.4       —       1.4   Share-based compensation             —       3.1       —       —       3.1       —       3.1   Dividends paid $ 0.23 per common share             —       —       ( 4.2 )     —       ( 4.2 )     —       ( 4.2 ) Balance, March 31, 2021     18,606,486     $ 7.0     $ 59.1     $ 384.8     $ ( 30.8 )   $ 420.1     $ 1.3     $ 421.4   Net income             —       —       9.8       —       9.8       —       9.8   Other comprehensive income             —       —       —       4.9       4.9       —       4.9   Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 3,305 shares     58,579       —       1.9       —       —       1.9       —       1.9   Share-based compensation             —       3.9       —       —       3.9       —       3.9   Dividends paid $ 0.23 per common share             —       —       ( 4.4 )     —       ( 4.4 )     —       ( 4.4 ) Balance, June 30, 2021     18,665,065     $ 7.0     $ 64.9     $ 390.2     $ ( 25.9 )   $ 436.2     $ 1.3     $ 437.5         Tennant Company Shareholders                       Common Shares     Common Stock     Additional Paid-in Capital     Retained Earnings     Accumulated Other Comprehensive Loss     Tennant Company Shareholders' Equity     Noncontrolling Interest     Total Equity   Balance, December 31, 2019     18,336,010     $ 6.9     $ 45.5     $ 346.0     $ ( 38.5 )   $ 359.9     $ 1.4     $ 361.3   Net income             —       —       5.2       —       5.2       —       5.2   Other comprehensive loss             —       —       —       ( 7.6 )     ( 7.6 )     —       ( 7.6 ) Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 15,756 shares     98,805       —       1.1       —       —       1.1       —       1.1   Share-based compensation             —       2.8       —       —       2.8       —       2.8   Dividends paid $ 0.22 per common share             —       —       ( 4.0 )     —       ( 4.0 )     —       ( 4.0 ) Other             —       —       ( 0.1 )     —       ( 0.1 )     —       ( 0.1 ) Balance, March 31, 2020     18,434,815     $ 6.9     $ 49.4     $ 347.1     $ ( 46.1 )   $ 357.3     $ 1.4     $ 358.7   Net income             —       —       14.3       —       14.3       —       14.3   Other comprehensive income             —       —       —       4.1       4.1       —       4.1   Issue stock for directors, employee benefit and stock plans, net of related tax withholdings of 3,399 shares     20,647       —       —       —       —       —       —       —   Dividends paid $ 0.22 per common share             —       —       ( 4.0 )     —       ( 4.0 )     —       ( 4.0 ) Balance, June 30, 2020     18,455,462     $ 6.9     $ 49.4     $ 357.4     $ ( 42.0 )   $ 371.7     $ 1.4     $ 373.1     See accompanying notes to consolidated financial statements.   7 Table of Contents   TENNANT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In millions, except shares and per share data)     1. Summary of Significant Accounting Policies   Tennant Company (the "Company", "we," "us" or "our") is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance, significantly reduce environmental impact and help create a cleaner, safer, healthier world.   Basis of Presentation – The accompanying unaudited consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission (“SEC”) requirements for interim reporting. In our opinion, the consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of our financial position and results of operations.   These statements should be read in conjunction with the consolidated financial statements and notes included in our annual report on Form 10 -K for the year ended December 31, 2020 . The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.   Reclassification – 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.     2. Newly Adopted Accounting Pronouncements   Income Taxes   On January 1, 2021, we adopted Accounting Standards Update ("ASU") No.   2019 - 12,   Income Taxes (Topic   740 ): Simplifying the Accounting for Income Taxes,  which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic  740. The impact of this amended guidance on our consolidated financial statements and related disclosures was immaterial.     3. Revenue   Disaggregation of Revenue   The following tables illustrate the disaggregation of revenue by geographic area, groups of similar products and services and sales channels:   Net sales by geographic area       Three Months Ended     Six Months Ended       June 30,     June 30,       2021     2020     2021     2020   Americas   $ 167.2     $ 136.3     $ 325.0     $ 298.9   Europe, Middle East and Africa     85.2       54.8       166.1       126.8   Asia Pacific     26.7       22.9       51.3       40.4   Total   $ 279.1     $ 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.   Net sales by groups of similar products and services       Three Months Ended     Six Months Ended       June 30,     June 30,       2021     2020     2021     2020   Equipment   $ 177.1     $ 134.6     $ 338.0     $ 288.7   Parts and consumables     62.3       43.2       124.6       97.5   Specialty surface coatings (a)     —       5.2       1.5       11.3   Service and other     39.7       31.0       78.3       68.6   Total   $ 279.1     $ 214.0     $ 542.4     $ 466.1     (a) On February 1, 2021, we sold our Coatings business.  