1. | | | 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-K10-K for the year ended December 31, 2019.2020. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. New Accounting Pronouncements Reclassification – In 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 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848). This ASU provides optional expedients to applying generally accepted accounting principles to certain contract modifications, hedging relationships, and other transactions affected by the reference rate reform, which affects the London Inter-bank Offered Rate, if certain criteria are met. The amendments are effective March 12, 2020 through December 31, 2022. We are evaluating whether to apply any2020 as part of the expedients and/or exceptions.
Further details regarding the adoptiona global alignment of new accounting standards are discussed in Note 2.
cost across all regions.We documented the summary of significant accounting policies in the Notes to the Consolidated Financial Statements of our annual report on Form 10-K10-K for the fiscal year ended December 31, 2019.2020. Other than the accounting policies noted above, there have been no material changes to our accounting policies since the filing of that report. 2. | | | 2. | Newly Adopted Accounting Pronouncements |
Financial Instruments
Income Taxes On January 1, 2020, 2021, we adopted ASU No. 2016-13, Financial Instruments-Credit Losses2019-12,Income Taxes (Topic 326)740): Measurement of Credit Losses on Financial Instruments, and all related amendments. This ASU improves financial reportingSimplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Underremoving certain exceptions to the new guidance, the ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. We evaluated thegeneral principles in Topic 740. The impact of this amended guidance on our consolidated financial statements and related disclosures and concluded that it iswas immaterial.
We estimate an allowance for doubtful accounts using a loss rate method. We considered the following in determining the expected loss rate: (1) historical loss rate, (2) macroeconomic factors, and (3) creditworthiness of customers.
The historical loss rate is calculated by taking the yearly write-off expense, net of collections, as a percentage of the annual average balance of trade receivables for each of the past three years.
A reconciliation of the beginning and ending allowance for doubtful accounts is as follows:
| | | | | | | | | Allowance for Doubtful Accounts: | | December 31, 2019 balance | | $ | 3.6 |
| | Charged to costs and expenses | | 1.5 |
| Deductions(a) | | (1.2 | ) | | September 30, 2020 balance | | $ | 3.9 |
|
3. | Revenue | (a)
| Includes accounts determined to be uncollectible and charged against reserves. |
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 for the three and nine months ended September 30, 2020 and 2019:
channels:Net Sales by geographic area | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30 | | September 30 | | | 2020 | | 2019 | | 2020 | | 2019 | | Americas | $ | 167.7 |
| | $ | 186.1 |
| | $ | 466.6 |
| | $ | 536.4 |
| | Europe, Middle East and Africa | 69.5 |
| | 69.7 |
| | 196.3 |
| | 228.6 |
| | Asia Pacific | 24.7 |
| | 24.9 |
| | 65.1 |
| | 77.8 |
| | Total | $ | 261.9 |
| | $ | 280.7 |
| | $ | 728.0 |
| | $ | 842.8 |
|
| | | Three Months Ended | | | | | March 31 | | | | | 2021 | | | 2020 | | Americas | | $ | 157.8 | | | $ | 162.6 | | Europe, Middle East and Africa | | | 80.9 | | | | 72.0 | | Asia Pacific | | | 24.6 | | | | 17.5 | | Total | | $ | 263.3 | | | $ | 252.1 | |
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 | | Nine Months Ended | | | September 30 | | September 30 | | | 2020 | | 2019 | | 2020 | | 2019 | | Equipment | $ | 167.6 |
| | $ | 190.0 |
| | $ | 456.3 |
| | $ | 552.9 |
| | Parts and Consumables | 52.7 |
| | 46.9 |
| | 150.2 |
| | 158.2 |
| | Specialty Surface Coatings | 5.3 |
| | 6.9 |
| | 16.6 |
| | 20.2 |
| | Service and Other | 36.3 |
| | 36.9 |
| | 104.9 |
| | 111.5 |
| | Total | $ | 261.9 |
| | $ | 280.7 |
| | $ | 728.0 |
| | $ | 842.8 |
|
For| | | Three Months Ended | | | | | March 31 | | | | | 2021 | | | 2020 | | Equipment | | $ | 160.9 | | | $ | 154.2 | | Parts and consumables | | | 62.3 | | | | 54.2 | | Specialty surface coatings(a) | | | 1.5 | | | | 6.1 | | Service and other | | | 38.6 | | | | 37.6 | | Total | | $ | 263.3 | | | $ | 252.1 | |
(a) On February 1, 2021, we sold our coatings business. Further details regarding the three months ended September 30, 2019, we reclassified $20.7 million from Service and Other to Equipment and $2.8 million from Service and Other to Parts and Consumables. For the nine months ended September 30, 2019, we reclassified $4.9 million from Parts and Consumables to Equipment and $28.8 million from Service and Other to Equipment. sale are discussed in Note 5.Net Sales by sales channel | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30 | | September 30 | | | 2020 | | 2019 | | 2020 | | 2019 | | Sales Direct to Consumer | $ | 177.3 |
| | $ | 189.7 |
| | $ | 488.2 |
| | $ | 563.5 |
| | Sales to Distributors | 84.6 |
| | 91.0 |
| | 239.8 |
| | 279.3 |
| | Total | $ | 261.9 |
| | $ | 280.7 |
| | $ | 728.0 |
| | $ | 842.8 |
|
| | | Three Months Ended | | | | | March 31 | | | | | 2021 | | | 2020 | | Sales direct to consumer | | $ | 169.0 | | | $ | 167.6 | | Sales to distributors | | | 94.3 | | | | 84.5 | | Total | | $ | 263.3 | | | $ | 252.1 | |
Contract Liabilities 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 for the nine months ended September 30, 2020 and 2019 was as follows: | | | | | | | | | | | Nine Months Ended | | | September 30 | | | 2020 | | 2019 | | Beginning balance | $ | 13.7 |
| | $ | 16.7 |
| | Additions to sales incentive accrual | 15.0 |
| | 21.0 |
| | Contract payments | (15.6 | ) | | (24.4 | ) | | Foreign currency fluctuations | (0.1 | ) | | (0.1 | ) | | Ending balance | $ | 13.0 |
| | $ | 13.2 |
|
| | | Three Months Ended | | | | | March 31 | | | | | 2021 | | | 2020 | | Beginning balance | | $ | 12.1 | | | $ | 13.7 | | Additions to sales incentive accrual | | | 5.2 | | | | 5.4 | | Contract payments | | | (5.7 | ) | | | (8.2 | ) | Foreign currency fluctuations | | | (0.2 | ) | | | (0.2 | ) | | Divestiture of business | | | (0.1 | ) | | | 0 | | Ending balance | | $ | 11.3 | | | $ | 10.7 | |
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 for the nine months ended September 30, 2020 and 2019 was as follows: | | | | | | | | | | | Nine Months Ended | | | September 30 | | | 2020 | | 2019 | | Beginning balance | $ | 10.7 |
| | $ | 8.5 |
| | Increase in deferred revenue representing our obligation to satisfy future performance obligations | 15.3 |
| | 16.9 |
| | Deferred revenue addition from the acquisition of Gaomei | 0 |
| | 1.4 |
| | Decrease in deferred revenue for amounts recognized in Net Sales for satisfied performance obligations | (15.0 | ) | | (16.8 | ) | | Foreign currency fluctuations | (0.8 | ) | | (0.1 | ) | | Ending balance | $ | 10.2 |
| | $ | 9.9 |
|
Certain 2019 numbers in the table above have been adjusted to conform with current year presentation.
| | | Three Months Ended | | | | | March 31 | | | | | 2021 | | | 2020 | | Beginning balance | | $ | 9.3 | | | $ | 10.7 | | Increase in deferred revenue representing our obligation to satisfy future performance obligations | | | 4.1 | | | | 2.7 | | Decrease in deferred revenue for amounts recognized in Net Sales for satisfied performance obligations | | | (3.4 | ) | | | (2.5 | ) | Foreign currency fluctuations | | | 0 | | | | (0.1 | ) | Ending balance | | $ | 10.0 | | | $ | 10.8 | |
At September 30, 2020, $6.7March 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: | | | | | | Remaining 2020 | $ | 4.6 |
| | 2021 | 2.7 |
| | 2022 | 1.6 |
| | 2023 | 0.8 |
| | 2024 | 0.4 |
| | Thereafter | 0.1 |
| | Total | $ | 10.2 |
|
Remaining 2021 | | $ | 5.7 | | 2022 | | | 2.3 | | 2023 | | | 1.2 | | 2024 | | | 0.6 | | 2025 | | | 0.2 | | Thereafter | | | 0 | | Total | | $ | 10.0 | |
At December 31, 2019, $6.82020, $5.9 million and $3.9$3.4 million of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Consolidated Balance Sheets.
4. | In the thirdfourth 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. 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 our profitability. The pre-tax charge of $1.6$3.1 million in the first nine months of 2020 consisted of $1.3$1.4 million of severance-related costs and $0.3$1.7 million of other costs all of which were recorded in the third quarter of 2020. Of the restructuring costs, $0.5$1.2 million were included in Cost of Sales and $1.1$1.9 million in Selling and Administrative Expense in the Consolidated Statements of Earnings. We expect to incur up to $2.9 million of costs related to this restructuring.Income. The charge impacted our Asia Pacific (APAC)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 $1.6$2.0 million in the first nine months of 2020 consisted of $1.1$1.3 million of severance-related costs and $0.5$0.7 million of other costs of which $0.1 million was recorded in the third quarter of 2020. Of the restructuring costs, $0.1$0.3 million were included in Cost of Sales and $1.5 million in Selling and Administrative Expense in the
Consolidated Statements of Earnings. We expect to incur up to $2 million of costs related to this restructuring. The charge impacted our Asia Pacific (APAC) operating segment. We estimate the savings will offset the pre-tax charge approximately one year from the date of the action.
