0000097134 TENNANT CO false --12-31 FY 2020 4.6 3.6 0.375 0.375 60,000,000 60,000,000 18,503,805 18,503,805 18,336,010 18,336,010 9,598 0.85 12,198 0.88 20,494 0.89 5.0 1 4 44.8 1 1 1 1 1 1 0.9 0 0 1 159.6 9.6 150.0 0 1 0.1 2018 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 2016 2017 33.33 3 10 3 3 0 3 Includes amortization of leased assets and interest on lease liabilities. Primarily includes impact from foreign currency fluctuations. Inventories of $32.6 million as of December 31, 2020, and $50.0 million as of December 31, 2019, 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. Contracts that mature within the next 12 months are included in Other Current Assets and Other Current Liabilities for asset derivatives and liabilities derivatives, respectively, on our Consolidated Balance Sheets. Contracts with maturities greater than 12 months are included in Other Assets and Other Liabilities for asset derivatives and liability derivatives, respectively, in our Consolidated Balance Sheets. Amounts included in our Consolidated Balance Sheets are recorded net where a right of offset exists with the same derivative counterparty. This category is comprised of investments in insurance contracts. Includes inventory identified as excess, slow moving or obsolete and charged against reserves. Primarily includes impact from foreign currency fluctuations. Includes short-term lease costs of $3.5 million and $3.1 million and variable lease costs of $1.6 million and $2.4 million for the years ended December 31, 2020 and December 31, 2019, respectively. Includes accounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves. Current portion of long-term debt includes $10.0 million of anticipated repayment on Secured Credit Facility Borrowings under our 2017 Credit Agreement, $0.8 million of current maturities of other secured borrowings and $0.1 million of current maturities of finance lease obligations. Net change in the fair value of the effective portion classified in Other Comprehensive (Loss) Income. Includes amount reclassified between Allowance for Doubtful Accounts and Other Receivables related to a customer's open receivables balance for proper classification and acquisition-related adjustments. Finance lease assets are recorded net of accumulated amortization of $0.2 million and $0.5 million as of December 31, 2020 and December 31, 2019, respectively. Classified in Net Foreign Currency Transaction Losses. Includes accounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves. 00000971342020-01-012020-12-31 iso4217:USD 00000971342020-06-30 xbrli:shares 00000971342021-01-29 thunderdome:item 00000971342019-01-012019-12-31 00000971342018-01-012018-12-31 iso4217:USDxbrli:shares 00000971342020-12-31 00000971342019-12-31 00000971342018-12-31 00000971342017-12-31 0000097134us-gaap:CommonStockMember2017-12-31 0000097134us-gaap:AdditionalPaidInCapitalMember2017-12-31 0000097134us-gaap:RetainedEarningsMember2017-12-31 0000097134us-gaap:AccumulatedOtherComprehensiveIncomeMember2017-12-31 0000097134us-gaap:ParentMember2017-12-31 0000097134us-gaap:NoncontrollingInterestMember2017-12-31 0000097134us-gaap:CommonStockMember2018-01-012018-12-31 0000097134us-gaap:AdditionalPaidInCapitalMember2018-01-012018-12-31 0000097134us-gaap:RetainedEarningsMember2018-01-012018-12-31 0000097134us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-01-012018-12-31 0000097134us-gaap:ParentMember2018-01-012018-12-31 0000097134us-gaap:NoncontrollingInterestMember2018-01-012018-12-31 0000097134srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:CommonStockMember2018-12-31 0000097134srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AdditionalPaidInCapitalMember2018-12-31 0000097134srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2018-12-31 0000097134srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-31 0000097134srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:ParentMember2018-12-31 0000097134srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:NoncontrollingInterestMember2018-12-31 0000097134srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2018-12-31 0000097134us-gaap:CommonStockMember2018-12-31 0000097134us-gaap:AdditionalPaidInCapitalMember2018-12-31 0000097134us-gaap:RetainedEarningsMember2018-12-31 0000097134us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-31 0000097134us-gaap:ParentMember2018-12-31 0000097134us-gaap:NoncontrollingInterestMember2018-12-31 0000097134us-gaap:CommonStockMember2019-01-012019-12-31 0000097134us-gaap:AdditionalPaidInCapitalMember2019-01-012019-12-31 0000097134us-gaap:RetainedEarningsMember2019-01-012019-12-31 0000097134us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-12-31 0000097134us-gaap:ParentMember2019-01-012019-12-31 0000097134us-gaap:NoncontrollingInterestMember2019-01-012019-12-31 0000097134us-gaap:CommonStockMember2019-12-31 0000097134us-gaap:AdditionalPaidInCapitalMember2019-12-31 0000097134us-gaap:RetainedEarningsMember2019-12-31 0000097134us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-31 0000097134us-gaap:ParentMember2019-12-31 0000097134us-gaap:NoncontrollingInterestMember2019-12-31 0000097134us-gaap:CommonStockMember2020-01-012020-12-31 0000097134us-gaap:AdditionalPaidInCapitalMember2020-01-012020-12-31 0000097134us-gaap:RetainedEarningsMember2020-01-012020-12-31 0000097134us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-12-31 0000097134us-gaap:ParentMember2020-01-012020-12-31 0000097134us-gaap:NoncontrollingInterestMember2020-01-012020-12-31 0000097134us-gaap:CommonStockMember2020-12-31 0000097134us-gaap:AdditionalPaidInCapitalMember2020-12-31 0000097134us-gaap:RetainedEarningsMember2020-12-31 0000097134us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-31 0000097134us-gaap:ParentMember2020-12-31 0000097134us-gaap:NoncontrollingInterestMember2020-12-31 0000097134tnc:ReclassificationFromSellingAndAdministrativeExpenseToCostsOfSalesMember2020-01-012020-12-31 utr:Y 0000097134us-gaap:BuildingAndBuildingImprovementsMember2020-01-012020-12-31 0000097134us-gaap:PropertyPlantAndEquipmentOtherTypesMembersrt:MinimumMember2020-01-012020-12-31 0000097134us-gaap:PropertyPlantAndEquipmentOtherTypesMembersrt:MaximumMember2020-01-012020-12-31 0000097134us-gaap:EMEAMember2020-12-31 xbrli:pure 0000097134srt:MinimumMember2020-01-012020-12-31 0000097134srt:MaximumMember2020-01-012020-12-31 0000097134us-gaap:AllowanceForCreditLossMember2019-12-31 0000097134us-gaap:AllowanceForCreditLossMember2018-12-31 0000097134us-gaap:AllowanceForCreditLossMember2017-12-31 0000097134us-gaap:AllowanceForCreditLossMember2020-01-012020-12-31 0000097134us-gaap:AllowanceForCreditLossMember2019-01-012019-12-31 0000097134us-gaap:AllowanceForCreditLossMember2018-01-012018-12-31 0000097134us-gaap:AllowanceForCreditLossMember2020-12-31 0000097134us-gaap:AccountingStandardsUpdate201602Member2019-01-01 00000971342021-01-012020-12-31 00000971342022-01-012020-12-31 00000971342023-01-012020-12-31 00000971342024-01-012020-12-31 00000971342025-01-012020-12-31 00000971342026-01-012020-12-31 0000097134srt:AmericasMember2020-01-012020-12-31 0000097134srt:AmericasMember2019-01-012019-12-31 0000097134srt:AmericasMember2018-01-012018-12-31 0000097134us-gaap:EMEAMember2020-01-012020-12-31 0000097134us-gaap:EMEAMember2019-01-012019-12-31 0000097134us-gaap:EMEAMember2018-01-012018-12-31 0000097134srt:AsiaPacificMember2020-01-012020-12-31 0000097134srt:AsiaPacificMember2019-01-012019-12-31 0000097134srt:AsiaPacificMember2018-01-012018-12-31 0000097134tnc:EquipmentSalesMember2020-01-012020-12-31 0000097134tnc:EquipmentSalesMember2019-01-012019-12-31 0000097134tnc:EquipmentSalesMember2018-01-012018-12-31 0000097134tnc:PartsAndConsumablesMember2020-01-012020-12-31 0000097134tnc:PartsAndConsumablesMember2019-01-012019-12-31 0000097134tnc:PartsAndConsumablesMember2018-01-012018-12-31 0000097134tnc:SpecialtyServiceCoatingsMember2020-01-012020-12-31 0000097134tnc:SpecialtyServiceCoatingsMember2019-01-012019-12-31 0000097134tnc:SpecialtyServiceCoatingsMember2018-01-012018-12-31 0000097134tnc:ServiceAndOtherMember2020-01-012020-12-31 0000097134tnc:ServiceAndOtherMember2019-01-012019-12-31 0000097134tnc:ServiceAndOtherMember2018-01-012018-12-31 0000097134tnc:EquipmentSalesMembersrt:RestatementAdjustmentMember2019-01-012019-12-31 0000097134tnc:PartsAndConsumablesMembersrt:RestatementAdjustmentMember2019-01-012019-12-31 0000097134us-gaap:SalesChannelDirectlyToConsumerMember2020-01-012020-12-31 0000097134us-gaap:SalesChannelDirectlyToConsumerMember2019-01-012019-12-31 0000097134us-gaap:SalesChannelDirectlyToConsumerMember2018-01-012018-12-31 0000097134us-gaap:SalesChannelThroughIntermediaryMember2020-01-012020-12-31 0000097134us-gaap:SalesChannelThroughIntermediaryMember2019-01-012019-12-31 0000097134us-gaap:SalesChannelThroughIntermediaryMember2018-01-012018-12-31 0000097134tnc:SalesIncentivesMember2019-12-31 0000097134tnc:SalesIncentivesMember2018-12-31 0000097134tnc:SalesIncentivesMember2020-01-012020-12-31 0000097134tnc:SalesIncentivesMember2019-01-012019-12-31 0000097134tnc:SalesIncentivesMember2020-12-31 utr:M 0000097134us-gaap:ShortTermContractWithCustomerMember2020-01-012020-12-31 0000097134us-gaap:LongTermContractWithCustomerMember2020-01-012020-12-31 0000097134us-gaap:MaintenanceMember2019-12-31 0000097134us-gaap:MaintenanceMember2018-12-31 0000097134us-gaap:MaintenanceMember2020-01-012020-12-31 0000097134us-gaap:MaintenanceMember2019-01-012019-12-31 0000097134us-gaap:MaintenanceMember2020-12-31 0000097134us-gaap:OtherCurrentLiabilitiesMemberus-gaap:MaintenanceMember2020-12-31 0000097134us-gaap:OtherLiabilitiesMemberus-gaap:MaintenanceMember2020-12-31 0000097134us-gaap:OtherCurrentLiabilitiesMemberus-gaap:MaintenanceMember2019-12-31 0000097134us-gaap:OtherLiabilitiesMemberus-gaap:MaintenanceMember2019-12-31 0000097134us-gaap:SellingGeneralAndAdministrativeExpensesMemberus-gaap:EmployeeSeveranceMember2020-10-012020-12-31 00000971342020-07-012020-09-30 0000097134us-gaap:EmployeeSeveranceMember2020-07-012020-09-30 0000097134us-gaap:OtherRestructuringMember2020-07-012020-09-30 0000097134us-gaap:CostOfSalesMember2020-07-012020-09-30 0000097134us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-07-012020-09-30 00000971342020-01-012020-03-31 0000097134us-gaap:EmployeeSeveranceMember2020-01-012020-03-31 0000097134us-gaap:OtherRestructuringMember2020-01-012020-03-31 0000097134us-gaap:CostOfSalesMember2020-01-012020-03-31 0000097134us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-01-012020-03-31 0000097134us-gaap:EmployeeSeveranceMember2019-01-012019-12-31 0000097134us-gaap:CostOfSalesMemberus-gaap:EmployeeSeveranceMember2019-01-012019-12-31 0000097134us-gaap:SellingGeneralAndAdministrativeExpensesMemberus-gaap:EmployeeSeveranceMember2019-01-012019-12-31 0000097134us-gaap:CostOfSalesMember2019-01-012019-12-31 0000097134us-gaap:CostOfSalesMember2020-01-012020-12-31 0000097134us-gaap:SellingGeneralAndAdministrativeExpensesMember2019-04-012019-06-30 0000097134tnc:GaomeiMember2019-01-012019-03-31 0000097134tnc:GaomeiMember2019-10-012019-12-31 0000097134tnc:GaomeiMember2019-01-04 0000097134tnc:GaomeiMembersrt:ScenarioForecastMember2021-03-012021-03-31 0000097134tnc:GaomeiMembersrt:MinimumMember2019-01-042019-01-04 0000097134tnc:GaomeiMembersrt:MaximumMember2019-01-042019-01-04 0000097134tnc:WaterstarMember2018-01-012018-12-31 0000097134tnc:LifoInventoryMember2020-12-31 0000097134tnc:LifoInventoryMember2019-12-31 0000097134tnc:FifoInventoryMember2020-12-31 0000097134tnc:FifoInventoryMember2019-12-31 0000097134us-gaap:LandMember2020-12-31 0000097134us-gaap:LandMember2019-12-31 0000097134us-gaap:BuildingAndBuildingImprovementsMember2020-12-31 0000097134us-gaap:BuildingAndBuildingImprovementsMember2019-12-31 0000097134us-gaap:MachineryAndEquipmentMember2020-12-31 0000097134us-gaap:MachineryAndEquipmentMember2019-12-31 0000097134us-gaap:OfficeEquipmentMember2020-12-31 0000097134us-gaap:OfficeEquipmentMember2019-12-31 0000097134us-gaap:ConstructionInProgressMember2020-12-31 0000097134us-gaap:ConstructionInProgressMember2019-12-31 0000097134us-gaap:CustomerListsMember2020-12-31 0000097134us-gaap:TradeNamesMember2020-12-31 0000097134us-gaap:TechnologyBasedIntangibleAssetsMember2020-12-31 0000097134us-gaap:CustomerListsMember2020-01-012020-12-31 0000097134us-gaap:TradeNamesMember2020-01-012020-12-31 0000097134us-gaap:TechnologyBasedIntangibleAssetsMember2020-01-012020-12-31 0000097134us-gaap:CustomerListsMember2019-12-31 0000097134us-gaap:TradeNamesMember2019-12-31 0000097134us-gaap:TechnologyBasedIntangibleAssetsMember2019-12-31 0000097134us-gaap:CustomerListsMember2019-01-012019-12-31 0000097134us-gaap:TradeNamesMember2019-01-012019-12-31 0000097134us-gaap:TechnologyBasedIntangibleAssetsMember2019-01-012019-12-31 0000097134us-gaap:RevolvingCreditFacilityMembertnc:The2017CreditAgreementMembersrt:MinimumMember2017-01-012017-12-31 0000097134us-gaap:RevolvingCreditFacilityMembertnc:The2017CreditAgreementMembersrt:MaximumMember2017-01-012017-12-31 0000097134tnc:The2017CreditAgreementMemberus-gaap:FederalFundsEffectiveSwapRateMember2017-01-012017-12-31 0000097134tnc:The2017CreditAgreementMemberus-gaap:LondonInterbankOfferedRateLIBORMember2017-12-31 0000097134tnc:The2017CreditAgreementMemberus-gaap:LondonInterbankOfferedRateLIBORMember2017-01-012017-12-31 0000097134us-gaap:RevolvingCreditFacilityMembertnc:The2017CreditAgreementMembersrt:MinimumMemberus-gaap:LondonInterbankOfferedRateLIBORMember2017-01-012017-12-31 0000097134us-gaap:RevolvingCreditFacilityMembertnc:The2017CreditAgreementMembersrt:MaximumMemberus-gaap:LondonInterbankOfferedRateLIBORMember2017-01-012017-12-31 0000097134tnc:The2017CreditAgreementMembertnc:TermLoanMembersrt:MinimumMemberus-gaap:LondonInterbankOfferedRateLIBORMember2017-01-012017-12-31 0000097134tnc:The2017CreditAgreementMembertnc:TermLoanMembersrt:MaximumMemberus-gaap:LondonInterbankOfferedRateLIBORMember2017-01-012017-12-31 0000097134tnc:The2017CreditAgreementMembertnc:LiborOnEurocurrencyLiabilitiesMember2017-12-31 0000097134us-gaap:RevolvingCreditFacilityMembertnc:The2017CreditAgreementMembersrt:MinimumMembertnc:LiborOnEurocurrencyLiabilitiesMember2017-01-012017-12-31 0000097134us-gaap:RevolvingCreditFacilityMembertnc:The2017CreditAgreementMembersrt:MaximumMembertnc:LiborOnEurocurrencyLiabilitiesMember2017-01-012017-12-31 0000097134tnc:The2017CreditAgreementMembertnc:TermLoanMembersrt:MinimumMembertnc:LiborOnEurocurrencyLiabilitiesMember2017-01-012017-12-31 0000097134tnc:The2017CreditAgreementMembertnc:TermLoanMembersrt:MaximumMembertnc:LiborOnEurocurrencyLiabilitiesMember2017-01-012017-12-31 0000097134tnc:The2017CreditAgreementMember2017-12-31 0000097134tnc:The2017CreditAgreementMember2019-12-31 0000097134tnc:The2017CreditAgreementMembersrt:MinimumMember2018-01-012018-12-31 0000097134tnc:The2017CreditAgreementMembersrt:MaximumMember2018-01-012018-12-31 0000097134tnc:SeniorUnsecuredNotesMember2017-04-18 0000097134tnc:SeniorUnsecuredNotesMember2020-12-31 0000097134tnc:SeniorUnsecuredNotesMember2019-12-31 0000097134tnc:The2017CreditAgreementMember2020-12-31 0000097134us-gaap:SecuredDebtMember2020-12-31 0000097134us-gaap:SecuredDebtMember2019-12-31 0000097134us-gaap:LetterOfCreditMembertnc:The2017CreditAgreementMember2020-12-31 0000097134tnc:The2017CreditAgreementMember2020-01-012020-12-31 0000097134tnc:DebtIncludingRelatedCrosscurrencySwapInstrumentMember2020-12-31 0000097134us-gaap:OtherCurrentLiabilitiesMember2020-12-31 0000097134us-gaap:OtherCurrentLiabilitiesMember2019-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2020-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2019-12-31 