Further details regarding the sale are discussed in Note 5.   Net sales by sales channel       Three Months Ended     Six Months Ended       June 30,     June 30,       2021     2020     2021     2020   Sales direct to consumer   $ 172.9     $ 143.3     $ 341.9     $ 310.9   Sales to distributors     106.2       70.7       200.5       155.2   Total   $ 279.1     $ 214.0     $ 542.4     $ 466.1       8 Table of Contents     Contract Liabilities   Sales Returns   The right of return may exist explicitly or implicitly with our customers. When the right of return exists, we adjust the transaction price for the estimated effect of returns. We estimate the expected returns using the expected value method by assessing historical sales levels and the timing and magnitude of historical sales return levels as a percent of sales and projecting this experience into the future.   Sales Incentives   Our sales contracts may contain various customer incentives, such as volume-based rebates or other promotions. We reduce the transaction price for certain customer programs and incentive offerings that represent variable consideration. Sales incentives given to our customers are recorded using the most likely amount approach for estimating the amount of consideration to which the Company will be entitled. We forecast the most likely amount of the incentive to be paid at the time of sale, update this forecast quarterly, and adjust the transaction price accordingly to reflect the new amount of incentives expected to be earned by the customer. A majority of our customer incentives are settled within one year. We record our accruals for volume-based rebates and other promotions in other current liabilities on our consolidated balance sheets.   The change in our sales incentive accrual balance was as follows:       Six Months Ended       June 30,       2021     2020   Beginning balance   $ 12.1     $ 13.7   Additions to sales incentive accrual     15.7       9.1   Contract payments     ( 13.0 )     ( 11.8 ) Foreign currency fluctuations     ( 0.1 )     ( 0.1 ) Divestiture of business     ( 0.1 )     —   Ending balance   $ 14.6     $ 10.9     Deferred Revenue   We sell separately priced prepaid contracts to our customers where we receive payment at the inception of the contract and defer recognition of the consideration received because we have to satisfy future performance obligations. Our deferred revenue balance is primarily attributed to prepaid maintenance contracts on our machines ranging from 12 months to 60 months. In circumstances where prepaid contracts are bundled with machines, we use an observable price to determine stand-alone selling price for separate performance obligations.   The change in the deferred revenue balance was as follows:       Six Months Ended       June 30,       2021     2020   Beginning balance   $ 9.3     $ 10.7   Increase in deferred revenue representing our obligation to satisfy future performance obligations     17.8       7.2   Decrease in deferred revenue for amounts recognized in net sales for satisfied performance obligations     ( 17.1 )     ( 7.3 ) Foreign currency fluctuations     0.1       ( 0.2 ) Ending balance   $ 10.1     $ 10.4       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   $ 5.7   2022     2.2   2023     1.3   2024     0.6   2025     0.2   Thereafter     0.1   Total   $ 10.1     At December 31, 2020 , $ 5.9 million and $ 3.4 million of deferred revenue was reported in other current liabilities and other liabilities, respectively, on our consolidated balance sheets.   9 Table of Contents     4. Management Actions   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 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. The pre-tax charge of $ 3.1 million consisted of $ 1.4 million of severance-related costs and $ 1.7 million of other costs in 2020. Of the restructuring costs, $ 1.2 million were included in cost of sales and $ 1.9 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.   In the first quarter of 2020, we implemented a restructuring action in an effort to streamline our operating model in Japan. The pre-tax charge of $ 2.0 million consisted of $ 1.3 million of severance-related costs and $ 0.7 million of other costs in 2020. 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.   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:       Severance-related costs   December 31, 2019 balance   $ 4.5   2020 activity:         New charges     6.2   Cash payments     ( 5.4 ) Foreign currency fluctuations     0.2   Adjustments to accrual     ( 1.0 ) December 31, 2020 balance   $ 4.5   2021 activity:         New charges     0.9   Cash payments     ( 1.2 ) Foreign currency fluctuations     ( 0.1 ) June 30, 2021 balance   $ 4.1     Other Actions   In 2019, we made the decision to discontinue certain product lines. In the first quarter of 2020, we recorded an additional $ 1.7 million in cost of sales in the consolidated statements of income to reflect our estimate of inventory that will not be sold.     5. Acquisition and Divestiture   Coatings   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.   