During 2019, we implemented a restructuring action to further our integration efforts related to the IPC Group. The pre-tax charge of $4.8 million consisted of severance, with $0.3 million in Cost of Sales and $4.5$1.7 million in Selling and Administrative Expense in the Consolidated Statements of Earnings.Income. The charge impacted our Europe, Middle East and Africa (EMEA) as well as our AmericasAPAC operating segments.segment. We expect no further charges related to this restructuring action. We estimate the savings havewill offset the pre-tax charges incurred to date.
charge approximately one year from the date of the action.A reconciliation of the beginning and ending liability balances is as follows: | | | | | | | | | Severance and Related Costs | | December 31, 2018 balance | | $ | 2.2 |
| | 2019 charges and utilization: | | | | New charges | | 6.1 |
| | Cash payments | | (2.5 | ) | | Adjustments to accrual | | (1.3 | ) | | December 31, 2019 balance | | $ | 4.5 |
| | 2020 charges and utilization: | | | | New charges | | 2.4 |
| | Cash payments | | (4.2 | ) | | Foreign currency fluctuations | | 0.1 |
| | Adjustment to accrual | | (0.5 | ) | | September 30, 2020 balance | | $ | 2.3 |
|
| | | Severance-related Costs | | December 31, 2019 balance | | $ | 4.5 | | 2020 activity: | | | | | New charges | | | 6.2 | | Cash payments | | | (5.4 | ) | | Foreign currency adjustments | | | 0.2 | | Adjustments to accrual | | | (1.0 | ) | December 31, 2020 balance | | $ | 4.5 | | 2021 activity: | | | | | Cash payments | | | (0.9 | ) | Foreign currency fluctuations | | | (0.1 | ) | March 31, 2021 balance | | $ | 3.5 | |
Other Actions In 2019, we made the decision to discontinue certain product lines. DuringIn the nine months ended September 30, first quarter of 2020, we recorded an additional $1.7 million in Cost of Sales in the Consolidated Statements of EarningsIncome to reflect our estimate of inventory that will not be sold, all of which was recorded insold. 5. | Acquisition and Divestiture |
Coatings During the first quarter of 2020. 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.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 the consolidated financial results since the date of closing. The fair value measurements were final as of December 31, 2019.
The total purchase price includes the following:
$11.3included contingent consideration. A payment of $0.5 million was paid during the first quarter of 2019 upon close of the transaction;
$11.3 million which was paid in the fourthfirst quarter of 2019;
$4.7 million which represents the estimated fair value of contingent consideration at the acquisition date. In April 2020, the earnout agreement was modified.2021. The final payment is based on a fixed payment plus variable payments contingent on achieving certain levels of gross profit and achieving integration milestones. Consideration of $1.4$1.3 million to $3.1 million will be paid in March 2021 if the targets are met. As of September 30, 2020, the contingent consideration had a fair value of $1.9 million based on a probability-weighted analysis of achieving targets; and
$(0.2) million which represents a working capital purchase price adjustment.
NaN of the goodwill is expected to be deductible for income tax purposes. The expected livespaid in the second quarter of the acquired amortizable intangible assets range from 10 years to 15 years and are being amortized on a straight-line basis.
2021.
6. | Inventories | 6. | Inventories |
Inventories are valued at the lower of cost or net realizable value. Inventories at September 30, 2020value, and December 31, 2019 consisted of the following: | | | March 31, | | | December 31, | | | | | 2021 | | | 2020 | | Inventories carried at LIFO: | | | | | | | | | Finished goods | | $ | 42.4 | | | $ | 42.4 | | Raw materials, production parts and work-in-process | | | 26.2 | | | | 21.6 | | Excess of FIFO over LIFO cost(a) | | | (32.2 | ) | | | (31.4 | ) | Total LIFO inventories | | $ | 36.4 | | | $ | 32.6 | | Inventories carried at FIFO: | | | | | | | | | Finished goods | | $ | 56.2 | | | $ | 55.0 | | Raw materials, production parts and work-in-process | | | 44.9 | | | | 40.1 | | Total FIFO inventories | | $ | 101.1 | | | $ | 95.1 | | Total inventories | | $ | 137.5 | | | $ | 127.7 | |
(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. | | | | | | | | | | | September 30,
2020 | | December 31,
2019 | | Inventories carried at LIFO: | | | | | Finished goods | $ | 44.1 |
| | $ | 50.9 |
| | Raw materials, production parts and work-in-process | 25.1 |
| | 32.5 |
| Excess of FIFO over LIFO cost(a) | (31.8 | ) | | (33.4 | ) | | Total LIFO inventories | 37.4 |
| | 50.0 |
| | Inventories carried at FIFO: | |
| | |
| | Finished goods | 56.4 |
| | 60.1 |
| | Raw materials, production parts and work-in-process | 39.7 |
| | 40.0 |
| | Total FIFO inventories | 96.1 |
| | 100.1 |
| | Total inventories | $ | 133.5 |
| | $ | 150.1 |
|
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 ninethree months ended September 30, 2020March 31, 2021 were as follows: | | | | | | | | | | | | | | | Goodwill | | Accumulated Impairment Losses | | Total | | Balance as of December 31, 2019 | $ | 235.1 |
| | $ | (40.0 | ) | | $ | 195.1 |
| | Additions | 0 |
| | 0 |
| | 0 |
| | Foreign currency fluctuations | 5.8 |
| | 0.5 |
| | 6.3 |
| | Balance as of September 30, 2020 | $ | 240.9 |
| | $ | (39.5 | ) | | $ | 201.4 |
|
| | | | | | | Accumulated | | | | | | | | | | | | | Impairment | | | | | | | | | Goodwill | | | Losses | | | Total | | Balance as of December 31, 2020 | | $ | 249.5 | | | $ | (41.7 | ) | | $ | 207.8 | | | Divestitures | | | (1.7 | ) | | | — | | | | (1.7 | ) | Foreign currency fluctuations | | | (6.9 | ) | | | 0 | | | | (6.9 | ) | Balance as of March 31, 2021 | | $ | 240.9 | | | $ | (41.7 | ) | | $ | 199.2 | |
The balances of acquired Intangible Assets, excluding Goodwill, as of September 30, 2020 and December 31, 2019, were as follows: | | | | | | | | | | | | | | | | | | | Customer Lists | | Trade Names | | Technology | | Total | | Balance as of September 30, 2020 | | | | | | | | | Original cost | $ | 159.4 |
| | $ | 33.1 |
| | $ | 17.4 |
| | $ | 209.9 |
| | Accumulated amortization | (63.3 | ) | | (11.0 | ) | | (9.0 | ) | | (83.3 | ) | | Carrying value | $ | 96.1 |
| | $ | 22.1 |
| | $ | 8.4 |
| | $ | 126.6 |
| | Weighted average original life (in years) | 15 |
| | 11 |
| | 11 |
| | |
| | Balance as of December 31, 2019 | |
| | | | |
| | |
| | Original cost | $ | 154.1 |
| | $ | 31.8 |
| | $ | 17.1 |
| | $ | 203.0 |
| | Accumulated amortization | (49.8 | ) | | (8.2 | ) | | (7.3 | ) | | (65.3 | ) | | Carrying value | $ | 104.3 |
| | $ | 23.6 |
| | $ | 9.8 |
| | $ | 137.7 |
| | Weighted average original life (in years) | 15 |
| | 11 |
| | 11 |
| | |
|
| | | Customer Lists | | | Trade Names | | | Technology | | | Total | | Balance as of March 31, 2021 | | | | | | | | | | | | | | | | | Original cost | | $ | 159.1 | | | $ | 31.2 | | | $ | 17.5 | | | $ | 207.8 | | Accumulated amortization | | | (71.3 | ) | | | (12.0 | ) | | | (9.9 | ) | | | (93.2 | ) | Carrying value | | $ | 87.8 | | | $ | 19.2 | | | $ | 7.6 | | | $ | 114.6 | | Weighted average original life (in years) | | | 15 | | | | 11 | | | | 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 | | | | | |
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. Amortization expense on Intangible Assets for the three and nine months ended September 30,March 31, 2021 and March 31, 2020 was $5.3 million and $15.3 million, respectively. Amortization expense on Intangible Assets for the three and nine months ended September 30, 2019 was $5.1 million and $16.6$5.0 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 | | $ | 14.4 | | 2022 | | 17.4 | | 2023 | | | 15.8 | | 2024 | | | 14.2 | | 2025 | | | 12.8 | | Thereafter | | | 40.0 | | Total | | $ | 114.6 | |
| | | | | | Remaining 2020 | $ | 5.3 |
| | 2021 | 19.7 |
| | 2022 | 17.5 |
| | 2023 | 16.0 |
| | 2024 | 14.4 |
| | Thereafter | 53.7 |
| | Total | $ | 126.6 |
|
12
In 2017, the Company and certain of our foreign subsidiaries entered into a secured Credit Agreement (the "2017"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 September 30, 2020.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 September 30, 2020. March 31, 2021.Senior Notes Guarantees Our Senior Notes (the "Notes") are unconditionally and jointly and severally guaranteed by Tennant Coatings, Inc. and Tennant Sales and Service Company (collectively, the "Guarantors"(the "Guarantor" or "Guarantor Subsidiaries"Subsidiary"), which areis a 100% owned subsidiariessubsidiary of the Company. The Notes and the guarantees constitute senior unsecured obligations of the Company and the Guarantors,Guarantor, respectively. The Notes and the guarantees, respectively, are: (a) equal in right of payment with all of the Company's and the Guarantors'Guarantor senior debt, without giving effect to collateral arrangements; (b) senior in right of payment to all of the Company's and the Guarantors'Guarantor future subordinated debt, if any; (c) effectively subordinated in right of payment to all of the Company's and the Guarantors'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 Guarantors' subsidiariesGuarantor 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 3-103-10 of Regulation S-X.S-X. Under this amended rule, the Company is not required to disclose separate financial statements for the guaranteesguarantee as it no longer has a reporting requirement. The Company has filed a Form 15 for the GuarantorsGuarantor to suspend the Company's duty to file reports on the guarantor financial statements. Debt outstanding at September 30, 2020 and December 31, 2019 consisted of the following: | | | | | | | | | | | September 30,
2020 | | December 31,
2019 | | Senior Unsecured Notes | $ | 300.0 |
| | $ | 300.0 |
| | Credit Facility Borrowings | 25.0 |
| | 40.0 |
| | Secured Borrowings | 1.7 |
| | 2.4 |
| | Finance Lease Liabilities | 0.1 |
| | 0.2 |
| | Unamortized Debt Issuance Costs | (3.2 | ) | | (3.8 | ) | | Total Debt | 323.6 |
| | 338.8 |
| Less: Current Portion of Long-Term Debt(a) | (16.0 | ) | | (31.3 | ) | | Long-Term Debt | $ | 307.6 |
| | $ | 307.5 |
|