0000097134us-gaap:DesignatedAsHedgingInstrumentMember2020-01-012020-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2019-12-31 0000097134us-gaap:ForeignExchangeOptionMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-31 0000097134us-gaap:ForeignExchangeOptionMemberus-gaap:DesignatedAsHedgingInstrumentMember2019-12-31 iso4217:EUR 0000097134us-gaap:CurrencySwapMemberus-gaap:DesignatedAsHedgingInstrumentMember2017-12-31 0000097134us-gaap:CurrencySwapMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-01-012020-12-31 0000097134us-gaap:CurrencySwapMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-31 0000097134us-gaap:OtherCurrentAssetsMemberus-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-31 0000097134us-gaap:OtherCurrentAssetsMemberus-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2019-12-31 0000097134us-gaap:OtherCurrentLiabilitiesMemberus-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-31 0000097134us-gaap:OtherCurrentLiabilitiesMemberus-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2019-12-31 0000097134us-gaap:OtherNoncurrentAssetsMemberus-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-31 0000097134us-gaap:OtherNoncurrentAssetsMemberus-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2019-12-31 0000097134us-gaap:OtherNoncurrentLiabilitiesMemberus-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-31 0000097134us-gaap:OtherNoncurrentLiabilitiesMemberus-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2019-12-31 0000097134us-gaap:OtherCurrentAssetsMemberus-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2020-12-31 0000097134us-gaap:OtherCurrentAssetsMemberus-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2019-12-31 0000097134us-gaap:OtherCurrentLiabilitiesMemberus-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2020-12-31 0000097134us-gaap:OtherCurrentLiabilitiesMemberus-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2019-12-31 0000097134us-gaap:SalesMember2020-01-012020-12-31 0000097134us-gaap:SalesMember2019-01-012019-12-31 0000097134us-gaap:InterestIncomeMember2020-01-012020-12-31 0000097134us-gaap:InterestIncomeMember2019-01-012019-12-31 0000097134us-gaap:ForeignCurrencyGainLossMember2020-01-012020-12-31 0000097134us-gaap:ForeignCurrencyGainLossMember2019-01-012019-12-31 0000097134us-gaap:ForeignExchangeOptionMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2020-01-012020-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2020-01-012020-12-31 0000097134us-gaap:ForeignExchangeOptionMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2019-01-012019-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2019-01-012019-12-31 0000097134us-gaap:ForeignExchangeOptionMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2018-01-012018-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2018-01-012018-12-31 0000097134us-gaap:ForeignExchangeOptionMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2020-01-012020-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2020-01-012020-12-31 0000097134us-gaap:ForeignExchangeOptionMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2019-01-012019-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2019-01-012019-12-31 0000097134us-gaap:ForeignExchangeOptionMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2018-01-012018-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2018-01-012018-12-31 0000097134us-gaap:ForeignExchangeOptionMember2020-01-012020-12-31 0000097134us-gaap:ForeignExchangeForwardMember2020-01-012020-12-31 0000097134us-gaap:ForeignExchangeOptionMember2019-01-012019-12-31 0000097134us-gaap:ForeignExchangeForwardMember2019-01-012019-12-31 0000097134us-gaap:ForeignExchangeOptionMember2018-01-012018-12-31 0000097134us-gaap:ForeignExchangeForwardMember2018-01-012018-12-31 0000097134us-gaap:ForeignExchangeForwardMember2020-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel1Member2020-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel2Member2020-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel3Member2020-12-31 0000097134us-gaap:FairValueInputsLevel1Member2020-12-31 0000097134us-gaap:FairValueInputsLevel2Member2020-12-31 0000097134us-gaap:FairValueInputsLevel3Member2020-12-31 0000097134us-gaap:ForeignExchangeForwardMember2019-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel1Member2019-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel2Member2019-12-31 0000097134us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel3Member2019-12-31 0000097134us-gaap:FairValueInputsLevel1Member2019-12-31 0000097134us-gaap:FairValueInputsLevel2Member2019-12-31 0000097134us-gaap:FairValueInputsLevel3Member2019-12-31 0000097134tnc:UKPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2018-01-012018-12-31 0000097134country:USus-gaap:NonqualifiedPlanMember2020-12-31 0000097134tnc:RetireePlanMembercountry:US2020-12-31 0000097134tnc:UKPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134srt:MaximumMembertnc:GermanPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134srt:MaximumMembertnc:ItalianPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134tnc:InvestmentAccountHeldByPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134tnc:InvestmentAccountHeldByPensionPlanMemberus-gaap:FairValueInputsLevel1Memberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134tnc:InvestmentAccountHeldByPensionPlanMemberus-gaap:FairValueInputsLevel2Memberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134tnc:InvestmentAccountHeldByPensionPlanMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134us-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134us-gaap:FairValueInputsLevel1Memberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134us-gaap:FairValueInputsLevel2Memberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134us-gaap:FairValueInputsLevel3Memberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMemberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134tnc:InvestmentAccountHeldByPensionPlanMemberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134tnc:InvestmentAccountHeldByPensionPlanMemberus-gaap:FairValueInputsLevel1Memberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134tnc:InvestmentAccountHeldByPensionPlanMemberus-gaap:FairValueInputsLevel2Memberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134tnc:InvestmentAccountHeldByPensionPlanMemberus-gaap:FairValueInputsLevel3Memberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134us-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134us-gaap:FairValueInputsLevel1Memberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134us-gaap:FairValueInputsLevel2Memberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134us-gaap:FairValueInputsLevel3Memberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134tnc:UKPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134tnc:UKPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2018-12-31 0000097134tnc:UKPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-01-012020-12-31 0000097134tnc:UKPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2019-01-012019-12-31 0000097134country:USus-gaap:NonqualifiedPlanMember2019-12-31 0000097134us-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134us-gaap:DefinedBenefitPostretirementHealthCoverageMember2020-12-31 0000097134us-gaap:DefinedBenefitPostretirementHealthCoverageMember2019-12-31 0000097134country:USus-gaap:PensionPlansDefinedBenefitMember2020-01-012020-12-31 0000097134country:USus-gaap:PensionPlansDefinedBenefitMember2019-01-012019-12-31 0000097134country:USus-gaap:PensionPlansDefinedBenefitMember2018-01-012018-12-31 0000097134us-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-01-012020-12-31 0000097134us-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2019-01-012019-12-31 0000097134us-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2018-01-012018-12-31 0000097134us-gaap:DefinedBenefitPostretirementHealthCoverageMember2020-01-012020-12-31 0000097134us-gaap:DefinedBenefitPostretirementHealthCoverageMember2019-01-012019-12-31 0000097134us-gaap:DefinedBenefitPostretirementHealthCoverageMember2018-01-012018-12-31 0000097134tnc:GermanPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134tnc:GermanPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134tnc:ItalianPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2020-12-31 0000097134tnc:ItalianPensionPlanMemberus-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2019-12-31 0000097134us-gaap:DefinedBenefitPostretirementHealthCoverageMembertnc:Pre65Member2020-12-31 0000097134us-gaap:DefinedBenefitPostretirementHealthCoverageMembertnc:Pre65Member2019-12-31 0000097134us-gaap:DefinedBenefitPostretirementHealthCoverageMembertnc:Post65Member2020-12-31 0000097134us-gaap:DefinedBenefitPostretirementHealthCoverageMembertnc:Post65Member2019-12-31 0000097134country:USus-gaap:NonqualifiedPlanMember2018-12-31 0000097134us-gaap:ForeignPlanMemberus-gaap:PensionPlansDefinedBenefitMember2018-12-31 0000097134us-gaap:DefinedBenefitPostretirementHealthCoverageMember2018-12-31 0000097134country:USus-gaap:NonqualifiedPlanMember2020-01-012020-12-31 0000097134country:USus-gaap:NonqualifiedPlanMember2019-01-012019-12-31 0000097134us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2019-12-31 0000097134us-gaap:AccumulatedDefinedBenefitPlansAdjustmentAttributableToNoncontrollingInterestMember2019-12-31 0000097134us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2019-12-31 0000097134us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2019-12-31 0000097134us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2020-01-012020-12-31 0000097134us-gaap:AccumulatedDefinedBenefitPlansAdjustmentAttributableToNoncontrollingInterestMember2020-01-012020-12-31 0000097134us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2020-01-012020-12-31 0000097134us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-01-012020-12-31 0000097134us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2020-12-31 0000097134us-gaap:AccumulatedDefinedBenefitPlansAdjustmentAttributableToNoncontrollingInterestMember2020-12-31 0000097134us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2020-12-31 0000097134us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-12-31 0000097134us-gaap:DomesticCountryMember2020-12-31 0000097134us-gaap:ForeignCountryMemberus-gaap:TaxAndCustomsAdministrationNetherlandsMember2020-12-31 0000097134us-gaap:ForeignCountryMember2020-12-31 0000097134us-gaap:DomesticCountryMemberus-gaap:InternalRevenueServiceIRSMember2020-01-012020-12-31 0000097134us-gaap:ForeignCountryMember2020-01-012020-12-31 0000097134us-gaap:StateAndLocalJurisdictionMember2020-01-012020-12-31 0000097134tnc:The2010PlanMember2010-04-28 0000097134tnc:The2010PlanMember2013-04-24 0000097134tnc:The2017PlanMember2017-04-26 0000097134tnc:The2020PlanMember2020-04-29 0000097134tnc:The2010PlanAndThe2017PlanMember2020-12-31 0000097134tnc:The2020PlanMember2020-12-31 0000097134us-gaap:EmployeeStockOptionMembersrt:MinimumMember2020-01-012020-12-31 0000097134us-gaap:EmployeeStockOptionMembersrt:MaximumMember2020-01-012020-12-31 0000097134us-gaap:EmployeeStockOptionMembersrt:MinimumMember2019-01-012019-12-31 0000097134us-gaap:EmployeeStockOptionMembersrt:MaximumMember2019-01-012019-12-31 0000097134us-gaap:EmployeeStockOptionMember2018-01-012020-12-31 0000097134us-gaap:EmployeeStockOptionMember2020-01-012020-12-31 0000097134us-gaap:EmployeeStockOptionMember2019-01-012019-12-31 0000097134us-gaap:EmployeeStockOptionMembersrt:WeightedAverageMember2020-01-012020-12-31 0000097134us-gaap:EmployeeStockOptionMembersrt:WeightedAverageMember2019-01-012019-12-31 0000097134us-gaap:EmployeeStockOptionMembersrt:WeightedAverageMember2018-01-012020-12-31 0000097134us-gaap:EmployeeStockOptionMembersrt:MinimumMember2018-01-012020-12-31 0000097134us-gaap:EmployeeStockOptionMembersrt:MaximumMember2018-01-012020-12-31 0000097134us-gaap:EmployeeStockOptionMembertnc:VestingYearlyMember2020-01-012020-12-31 0000097134us-gaap:EmployeeStockOptionMember2020-12-31 0000097134us-gaap:RestrictedStockMember2020-01-012020-12-31 0000097134us-gaap:RestrictedStockMember2019-12-31 0000097134us-gaap:RestrictedStockMember2020-12-31 0000097134us-gaap:RestrictedStockMember2019-01-012019-12-31 0000097134us-gaap:RestrictedStockMember2018-01-012018-12-31 0000097134us-gaap:PerformanceSharesMember2020-01-012020-12-31 0000097134us-gaap:PerformanceSharesMember2019-12-31 0000097134us-gaap:PerformanceSharesMember2020-12-31 0000097134us-gaap:PerformanceSharesMember2018-01-012018-12-31 0000097134us-gaap:PerformanceSharesMember2019-01-012019-12-31 0000097134us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-12-31 0000097134us-gaap:RestrictedStockUnitsRSUMember2019-12-31 0000097134us-gaap:RestrictedStockUnitsRSUMember2020-12-31 0000097134us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-12-31 0000097134us-gaap:RestrictedStockUnitsRSUMember2018-01-012018-12-31 0000097134country:US2020-01-012020-12-31 0000097134country:US2019-01-012019-12-31 0000097134country:US2018-01-012018-12-31 0000097134tnc:AmericasExcludingUnitedStatesMember2020-01-012020-12-31 0000097134tnc:AmericasExcludingUnitedStatesMember2019-01-012019-12-31 0000097134tnc:AmericasExcludingUnitedStatesMember2018-01-012018-12-31 0000097134country:US2020-12-31 0000097134country:US2019-12-31 0000097134country:US2018-12-31 0000097134tnc:AmericasExcludingUnitedStatesMember2020-12-31 0000097134tnc:AmericasExcludingUnitedStatesMember2019-12-31 0000097134tnc:AmericasExcludingUnitedStatesMember2018-12-31 0000097134srt:AmericasMember2020-12-31 0000097134srt:AmericasMember2019-12-31 0000097134srt:AmericasMember2018-12-31 0000097134country:IT2020-12-31 0000097134country:IT2019-12-31 0000097134country:IT2018-12-31 0000097134tnc:OtherEuropeMiddleEastAndAfricaMember2020-12-31 0000097134tnc:OtherEuropeMiddleEastAndAfricaMember2019-12-31 0000097134tnc:OtherEuropeMiddleEastAndAfricaMember2018-12-31 0000097134us-gaap:EMEAMember2020-12-31 0000097134us-gaap:EMEAMember2019-12-31 0000097134us-gaap:EMEAMember2018-12-31 0000097134srt:AsiaPacificMember2020-12-31 0000097134srt:AsiaPacificMember2019-12-31 0000097134srt:AsiaPacificMember2018-12-31 0000097134us-gaap:DiscontinuedOperationsHeldforsaleMembertnc:SpecialtyServiceCoatingsMember2020-12-31 0000097134us-gaap:SalesReturnsAndAllowancesMember2019-12-31 0000097134us-gaap:SalesReturnsAndAllowancesMember2018-12-31 0000097134us-gaap:SalesReturnsAndAllowancesMember2017-12-31 0000097134us-gaap:SalesReturnsAndAllowancesMember2020-01-012020-12-31 0000097134us-gaap:SalesReturnsAndAllowancesMember2019-01-012019-12-31 0000097134us-gaap:SalesReturnsAndAllowancesMember2018-01-012018-12-31 0000097134us-gaap:SalesReturnsAndAllowancesMember2020-12-31 0000097134us-gaap:InventoryValuationReserveMember2019-12-31 0000097134us-gaap:InventoryValuationReserveMember2018-12-31 0000097134us-gaap:InventoryValuationReserveMember2017-12-31 0000097134us-gaap:InventoryValuationReserveMember2020-01-012020-12-31 0000097134us-gaap:InventoryValuationReserveMember2019-01-012019-12-31 0000097134us-gaap:InventoryValuationReserveMember2018-01-012018-12-31 0000097134us-gaap:InventoryValuationReserveMember2020-12-31 0000097134us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2019-12-31 0000097134us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2018-12-31 0000097134us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2017-12-31 0000097134us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2020-01-012020-12-31 0000097134us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2019-01-012019-12-31 0000097134us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2018-01-012018-12-31 0000097134us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2020-12-31
 