Gaomei   On January 4, 2019, we completed the acquisition of Hefei Gaomei Cleaning Machines Co., Ltd. and Anhui Rongen Environmental Protection Technology Co., Ltd. (collectively "Gaomei"), privately held designers and manufacturers of commercial cleaning solutions based in China. 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. Final payments totaling $ 2.0 million are expected to be paid in the second half of 2021.   10 Table of Contents     6. Inventories   Inventories are valued at the lower of cost or net realizable value and consisted of the following:       June 30,     December 31,       2021     2020   Inventories carried at LIFO:                 Finished goods   $ 44.8     $ 42.4   Raw materials, production parts and work-in-process     30.5       21.6   Excess of FIFO over LIFO cost (a)     ( 34.4 )     ( 31.4 ) 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     56.9       40.1   Total FIFO inventories   $ 107.3     $ 95.1   Total inventories   $ 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.     7. Goodwill and Intangible Assets   The changes in the carrying value of goodwill for the six months ended June 30, 2021 were as follows:               Accumulated                       Impairment               Goodwill     Losses     Total   Balance as of December 31, 2020   $ 249.5     $ ( 41.7 )   $ 207.8   Divestiture     ( 1.7 )     —       ( 1.7 ) Foreign currency fluctuations     ( 3.9 )     ( 0.2 )     ( 4.1 ) 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     Trade Names     Technology     Total   Balance as of June 30, 2021                                 Original cost   $ 161.1     $ 31.6     $ 17.6     $ 210.3   Accumulated amortization     ( 75.9 )     ( 13.0 )     ( 10.3 )     ( 99.2 ) Carrying value   $ 85.2     $ 18.6     $ 7.3     $ 111.1   Weighted average original life (in years)     15       10       11                                             Balance as of December 31, 2020                                 Original cost   $ 166.2     $ 34.4     $ 17.9     $ 218.5   Accumulated amortization     ( 70.3 )     ( 12.3 )     ( 9.7 )     ( 92.3 ) Carrying value   $ 95.9     $ 22.1     $ 8.2     $ 126.2   Weighted average original life (in years)     15       11       11             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 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   $ 9.7   2022   17.6   2023     16.0   2024     14.4   2025     12.9   Thereafter     40.5   Total   $ 111.1     11 Table of Contents     8. Debt   2021 Credit Agreement   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. as administrative agent. 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 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  1;  and   • 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   Debt outstanding consisted of the following:       June 30,     December 31,       2021     2020   Senior unsecured notes   $ —     $ 300.0   Credit facility borrowings:                 Revolving credit facility borrowings     168.0       10.0   Term loan facility borrowings     100.0       —   Secured borrowings     1.1       1.5   Finance lease liabilities     0.1       0.1   Unamortized debt issuance costs     —       ( 3.1 ) Total debt     269.2       308.5   Less: current portion of long-term debt (a)     ( 3.2 )     ( 10.9 ) Long-term debt   $ 266.0     $ 297.6       (a) 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  3.6 % and net of a related cross-currency swap instrument is approximately 3.1 %. Further details regarding the cross-currency swap instrument are discussed in Note 10.     12 Table of Contents     9. Warranty   We record a liability for warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. Warranty terms on machines generally range from one to four years. However, the majority of our claims are paid out within the first six to nine months following a sale. The majority of the liability for estimated warranty claims represents amounts to be paid out in the near term for qualified warranty issues, with immaterial amounts reserved to be paid for older equipment warranty issues.   The changes in warranty reserves were as follows:       Six Months Ended       June 30,       2021     2020   Beginning balance   $ 11.1     $ 12.7   Additions charged to expense     4.3       3.7   Foreign currency fluctuations     ( 0.1 )     —   Claims paid     ( 4.7 )     ( 5.3 ) Ending balance   $ 10.6     $ 11.1       10. Derivatives   Hedge Accounting and Hedging Programs   We recognize all derivative instruments as either assets or liabilities in our consolidated balance sheets and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.   We evaluate hedge effectiveness on our hedges that are designated and qualify for hedge accounting at the inception of the hedge prospectively, as well as retrospectively, and record any ineffective portion of the hedging instruments along with the time value of purchased contracts in the same line item of the income statement as the item being hedged on our consolidated statements of income.   