| | | March 31, | | | December 31, | | | | | 2021 | | | 2020 | | Senior unsecured notes | | $ | 300.0 | | | $ | 300.0 | | Credit facility borrowings | | | 10.0 | | | | 10.0 | | Secured borrowings | | | 1.2 | | | | 1.5 | | Finance lease liabilities | | | 0.1 | | | | 0.1 | | Unamortized debt issuance costs | | | (3.0 | ) | | | (3.1 | ) | Total debt | | | 308.3 | | | | 308.5 | | Less: current portion of long-term debt(a) | | | (36.4 | ) | | | (10.9 | ) | Long-term debt | | $ | 271.9 | | | $ | 297.6 | |
| | | Current portion of long-term debt as of September 30, 2020 includes a $15.0The Company has the ability and intent to repay $35.6 million anticipated repayment onin outstanding credit facility borrowings, under our 2017 Credit Agreement, $0.9$0.7 million of current maturities of secured borrowings and $0.1 million of current maturities of finance lease liabilities.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 September 30, 2020,March 31, 2021, we had outstanding borrowings under our Senior Unsecured Notes of $300.0 million. In addition, we had outstanding borrowings of $25.0$10.0 million under our revolving facility and had letters of credit and bank guarantees outstanding in the amount of $3.3$3.2 million, leaving approximately $171.7$186.8 million of unused borrowing capacity on our revolving facility. Commitment fees on unused lines of credit for the ninethree months ended September 30, 2020March 31, 2021 were $0.4$0.2 million. The overall weighted average cost of debt is approximately 5.3%5.5% and net of a related cross-currency swap instrument is approximately 4.3%4.4%. 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. 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 firstsix 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 for the nine months ended September 30, 2020 and 2019 were as follows: | | | Three Months Ended | | | | | March 31 | | | | | 2021 | | | 2020 | | Beginning balance | | $ | 11.1 | | | $ | 12.7 | | Additions charged to expense | | | 2.6 | | | | 2.4 | | Foreign currency fluctuations | | | (0.1 | ) | | | (0.2 | ) | Claims paid | | | (2.9 | ) | | | (3.1 | ) | Ending balance | | $ | 10.7 | | | $ | 11.8 | |
| | | | | | | | | | | Nine Months Ended | | | September 30 | | | 2020 | | 2019 | | Beginning balance | $ | 12.7 |
| | $ | 13.1 |
| | Additions charged to expense | 6.9 |
| | 9.7 |
| | Foreign currency fluctuations | 0 |
| | (0.1 | ) | | Claims paid | (8.6 | ) | | (8.8 | ) | | Ending balance | $ | 11.0 |
| | $ | 13.9 |
|
10. | Derivatives | 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 Earnings. In prior years, ineffective portions of hedging instruments and time value of purchased contracts were recorded in Net Foreign Currency Transaction Loss on our Consolidated Statements of Earnings. Income.Our hedging policy establishes maximum limits for each counterparty to mitigate any concentration of risk. 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 LossGain (Loss) in our Consolidated Statements of Earnings.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 September 30, 2020March 31, 2021 and December 31, 2019,2020, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $55.4$50.7 million and $41.9$57.3 million, respectively. 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 $2.8 million as of September 30, 2020March 31, 2021 and $3.0$2.7 million as of December 31, 2019.2020. The notional amounts of outstanding foreign currency option contracts designated as cash flow hedges were $8.2$7.6 million and $9.8$8.2 million as of September 30, 2020March 31, 2021 and December 31, 2019,2020, 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 September 30, 2020March 31, 2021 and December 31, 20192020 included €161.4€157.8 million and €166.8€159.6 million of total notional values, respectively. As of September 30, 2020,March 31, 2021, the aggregate scheduled interest payments over the course of the loan and related swaps amounted to €11.4€7.8 million. The scheduled maturity and principal payment of the loan and related swaps of €150.0€150.0 million are due in April 2022. There were no new cross-currency swaps designated as cash flow hedges as of September 30, 2020.March 31, 2021.
The fair value of derivative instruments on our Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 was as follows: | | | | | | | | | | | | | | | | | | | Derivative Assets | | Derivative Liabilities | | | Balance Sheet Location | September 30, 2020 | December 31, 2019 | | Balance Sheet Location | September 30, 2020 | December 31, 2019 | | Derivatives designated as hedging instruments: | | | | | | | | | Foreign currency option contracts | Other Current Assets | $ | 0.1 |
| $ | 0 |
| | Other Current Liabilities | $ | 0 |
| $ | 0 |
| | Foreign currency forward contracts | Other Current Assets | 2.2 |
| 2.5 |
| | Other Current Liabilities | 0 |
| 0 |
| | Foreign currency forward contracts | Other Assets | 0 |
| 0 |
| | Other Liabilities | 16.4 |
| 12.6 |
| | Derivatives not designated as hedging instruments: | | | | | | | | | Foreign currency forward contracts | Other Current Assets | $ | 1.4 |
| $ | 0.6 |
| | Other Current Liabilities | $ | 0.2 |
| $ | 0.3 |
|
| | Derivative Assets | | Derivative Liabilities | | | | Balance Sheet Location | | March 31, 2021 | | | December 31, 2020 | | Balance Sheet Location | | March 31, 2021 | | | December 31, 2020 | | Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | Foreign currency forward contracts | Other Current Assets | | $ | 2.2 | | | $ | 1.9 | | Other Current Liabilities | | $ | 0 | | | $ | 0 | | Foreign currency forward contracts | Other Assets | | | 0 | | | | 0 | | Other Liabilities | | | 17.2 | | | | 24.1 | | Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | Foreign currency forward contracts | Other Current Assets | | | 1.0 | | | | 0.4 | | Other Current Liabilities | | | 0.1 | | | | 0.7 | |
As of September 30, 2020,March 31, 2021, we anticipate reclassifying approximately $2.1 million of gains from Accumulated Other Comprehensive Loss to net earningsincome during the next 12 months. The following tables include the amounts in the Consolidated Statements of EarningsIncome in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items for the three and nine months ended September 30, 2020 and 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30 | | September 30 | | | 2020 | | 2019 | | 2020 | | 2019 | | | 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 | $ | 261.9 |
| $ | (0.1 | ) | | $ | 280.7 |
| $ | (0.1 | ) | | $ | 728.0 |
| $ | (0.1 | ) | | $ | 842.8 |
| $ | (0.1 | ) | | Interest Income | 0.8 |
| 0.6 |
| | 0.8 |
| 0.7 |
| | 2.5 |
| 2.1 |
| | 2.5 |
| 2.1 |
| | Net Foreign Currency Transaction Loss | (0.9 | ) | (7.3 | ) | | (0.6 | ) | 7.1 |
| | (5.0 | ) | (7.6 | ) | | (0.6 | ) | 8.1 |
|
items:| | | Three Months Ended | | | | | March 31 | | | | | 2021 | | | 2020 | | | | | Total | | | Amount of Gain (Loss) on Cash Flow Hedge Activity | | | Total | | | Amount of Gain (Loss) on Cash Flow Hedge Activity | | Net Sales | | $ | 263.3 | | | $ | (0.1 | ) | | $ | 252.1 | | | $ | 0 | | Interest Income | | | 0.7 | | | | 0.6 | | | | 0.9 | | | | 0.7 | | Net Foreign Currency Transaction (Loss) Gain | | | 0.5 | | | | 7.3 | | | | (4.1 | ) | | | 2.7 | |
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 Earnings for the three and nine months ended September 30, 2020Income was as follows: | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | | September 30, 2020 | | September 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) | | $ | (0.1 | ) | | $ | (5.8 | ) | | $ | (0.1 | ) | | $ | (1.6 | ) | | Net loss reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Sales | | — |
| | (0.1 | ) | | — |
| | (0.1 | ) | | Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Interest Income | | 0 |
| | 0.5 |
| | 0 |
| | 1.6 |
| | Net loss reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction Loss | | 0 |
| | (5.7 | ) | | 0 |
| | (5.9 | ) | | Derivatives not designated as hedging instruments: | | | | | | | | | Net (loss) gain recognized in earnings(b) | | $ | 0 |
| | $ | (1.7 | ) | | $ | 0 |
| | $ | (1.1 | ) |
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 Earnings for the three and nine months ended September 30, 2019 was as follows:
| | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | | September 30, 2019 | | September 30, 2019 | | | | Foreign Currency Option Contracts | | Foreign Currency Forward Contracts | | Foreign Currency Option Contracts | | Foreign Currency Forward Contracts | | Derivatives in cash flow hedging relationships: | | | | | | | | | Net gain (loss) recognized in Other Comprehensive (Loss) Income, net of tax(a) | | $ | 0 |
| | $ | 7.2 |
| | $ | (0.2 | ) | | $ | 11.3 |
| | Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Interest Income | | 0 |
| | 0.5 |
| | 0 |
| | 1.6 |
| | Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction (Gain) Loss | | 0 |
| | 5.4 |
| | 0 |
| | 6.2 |
| | Derivatives not designated as hedging instruments: | | | | | | | | | Net gain (loss) recognized in earnings(b) | | $ | 0 |
| | $ | 0.6 |
| | $ | 0 |
| | $ | (0.2 | ) |
| | | Three Months Ended | | | | | March 31, 2021 | | | | | Foreign Currency Forward Contracts | | Derivatives in cash flow hedging relationships: | | | | | Net gain recognized in Other Comprehensive Loss, net of tax(a) | | $ | 6.0 | | Net gain reclassified from Accumulated Other Comprehensive Loss into income, net of tax, effective portion to Interest Income | | | 0.4 | | Net gain reclassified from Accumulated Other Comprehensive Loss into income, net of tax, effective portion to Net Foreign Currency Transaction Gain | | | 5.6 | | Derivatives not designated as hedging instruments: | | | | | Net gain recognized in income(b) | | | 2.1 | |
| | | Three Months Ended | | | | | March 31, 2020 | | | | | 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) | | $ | 0.3 | | | $ | 6.0 | | Net gain reclassified from Accumulated Other Comprehensive Loss into income, net of tax, effective portion to Interest Income | | | 0 | | | | 0.5 | | Net gain reclassified from Accumulated Other Comprehensive Loss into income, net of tax, effective portion to Net Foreign Currency Transaction Loss | | | 0 | | | | 2.1 | | Derivatives not designated as hedging instruments: | | | | | | | | | Net gain recognized in income(b) | | | 0 | | | | 2.2 | |
| | | Net change in the fair value of the effective portion classified in Other Comprehensive (Loss) Income.Loss. |
| | | Classified in Net Foreign Currency Transaction Loss.Gain (Loss). |
| | 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.