 
 
 
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.

 

Commission File Number 001-16191

tennantcompanylogo.jpg

TENNANT COMPANY

(Exact name of registrant as specified in its charter)

 

Minnesota

 

41-0572550

State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization

 

Identification No.)

 

10400 Clean Street

Eden Prairie, Minnesota 55344

(Address of principal executive offices)

(Zip Code)

763-540-1200

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of exchange on which registered

Common Stock, par value $0.375 per share

 

TNC

 

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.

 

Yes

 

No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

  

Yes

No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes

 

No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes

 

No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

  Smaller reporting company

 
   

  Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

   

 
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

 

Yes

No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2020, was $1,107,917,527.

 

As of January 29, 2021, there were 18,516,296 shares of Common Stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Proxy Statement for its 2021 annual meeting of shareholders (the “2021 Proxy Statement”) are incorporated by reference in Part III.

 

1

 

Tennant Company

 

Form 10–K

Table of Contents

 

PART I

       

Page

 

Item 1

Business

3

 

Item 1A

Risk Factors

5

 

Item 1B

Unresolved Staff Comments

8

 

Item 2

Properties

8

 

Item 3

Legal Proceedings

8

 

Item 4

Mine Safety Disclosures

8

PART II

         
 

Item 5

Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

9

  Item 6 [Reserved] 10
 

Item 7

Management's Discussion and Analysis of Financial Condition and Results of Operations

11

 

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

18

 

Item 8

Financial Statements and Supplementary Data

19

     

Report of Independent Registered Public Accounting Firm

19

     

Consolidated Financial Statements

23

     

Consolidated Statements of Operations

23

     

Consolidated Statements of Comprehensive Income

24

     

Consolidated Balance Sheets

25

     

Consolidated Statements of Cash Flows

26

     

Consolidated Statements of Equity

27

     

Notes to the Consolidated Financial Statements

28

     

1

Summary of Significant Accounting Policies

28

     

2

Newly Adopted Accounting Pronouncements

32

     

3

Revenue

33

     

4

Management Actions

34

     

5

Acquisitions and Divestitures

35

     

6

Inventories

36

     

7

Property, Plant and Equipment

36

     

8

Goodwill and Intangible Assets

36

     

9

Debt

37

     

10

Other Current Liabilities

40

     

11

Derivatives

40

     

12

Fair Value Measurements

42

     

13

Retirement Benefit Plans

44

     

14

Shareholders' Equity

48

     

15

Leases

48

     

16

Commitments and Contingencies

49

     

17

Income Taxes

50

     

18

Share-Based Compensation

52

     

19

Earnings Attributable to Tennant Company Per Share

55

     

20

Segment Reporting

55

      21 Subsequent Events 55
 

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

56

 

Item 9A

Controls and Procedures

56

 

Item 9B

Other Information

56

PART III

         
 

Item 10

Directors, Executive Officers and Corporate Governance

57

 

Item 11

Executive Compensation

57

 

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

57

 

Item 13

Certain Relationships and Related Transactions, and Director Independence

57

 

Item 14

Principal Accountant Fees and Services

57

PART IV

         
 

Item 15

Exhibits and Financial Statement Schedules

58

 

Item 16

Form 10-K Summary

61

   

Signatures

62

 

2

 

 

TENNANT COMPANY

2020

ANNUAL REPORT

Form 10–K

(Pursuant to Securities Exchange Act of 1934)

PART I

ITEM 1 – Business

 

General Development of Business

 

Founded in 1870 by George H. Tennant, Tennant Company ("the Company, we, us, or our"), a Minnesota corporation incorporated in 1909, began as a one-man woodworking business, evolved into a successful wood flooring and wood products company, and eventually into a manufacturer of floor cleaning equipment. Throughout its history, the Company has remained focused on advancing our industry by aggressively pursuing new technologies and creating a culture that celebrates innovation.

 

Today, the Company is a recognized leader of the cleaning industry. We are passionate about developing innovative and sustainable solutions that help our customers clean spaces more effectively, addressing various cleaning challenges. The Company operates in three geographic business units including the Americas, Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC).

 

The Company is committed to empowering our customers to create a cleaner, safer and healthier world with high-performance solutions that minimize waste, reduce costs, improve safety and further sustainability goals.

 

Principal Products, Markets and Distribution

 

The Company offers products and solutions consisting of mechanized cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, and business solutions such as financing, rental and leasing programs, and machine-to-machine asset management solutions.

 

The Company's 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, parking lots and streets, and more. The Company markets its offerings under the following brands: Tennant®, Nobles®, Alfa Uma Empresa Tennant, IRIS®, VLX, IPC brands, Gaomei and Rongen brands as well as private-label brands. The Company's 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.

 

 

Raw Materials

 

The Company has not experienced any significant or unusual problems in the availability of raw materials or other product components, other than those mentioned in Item 1A - Risk Factors. The Company has sole-source vendors for certain components. A disruption in supply from such vendors may disrupt the Company’s operations. However, the Company believes that it can find alternate sources in the event there is a disruption in supply from such vendors.

 

Intellectual Property

 

Although the Company considers that its patents, proprietary technologies and trade secrets, customer relationships, licenses, trademarks, trade names and brand names in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent upon any single item or category of intellectual property. We take appropriate measures to protect our intellectual property to the extent such intellectual property can be protected.

 

Seasonality

 

Although the Company’s business is not seasonal in the traditional sense, the percentage of revenues in each quarter typically ranges from 22% to 28% of the total year. The first quarter tends to be at the low end of the range reflecting customers’ initial slow ramp up of capital purchases and the Company’s efforts to close out orders at the end of each year. The second and fourth quarters tend to be toward the high end of the range and the third quarter is typically in the middle of the range.