Our hedging policy establishes maximum limits for each counterparty to mitigate any concentration of risk.   Balance Sheet Hedging   Hedges of Foreign Currency Assets and Liabilities   We hedge our net recognized foreign currency denominated assets and liabilities with foreign exchange forward contracts to reduce the risk that the value of these assets and liabilities will be adversely affected by changes in exchange rates. These contracts hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value as either assets or liabilities on the consolidated balance sheets with changes in the fair value recorded to net foreign currency transaction gain (loss) in our consolidated statements of income. 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 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   Hedges of Forecasted Foreign Currency Transactions   In countries outside the U.S., we transact business in U.S. dollars and in various other currencies. We may use foreign exchange option contracts or forward contracts to hedge certain cash flow exposures resulting from changes in these foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities of up to one year. 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 $ 2.9 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   We use foreign currency exchange rate derivatives to hedge our exposure to fluctuations in exchange rates for anticipated intercompany cash transactions between Tennant Company and its subsidiaries. We entered into Euro to U.S. dollar foreign exchange cross-currency swaps for all of the anticipated cash flows associated with an intercompany loan from a wholly-owned European subsidiary. We enter into these foreign exchange cross-currency swaps to hedge the foreign currency denominated cash flows associated with this intercompany loan, and accordingly, they are not speculative in nature. These cross-currency swaps are designated as cash flow hedges. 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  € 6.0 million. 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 June 30, 2021 .   13 Table of Contents   The fair value of derivative instruments on our consolidated balance sheets was as follows:     Derivative Assets   Derivative Liabilities     Balance Sheet Location   June 30, 2021     December 31, 2020   Balance Sheet Location   June 30, 2021     December 31, 2020   Derivatives designated as hedging instruments:                                     Foreign currency forward contracts Other current assets   $ —     $ 1.9   Other current liabilities   $ 17.1     $ —   Foreign currency forward contracts Other assets     —       —   Other liabilities     —       24.1   Derivatives not designated as hedging instruments:                                     Foreign currency forward contracts Other current assets     1.2       0.4   Other current liabilities     —       0.7     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       June 30,     June 30,       2021     2020     2021     2020       Total     Amount of Gain (Loss) on Cash Flow Hedge Activity     Total     Amount of Gain (Loss) on Cash Flow Hedge Activity     Total     Amount of Gain (Loss) on Cash Flow Hedge Activity     Total     Amount of Gain (Loss) on Cash Flow Hedge Activity   Net sales   $ 279.1     $ ( 0.2 )   $ 214.0     $ —     $ 542.4     $ ( 0.3 )   $ 466.1     $ —   Interest expense, net     ( 2.1 )     0.5       ( 4.8 )     0.8       ( 6.0 )     1.1       ( 9.0 )     1.5   Net foreign currency transaction (loss) gain     —       ( 1.9 )     —       ( 3.0 )     0.5       5.4       ( 4.1 )     ( 0.3 )   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     Six Months Ended       June 30, 2021     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 (loss) gain recognized in other comprehensive loss, net of tax (a)   $ —     $ ( 1.3 )   $ —     $ 4.7   Net loss reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net sales     —       ( 0.2 )           ( 0.2 ) Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net     —       0.5       —       0.9   Net (loss) gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net foreign currency transaction gain     —       ( 1.5 )     —       4.1   Derivatives not designated as hedging instruments:                                 Net (loss) gain recognized in income (b)     —       ( 0.7 )     —       1.4         Three Months Ended     Six Months Ended       June 30, 2020     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 (loss) gain recognized in other comprehensive income (loss), net of tax (a)   $ ( 0.3 )   $ ( 1.8 )   $ —     $ 4.2   Net gain reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to interest expense, net     —       0.6       —       1.1   Net loss reclassified from accumulated other comprehensive loss into income, net of tax, effective portion to net foreign currency transaction loss     —       ( 2.3 )     —       ( 0.2 ) Derivatives not designated as hedging instruments:                                 Net (loss) gain recognized in income (b)     —       ( 1.6 )     —       0.6       (a) Net change in the fair value of the effective portion classified in other comprehensive loss.   (b) Classified in net foreign currency transaction gain (loss).   14 Table of Contents     11. Fair Value Measurements   Estimates of fair value for financial assets and financial liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:     •  Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.   •  Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.   •  Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.   Our population of assets and liabilities subject to fair value measurements at June 30, 2021 is as follows:       Fair                               Value     Level 1     Level 2     Level 3   Assets:                                 Foreign currency forward exchange contracts   $ 3.0     $ —     $ 3.0     $ —   Total assets   $ 3.0     $ —     $ 3.0     $ —   Liabilities:                                 Foreign currency forward exchange contracts   $ 18.9     $ —     $ 18.9     $ —   Total liabilities   $ 18.9     $ —     $ 18.9     $ —     Our population of assets and liabilities subject to fair value measurements at  December 31, 2020 is as follows:       Fair                               Value     Level 1     Level 2     Level 3   Assets:                                 Foreign currency forward exchange contracts   $ 3.0     $ —     $ 3.0     $ —   Total assets   $ 3.0     $ —     $ 3.0     $ —   Liabilities:                                 Foreign currency forward exchange contracts   $ 25.5     $ —     $ 25.5     $ —   Contingent consideration     1.8       —       —       1.8   Total liabilities   $ 27.3     $ —     $ 25.5     $ 1.8     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. Further details regarding our foreign currency forward exchange and option contracts are discussed in Note 10.   Contingent consideration is valued using a probability-weighted analysis of projected gross profit and integration milestones. Actual results may differ significantly from those used in the estimate above, which may affect future payments. Changes in future payments will be reflected in future operating results as they occur.   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 $ 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 . The fair value was calculated based on the borrowing rates currently available to us for bank loans with similar terms and remaining maturities, which is a Level 2 in the fair value hierarchy.   15 Table of Contents           12. Commitments and Contingencies   In the ordinary course of business, we may become liable with respect to pending and threatened litigation, tax, environmental and other matters. While the ultimate results of current claims, investigations and lawsuits involving us are unknown at this time, we do not expect that these matters will have a material adverse effect on our consolidated financial position or results of operations. Legal costs associated with such matters are expensed as incurred.     13. Accumulated Other Comprehensive Loss   The changes in components of accumulated other comprehensive loss, net of tax, are as follows:       Foreign Currency Translation Adjustments     Pension and Post-Retirement Medical Benefits     Cash Flow Hedge     Total   December 31, 2020   $ ( 19.1 )   $ ( 1.7 )   $ 0.7     $ ( 20.1 ) Other comprehensive (loss) income before reclassifications     ( 5.8 )     0.1       4.7       ( 1.0 ) Amounts reclassified from accumulated other comprehensive loss     —       —       ( 4.8 )     ( 4.8 ) Net current period other comprehensive (loss) income     ( 5.8 )     0.1       ( 0.1 )     ( 5.8 ) June 30, 2021   $ ( 24.9 )   $ ( 1.6 )   $ 0.6     $ ( 25.9 )     14. Income Taxes   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. federal income tax as well as income tax of numerous state and foreign jurisdictions. We are generally no longer subject to U.S. federal tax examinations for taxable years before 2018 and, with limited exceptions, state and foreign income tax examinations for taxable years before 2015.  We are currently undergoing income tax examinations in various foreign jurisdictions. Although the final outcome of these examinations cannot be currently determined, we believe that we have adequate reserves with respect to these examinations.   We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. 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.     15. Share-Based Compensation   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 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.     16 Table of Contents     16. Earnings Attributable to Tennant Company Per Share   The computations of basic and diluted earnings per share were as follows:       Three Months Ended     Six Months Ended       June 30,     June 30,       2021     2020     2021     2020   Numerator:                                 Net income attributable to Tennant Company   $ 9.8     $ 14.3     $ 35.5     $ 19.5   Denominator:                                 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     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  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.       17 Table of Contents