| • | 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 September 30, 2020March 31, 2021 is as follows: | | | | | | | | | | | | | | | | | | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | Assets: | | | | | | | | | Foreign currency forward exchange contracts | $ | 4.9 |
| | $ | 0 |
| | $ | 4.9 |
| | $ | 0 |
| | Foreign currency options contracts | 0.1 |
| | 0 |
| | 0.1 |
| | 0 |
| | Total Assets | $ | 5.0 |
| | $ | 0 |
| | $ | 5.0 |
| | $ | 0 |
| | Liabilities: | |
| | |
| | |
| | |
| | Foreign currency forward exchange contracts | $ | 17.9 |
| | $ | 0 |
| | $ | 17.9 |
| | $ | 0 |
| | Contingent consideration | 1.9 |
| | 0 |
| | 0 |
| | 1.9 |
| | Total Liabilities | $ | 19.8 |
| | $ | 0 |
| | $ | 17.9 |
| | $ | 1.9 |
|
| | | Fair | | | | | | | | | | | | | | | | | Value | | | Level 1 | | | Level 2 | | | Level 3 | | Assets: | | | | | | | | | | | | | | | | | Foreign currency forward exchange contracts | | $ | 3.4 | | | $ | 0 | | | $ | 3.4 | | | $ | 0 | | Total Assets | | $ | 3.4 | | | $ | 0 | | | $ | 3.4 | | | $ | 0 | | Liabilities: | | | | | | | | | | | | | | | | | Foreign currency forward exchange contracts | | $ | 17.5 | | | $ | 0 | | | $ | 17.5 | | | $ | 0 | | Total Liabilities | | $ | 17.5 | | | $ | 0 | | | $ | 17.5 | | | $ | 0 | |
Our population of assets and liabilities subject to fair value measurements at December 31, 20192020 is as follows: | | | | | | | | | | | | | | | | | | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | Assets: | | | | | | | | | Foreign currency forward exchange contracts | $ | 6.4 |
| | $ | 0 |
| | $ | 6.4 |
| | $ | 0 |
| | Total Assets | $ | 6.4 |
| | $ | 0 |
| | $ | 6.4 |
| | $ | 0 |
| | Liabilities: | |
| | |
| | |
| | |
| | Foreign currency forward exchange contracts | $ | 16.2 |
| | $ | 0 |
| | $ | 16.2 |
| | $ | 0 |
| | Contingent consideration | $ | 2.1 |
| | 0 |
| | 0 |
| | 2.1 |
| | Total Liabilities | $ | 18.3 |
| | $ | 0 |
| | $ | 16.2 |
| | $ | 2.1 |
|
| | | Fair | | | | | | | | | | | | | | | | | Value | | | Level 1 | | | Level 2 | | | Level 3 | | Assets: | | | | | | | | | | | | | | | | | Foreign currency forward exchange contracts | | $ | 3.0 | | | $ | 0 | | | $ | 3.0 | | | $ | 0 | | Total Assets | | $ | 3.0 | | | $ | 0 | | | $ | 3.0 | | | $ | 0 | | Liabilities: | | | | | | | | | | | | | | | | | Foreign currency forward exchange contracts | | $ | 25.5 | | | $ | 0 | | | $ | 25.5 | | | $ | 0 | | Contingent consideration | | | 1.8 | | | | 0 | | | | 0 | | | | 1.8 | | Total Liabilities | | $ | 27.3 | | | $ | 0 | | | $ | 25.5 | | | $ | 1.8 | |
Our foreign currency forward exchange and option 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 $337.5$320.3 million and $323.6$308.3 million, respectively, as of September 30, 2020.March 31, 2021. The fair value and carrying value of total debt, including current portion, were $357.2$323.4 million and $338.8$308.5 million, respectively, as of December 31, 2019.2020. 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.
From time to time, we measure certain assets at fair value on a non-recurring basis, including evaluation of long-lived assets, goodwill and other intangible assets, as part of a business acquisition. These assets are measured and recognized at amounts equal to the fair value determined as of the date of acquisition. Fair value valuations are based on the information available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by us. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of assets and liabilities assumed as part of a business acquisition are based on valuations involving significant unobservable inputs, or Level 3, in the fair value hierarchy.
These assets are also subject to periodic impairment testing by comparing the respective carrying value of each asset to the estimated fair value of the reporting unit or asset group in which they reside. In the event we determine these assets to be impaired, we would recognize an impairment loss equal to
the amount by which the carrying value of the reporting unit, impairment asset or asset group exceeds its estimated fair value. These periodic impairment tests utilize company-specific assumptions involving unobservable inputs, or Level 3, in the fair value hierarchy.
12. | | | 12. | Retirement Benefit Plans |
Our defined benefit pension plans and postretirement medical plan are described in Note 13 of our annual report on Form 10-K for the year ended December 31, 2019. We have contributed less than $0.1 million and $0.1 million during the third quarter of 2020 and $0.2 million and $0.4 million during the first nine months of 2020 to our pension plans and postretirement medical plan, respectively. We contributed $0.1 million and $0.3 million during the third quarter of 2019 and $0.3 million and $0.7 million during the first nine months of 2019 to our pension plans and postretirement medical plan, respectively.
Net benefit costs for the three and nine months ended September 30, 2020 and 2019 were not material.
| | 13. | 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. | | | 14. | Accumulated Other Comprehensive Loss |
Components of Accumulated Other Comprehensive Loss, net of tax, within the Consolidated Balance Sheets, are as follows: | | | | | | | | | | | September 30, 2020 | | December 31, 2019 | | Foreign currency translation adjustments | $ | (30.7 | ) | | $ | (36.3 | ) | | Pension and retiree medical benefits | (0.7 | ) | | (0.7 | ) | | Cash flow hedge | 1.2 |
| | (1.5 | ) | | Total Accumulated Other Comprehensive Loss | $ | (30.2 | ) | | $ | (38.5 | ) |
| | | March 31, 2021 | | | December 31, 2020 | | Foreign currency translation adjustments | | $ | (29.8 | ) | | $ | (19.1 | ) | Pension and postretirement medical benefits | | | (1.7 | ) | | | (1.7 | ) | Cash flow hedge | | | 0.7 | | | | 0.7 | | Total Accumulated Other Comprehensive Loss | | $ | (30.8 | ) | | $ | (20.1 | ) |
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 | | | (10.7 | ) | | | 0 | | | | 6.0 | | | | (4.7 | ) | Amounts reclassified from Accumulated Other Comprehensive Loss | | | 0 | | | | 0 | | | | (6.0 | ) | | | (6.0 | ) | Net current period other comprehensive (loss) income | | | (10.7 | ) | | | 0 | | | | 0 | | | | (10.7 | ) | March 31, 2021 | | $ | (29.8 | ) | | $ | (1.7 | ) | | $ | 0.7 | | | $ | (30.8 | ) |
| | | | | | | | | | | | | | | | | | | Foreign Currency Translation Adjustments | | Pension and Post-Retirement Benefits | | Cash Flow Hedge | | Total | | December 31, 2019 | $ | (36.3 | ) | | $ | (0.7 | ) | | $ | (1.5 | ) | | $ | (38.5 | ) | | Other comprehensive (loss) income before reclassifications | 5.6 |
| | 0 |
| | (1.6 | ) | | 4.0 |
| | Amounts reclassified from Accumulated Other Comprehensive Loss | 0 |
| | 0 |
| | 4.3 |
| | 4.3 |
| | Net current period other comprehensive (loss) income | 5.6 |
| | 0 |
| | 2.7 |
| | 8.3 |
| | September 30, 2020 | $ | (30.7 | ) | | $ | (0.7 | ) | | $ | 1.2 |
| | $ | (30.2 | ) |
14. | 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. 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 $7.1$5.4 million for unrecognized tax benefits as of September 30, 2020,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 September 30, 2020March 31, 2021 was $6.9$5.3 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.