 

Major Customers

 

The Company sells its products to a wide variety of customers, none of which are of material importance in relation to the business as a whole. The customer base includes several governmental entities which generally have terms similar to other customers.

 

 

3

 

Competition

 

Public industry data concerning global market share is limited; however, through an assessment of validated third-party sources and sponsored third-party market studies, the Company is confident in its position as a world-leading manufacturer of floor maintenance and cleaning equipment. Several global competitors compete with the Company in virtually every geography of the world. However, small regional competitors are also significant competitors who vary by country, vertical market, product category or channel. The Company competes primarily on the basis of offering a broad line of high-quality, innovative products supported by an extensive sales and service network in major markets.

 

Human Capital

 

Tennant Company has a commitment to our employees to foster a culture of integrity and stewardship.  This guides our actions as we manage our business and holds us accountable to our colleagues to care for one another and work together for our mutual safety.   To that end, our executive leadership, as well as our Board of Directors, emphasize the importance of positive human capital management.  The following are key human capital measures and objectives that the Company currently focuses on:

 

Employee Safety - We prioritize the health and safety of all of our employees. In our manufacturing facilities, we have established safety teams that proactively identify areas of improvement and help to reinforce employee behaviors in order to reduce or eliminate incidents.  In our manufacturing facilities, behavioral safety culture is a primary focus, with a specific growing emphasis on “near-miss” reporting and resolution.  We define a near-miss event as a situation where no property was damaged, and no personal injury was sustained, but given a slight shift in time or position, damage and/or injury could have occurred.  This focus has increased awareness to potential incidents at our facilities.  The result is a continuing positive trend in safety issues in our facilities. Additionally, we have an experienced team of Enterprise Health and Safety professionals that provide onsite and corporate level support to our global teams.  

 

Diversity, Equity, and Inclusion - Tennant is proud to be an equal opportunity employer where we foster and maintain an ethical work environment free of discrimination.  Employment decisions are made on the basis of individual skill, ability, reliability, productivity, and other factors important to performance.  We do not discriminate on the basis of race, color, creed, religion, sex, national origin, physical or mental disability, age, veteran status, pregnancy, sexual orientation, genetic information, gender identity, or any other basis protected by state or federal law or local ordinance.

 

Diversity in Governance - As of December 31, 2020, women represented 29% of our executive management team and 33% of our Board of Directors.

 

Gender Equitable Pay - In 2020, Tennant Company performed a gender wage gap analysis to evaluate any gender differences in pay. The median income for women working full time in the United States was reported to be 99.36% as compared to their male counterparts. In other words, women at Tennant were seen to be making 99.36 cents to every $1 men earned. To put this figure in context, Tennant’s wage gap findings were compared to the national average. According to the national statistics published by Bureau of Labor Statistics (BLS) in 2019, women on average made 81.6% of the earnings made by males. The adjusted pay gap at Tennant was found to be 99.89% after controlling for variables such as title, grade, and work location, that are legitimate and non-discretionary reasons for pay difference. Also, this leftover gap of 0.11% was statistically not significant, suggesting that there is no evidence of pay gap at Tennant Company.

 

Available Information

 

The Company's internet address is www.tennantco.com. The Company makes available free of charge, through the Investor Relations website at investors.tennantco.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable when such material is filed electronically with, or furnished to, the Securities and Exchange Commission (“SEC”). The SEC also maintains an internet site that contains reports, proxy and information statements, and other information, which can be accessed at sec.gov.

 

Information About Our Executive Officers

 

The list below identifies those persons designated as executive officers of the Company, including their age, positions held with the Company and their business experience during the past five or more years.

 

Daniel E. Glusick, Senior Vice President, Global Operations

 

Daniel E. Glusick (48) joined the Company in November 2020 as Senior Vice President of Global Operations. Prior to joining Tennant, he was Senior Vice President of Operations at The Vollrath Company, a manufacturer of foodservice equipment and supplies, from June 2018 to October 2020. Prior to his time at The Vollrath Company, he held different roles with increasing responsibilities at Rexnord Industries, a machinery manufacturer, from 2008 to June 2018, leaving when he was VP of Engineering, Innovation and Rexnord Business System. Prior to Rexnord, Mr. Glusick also served for three years as Director, Global Manufacturing at Intermatic and for nine years he held various operations and supply chain leadership roles at Harley-Davidson.

    Female Male Total  

 

  Americas 438 1,786 2,224  
  Europe, Middle East, Africa 397 1,211 1,608  
  Asia Pacific 150 277 427  
  Total 985 3,274 4,259  

 

4

 

David W. Huml, Senior Vice President and Chief Operating Officer

 

David W. Huml (52) joined the Company in November 2014 as Senior Vice President, Global Marketing. In January 2016, he also assumed oversight for the Company's APAC business unit. In January 2017, he assumed oversight for the Company's EMEA business and in June 2018 he assumed responsibility for Global Operations. In April 2020, he was named Chief Operating Officer.  From 2006 to October 2014, he held various positions with Pentair plc, a global manufacturer of water and fluid solutions, valves and controls, equipment protection and thermal management products, most recently as Vice President, Applied Water Platform. From 1992 to 2006, he held various positions with Graco Inc., a designer, manufacturer and marketer of systems and equipment to move, measure, control, dispense and spray fluid and coating materials, including Worldwide Director of Marketing, Contractor Equipment Division. Beginning on March 1, 2021, Mr. Huml will be Tennant Company's Chief Executive Officer and will join the Company's Board of Directors.

 

H. Chris Killingstad, President and Chief Executive Officer

 

H. Chris Killingstad (65) joined the Company in April 2002 as Vice President, North America and was named President and CEO in 2005. From 1990 to 2002, he was employed by The Pillsbury Company, a consumer foods manufacturer. From 1999 to 2002 he served as Senior Vice President and General Manager of Frozen Products for Pillsbury North America; from 1996 to 1999 he served as Regional Vice President and Managing Director of Pillsbury Europe, and from 1990 to 1996 was Regional Vice President of Häagen-Dazs Asia Pacific. He held the position of International Business Development Manager at PepsiCo Inc., from 1982 to 1990 and Financial Manager for General Electric, from 1978 to 1980.  Mr. Killingstad is retiring as the Company's Chief Executive Officer on March 1, 2021 and will serve as a strategic advisor until the end of 2021.

 

Carol E. McKnight, Senior Vice President, Chief Administrative Officer

 

Carol E. McKnight (53) joined the Company in June 2014 as Senior Vice President of Global Human Resources. In 2017, she was named Senior Vice President and Chief Administrative Officer. Prior to joining the Company, she was Vice President of Human Resources at Alliant Techsystems (ATK) where she held divisional and corporate leadership positions in the areas of compensation, talent management, talent acquisition and general human resource management from 2002 to 2014. Prior to ATK, she was with New Jersey-based NRG Energy, Inc.

 

Thomas Paulson, Interim Chief Financial Officer and Interim Principal Accounting Officer

 

Thomas Paulson (64) was most recently Tennant's Senior Vice President and Chief Financial Officer from 2006 until he retired in 2019.  Prior to joining Tennant, he was Chief Financial Officer and Senior Vice President of Innovex from 2001 to February 2006. Prior to joining Innovex, he worked for The Pillsbury Company for over 19 years. He became a Vice President at Pillsbury in 1995 and was the Vice President of Finance for the North American Foods Division for over two years before joining Innovex. 

 

Kristin A. Stokes, Senior Vice President, General Counsel and Corporate Secretary

 

Kristin A. Stokes (48) joined the Company in April 2008 as Associate General Counsel and was named Senior Vice President, General Counsel and Corporate Secretary in December 2020. In July 2020, she was named Interim General Counsel and Corporate Secretary after having previously served as Vice President, Deputy General Counsel and Chief Compliance Officer, and Deputy General Counsel. Prior to joining Tennant in 2008, she served as Senior Counsel and Assistant Secretary for MoneyGram International, Inc., from 2004 to 2008. She started her career as a corporate attorney for Lindquist & Vennum, PLLP (n/k/a Ballard Spahr LLP).

 

 

Richard H. Zay, Senior Vice President, Technology and Innovation

 

Richard H. Zay (50) joined the Company in June 2010 as Vice President, Global Marketing and was named Senior Vice President, Global Marketing in October 2013. In 2014, he was named Senior Vice President of the Americas business unit for the Company and in 2018 he also assumed responsibility for Tennant Research and Development. From 2006 to 2010, Mr. Zay held various positions with Whirlpool Corporation, a manufacturer of major home appliances, most recently as General Manager, KitchenAid Brand. From 1993 to 2006, Mr. Zay held various positions with Maytag Corporation, including Vice President, Jenn-Air Brand, Director of Marketing, Maytag Brand, and Director of Cooking Category Management.

 

ITEM 1A – Risk Factors

 

The following are material factors known to us that could materially adversely affect our business, financial condition or operating results.

 

Macroeconomic Risks

 

We may encounter financial difficulties if the United States or other global economies experience an additional or continued long-term economic downturn, decreasing the demand for our products and negatively affecting our sales growth.

 

Our product sales are sensitive to declines in capital spending by our customers. Decreased demand for our products could result in decreased revenues, profitability and cash flows and may impair our ability to maintain our operations and fund our obligations to others. In the event of a continued long-term economic downturn in the U.S. or other global economies, our revenues could decline to the point that we may have to take cost-saving measures, such as restructuring actions. In addition, other fixed costs would have to be reduced to a level that is in line with a lower level of sales. A long-term economic downturn that puts downward pressure on sales could also negatively affect investor perception relative to our publicly stated growth targets.

 

Uncertainty surrounding the impacts and duration of the COVID-19 pandemic.

 

The coronavirus ("COVID-19") outbreak that originated in China and was declared a global pandemic by the World Health Organization at the beginning of 2020 continues to cause volatility and economic disruption across the globe. The impact of COVID-19, or any variant thereof, 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.

 

During 2020, certain of our manufacturing plants suspended operations temporarily either due to government restrictions or employee health concerns. There may be a risk of future health concerns and we cannot predict future disruptions of our plants or the duration of such future disruptions.

 

Our customers have been negatively impacted which has had, and may continue 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 COVID-19 or other health pandemic continues for an extended period of time, 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 strategic objectives.

 

5

 

Our global operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk.

 

Due to the international scope of our operations, we are subject to a complex system of commercial, tax and trade regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade, tax compliance, data-privacy, labor and safety and anti-corruption, such as the U.S. Foreign Corrupt Practices Act, and similar laws from other countries. Our numerous foreign subsidiaries and affiliates are governed by laws, rules and business practices that differ from those of the U.S., but because we are a U.S.-based company, oftentimes they are also subject to U.S. laws which can create a conflict. Despite our due diligence, there is a risk that we do not have adequate resources or comprehensive processes to stay current on changes in laws or regulations applicable to us worldwide and maintain compliance with those changes. Increased compliance requirements may lead to increased costs and erosion of desired profit margin. As a result, it is possible that the activities of these entities may not comply with U.S. laws or business practices or our Business Ethics Guide. Violations of the U.S. or local laws may result in severe criminal or civil sanctions, could disrupt our business, and result in an adverse effect on our reputation, business and results of operations or financial condition. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted.

 

Industry Risks

 

We may be unable to take advantage of product pricing due to the competitive marketplace and increased price sensitivity.

 

Simplification of our customer product pricing is a key initiative to reduce the complexity in which we operate. The current competitive landscape, coupled with macroeconomic factors, could impact our ability to achieve our pricing targets. These pressures, along with internal constraints, may limit our ability to sell our products at our expected prices and may result in a change to the mix of product offerings or where we have a competitive advantage. Increasing our prices in this competitive market, where customers are very price sensitive, could have an adverse effect on our financial condition or operating results. 

 

We are subject to competitive risks associated with developing innovative products and technologies, including, but not limited to, our inability to expand as rapidly or aggressively in the global market as our competitors, our customers ceasing to pay for innovation and competitive challenges to our products, technology and the underlying intellectual property.

 

Our products are sold in competitive markets throughout the world. Competition is based on product features and design, brand recognition, reliability, durability, technology, breadth of product offerings, price, customer relationships and after-sale service. Although we believe that the performance and price characteristics of our products will produce competitive solutions for our customers’ needs, our products are generally priced higher than our competitors’ products. This is due to our dedication to innovation and continued investments in research and development. We believe that customers will pay for the innovations and quality in our products. However, it may be difficult for us to compete with lower priced products offered by our competitors and there can be no assurance that our customers will continue to choose our products over products offered by our competitors. If our products, markets and services are not competitive, we may experience a decline in sales volume, an increase in price discounting and a loss of market share, which would adversely impact our revenues, margin and the success of our operations.

 

Competitors may also initiate litigation to challenge the validity of our patents or claims, allege that we infringe upon their patents, violate our patents or they may use their resources to design comparable products that avoid infringing our patents. Regardless of whether such litigation is successful, such litigation could significantly increase our costs and divert management’s attention from the operation of our business, which could adversely affect our results of operations and financial condition.