The Internal Revenue Service completed its examination of the U.S. income tax returns for tax years 2016 and 2017 during the third quarter. The IRS’s adjustments to certain tax positions were not material and were fully reserved. We are currently undergoing income tax examinations in various foreign jurisdictions covering 2017. Although the final outcome of these examinations cannot be currently determined, we believe that we have adequate reserves with respect to these examinations.15. | | | 16. | Share-Based Compensation |
Our share-based compensation plans are described in Note 18 of our annual report on Form 10-K10-K for the year ended December 31, 2019.2020. During the three months ended September 30, 2020 March 31, 2021 and 2019,2020, we recognized total Share-Based Compensation Expense of $1.9$3.1 million and $3.7 million, respectively. During the nine months ended September 30, 2020 and 2019, we recognized total Share-Based Compensation Expense of $4.7 million and $8.7$2.8 million, respectively. The total excess tax benefit recognized for share-based compensation arrangements during the ninethree months ended September 30, 2020 March 31, 2021 and 20192020 was $0.3$0.2 million and $0.7$0.4 million, respectively.
During the first nine months of 2020, we issued 17,348 restricted shares. The weighted average grant date fair value of each share awarded was $81.07. Restricted share awards generally have a three year vesting period from the effective date of the grant. The total fair value of shares vested during the nine months ended September 30, 2020 and 2019 was $0.7 million and $1.0 million, respectively.
16. | | | 17. | Earnings Attributable to Tennant Company Per Share |
The computations of Basic and Diluted Earnings per Share were as follows: | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30 | | September 30 | | | 2020 | | 2019 | | 2020 | | 2019 | | Numerator: | | | | | | | | | Net Earnings Attributable to Tennant Company | $ | 11.7 |
| | $ | 14.6 |
| | $ | 31.2 |
| | $ | 34.8 |
| | Denominator: | | | | | | | | | Basic - Weighted Average Shares Outstanding | 18,371,883 |
| | 18,134,909 |
| | 18,335,430 |
| | 18,086,962 |
| | Effect of dilutive securities: | | | | | | | | | Share-based compensation plans | 276,445 |
| | 353,039 |
| | 288,537 |
| | 315,967 |
| | Diluted - Weighted Average Shares Outstanding | 18,648,328 |
| | 18,487,948 |
| | 18,623,967 |
| | 18,402,929 |
| | Basic Earnings per Share | $ | 0.64 |
| | $ | 0.81 |
| | $ | 1.70 |
| | $ | 1.93 |
| | Diluted Earnings per Share | $ | 0.63 |
| | $ | 0.79 |
| | $ | 1.68 |
| | $ | 1.89 |
|
| | | Three Months Ended | | | | | March 31 | | | | | 2021 | | | 2020 | | Numerator: | | | | | | | | | Net Income Attributable to Tennant Company | | $ | 25.7 | | | $ | 5.2 | | Denominator: | | | | | | | | | Basic - Weighted Average Shares Outstanding | | | 18,456,079 | | | | 18,286,816 | | Effect of dilutive securities: | | | | | | | | | Share-based compensation plans | | | 375,344 | | | | 379,422 | | Diluted - Weighted Average Shares Outstanding | | | 18,831,423 | | | | 18,666,238 | | Basic Earnings per Share | | $ | 1.39 | | | $ | 0.28 | | Diluted Earnings per Share | | $ | 1.37 | | | $ | 0.28 | |
Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 578,858142,027 and 485,853206,680 shares of common stock during the three months ended September 30, 2020 March 31, 2021 and 2019, respectively. Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 620,605 and 687,972 shares of common stock during the nine months ended September 30, 2020 and 2019,, 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.
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; 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 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 880345AB29) (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. Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
Tennant Company is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance, reduce environmental impact and help create a cleaner, safer, healthier world. The Company is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including floor maintenance and cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, specialty surface coatings and asset management solutions. Our products are used in many types of environments, including retail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, and more. Customers include contract cleaners to whom organizations outsource facilities maintenance as well as businesses that perform facilities maintenance themselves. The Company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide. Because we are a global company, our results of operations are affected by macroeconomic conditions. We continue to see economic and geopolitical uncertainty in many regions around the world. The coronavirus (COVID-19)("COVID-19") pandemic has increased the uncertainty globally and has resulted in general economic disruption. Governments across the world have taken numerous actions to limit the spread of COVID-19, including stay-at-home orders, which have reduced operating activities across global businesses.
To date, the primary impact of the pandemic on the Company’s business has been relatedbusinesses, and have recently begun rolling out vaccine programs.We continue to a slowdown in sales to some end markets amid widespread closures of customer facilities and operations. We have experienced, and expect to continue experiencing, lower demand and volume for our products, including delivery and shipping delays that adversely impact our businesses. During the first quarter of 2020, we recorded quarter-to-date organic sales growth of 6.7% in February and a 16.8% decline in the month of March, compared to the respective prior year periods. In addition, during the second quarter of 2020, we experienced an organic sales decline of 27.2%. During the third quarter of 2020, we experienced an organic sales decline of 7.1%. We believe most of the organic sales decline in the second and third quarters of 2020 was due to the pandemic. We are unsure whether or not this level of decline, or if the trend in the sales decline on a quarter-to-quarter basis, will continue in the future.
We are actively managingmanage our business to respond to the COVID-19 impact. We have prioritized the health and safety of our employees and customers. We have established a dedicated enterprise-wide response team and implemented work-from-home processes for much of our workforce.workforce, which remain in effect. We have established cross-functional and daily communications with suppliers to review, track and prioritize high-risk components. We have also identified and activated alternative suppliers, materials and components as needed. To date, we have been able to avoid major supply disruptions. Regarding transportation, we have set up tracking, reporting and communication channels with carriers to understand their risks and to evaluate available options where necessary. For the majority of the second and third quarters of 2020, there were a limited number of restrictions on our manufacturing operations. Although end market demand was significantly lower than the same period last year,In addition, all of our factories hadcurrently have the ability to operate at full capacity.
We have also taken a number of actions globally to minimize the financial impact such as suspending a significant amount of business-related travel, reducing non-essential discretionary and project spending, applying for government wage subsidies and implementing merit freezes, hiring freezes, and other headcount-related actions, including a combination of salary cuts, reduced work schedules and/or furlough programs for all employees globally, while operating within the local laws and regulations, and developing multiple financial scenarios to ensure liquidity and to identify additional actions, if needed.