 

Increases in the cost of, quality, or disruption in the availability of, raw materials and components that we purchase or labor required to manufacture our products could negatively impact our operating results or financial condition.

 

Our sales growth, expanding geographical footprint and continued use of sole-source vendors, coupled with suppliers’ potential credit issues, could lead to an increased risk of a breakdown in our supply chain. Our use of sole-source vendors creates a concentration risk. There is an increased risk of defects due to the highly configured nature of our purchased component parts that could result in quality issues, returns or production slowdowns. In addition, modularization may lead to more sole-sourced products and as we seek to outsource the design of certain key components, we risk loss of proprietary control and becoming more reliant on a sole source. There is also a risk that the vendors we choose to supply our parts and equipment fail to comply with our quality expectations, thus damaging our reputation for quality and negatively impacting sales.

 

A global semiconductor supply shortage is impacting multiple industries and could have an impact on the production of our products, and in turn, could impact our performance in 2021. Additionally, recent disruptions of transportation, including reduced availability of containers and air transport in addition to port or border congestion, have caused, and may continue to cause, increased costs and delays in certain instances. These pressures on obtaining raw materials and shipping finished goods to customers could adversely impact our financial results.

 

We have and may continue to experience higher than normal wage inflation due to skilled labor shortages. In addition, we have incurred costs associated with tariffs on certain raw materials used in our manufacturing processes. The labor shortages and tariff costs have unfavorably impacted our gross profit margins and could continue to do so if actions we are taking are not effective at offsetting these rising costs. Changes and uncertainties related to government fiscal and tax policies, including increased duties, tariffs, or other restrictions, could adversely affect demand for our products, the cost of the products we manufacture or our ability to cost-effectively source raw materials, all of which could have a negative impact on our financial results.

 

Increasing cost pressures could negatively impact our ability to achieve our strategic objectives and affect our financial results.

 

 We are dependent on key suppliers to make certain materials available at a contracted price. If labor, overhead, and material costs increase, we may not be able to offset these increased manufacturing costs with a higher finished product price. We also may not be able to push those direct cost increases onto our customers in a timely manner given the competitive environment. A decline in demand for our products may have a direct impact on our ability to achieve better pricing through volume discounts.  

 

We are subject to product liability claims and product quality issues that could adversely affect our operating results or financial condition.

 

Our business exposes us to potential product liability risks that are inherent in the design, manufacturing and distribution of our products. If products are used incorrectly by our customers, injury may result leading to product liability claims against us. Some of our products or product improvements may have defects or risks that we have not yet identified that may give rise to product quality issues, liability and warranty claims. Quality issues may also arise due to changes in parts or specifications with suppliers and/or changes in suppliers. If product liability claims are brought against us for damages that are in excess of our insurance coverage or for uninsured liabilities and it is determined we are liable, our business could be adversely impacted. Any losses we suffer from any liability claims, and the effect that any product liability litigation may have upon the reputation and marketability of our products, may have a negative impact on our business and operating results. We could experience a material design or manufacturing failure in our products, a quality system failure, other safety issues, or heightened regulatory scrutiny that could warrant a recall of some of our products. Any unforeseen product quality problems could result in loss of market share, reduced sales and higher warranty expense.

 

 

 

 

6

 

Operational Risks

 

Our ability to effectively operate our Company could be adversely affected if we are unable to attract and retain key personnel and other highly skilled employees, provide employee development opportunities and create effective succession planning strategies.

 

Our growth strategy, expanding global footprint, changing workforce demographics and increased improvements in technology and business processes designed to enhance the customer experience are putting increased pressure on human capital strategies designed to recruit, retain and develop top talent.

 

Our continued success will depend on, among other things, the skills and services of our executive officers and other key personnel. Our ability to attract and retain highly qualified managerial, technical, manufacturing, research, sales and marketing personnel also impacts our ability to effectively operate our business. As companies grow and increase their hiring activities, there is an inherent risk of increased employee turnover and the loss of valuable employees in key positions, especially in emerging markets. We believe the increased loss of key personnel within a concentrated region could adversely affect our sales growth.

 

In addition, there is a risk that we may not have adequate talent acquisition resources and employee development resources to support our future hiring needs and provide training and development opportunities to all employees. This, in turn, could impede our workforce from embracing change and leveraging the improvements we have made in technology and other business process enhancements.

 

We may not be able to develop or manage strategic planning and growth processes or the related operational plans to deliver on our strategies and establish a broad organization alignment, thereby impairing our ability to achieve future performance expectations.

 

We are continuing to refine our global company strategy to guide our next phase of performance as our structure has become more complex due to recent acquisitions. We continue to consolidate and reallocate resources as part of our ongoing efforts to optimize our cost structure and to drive synergies and growth. Our operating results may be negatively impacted if we are unable to implement new processes and manage organizational changes, which include changes to our go-to-market strategy, systems and processes; simultaneous focus on expense control and growth; and introduction of alternative cleaning methods. In addition, if we do not effectively realize and sustain the benefits that these transformations are designed to produce, we may not fully realize the anticipated savings of these actions or they may negatively impact our ability to serve our customers or meet our strategic objectives.

 

We may not be able to upgrade and evolve our information technology systems as quickly as we wish and we may encounter difficulties as we upgrade and evolve these systems to support our growth strategy and business operations, which could adversely impact our abilities to accomplish anticipated future cost savings and better serve our customers.

 

We have many information technology systems that are important to the operation of our business and are in need of upgrading in order to effectively implement our growth strategy. Given our greater emphasis on customer-facing technologies, we may not have adequate resources to upgrade our systems at the pace which the current business environment demands. Additionally, significantly upgrading and evolving the capabilities of our existing systems could lead to inefficient or ineffective use of our technology due to lack of training or expertise in these evolving technology systems. These factors, among other things, could lead to significant expenses, adversely impacting our results of operations and hindering our ability to offer better technology solutions to our customers.

 

 

 

 


 

 

We may encounter risks to our IT infrastructure, such as access and security, that may not be adequately designed to protect critical data and systems from theft, corruption, unauthorized usage, viruses, sabotage or unintentional misuse.

 

Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to IT systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company, its products and its customers. We seek to deploy comprehensive measures to deter, prevent, detect, react to and mitigate these threats, including identity and access controls, data protection, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems.

 

Despite these efforts, cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include financial loss, reputational damage, litigation with third parties, theft of intellectual property, diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect our competitiveness and results of operations.

 

We may be unable to conduct business if we experience a significant business interruption in our computer systems, manufacturing plants or distribution facilities for a significant period of time.

 

We rely on our computer systems, manufacturing plants and distribution facilities to efficiently operate our business. If we experience an interruption in the functionality in any of these items for a significant period of time for any reason, we may not have adequate business continuity planning contingencies in place to allow us to continue our normal business operations on a long-term basis. In addition, the increase in customer-facing technology raises the risk of a lapse in business operations. Therefore, significant long-term interruption in our business could cause a decline in sales, an increase in expenses and could adversely impact our financial results.

 

Our ability to manage the health and safety of our global workforce may lead to increased business disruption and financial penalties.

 

We remain focused on the health and safety measures that impact our business from a manufacturing perspective.  The Company had to adjust quickly to new working conditions as a result of the COVID-19 pandemic, including making enhancements as new health information was received. In the future, the Company may not adapt to new health crises quickly enough, resulting in a decrease in resource capacity and overall health and wellness of our workforce that could cause fines, reputational damage, or business disruptions. Also, there may be further enhancements and costs to the Company related to any new health guidelines and protocols. Our manufacturing teams monitor the effectiveness of our wellness and safety programs, while the Company continues to implement more tailored health initiatives for those working from home. Managing additional health guidelines and protocols for the health and safety of our employees may adversely affect our business, financial conditions or operating results. 

 

 

 

 

 

7

 

We may consider acquisitions of suitable candidates to accomplish our growth objectives. We may not be able to successfully integrate the businesses we acquire to achieve operational efficiencies, including synergistic and other benefits of acquisition.

 

We may consider, as part of our growth strategy, supplementing our organic growth through acquisitions of complementary businesses or products. We have engaged in acquisitions in the past and we may determine that future acquisitions may provide meaningful opportunities to grow our business and improve profitability. Acquisitions allow us to enhance the breadth of our product offerings and expand the market and geographic participation of our products and services.

 

However, our success in growing by acquisition is dependent upon identifying businesses to acquire, integrating the newly acquired businesses with our existing businesses and complying with the terms of our credit facilities. We may incur difficulties in the realignment and integration of business activities when assimilating the operations and products of an acquired business or in realizing projected efficiencies, cost savings, revenue synergies and profit margins. Acquired businesses may not achieve the levels of revenue, profit, productivity or otherwise perform as expected. We are also subject to incurring unanticipated liabilities and contingencies associated with an acquired entity that are not identified or fully understood in the due diligence process. Current or future acquisitions may not be successful or accretive to earnings if the acquired businesses do not achieve expected financial results.

 

In addition, we may record significant goodwill or other intangible assets in connection with an acquisition. We are required to perform impairment tests at least annually and whenever events indicate that the carrying value may not be recoverable from future cash flows. If we determine that any intangible asset values need to be written down to their fair values, this could result in a charge that may be material to our operating results and financial condition.

 

Inadequate funding or insufficient innovation of new technologies may result in an inability to develop and commercialize new innovative products and services.

 

We strive to develop new and innovative products and services to differentiate ourselves in the marketplace. New product development relies heavily on our financial and resource investments in both the short term and long term. If we fail to adequately fund product development projects or fund a project which ultimately does not gain the market acceptance we anticipated, we risk not meeting our customers' expectations, which could result in decreased revenues, declines in margin and loss of market share.

 

 

 

ITEM 1B – Unresolved Staff Comments

 

None.

 

ITEM 2 – Properties

 

The Company’s corporate offices are owned by the Company and are located in the Minneapolis, Minnesota, metropolitan area. Manufacturing facilities located in Minneapolis, Minnesota; Holland, Michigan; Uden, The Netherlands and the Italian cities of Venice, Cremona and Reggio Emilia and in the Province of Padua are owned by the Company. Manufacturing facilities located in Louisville, Kentucky; São Paulo, Brazil; Hefei, China, and another facility in the Province of Padua are leased to the Company. In addition, IPC Group (IPC) (which we acquired in 2017) uses a dedicated, third-party plant in Germany that specially manufactures heavy–duty stainless steel scrubbers and sweepers to IPC designs. IPC also owns a minor tools and supplies assembly operation in China to service local customers. The facilities are in good operating condition, suitable for their respective uses and adequate for current needs.

 

Sales offices, warehouse and storage facilities are leased in various locations in the United States, Canada, Mexico, Portugal, Spain, Italy, Germany, France, The Netherlands, Belgium, Norway, the United Kingdom, Japan, China, India, Australia, New Zealand and Brazil. The Company’s facilities are in good operating condition, suitable for their respective uses and adequate for current needs.

 

Further information regarding the Company’s property and lease commitments is included in the Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" and in Note 15 to the Consolidated Financial Statements.

 

ITEM 3 – Legal Proceedings

 

There are no material pending legal proceedings other than ordinary routine litigation incidental to the Company’s business.

 

ITEM 4 – Mine Safety Disclosures

 

Not applicable.

 

8

 

PART II

 

ITEM 5 – Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

 

MARKET INFORMATION – Tennant's common stock is traded on the New York Stock Exchange, under the ticker symbol TNC. As of February 12, 2021, there were 280 shareholders of record.

 

DIVIDEND INFORMATION – Cash dividends on Tennant’s common stock have been paid for 76 consecutive years. Tennant’s annual cash dividend payout increased for the 49th consecutive year to $0.89 per share in 2020, an increase of $0.01 per share over 2019. Dividends are generally declared each quarter. On February 17, 2021, the Company announced a quarterly cash dividend of $0.23 per share payable March 15, 2021, to shareholders of record on March 1, 2021.

 

DIVIDEND REINVESTMENT OR DIRECT DEPOSIT OPTIONS – Shareholders have the option of reinvesting quarterly dividends in additional shares of Company stock or having dividends deposited directly to a bank account. The Transfer Agent should be contacted for additional information.

 

TRANSFER AGENT AND REGISTRAR – Shareholders with a change of address or questions about their account may contact:

 

Equiniti Trust Company

Shareowner Services

P.O. Box 64874

St. Paul, MN 55164-0854

(800) 468-9716

 

 

SHARE REPURCHASES – 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 392,892 shares remaining under our prior repurchase program. Share repurchases are made from time to time in the open market or through privately negotiated transactions. As of December 31, 2020, our 2017 Credit Agreement restricts the payment of dividends or repurchasing of 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 an amount ranging from $50.0 million to $75.0 million during any fiscal year based on our leverage ratio 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.

 

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

 

December 31, 2020

 

Purchased(1)

   

Per Share

   

Programs

   

Programs

 

October 1–31, 2020

  18     $60.36         1,392,363  

November 1–30, 2020

              1,392,363  

December 1–31, 2020

              1,392,363  

Total

  18     $60.36         1,392,363  

 

 

(1)

Includes 18 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.

 

 

9

 

STOCK PERFORMANCE GRAPH – The following graph compares the cumulative total shareholder return on Tennant’s common stock to two indices: S&P SmallCap 600 and S&P 500 Industrials (Sector). The graph below compares the performance for the last five fiscal years, assuming an investment of $100 on December 31, 2015, including the reinvestment of all dividends. The S&P 500 Industrials (Sector) replaces the Morningstar Industrials Sector Index in this analysis and going forward, as the latter data is no longer accessible at a reasonable cost. The latter index has been included with data through 2019 on a transitional basis.

 

 

 

 5-YEAR CUMULATIVE TOTAL RETURN COMPARISON

 

zacksgraph2.jpg

 

 

   

2015

   

2016

   

2017

   

2018

   

2019

   

2020

 

Tennant Company

  $ 100     $ 128     $ 133     $ 96     $ 146     $ 133  

S&P SmallCap 600

  $ 100     $ 98     $ 111     $ 102     $ 125     $ 139  

Morningstar Industrials Sector

  $ 100     $ 119     $ 145     $ 128     $ 168       n/a  

S&P 500 Industrials (Sector) (TR)

  $ 100     $ 119     $ 144     $ 125     $ 161     $ 179  

 

 

ITEM 6 – [Reserved]

 

 

10

 

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

 

Overview

 

The 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 outdoor 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, parking lots and streets, and more. Customers include contract cleaners to whom organizations outsource facilities maintenance, as well as businesses that perform facilities maintenance themselves. The Company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.

 

The year-over-year comparisons in this Management's Discussion and Analysis of Financial Condition and Results of Operations are as of and for the years ended December 31, 2020 and December 31, 2019, unless stated otherwise. The discussion of 2018 results and related year-over-year comparisons as of and for the years ended December 31, 2019 and December 31, 2018 are found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", of our Form 10-K for the year ended December 31, 2019. 

 

Impact of COVID-19

 

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) 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 related 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 2020, we experienced an organic sales decline of 11.8%. We believe most of the organic sales decline in the second through fourth 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 managing 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. 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 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, all of our factories had 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 result of the disruptions and volatility caused by COVID-19, we cannot reasonably estimate the long-term impact of the pandemic on our financials 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. 

 

 

11

 

 

Historical Results

 

The following table compares the historical results of operations for the years ended December 31, 2020, 2019 and 2018 in dollars and as a percentage of Net Sales (in millions, except per share amounts and percentages):

 

   

2020

   

%

   

2019

   

%

   

2018

   

%

 

Net Sales

  $ 1,001.0       100.0     $ 1,137.6       100.0     $ 1,123.5       100.0  

Cost of Sales

    593.2       59.3       675.9       59.4       678.5       60.4  

Gross Profit

    407.8       40.7       461.7       40.6       445.0       39.6  

Operating Expense:

                                               

Research and Development Expense

    30.1       3.0       32.7       2.9       30.7       2.7  

Selling and Administrative Expense

    314.0       31.4       357.2       31.4       356.3       31.7  

Total Operating Expense

    344.1       34.4       389.9       34.3       387.0       34.4  

Profit from Operations

    63.7       6.4       71.8       6.3       58.0       5.2  

Other Income (Expense):

                                               

Interest Income

    3.3       0.3       3.3       0.3       3.0       0.3  

Interest Expense

    (20.7 )     (2.1 )     (21.1 )     (1.9 )     (23.3 )     (2.1 )

Net Foreign Currency Transaction Losses

    (5.3 )     (0.5 )     (0.7 )     (0.1 )     (1.1 )     (0.1 )

Other Income (Expense), Net

    0.1       0.0       0.7       0.1       (0.8 )     (0.1 )

Total Other Expense, Net

    (22.6 )     (2.3 )     (17.8 )     (1.6 )     (22.2 )     (2.0 )

Profit Before Income Taxes

    41.1       4.1       54.0       4.7       35.8       3.2  

Income Tax Expense

    7.4       0.7       8.1       0.7       2.3       0.2  

Net Earnings Including Noncontrolling Interest

    33.7       3.4       45.9       4.0       33.5       3.0  

Net Earnings Attributable to Noncontrolling Interest

                0.1             0.1        

Net Earnings Attributable to Tennant Company

  $ 33.7       3.4     $ 45.8       4.0     $ 33.4       3.0  

Net Earnings Attributable to Tennant Company per Share - Diluted

  $ 1.81             $ 2.48             $ 1.82          

 

Net Sales

 

Net Sales in 2020 totaled $1,001.0 million, a 12.0% decrease as compared to Net Sales of $1,137.6 million in 2019.

 

The components of the consolidated Net Sales change for 2020 as compared to 2019, and 2019 as compared to 2018, were as follows:

 

   

2020 v. 2019

 

2019 v. 2018

Total reported net sales

  (12.0)%   1.3%

Foreign currency

  (0.2)%   (2.2)%

Acquisitions

  0.0%   1.3%

Total organic net sales

  (11.8)%   2.2%

 

The 12.0% decrease in consolidated Net Sales for 2020 as compared to 2019 was driven by:

 

 

Organic sales decreased approximately 11.8% which excludes the effects of foreign currency translation exchange. The organic sales decrease was primarily driven by 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 0.2%.

 

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

 

   

2020

   

%

   

2019

   

%

   

2018

 

Americas

  $ 631.0       (12.7 )   $ 722.4       4.5     $ 691.0  

Europe, Middle East and Africa

    278.2       (9.6 )     307.6       (8.3 )     335.6  

Asia Pacific

    91.8       (14.7 )     107.6       11.0       96.9  

Total

  $ 1,001.0       (12.0 )   $ 1,137.6       1.3     $ 1,123.5  

 

Americas – In 2020, Americas Net Sales decreased 12.7% to $631.0 million as compared with $722.4 million in 2019. Foreign currency exchange within the Americas unfavorably impacted Net Sales by approximately 1.1% in 2020. Organic sales declines in the Americas unfavorably impacted Net Sales by approximately 11.6% due to the impact of COVID-19 throughout the entire region, partially offset by continued demand for our autonomous cleaning machines in North America.

 

12

 

Europe, Middle East and Africa – EMEA Net Sales in 2020 decreased 9.6% to $278.2 million as compared to 2019 Net Sales of $307.6 million. Foreign currency exchange within EMEA favorably impacted Net Sales by approximately 1.4%. Organic sales declines in EMEA unfavorably impacted Net Sales by approximately 11.0% due to the impact of COVID-19 throughout the region.

 

Asia Pacific – APAC Net Sales in 2020 decreased 14.7% to $91.8 million as compared to 2019 Net Sales of $107.6 million. Foreign currency exchange within APAC favorably impacted Net Sales by approximately 0.2%. Organic sales declines in APAC unfavorably impacted Net Sales by approximately 14.9% in 2020, primarily due to the impact of COVID-19 throughout the region. 

 

Gross Profit

 

Gross Profit margin was 40.7%, or 10 basis points higher in 2020 compared to 2019. The increase was primarily driven by actions directly resulting from the Company's enterprise strategy efforts such as pricing and cost-out initiatives, benefits from government programs related to COVID-19 and cost-reduction actions, partially offset by volume deleverage, higher material costs, and strategic investments in the business. The government benefits included in Gross Profit in 2020 were $4.9 million and were recorded in the second and fourth quarters of 2020. The benefits represent wage-related subsidies from various European, Canadian, and U.S. authorities that are not required to be repaid. Of the government benefits, $1.1 million were related to employee retention credits for U.S. employees provided by the Coronavirus Aid, Relief and Economic Security ("CARES") Act.

 

Operating Expenses

 

Research and Development Expense – The Company continues to invest in innovative product development with 3.0% of 2020 Net Sales spent on Research and Development ("R&D"). We continue to invest in developing innovative new products and technologies and the advancement of detergent-free products, fleet management, autonomous vehicles and other sustainable technologies.

 

R&D Expense decreased $2.6 million, or 8.0%, in 2020 as compared to 2019. As a percentage of Net Sales, 2020 R&D Expense increased 10 basis points compared to the prior year.

 

Selling and Administrative Expense – Selling and Administrative Expense ("S&A Expense") decreased by $43.2 million, or 12.1%, in 2020 compared to 2019. As a percentage of Net Sales, 2020 S&A Expense remained flat at 31.4%. The S&A Expense decline 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 related to COVID-19 and adjustments to management incentives. The government benefits included in S&A Expense in 2020 were $3.0 million and were recorded in the second and fourth quarters of 2020. The benefits represent wage-related subsidies from various European, Canadian and U.S. authorities that are not required to be repaid. Of the government benefits, $1.4 million were related to employee retention credits for U.S. employees provided by the CARES Act. The remaining decrease included a lower fair value adjustment to the acquisition-related contingent consideration, an adjustment to an acquisition-related liability and lower acquisition and integration costs in 2020 as compared to 2019. The decrease in S&A Expense was offset slightly by increases in restructuring costs and professional fees.

 

Total Other Expense, Net

 

Interest Income – Interest Income was $3.3 million in 2020, flat from 2019.

 

Interest Expense – Interest Expense was $20.7 million in 2020, as compared to $21.1 million in 2019. The lower Interest Expense in 2020 was primarily due to carrying a lower level of debt due to debt paydowns, as further described in the Liquidity and Capital Resources section that follows.

 

Net Foreign Currency Transaction Losses Net Foreign Currency Transaction Losses were $5.3 million in 2020 as compared to $0.7 million of losses in 2019. The unfavorable change in the impact from foreign currency transactions in 2020 was primarily due to fluctuations in foreign currency rates, specifically between the Brazilian real, Mexican peso and the U.S. dollar, and settlements of transactional hedging activity in the normal course of business.

 

Other Income (Expense), Net – Other Income (Expense), Net was $0.1 million of income in 2020 as compared to $0.7 million of income in 2019.

 

Income Taxes

 

The overall effective income tax rate was 17.9% and 15.1% in 2020 and 2019, respectively.

 

The expense for 2020 included $2.2 million of tax benefits associated with $7.5 million of non-recurring expenses, which reduced the effective tax rate by 1.6 percentage points.

 

Our effective tax rate fluctuates from year to year due to the global nature of our operations. The effective tax rate increased to 17.9% in 2020 from 15.1% in 2019 primarily due to the mix in full year taxable earnings by country, fewer tax benefits related to the exercise of stock options, and a non-recurring benefit in 2019 related to a change in valuation allowances in The Netherlands and the U.S.

 

13

 

Other Comprehensive Income (Loss)

 

Foreign Currency Translation Adjustments – For the years ended December 31, 2020 and 2019, we recorded a pre-tax foreign currency translation gain of $16.4 million and a loss of $4.5 million, respectively. These adjustments resulted from translating the financial statements of our non-U.S. dollar functional currency subsidiaries into our reporting currency, which is the U.S. dollar, as well as other adjustments permitted by foreign currency accounting rules.

 

During 2020, we recorded a pre-tax currency translation gain of $16.4 million. This gain was caused primarily by the weakening of the U.S. dollar to most currencies. In 2020, the U.S. dollar weakened by approximately 9% to the euro and 7% to the Chinese renminbi. Currency translation gains were partially offset by a loss in Brazilian real denominated net assets due to a 23% strengthening of the U.S dollar to the Brazilian real.

 

Pension and Postretirement Medical Benefits – The summarized changes in Accumulated Other Comprehensive (Income) Loss for the three years ended December 31 were as follows (in millions):

 

   

Pension and Postretirement Medical Benefits

 
   

2020

   

2019

   

2018

 

Prior service costs

  $ 0.1     $     $ 0.1  

Net actuarial loss (gain)

    1.3       0.4       (1.7 )

Amortization of net actuarial loss

    (0.1 )     0.1       (0.1 )

Total recognized in other comprehensive loss (income)

  $ 1.3     $ 0.5     $ (1.7 )

 

The $1.3 million loss in 2020 was primarily due to a $1.3 million actuarial loss relating to an annual actuarial analysis resulting from a 95 basis point decrease in the U.S. pension discount rate, a 37 basis point decrease in the non-U.S. discount rate and a 99 basis point decrease in the postretirement discount rate.

 

Cash Flow Hedging – For the years ended December 31, 2020 and 2019, we recorded pre-tax adjustments on cash flow hedge financial instruments of a gain of $2.9 million and a gain of $4.6 million, respectively, in Other Comprehensive Income (Loss) as further disclosed in Note 11 to the Company's Consolidated Financial Statements.

 

The $2.9 million gain in 2020 was primarily due to the fall in interest rates in the U.S. and Europe during 2020 and the impact on hedge derivatives held in the Company's cross currency swap hedge program. Gains of hedge derivatives were partially offset by the weakening of the U.S. dollar relative to the euro. During 2020, the U.S. dollar weakened approximately 9% to the euro.