We continue to monitor the continuously evolving situation and guidance from authorities. As a resultThe timing and extent of the disruptionsimpact of the pandemic is influenced by factors such as variants, vaccination rates and volatility caused by COVID-19,broader economic impacts. Accordingly, we cannot reasonably estimate the long-term impact of the pandemic on our financial results. We expect that the longer the period of disruption continues, the more material the adverse impact will be on our business operations, financial performance and results of operations. Refer to Part II, Item 1A “Risk Factors” for an updated risk factor related to the COVID-19 pandemic. The following table compares the historical results of operations for the three and nine months ended September 30,March 31, 2021 and 2020, and 2019, respectively, and as a percentage of Net Sales (in millions, except per share data and percentages): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30 | | September 30 | | | 2020 | | % | | 2019 | | % | | 2020 | | % | | 2019 | | % | | Net Sales | $ | 261.9 |
| | 100.0 |
| | $ | 280.7 |
| | 100.0 |
| | $ | 728.0 |
| | 100.0 |
| | $ | 842.8 |
| | 100.0 |
| | Cost of Sales | 157.1 |
| | 60.0 |
| | 166.7 |
| | 59.4 |
| | 428.5 |
| | 58.9 |
| | 499.8 |
| | 59.3 |
| | Gross Profit | 104.8 |
| | 40.0 |
| | 114.0 |
| | 40.6 |
| | 299.5 |
| | 41.1 |
| | 343.0 |
| | 40.7 |
| | Operating Expense: | |
| | |
| | |
| | |
| | |
| | | | |
| | | | Research and Development Expense | 7.4 |
| | 2.8 |
| | 8.2 |
| | 2.9 |
| | 21.4 |
| | 2.9 |
| | 23.8 |
| | 2.8 |
| | Selling and Administrative Expense | 79.0 |
| | 30.2 |
| | 84.3 |
| | 30.0 |
| | 222.4 |
| | 30.5 |
| | 267.0 |
| | 31.7 |
| | Total Operating Expense | 86.4 |
| | 33.0 |
| | 92.5 |
| | 33.0 |
| | 243.8 |
| | 33.5 |
| | 290.8 |
| | 34.5 |
| | Profit from Operations | 18.4 |
| | 7.0 |
| | 21.5 |
| | 7.7 |
| | 55.7 |
| | 7.7 |
| | 52.2 |
| | 6.2 |
| | Other Income (Expense): | |
| | |
| | |
| | |
| | |
| | | | |
| | | | Interest Income | 0.8 |
| | 0.3 |
| | 0.8 |
| | 0.3 |
| | 2.5 |
| | 0.3 |
| | 2.5 |
| | 0.3 |
| | Interest Expense | (5.2 | ) | | (2.0 | ) | | (5.2 | ) | | (1.9 | ) | | (15.9 | ) | | (2.2 | ) | | (15.7 | ) | | (1.9 | ) | | Net Foreign Currency Transaction Loss | (0.9 | ) | | (0.3 | ) | | (0.6 | ) | | (0.2 | ) | | (5.0 | ) | | (0.7 | ) | | (0.6 | ) | | (0.1 | ) | | Other (Expense) Income, Net | (0.2 | ) | | (0.1 | ) | | 0.1 |
| | — |
| | (0.2 | ) | | — |
| | 1.4 |
| | 0.2 |
| | Total Other Expense, Net | (5.5 | ) | | (2.1 | ) | | (4.9 | ) | | (1.7 | ) | | (18.6 | ) | | (2.6 | ) | | (12.4 | ) | | (1.5 | ) | | Profit Before Income Taxes | 12.9 |
| | 4.9 |
| | 16.6 |
| | 5.9 |
| | 37.1 |
| | 5.1 |
| | 39.8 |
| | 4.7 |
| | Income Tax Expense | 1.2 |
| | 0.5 |
| | 2.0 |
| | 0.7 |
| | 5.9 |
| | 0.8 |
| | 5.0 |
| | 0.6 |
| | Net Earnings Including Noncontrolling Interest | 11.7 |
| | 4.5 |
| | 14.6 |
| | 5.2 |
| | 31.2 |
| | 4.3 |
| | 34.8 |
| | 4.1 |
| | Net Earnings Attributable to Tennant Company | $ | 11.7 |
| | 4.5 |
| | $ | 14.6 |
| | 5.2 |
| | $ | 31.2 |
| | 4.3 |
| | $ | 34.8 |
| | 4.1 |
| | Net Earnings Attributable to Tennant Company per Share - Diluted | $ | 0.63 |
| | | | $ | 0.79 |
| | |
| | $ | 1.68 |
| | | | $ | 1.89 |
| | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | March 31 | | | | | 2021 | | | % | | | 2020 | | | % | | Net Sales | | $ | 263.3 | | | | 100.0 | | | $ | 252.1 | | | | 100.0 | | Cost of Sales | | | 150.0 | | | | 57.0 | | | | 149.3 | | | | 59.2 | | Gross Profit | | | 113.3 | | | | 43.0 | | | | 102.8 | | | | 40.8 | | Operating Expense: | | | | | | | | | | | | | | | | | Research and Development Expense | | | 7.4 | | | | 2.8 | | | | 7.4 | | | | 2.9 | | Selling and Administrative Expense | | | 69.6 | | | | 26.4 | | | | 81.0 | | | | 32.1 | | Total Operating Expense | | | 77.0 | | | | 29.2 | | | | 88.4 | | | | 35.1 | | Operating Income | | | 36.3 | | | | 13.8 | | | | 14.4 | | | | 5.7 | | Other Income (Expense): | | | | | | | | | | | | | | | | | Interest Income | | | 0.7 | | | | 0.3 | | | | 0.9 | | | | 0.4 | | Interest Expense | | | (4.6 | ) | | | (1.7 | ) | | | (5.1 | ) | | | (2.0 | ) | Net Foreign Currency Transaction Gain (Loss) | | | 0.5 | | | | 0.2 | | | | (4.1 | ) | | | (1.6 | ) | Other Income, Net | | | 0.1 | | | | 0.0 | | | | 0.2 | | | | 0.1 | | Total Other Expense, Net | | | (3.3 | ) | | | (1.3 | ) | | | (8.1 | ) | | | (3.2 | ) | Income Before Taxes | | | 33.0 | | | | 12.5 | | | | 6.3 | | | | 2.5 | | Income Tax Expense | | | 7.3 | | | | 2.8 | | | | 1.1 | | | | 0.4 | | Net Income Including Noncontrolling Interest | | | 25.7 | | | | 9.8 | | | | 5.2 | | | | 2.1 | | Net Income Attributable to Tennant Company | | $ | 25.7 | | | | 9.8 | | | $ | 5.2 | | | | 2.1 | | Net Income Attributable to Tennant Company per Share - Diluted | | $ | 1.37 | | | | | | | $ | 0.28 | | | | | |
Net Sales Consolidated Net Sales for the thirdfirst quarter of 20202021 totaled $261.9$263.3 million, a 6.7% decrease4.4% increase as compared to consolidated Net Sales of $280.7 million in the third quarter of 2019. Consolidated Net Sales for the first nine months of 2020 totaled $728.0 million, a 13.6% decrease as compared to consolidated Net Sales of $842.8$252.1 million in the first nine monthsquarter of 2019. 2020.The components of the4.4% increase in consolidated Net Sales change forin the three and nine months ended September 30, 2020first quarter of 2021 as compared to the same period in 2019 were as follows: | | | | | | | 2020 v. 2019 | | | Three Months Ended | | Nine Months Ended | | | September 30 | | September 30 | | Organic Net Sales | (7.1%) | | (12.8%) | | Foreign Currency | 0.4% | | (0.8%) | | Total Net Sales | (6.7%) | | (13.6%) |
The 6.7% decrease in consolidated Net Sales in the third quarter of 2020 as compared to the same period in 2019 was driven by: | • | An organic sales increase of approximately 3.1%, which excludes the effects of foreign currency exchange and divestitures. The organic sales increase was due to volume growth across all regions; | | • | An unfavorable impact from the divestiture of our Coatings business of 1.7%; and | | • | A net favorable impact from foreign currency exchange across all regions of approximately 3.0%. |
An organic sales decrease of approximately 7.1%, which excludes the effects of foreign currency exchange. The organic sales decrease was due to volume declines across all regions, largely driven by the impact of the COVID-19 pandemic. The decrease was partially offset by continued strong demand for our autonomous cleaning machines in North America; and
A favorable impact from foreign currency exchange of approximately 0.4%.
The 13.6% decrease in consolidated Net Sales in the first nine months of 2020 as compared to the same period in 2019 was driven by:
An organic sales decrease of approximately 12.8%, which excludes the effects of foreign currency exchange. The organic sales decrease was primarily due to volume declines across all regions, largely driven by the impact of the COVID-19 pandemic. The decrease was partially offset by continued strong demand for our autonomous cleaning machines in North America; and
An unfavorable impact from foreign currency exchange of approximately 0.8%.
The following table sets forth the Net Sales by geographic area for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 and the percentage change from the prior year (in millions, except percentages): | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | | September 30 | | September 30 | | | | 2020 | | 2019 | | % | | 2020 | | 2019 | | % | | Americas | | $ | 167.7 |
| | $ | 186.1 |
| | (9.9) | | $ | 466.6 |
| | $ | 536.4 |
| | (13.0 | ) | | Europe, Middle East and Africa | | 69.5 |
| | 69.7 |
| | (0.3) | | 196.3 |
| | 228.6 |
| | (14.1 | ) | | Asia Pacific | | 24.7 |
| | 24.9 |
| | (0.8) | | 65.1 |
| | 77.8 |
| | (16.3 | ) | | Total | | $ | 261.9 |
| | $ | 280.7 |
| | (6.7) | | $ | 728.0 |
| | $ | 842.8 |
| | (13.6 | ) |
| | | Three Months Ended | | | | | March 31 | | | | | 2021 | | | 2020 | | | % | | Americas | | $ | 157.8 | | | $ | 162.6 | | | | (3.0 | )% | Europe, Middle East and Africa | | | 80.9 | | | | 72.0 | | | | 12.4 | % | Asia Pacific | | | 24.6 | | | | 17.5 | | | | 40.6 | % | Total | | $ | 263.3 | | | $ | 252.1 | | | | 4.4 | % |
Americas Net Sales in the Americas were $167.7$157.8 million for the thirdfirst quarter of 2020,2021, a decrease of 9.9%3.0% from the thirdfirst quarter of 2019.2020. Foreign currency exchange within the Americas unfavorably impacted Net Sales by approximately 1.1%0.8% in the thirdfirst quarter of 2020.2021. The divestiture of the Coatings business resulted in a decline in Net Sales of approximately 2.6%. Organic sales declinesgrowth in the Americas unfavorablyfavorably impacted Net Sales by approximately 8.8%0.4% for the thirdfirst quarter of 20202021 particularly due to softnessgrowth in direct industrial and distributor sales partially offset by continued demand for our autonomous cleaning machines in North America and strength in Brazil, partially offset by declines from prior period strong growthcomparable sales performance in Brazil.the strategic account channel.Europe, Middle East and Africa ("EMEA") EMEA Net Sales in the Americas were $466.6$80.9 million for the first nine monthsquarter of 2020, a decrease2021, an increase of 13.0%12.4% from the first nine months of 2019. Foreign currency exchange within the Americas unfavorably impacted Net Sales by approximately 1.0% for the first nine months of 2020. Organic sales declines in the Americas unfavorably impacted Net Sales by approximately 12.0% for the first nine months of 2020 due to the impact of COVID-19 throughout the entire region, partially offset by continued demand for our autonomous cleaning machines in North America. Europe, Middle East and Africa
EMEA Net Sales were $69.5 million for the third quarter of 2020, a decrease of 0.3% from the third quarter of 2019.2020. Foreign currency exchange within EMEA favorably impacted Net Sales by approximately 4.2%10.1% in the thirdfirst quarter of 2020.2021. Organic sales declinesgrowth in EMEA unfavorablyfavorably impacted Net Sales by approximately 4.5%2.3% for the thirdfirst quarter primarily due to market weakness across the region, especiallygrowth in France, Italy, and Germany, partially offset by declines in the United Kingdom and Iberian Peninsula, partially offset by growth in ItalyCentral, Eastern Europe and France.