 

Liquidity and Capital Resources

 

Liquidity – Cash, Cash Equivalents and Restricted Cash totaled $141.0 million at December 31, 2020, as compared to $74.6 million as of December 31, 2019. Cash, Cash Equivalents and Restricted Cash held by our foreign subsidiaries totaled $76.2 million as of December 31, 2020, as compared to $45.7 million as of December 31, 2019. 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 1.9 as of December 31, 2020, and 1.7 as of December 31, 2019, and our working capital was $239.3 million and $206.1 million, respectively.

 

Our Debt-to-Capital ratio was 43.2% as of December 31, 2020, compared with 48.5% as of December 31, 2019. Our capital structure was comprised of $308.5 million of Debt and $404.8 million of Tennant Company Shareholders’ Equity as of December 31, 2020.

 

Operating Activities – Cash provided by operating activities was $133.8 million in 2020 and $71.9 million in 2019. In 2020, cash provided by operating activities was driven primarily by net earnings adding back non-cash items of $59.6 million, a $26.0 million decrease in Net Receivables, an $18.3 million decrease in Inventories and an $8.5 million increase in Accounts Payable. These cash inflows were partially offset by cash outflows from a $10.0 million decrease in Employee Compensation and Benefits liabilities, primarily related to 2019 incentive payments to employees.

 

Investing Activities – Net cash used in investing activities was $29.9 million in 2020 and $55.6 million in 2019. In 2020, we used $29.8 million for net capital expenditures. Net capital expenditures included investments in a new administrative building, information technology process improvement projects, tooling related to new product development and manufacturing equipment. 

 

Financing Activities – Net cash used in financing activities was $42.8 million in 2020 and $27.4 million in 2019. In 2020, we made $157.5 million of Debt payments and dividend payments of $16.3 million. Our annual cash dividend payout increased for the 49th consecutive year to $0.89 per share in 2020, an increase of $0.01 per share over 2019. These cash outflows were partially offset by proceeds from Borrowings of $126.4 million and proceeds from the issuance of Common Stock of $4.9 million.

 

At December 31, 2020, there were 1,392,363 remaining shares authorized for repurchase.

 

There were no shares repurchased in 2020, 2019 or 2018. Our 2017 Credit Agreement, as defined below, restricts the payment of dividends or repurchasing of 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 an amount ranging from $50.0 million to $75.0 million during any fiscal year based on our leverage ratio after giving effect to such payment. Our Senior Notes due 2025 (the "Notes") also contain certain restrictions, which are generally less restrictive than those contained in the 2017 Credit Agreement.

 

14

 

Indebtedness – During 2017, the Company and certain of our foreign subsidiaries entered into a Credit Agreement (the “2017 Credit Agreement”) with JPMorgan, as administrative agent, Goldman Sachs Bank USA, as syndication agent, Wells Fargo, National Association, U.S. Bank National Association, and HSBC Bank USA, National Association, as co-documentation agents, and the lenders (including JPMorgan) from time to time party thereto.

 

Borrowings denominated in U.S. dollars under the 2017 Credit Agreement bear interest at a rate per annum equal to the adjusted London interbank offered rate ("LIBOR") for a one month period and do not have fallback language for when LIBOR is no longer available. Uncertainty related to the LIBOR phase out at the end of 2021 may adversely impact the value of, and our obligations under, the 2017 Credit Agreement. We may need to renegotiate our financial obligations that utilize LIBOR. The Company continues to assess and monitor regulatory developments during the transition period.

 

For further details regarding our indebtedness, see Note 9 to the Consolidated Financial Statements.

 

Contractual Obligations – Our contractual obligations as of December 31, 2020, are summarized by period due in the following table (in millions):

 

   

Total

   

Less Than 1 Year

   

1 - 3 Years

   

3 - 5 Years

   

More Than 5 Years

 

Long-term debt(1)

  $ 310.0     $ 10.0     $     $ 300.0     $  
Interest payments on long-term debt(1)     73.3       17.0       33.8       22.5        

Finance leases

    0.1       0.1                    
Secured borrowings payment     1.5       0.8       0.7              
Interest payments on secured borrowings     0.1       0.1                    
Retirement benefit plans(2)     1.2       1.2                    
Deferred compensation arrangements(3)     3.8       1.7       0.7       0.3       1.1  

Operating leases(4)

    48.0       17.6       22.4       7.1       0.9  
Purchase obligations(5)     56.3       56.3                    

Total contractual obligations

  $ 494.3     $ 104.8     $ 57.6     $ 329.9     $ 2.0  

 

 

(1)

Long-term debt represents borrowings through the Notes and the 2017 Credit Agreement with JPMorgan. Interest on the Notes accrues at the rate of 5.625% per annum and is payable semiannually in cash on each May 1 and November 1. Repayment of the principal amount of the Senior Notes is due upon expiration of the agreement in 2025. Interest payments on our 2017 Credit Agreement with JPMorgan were calculated using the December 31, 2020 30-day LIBOR rate plus a spread.

 

(2)

Our retirement benefit plans, as described in Note 13 to the Consolidated Financial Statements, require us to make contributions to the plans from time to time. Contributions to the various plans are dependent upon a number of factors including the market performance of plan assets, if any, and future changes in interest rates, which impact the actuarial measurement of plan obligations. As a result, we have only included our 2021 expected contribution in the contractual obligations table.

 

(3)

The unfunded deferred compensation arrangements covering certain current and retired management employees totaled $3.8 million as of December 31, 2020. Our estimated distributions in the contractual obligations table are based upon a number of assumptions including termination dates and participant distribution elections.

 

(4)

Operating lease commitments consist primarily of office and warehouse facilities, vehicles and office equipment as well as the estimated liability for residual value guarantee as discussed in Note 15 to the Consolidated Financial Statements.

 

(5)

Purchase obligations include all known open purchase orders, contractual purchase commitments and contractual obligations as of December 31, 2020.

 

Total contractual obligations exclude our gross unrecognized tax benefits of $6.4 million and accrued interest and penalties of $0.7 million as of December 31, 2020. We expect to make cash outlays in the future related to uncertain tax positions. However, due to the uncertainty of the timing of future cash flows, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. For further information related to unrecognized tax benefits, see Note 17 to the Consolidated Financial Statements.

 

Newly Issued Accounting Guidance

 

See Note 1 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.

 

 

15

 

Critical Accounting Policies and Estimates

 

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

 

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

 

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

 

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

 

In 2020, we elected to perform the quantitative goodwill test, which indicated that there was no goodwill impairment in any of our reporting units as of our annual assessment date. The EMEA reporting unit was the only reporting unit for which the fair value was not substantially in excess of its carrying value. The EMEA reporting unit, with $168.8 million of carrying value of goodwill at December 31, 2020, had an excess of reporting unit fair value over carrying value of 7% as of our annual assessment date.

 

We had goodwill of $207.8 million as of December 31, 2020.

 

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

 

Tax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation expense on property, plant and equipment. These temporary differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years but have already been recorded as an expense in our Consolidated Statements of Operations. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, based on management’s judgment, to the extent we believe that recovery is not more likely than not, we establish a valuation reserve against those deferred tax assets. The deferred tax asset valuation allowance could be materially different from actual results because of changes in the mix of future taxable income, the relationship between book and taxable income and our tax planning strategies. As of December 31, 2020, a valuation allowance of $7.5 million was recorded against foreign tax loss carryforwards, foreign tax credit carryforwards and state credit carryforwards.

 

16

 

Cautionary Factors Relevant to Forward-Looking Information

 

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, contains certain statements that are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or similar words or the negative thereof. These statements do not relate to strictly historical or current facts and provide current expectations of forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. Particular risks and uncertainties presently facing us include:

 

Geopolitical and economic uncertainty throughout the world.

     

Uncertainty surrounding the COVID-19 pandemic.
     
  Ability to comply with global laws and regulations.
     
 

Ability to adapt to price sensitivity.

     
  Competition in our business.
     
  Fluctuations in the cost, quality or availability of raw materials and purchased components.
     
  Ability to adjust pricing to respond to cost pressures.
     
  Unforeseen product liability claims or product quality issues.
     
  Ability to attract, retain and develop key personnel and create effective succession planning strategies.
     
  Ability to effectively manage strategic plan or growth processes.
     
  Ability to successfully upgrade and evolve our information technology systems.
     
  Ability to successfully protect our information technology systems from cybersecurity risks.
     
  Occurrence of a significant business interruption.
     
  Ability to maintain the health and safety of our workforce.
     
  Ability to integrate acquisitions.
     

Ability to develop and commercialize new innovative products and services.

 

We caution that forward-looking statements must be considered carefully and that actual results may differ in material ways due to risks and uncertainties both known and unknown. Information about factors that could materially affect our results can be found in Part I, Item 1A "Risk Factors" of this Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.

 

We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Investors are advised to consult any further disclosures by us in our filings with the SEC and in other written statements on related subjects. It is not possible to anticipate or foresee all risk factors, and investors should not consider any list of such factors to be an exhaustive or complete list of all risks or uncertainties.

 

17

 

ITEM 7A – Quantitative and Qualitative Disclosures About Market Risk

 

Commodity Risk We are subject to exposures resulting from potential cost increases related to our purchase of raw materials or other product components. We do not use derivative commodity instruments to manage our exposures to changes in commodity prices such as steel, oil, gas, lead and other commodities.

 

Various factors beyond our control affect the price of oil and gas, including, but not limited to, worldwide and domestic supplies of oil and gas, political instability or armed conflict in oil-producing regions, the price and level of foreign imports, the level of consumer demand, the price and availability of alternative fuels, domestic and foreign governmental regulation, weather-related factors and the overall economic environment. We purchase petroleum-related component parts for use in our manufacturing operations. In addition, our freight costs associated with shipping and receiving product and sales and service vehicle fuel costs are impacted by fluctuations in the cost of oil and gas.

 

Fluctuations in worldwide demand and other factors affect the price for lead, steel and related products. We do not maintain an inventory of raw or fabricated steel or batteries in excess of near-term production requirements. As a result, increases in the price of lead or steel can significantly increase the cost of our lead- and steel-based raw materials and component parts.

 

We continue to focus on mitigating the risk of future raw material or other product component cost increases through supplier negotiations, ongoing optimization of our supply chain, the continuation of cost-reduction actions and product pricing. The success of these efforts will depend upon our ability to leverage our commodity spend in the current global economic environment. If the commodity prices increase significantly and we are not able to offset the increases with higher selling prices, our results may be unfavorably impacted in the future.

 

Foreign Currency Exchange Rate Risk Due to the global nature of our operations, we are subject to exposures resulting from foreign currency exchange fluctuations in the normal course of business. Our primary exchange rate exposures are with the euro, Australian and Canadian dollars, British pound, Japanese yen, Chinese renminbi, Brazilian real and Mexican peso against the U.S. dollar. The direct financial impact of foreign currency exchange includes the effect of translating profits from local currencies to U.S. dollars, the impact of currency fluctuations on the transfer of goods between our operations in the United States and our international operations and transaction gains and losses. In addition to the direct financial impact, foreign currency exchange has an indirect financial impact on our results, including the effect on sales volume within local economies and the impact of pricing actions taken as a result of foreign exchange rate fluctuations.

 

In the normal course of business, we actively manage the exposure of our foreign currency exchange rate market risk by entering into various hedging instruments with counterparties that are highly rated financial institutions. We may use foreign exchange purchased options or forward contracts to hedge our foreign currency denominated forecasted revenues or forecasted sales to wholly-owned foreign subsidiaries. Additionally, we hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts. We hedge these exposures to reduce the risk that our net earnings and cash flows will be adversely affected by changes in foreign exchange rates. We do not enter into any of these instruments for speculative or trading purposes to generate revenue.

 

These contracts are carried at fair value and have maturities between one and 12 months. The gains and losses on these contracts generally approximate changes in the value of the related assets, liabilities or forecasted transactions. Some of the derivative instruments we enter into do not meet the criteria for cash flow hedge accounting treatment; therefore, changes in fair value are recorded in Foreign Currency Transaction Losses on our Consolidated Statements of Operations.

 

We use foreign currency exchange rate derivatives to hedge our exposure to fluctuations in exchange rates for anticipated intercompany cash transactions between the Company and its subsidiaries. During 2017, 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 entered 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. We designated these cross-currency swaps as cash flow hedges. The hedged cash flows as of December 31, 2020 included €159.6 million of total notional value. As of December 31, 2020, the aggregate scheduled interest payments over the course of the loan and related swaps amounted to €9.6 million. The scheduled maturity and principal payment of the loan and related swaps of €150.0 million are due in April 2022. There were no new cross-currency swaps designated as cash flow hedges as of December 31, 2020.

 

For further information regarding our foreign currency derivatives and hedging programs, see Note 11 to the Consolidated Financial Statements.

 

For details of the estimated effects of currency translation on the operations of our operating segments, see Part II, Item 7 – "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 

Other Matters Management regularly reviews our business operations with the objective of improving financial performance and maximizing our return on investment. As a result of this ongoing process to improve financial performance, we may incur additional restructuring charges in the future which, if taken, could be material to our financial results.

 

18

 

ITEM 8 – Financial Statements and Supplementary Data

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the shareholders and the Board of Directors of Tennant Company.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Tennant Company and subsidiaries (the "Company") as of December 31, 2020, the related consolidated statements of operations, comprehensive income, cash flows, and equity, for the year ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for  the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matter

 

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

 

 

 

19

 

Goodwill – EMEA Reporting Unit - Refer to Notes 1, 5, 8 to the consolidated financial statements

 

Critical Audit Matter Description

 

The Company’s annual evaluation of goodwill for impairment involves the comparison of the fair value to its carrying value. The Company determined the fair value of the EMEA reporting unit using the combination of an income and a market approach. The income approach utilizes a discounted cash flow model which requires management to make significant estimates and assumptions related to forecasts of future revenues, profit margins, and discount rates. The determination of the fair value using the market approach requires management to make significant assumptions related to earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples.

 

The EMEA goodwill balance was $169 million as of December 31, 2020. The fair value of the EMEA reporting unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized. Changes in these estimates and related assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

 

Given the significant judgments made by management to estimate the fair value of the EMEA reporting unit and the differences between its fair value and carrying value, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future revenues, profit margins, discount rates, and EBITDA multiples, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

 

How the Critical Audit Matter Was Addressed in the Audit

 

Our audit procedures related to forecasts of future revenues, reporting unit profit margins, selection of discount rates, and EBITDA multiples for the EMEA reporting unit included the following, among others:

 

 

We tested the effectiveness of controls over goodwill, including the underlying assumptions to forecast future revenue and profit margins, and the selection of the discount rate and EBITDA multiples.

 

 

We evaluated management’s ability to accurately forecast future revenues and profit margins by comparing actual results to management’s historical forecasts.

 

 

We evaluated the reasonableness of management’s forecasted revenue and profit margins by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in Company press releases as well as in analyst and industry reports of the Company and companies in its peer group.

 

 

With the assistance of our fair value specialists, we evaluated the discount rates, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.

 

 

With the assistance of our fair value specialists, we evaluated the EBITDA multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline companies.

 

 

With the assistance of our fair value specialists, we compared the aggregated fair value estimates of the Company’s reporting units to the Company’s market capitalization and evaluated the implied control premium.

 

 

/s/ Deloitte & Touche LLP

 

Minneapolis, Minnesota
February 25, 2021

 

We have served as the Company's auditor since 2019.

 

20

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the shareholders and the Board of Directors of Tennant Company.

 

Opinion on Internal Control over Financial Reporting

 

We have audited the internal control over financial reporting of Tennant Company and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 25, 2021, expressed an unqualified opinion on those financial statements.

 

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ Deloitte & Touche LLP

 

Minneapolis, Minnesota
February 25, 2021

 

 

 

21

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors
Tennant Company:

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheet of Tennant Company and subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes and financial statement Schedule II – Valuation and Qualifying Accounts (collectively, the consolidated financial statements).

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. 

 

Change in Accounting Principle

 

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842), and related amendments.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ KPMG LLP

 

We have served as the Company's auditor from 1954 to 2020

 

Minneapolis, Minnesota

February 27, 2020

 

22

 

Consolidated Statements of Operations

TENNANT COMPANY AND SUBSIDIARIES

 

(In millions, except shares and per share data)

 

 

Years ended December 31

 

2020

  

2019

  

2018

 

Net Sales

 $1,001.0  $1,137.6  $1,123.5 

Cost of Sales

  593.2   675.9   678.5 

Gross Profit

  407.8   461.7   445.0 

Operating Expense:

            

Research and Development Expense

  30.1   32.7   30.7 

Selling and Administrative Expense

  314.0   357.2   356.3 

Total Operating Expense

  344.1   389.9   387.0 

Profit from Operations

  63.7   71.8   58.0 

Other Income (Expense):

            

Interest Income

  3.3   3.3   3.0 

Interest Expense

  (20.7)  (21.1)  (23.3)

Net Foreign Currency Transaction Losses

  (5.3)  (0.7)  (1.1)

Other Income (Expense), Net

  0.1   0.7   (0.8)

Total Other Expense, Net

  (22.6)  (17.8)  (22.2)

Profit Before Income Taxes

  41.1   54.0   35.8 

Income Tax Expense

  7.4   8.1   2.3 

Net Earnings Including Noncontrolling Interest

  33.7   45.9   33.5 

Net Earnings Attributable to Noncontrolling Interest

     0.1   0.1 

Net Earnings Attributable to Tennant Company

 $33.7  $45.8  $33.4 
             

Net Earnings Attributable to Tennant Company per Share:

            
Basic $1.84  $2.53  $1.86 
Diluted $1.81  $2.48  $1.82 
             

Weighted Average Shares Outstanding:

            
Basic  18,349,724   18,118,486   17,940,438 
Diluted  18,635,002   18,453,145   18,338,569 

 

See accompanying Notes to Consolidated Financial Statements.

 

23

 

Consolidated Statements of Comprehensive Income

TENNANT COMPANY AND SUBSIDIARIES

 

(In millions)

 

 

Years ended December 31

 

2020

  

2019

  

2018

 

Net Earnings Including Noncontrolling Interest

 $33.7  $45.9  $33.5 

Other Comprehensive Income (Loss):

            

Foreign currency translation adjustments

  16.4   (4.5)  (16.2)

Pension and postretirement medical benefits

  (1.3)  (0.5)  1.7 

Cash flow hedge

  2.9   4.6   1.3 

Income Taxes:

            

Foreign currency translation adjustments

  0.8   0.1   0.2 

Pension and postretirement medical benefits

  0.3   0.1   (0.5)

Cash flow hedge

  (0.7)  (1.1)  (1.4)

Total Other Comprehensive Income (Loss), net of tax

  18.4   (1.3)  (14.9)

Total Comprehensive Income Including Noncontrolling Interest

  52.1   44.6   18.6 

Comprehensive Income Attributable to Noncontrolling Interest

     0.1   0.1 

Comprehensive Income Attributable to Tennant Company

 $52.1  $44.5  $18.5 

 

See accompanying Notes to Consolidated Financial Statements.

 

24

 

Consolidated Balance Sheets

TENNANT COMPANY AND SUBSIDIARIES

 

(In millions, except shares and per share data)

 

 

December 31

 

2020

  

2019

 

ASSETS

        

Current Assets:

        

Cash, Cash Equivalents, and Restricted Cash

 $141.0  $74.6 

Receivables:

        

Trade, less Allowances of $4.6 and $3.6, respectively

  195.4   216.5 

Other

  4.5   6.8 

Net Receivables

  199.9   223.3 

Inventories

  127.7   150.1 

Prepaid and Other Current Assets

  25.0   33.0 

Total Current Assets

  493.6   481.0 

Property, Plant and Equipment

  437.5   412.5 

Accumulated Depreciation

  (252.0)  (239.2)

Property, Plant and Equipment, Net

  185.5   173.3 

Operating Lease Assets

  44.5   46.6 

Goodwill

  207.8   195.1 

Intangible Assets, Net

  126.2   137.7 

Other Assets

  25.0   29.2 

Total Assets

 $1,082.6  $1,062.9 

LIABILITIES AND TOTAL EQUITY

        

Current Liabilities:

        

Current Portion of Long-Term Debt

 $10.9  $31.3 

Accounts Payable

  106.3   94.1 

Employee Compensation and Benefits

  53.7   63.5 

Other Current Liabilities

  83.4   86.0 

Total Current Liabilities

  254.3   274.9 

Long-Term Liabilities:

        

Long-Term Debt

  297.6   307.5 

Long-Term Operating Lease Liability

  28.7   30.3 

Employee-Related Benefits

 

17.9

   19.4 

Deferred Income Taxes

  39.1   41.7 

Other Liabilities

  38.9   27.8 

Total Long-Term Liabilities

  422.2   426.7 

Total Liabilities

  676.5   701.6 

Commitments and Contingencies (Note 16)

          

Equity:

        

Common Stock, $0.375 par value per share, 60,000,000 shares authorized; 18,503,805 and 18,336,010 issued and outstanding, respectively

  6.9   6.9 

Additional Paid-In Capital

  54.7   45.5 

Retained Earnings

  363.3   346.0 

Accumulated Other Comprehensive Loss

  (20.1)  (38.5)

Total Tennant Company Shareholders' Equity

  404.8   359.9 

Noncontrolling Interest

  1.3   1.4 

Total Equity

  406.1   361.3 

Total Liabilities and Total Equity

 $1,082.6  $1,062.9 

 

See accompanying Notes to Consolidated Financial Statements.

 

25

 

Consolidated Statements of Cash Flows

TENNANT COMPANY AND SUBSIDIARIES

 

(In millions)

 

 

Years ended December 31

 

2020

  

2019

  

2018

 

OPERATING ACTIVITIES

            

Net Earnings Including Noncontrolling Interest

 $33.7  $45.9  $33.5 

Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:

            

Depreciation

  32.6   32.2   32.3 

Amortization of Intangible Assets

  20.8   22.2   22.1 

Amortization of Debt Issuance Costs

  1.4   1.3   2.4 

Fair Value Step-Up Adjustment to Acquired Inventory

     0.9    

Deferred Income Taxes

  (4.0)  (9.6)  (10.9)

Share-Based Compensation Expense

  6.0   11.4   8.3 

Allowance for Doubtful Accounts and Returns

  2.0   2.5   0.8 

Acquisition Contingent Consideration Adjustment

  (0.4)  (2.3)   

Note Receivable Write-down

     2.7    

Other, Net

  1.2   1.1   (0.4)

Changes in Operating Assets and Liabilities, Net of Assets Acquired:

            

Receivables, Net

  26.0   (8.5)  (7.6)

Inventories

  18.3   (17.8)  (16.6)

Accounts Payable

  8.5   (7.5)  4.6 

Employee Compensation and Benefits

  (10.0)  4.5   12.7 

Other Current Liabilities

  (2.8)  (1.4)  (0.7)

Other Assets and Liabilities

  0.5   (5.7)  (0.5)

Net Cash Provided by Operating Activities

  133.8   71.9   80.0 

INVESTING ACTIVITIES

            

Purchases of Property, Plant and Equipment

  (29.9)  (38.4)  (18.8)

Proceeds from Disposals of Property, Plant and Equipment

  0.1   0.1   0.1 

Proceeds from Principal Payments Received on Long-Term Note Receivable

     2.9   1.4 

Acquisitions of Businesses, Net of Cash, Cash Equivalents and Restricted Cash Acquired

     (19.7)   

Purchase of Intangible Asset

  (0.1)  (0.5)  (2.8)

Proceeds from Sale of Business

        4.0 

Net Cash Used in Investing Activities

  (29.9)  (55.6)  (16.1)

FINANCING ACTIVITIES

            

Proceeds from Credit Facility Borrowings

  126.4   25.0   14.9 

Repayments of Debt

  (157.5)  (41.8)  (38.3)

Change in Finance Lease Obligations

  (0.2)  (0.2)   

Proceeds from Issuances of Common Stock

  4.9   6.1   5.9 

Purchase of Noncontrolling Owner Interest

  (0.1)  (0.5)   

Dividends Paid

  (16.3)  (16.0)  (15.3)

Net Cash Used in Financing Activities

  (42.8)  (27.4)  (32.8)

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash

  5.3   (0.4)  (4.0)

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

  66.4   (11.5)  27.1 

Cash, Cash Equivalents and Restricted Cash at Beginning of Year

  74.6   86.1   59.0 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR

 $141.0  $74.6  $86.1 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

            

Years ended December 31

 

2020

  

2019

  

2018

 

Cash Paid for:

            

Income Taxes

 $12.0  $21.7  $11.1 

Interest

 $18.3  $19.7  $22.4 

Supplemental Non-Cash Investing and Financing Activities:

            

Capital Expenditures in Accounts Payable

 $3.8  $3.9  $2.3 

 

See accompanying Notes to Consolidated Financial Statements.

 

26

 

Consolidated Statements of Equity

TENNANT COMPANY AND SUBSIDIARIES

 

(In millions, except shares and per share data)

 

 
  

Tennant Company Shareholders

         
  

Common Shares

  

Common Stock

  

Additional Paid-in Capital

  

Retained Earnings

  

Accumulated Other Comprehensive Loss

  

Tennant Company Shareholders' Equity

  

Noncontrolling Interest

  

Total Equity

 

Balance, December 31, 2017

  17,881,177  $6.7  $15.1  $297.0  $(22.3) $296.5  $2.0  $298.5 

Net Earnings

           33.4      33.4   0.1   33.5 

Other Comprehensive Loss

              (14.9)  (14.9)     (14.9)

Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 9,598 shares

  244,024   0.1   5.1         5.2      5.2 

Share-Based Compensation

        8.3         8.3      8.3 

Dividends paid $0.85 per Common Share

           (15.3)     (15.3)     (15.3)

Recognition of Noncontrolling Interests

                    (0.2)  (0.2)

Adjustments to beginning Retained Earnings resulting from newly adopted accounting pronouncements

           1.2      1.2