EMEAthe Middle East and Africa due to pandemic-related restrictions.Asia Pacific ("APAC") APAC Net Sales were $196.3$24.6 million for the first nine monthsquarter of 2020, a decrease2021, an increase of 14.1%40.6% from the first nine months of 2019. Foreign currency exchange within EMEA unfavorably impacted Net Sales by approximately 0.4% in the first nine months of 2020. Organic sales declines in EMEA unfavorably impacted Net Sales by approximately 13.7% for the first nine months of 2020 primarily due to the impact of COVID-19 throughout the region.
Asia Pacific
APAC Net Sales were $24.7 million for the third quarter of 2020, a decrease of 0.8% from the third quarter of 2019.2020. Foreign currency exchange within APAC favorably impacted Net Sales by approximately 1.5%8.8% in the thirdfirst quarter of 2020.2021. Organic sales declinesgrowth in APAC unfavorablyfavorably impacted Net Sales by approximately 2.3% for the third quarter, especially across Southeast Asia and Korea, partially offset by growth in Australia, particularly in the direct sales channel.
APAC Net Sales were $65.1 million31.8% for the first nine months of 2020, a decrease of 16.3% from the first nine months of 2019. Foreign currency exchange within APAC unfavorably impacted Net Sales by approximately 1.1% in the first nine months of 2020.quarter. Organic sales declines in APAC unfavorably impacted Net Salesgrowth was driven by approximately 15.2% forgrowth across the first nine months of 2020, primarily due to the impact of COVID-19 throughout the region and particularly in China and Japan.
where the prior year quarter was substantially impacted by pandemic-related restrictions.Gross Profit Gross Profit margin of 40.0%43.0% was 60220 basis points lowerhigher in the thirdfirst quarter of 20202021 compared to the thirdfirst quarter of 2019.2020. The decreaseincrease primarily reflects strategic investments in the businessreflected increased productivity, product mix and volume deleverage, partially offset by cost-out initiativesactions related to the Company's enterprise strategy, efforts. Gross Profit margin of 41.1% was 40 basis points higher in the first nine months of 2020 compared to the first nine months of 2019. The increase was primarily driven by actions directly resulting from the Company’s enterprise strategy efforts likeincluding pricing and cost-out initiatives, benefits from government programs received related to COVID-19 and cost reduction actions,initiatives, partially offset by volume deleverage, higher freight and material costs, and strategic investments in the business. The government benefits included in Gross Profit in the first nine months of 2020 were $3.8 million and were substantially received in the second quarter of 2020. The benefits represent wage subsidies received from various European and Canadian authorities that are not required to be repaid.
Research and Development Expense Research and Development ("R&D") Expense was $7.4 million, or 2.8% as a percentage of Net Sales, for the thirdfirst quarter of 2020, essentially flat compared to the third quarter of 2019. R&D Expense was $21.4 million, or 2.9% as a percentage of Net Sales, for the first nine months of 2020, essentially2021, flat compared to the first nine monthsquarter of 2019. 2020.We continue to invest in developing innovative products and technologies at levels necessary to propel our technology and innovation leadership position. Selling and Administrative Expense Selling and Administrative Expense ("S&A Expense") was $79.0 million for the third quarter of 2020, a decrease of $5.3 million compared to the third quarter of 2019. As a percentage of Net Sales, S&A Expense for the third quarter of 2020 increased 20 basis points to 30.2% from 30.0% in the third quarter of 2019. The S&A Expense decrease in the third quarter of 2020 was primarily driven by cost containment initiatives throughout the Company, including reduction in management incentives, travel costs and other discretionary spending. The decrease was partially offset by an acquisition contingent consideration adjustment which incurred in 2019 that did not repeat in 2020 as well as some investments in the business. S&A Expense was $222.4$69.6 million for the first nine monthsquarter of 2020,2021, a decrease of $44.6$11.4 million compared to the first nine monthsquarter of 2019.2020. As a percentage of Net Sales, S&A Expense for the first nine monthsquarter of 20202021 decreased 120570 basis points to 30.5%26.4% from 31.7%32.1% in the first nine monthsquarter of 2019.2020. The S&A Expense decrease in the first nine monthsquarter of 20202021 was primarily driven by cost containment initiatives throughout the Company, including employee furloughs, reduction in travel spending, and temporary pay reductions as well as benefits from government programs receiveda 380 basis point impact related to COVID-19a pre-tax gain on the sale of the Coatings business and adjustments to management incentives. The government benefits includedrestructuring costs in S&A Expense in the first nine months of 2020 were $1.6 million and were substantially received in the second quarter of 2020. The benefits represent wage subsidies received from various European and Canadian authorities that are not required to be repaid. The remaining decrease included higher restructuring charges and a note receivable write-down as well as acquisition- and integration-related expenses incurred in 2019 that did not repeat 2021. In addition, we experienced temporary savings in 2020.2021 related to suspension of travel and in-person customer events along with a continued focus on expense management.Interest Income was $0.8 million in the third quarter of 2020 and 2019. For the first nine months of 2020 and 2019, Interest Income was $2.5 million. Interest Expense
Interest Expense was $5.2 million in the third quarter of 2020 and 2019. For the first nine months of 2020, Interest Expense was $15.9 million, relatively flat compared to Interest Expense of $15.7$0.7 million in the first nine monthsquarter of 2019.
2021 compared to $0.9 million in the first quarter of 2020.Interest Expense Interest Expense was $4.6 million in the first quarter of 2021 compared to $5.1 million in the first quarter of 2020. Net Foreign Currency Transaction Loss Gain (Loss)Net Foreign Currency Transaction LossGain (Loss) in the thirdfirst quarter of 20202021 was a lossgain of $0.9$0.5 million compared to a loss of $0.6$4.1 million in the thirdfirst quarter of 2019.2020. The favorable impact from foreign currency transactions in the first quarter of 2021 was primarily due to the strengthening of the Canadian dollar relative to the U.S. dollar during this time. The unfavorable impact from foreign currency transactions in the thirdfirst quarter of 2020 was primarily due to the strengthening of the U.S. dollar relative to the Brazilian real during those times.
For the first nine months of 2020, Net Foreign Currency Transaction Losses were $5.0 million compared to losses of $0.6 million in the first nine months of 2019. The change in the impact from foreign currency transactions in the first nine months of 2020 was primarily due to significant strengthening of the U.S. dollar relative to the Brazilian real and Mexican pesopeso.Other (Expense) Income, Net Other (Expense) Income, Net was $0.1 million in the first quarter of 2021, a decrease of $0.1 million compared to the same period of last year.
Other (Expense) Income, Net
Other (Expense) Income, Net was $0.2 million in the third quarter and first nine months of2020, a decrease of $0.3 million and $1.6 million compared to the same periods in 2019, respectively. The decrease was primarily due to a $1.8 million acquisition-related indemnification settlement in 2019.
The effective tax rate for the thirdfirst quarter of 20202021 was 9.7%22.1%, as compared to the thirdfirst quarter of 20192020 of 12.2%18.0%. The tax expense for the thirdfirst quarter of 2021 included a $2.3 million tax expense associated with $9.8 million gain on sale of business, which increased the effective tax rate by 0.7%. The tax expense for the first quarter of 2020 included a $0.3 million tax benefit associated with a $0.8 million restructuring charge and 2019 included a $0.4 million tax benefit associated with $1.7 million of non-recurring expenses and a $0.1 million tax benefit associated with $2.8 million of non-recurring expenses, respectively,product discontinuance costs, which impacteddecreased the effective tax rate by (1.6)% and (3.9)%, respectively. 2.5%.Excluding these special items,non-recurring expenses, the thirdfirst quarter effective tax rate decreasedincreased primarily due to an increase in recognized discrete tax benefit items and the mix in expected full year taxable earnings by country. The year-to-date effective tax rate was 15.9% for 2020 compared to 12.5% for 2019. The tax expense for the nine months ended September 30, 2020country and September 30, 2019 included a $1.2 million tax benefit associated with $4.1 million of non-recurring expenses and a $2.4 million tax benefit associated with $9.2 million of non-recurring expenses, respectively, which impacted the effective tax rate by (1.3%) and (2.7%), respectively.
Excluding these special items, the year-to-date effective tax rate was higher primarily due to a decrease in recognized discrete tax benefit items and the mix in expected full year taxable earnings by country.
items.In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial. No deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our foreign investments to the United States.
Liquidity and Capital Resources Cash, Cash Equivalents and Restricted Cash totaled $124.7$175.2 million at September 30, 2020,March 31, 2021, as compared to $74.6$141.0 million as of December 31, 2019.2020. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. At the end of March 2020, we borrowed $125 million from our revolving credit line as a precaution to ensure we would be able to cover our cash requirements if the COVID-19 pandemic were to continue for an extended period of time. In the second quarter of 2020, we repaid the entire $125 million borrowed in March 2020 as we determined our existing cash and cash flows were sufficient for our business needs. Our current ratio was 2.0 and 1.71.9 as of September 30, 2020March 31, 2021 and December 31, 2019, respectively,2020, and our working capital was $247.0$253.3 million and $206.1$239.3 million, respectively. Our debt-to-capital ratio was 45.1%42.3% as of September 30, 2020,March 31, 2021, compared to 48.5%43.2% as of December 31, 2019. 2020.In April 2021, we signed an agreement that restructured our existing credit agreement. This amended agreement will provide greater flexibility with less restrictive covenants and more favorable interest rates than the previous arrangement. As a result, we expect future interest expense to be lower by approximately $1.0 million per month. 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. Cash Flow From Operating Activities Operating Activities provided $97.5$18.4 million of cash for the ninethree months ended September 30, 2020.March 31, 2021. Cash provided by operating activities was driven primarily by inflows from Net EarningsIncome adding back non-cash items of $77.1 million, a decrease in Accounts Receivables of $23.4$7.4 million and a decreasean increase in InventoriesOther Current Liabilities of $13.1$5.6 million. These cash inflows were partially offset by cash outflows resulting from a decreasean increase in Accounts PayablesInventories of $7.8$18.3 million and a decrease in our Employee Compensation and BenefitsBenefit liabilities of $11.9 million, primarily related to 2019 incentive payments to employees. $5.7 million.Cash Flow From Investing Activities Investing activities during the ninethree months ended September 30, 2020 used $25.5March 31, 2021 provided $19.8 million, substantially allresulting from $24.7 million of which related toproceeds from the sale of our Coatings business net of cash divested, offset by $4.8 million of net capital expenditures. Cash Flow From Financing Activities Net cash used in financing activities was $24.5$1.8 million during the first ninethree months of 2020.2021. Proceeds from borrowings of $126.4 million and proceeds from the issuance of Common Stock of $3.6$3.1 million were offset by payment of a contingent consideration of $0.5 million, payment of credit facility borrowings of $142.3$0.2 million, and dividend payments of $12.1$4.2 million. Newly Issued Accounting Guidance See Note 2 to the Consolidated Financial Statements for information on new accounting pronouncements.
No other new accounting pronouncements issued but not yet effective have had, or are expected to have, a material impact on our results of operations or financial position. Cautionary Statement Relevant to Forward-Looking Information This Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or similar words or the negative thereof. These statements do not relate to strictly historical or current facts and provide current expectations of forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. Particular risks and uncertainties presently facing us include: geopolitical and economic uncertainty throughout the world; uncertainty surrounding the impacts and duration of the COVID-19 pandemic; our ability to effectively develop or manage strategic planningcomply with global laws and growth processes;regulations; our ability to successfully upgrade and evolveadapt to customer pricing sensitivities; the competition in our information technology systems;business; fluctuations in the cost, quality or availability of raw materials and purchased components; geopolitical and economic uncertainty throughout the world; our ability to integrate acquisitions;adjust pricing to respond to cost pressures; unforeseen product liability claims or product quality issues; our ability to attract, retain and develop key personnel and create effective succession planning strategies; our ability to effectively develop and manage strategic planning and growth processes and the related operational plans; our ability to successfully upgrade and evolve our information technology systems; our ability to successfully protect our information technology systems from cybersecurity risks; the occurrence of a significant business interruption; our ability to maintain the health and safety of our workers; our ability to integrate acquisitions; and, our ability to develop and commercialize new innovative products and services; the occurrence of a significant business interruption; our ability to comply with laws and regulations; the potential disruption of our business from actions of activist investors or others; the competition in our business; unforeseen product liability claims or product quality issues; our ability to generate sufficient cash to satisfy our debt obligations; and the relative strength of the U.S.
dollar, which affects the cost of our materials and products purchased and sold internationally. services.We caution that forward-looking statements must be considered carefully and that actual results may differ in material ways due to risks and uncertainties both known and unknown. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Additional information about factors that could materially affect our results can be found in Part I, Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 31, 20192020 and Part II, Item 1A of this Form 10-Q. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Investors are advised to consult any further disclosures by us in our filings with the SEC and in other written statements on related subjects. It is not possible to anticipate or foresee all risk factors, and investors should not consider any list of such factors to be an exhaustive or complete list of all risks or uncertainties. | | Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There have been no material changes in our market risk since December 31, 2019.2020. For additional information, refer to Item 7A of our annual report on Form 10-K for the year ended December 31, 2019. | | Item 4. | Controls and Procedures |
Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Principal Financial and Accounting Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020March 31, 2021 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and our Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and our principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Controls There were no changes in our internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II – OTHER INFORMATION There are no material pending legal proceedings other than ordinary routine litigation incidental to our business. Other than the risk set out below, there have been no material changes toWe documented our risk factors in Item 1A of Part I of our annual report on Form 10-K for the fiscal year ended December 31, 2019. Uncertainty surrounding the impacts and duration of the COVID-19 pandemic
The coronavirus ("COVID-19") outbreak that originated in China at the beginning of 2020 continues to cause volatility and economic disruption across the globe. The impact of COVID-19 on our business and financial performance depends on evolving factors that we cannot accurately predict, including the duration of the pandemic, restrictions on travel and transportation, the effect on our customers and on the global supply chain, the demand for our products, government actions that have or could result in further closures of or restrictions on our manufacturing plants, and the pace of economic recovery when the COVID-19 pandemic subsides.
Certain of our manufacturing plants previously suspended operations temporarily either due to government restrictions or employee health concerns.2020. There may be a risk of future health concerns and we cannot predict future disruptions of our plants or how long they would last.
Our customers have been negatively impacted which has had, and may continueno material changes to have, a material adverse impact on our sales. In addition, our suppliers may not have the ability to provide us with parts needed to manufacture our products. This may result in delays in shipments to us and also to our customers, which would affect our results of operations.
If the pandemic continues for a long duration, we will need to assess our liquidity needs. A sustained disruption in the global economy could materially affect our ability to generate sufficient cash from operations and could require us to seek additional sources of liquidity or take further actions. It could also impact our ability to meet our strategic objectives.
As a result of the COVID-19 pandemic, our risk factors previously disclosed in our annual report on Form 10-K forsince the fiscal year ended December 31, 2019 have also been heightened.filing of that report. | | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
On October 31, 2016, the Board of Directors authorized the repurchase of an additional 1,000,000 shares of our common stock. This is in addition to the 392,263390,396 shares remaining under our prior repurchase program. Share repurchases are made from time to time in the open market or through privately negotiated transactions, primarily to offset the dilutive effect of shares issued through our share-based compensation programs. As of September 30, 2020,March 31, 2021, our 2017 Credit Agreement restricts the payment of dividends or repurchasing of stock requiring that, after giving effect to such payments, no default exists or would result from such payment. Additionally, cash dividends are restricted to $5.0 million per quarter and approved levels of other restricted payments
range from $50.0 million to unlimited based on our net leverage ratio (not taking into account any acquisition holiday) after giving effect to such payment. Our Senior Notes due 2025 also contain certain restrictions, which are generally less restrictive than those contained in the 2017 Credit Agreement and the amended and restated 2021 Credit Agreement. | | | | | | | | | | | | | | | | For the Quarter Ended September 30, 2020 | | Total Number of Shares Purchased(1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | | July 1 - 31, 2020 | | 1,155 |
| | $ | 64.19 |
| | — |
| | 1,392,263 |
| | August 1 - 31, 2020 | | 166 |
| | 66.62 |
| | — |
| | 1,392,263 |
| | September 1 - 30, 2020 | | — |
| | — |
| | — |
| | 1,392,263 |
| | Total | | 1,321 |
| | $ | 64.49 |
| | — |
| | 1,392,263 |
|
For the Quarter Ended | | Total Number of Shares | | | Average Price Paid | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or | | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or | | March 31, 2021 | | Purchased(1) | | | Per Share | | | Programs | | | Programs | | January 1–31, 2021 | | | 18 | | | $ | 70.17 | | | | — | | | | 1,391,269 | | February 1–28, 2021 | | | 5,143 | | | $ | 76.75 | | | | — | | | | 1,391,269 | | March 1–31, 2021 | | | 17,563 | | | $ | 78.42 | | | | 873 | | | | 1,390,396 | | Total | | | 22,724 | | | $ | 78.04 | | | | 873 | | | | 1,390,396 | |
| | | Includes 1,32121,851 shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by employees who exercised stock options or restricted stock under employee share-based compensation plans. |
| | | | | | | Item # | | Description | | Method of Filing | 3i |
| | | | Incorporated by reference to Exhibit 3i to the Company’s report on Form 10-Q for the quarterly period ended June 30, 2006. | 3ii |
| | | | Incorporated by reference to Exhibit 3iii to the Company’s Form 8-K dated December 14, 2010. | 3iii |
| | | | Incorporated by reference to Exhibit 3iii to the Company's report on Form 10-Q for the quarterly period ended March 31, 2018. | 4.1 |
| | | | Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed April 24, 2017. | 10.1 |
| | | | Incorporated by reference to Exhibit 10 to the Company's Form 8-K dated July 10, 2020.Filed herewith electronically. | 31.1 |
| | | | Filed herewith electronically. | 31.1 | | Rule 13a-14(a)/15d-14(a) Certification of CEO | | Filed herewith electronically. | 31.2 |
| | | | Filed herewith electronically. | 32.1 |
| | | | Filed herewith electronically. | 32.2 |
| | | | Filed herewith electronically. | 101 |
| | The following financial information from Tennant Company's Quarterly Report on Form 10-Q for the period ended June 30, 2020,March 31, 2021, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Statements of EarningsIncome for the three and nine months ended September 30, 2020March 31, 2021 and 2019;2020; (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020March 31, 2021 and 2019;2020; (iii) Consolidated Balance Sheets as of September 30, 2020March 31, 2021 and December 31, 2019;2020; (iv) Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2020March 31, 2021 and 2019;2020; (v) Consolidated Statements of Equity; and (vi) Notes to the Consolidated Financial Statements. | | Filed herewith electronically. | 104 |
| | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) | | Filed herewith electronically. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | TENNANT COMPANY | | | | | | Date: | | May 4, 2021 | | TENNANT COMPANY/s/ David W. Huml | | | | | | Date: | | October 29, 2020 | | /s/ H. Chris Killingstad | | | | | H. Chris Killingstad
David W. Huml President and Chief Executive Officer | | | | | | Date: | | October 29, 2020May 4, 2021 | | /s/ Andrew CebullaFay West | | | | | Andrew Cebulla
Fay West Senior Vice President Finance and Corporate Controller; Interim Chief Financial Officer (Principal Financial and Interim Principal Accounting Officer |
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