TENNANT CO

11. Derivatives

Hedge Accounting and Hedging Programs

We recognize all derivative instruments as either assets or liabilities in our consolidated balance sheets and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.

To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge. We evaluate hedge effectiveness on our hedges that are designated and qualify for hedge accounting at the inception of the hedge prospectively, as well as retrospectively, and record any ineffective portion of the hedging instruments in net foreign currency transaction loss on our consolidated statements of income. The time value of purchased contracts is recorded in net foreign currency transaction loss in our consolidated statements of income. If we do not elect hedge accounting, or the contract does not qualify for hedge accounting treatment, the changes in fair value from period to period are recorded in net foreign currency transaction losses in our consolidated statements of income.

Our hedging policy establishes maximum limits for each counterparty to mitigate any concentration of risk.

Balance Sheet Hedges

We hedge our net recognized foreign currency denominated assets and liabilities with foreign exchange forward contracts to reduce the risk that the value of these assets and liabilities will be adversely affected by changes in exchange rates. These contracts hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value as either assets or liabilities on the consolidated balance sheets with changes in the fair value recorded to net foreign currency transaction gain in our consolidated statements of income. These contracts do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being hedged. At December 31, 2025 and December 31, 2024, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $92.9 million and $70.2 million, respectively.

Cash Flow Hedges

The Company manages its floating rate debt exposure using interest rate swaps. Fixed rate swaps are used to reduce the Company's risk of the possibility of increased interest costs. The Company entered into an aggregate $120.0 million notional amount of interest rate swaps effective December 1, 2022, that exchange a variable rate of interest for a fixed rate of interest of 4.076%. These interest rate swaps are designated as cash flow hedges. These swaps were scheduled to mature on December 1, 2026 (the "December 2022 Swaps").

On October 14, 2025, we amended and restructured our interest rate swap contracts using a strategy referred to as a "blend and extend." In a blend and extend arrangement, the liability or asset position of the existing interest rate swap arrangement is blended into the amended or new interest rate swap arrangement and the term to maturity of the hedged position is extended. The amendment modified (i) the fixed rate payable by the counterparty from 4.076% to a new fixed rate of 3.443% and (ii) extended the termination date through October 1, 2029 (the "October 2025 Swaps"). The amendment did not change the aggregate notional amount of $120.0 million.

As a result of this transaction, the December 2022 Swaps were de-designated and the unrealized loss of $0.9 million was recorded within accumulated other comprehensive loss and will be amortized as a reduction of interest expense, net, over the original term of the of the amended swaps (until December 2026), as the hedged transactions affect earnings. Additionally, the October 2025 Swaps had a fair value of $0.9 million at inception, and will be ratably recorded to accumulated other comprehensive loss and reclassified to interest expense, net, over the term of the October 2025 Swaps (until October 2029), as the hedged transactions affect earnings.

At inception of the October 2025 Swaps, the Company determined that the swaps qualified for cash flow hedge accounting under ASC 815. Therefore, changes in the fair value of the swap, net of taxes, will be recognized in other comprehensive loss each period, then reclassified into the consolidated statements of income as a component of interest expense, net in the period in which the hedged transaction affects earnings.

Fair Value Hedges

On April 5, 2022, we entered into Euro to U.S. dollar foreign exchange cross-currency swaps associated with an intercompany loan from a wholly owned European subsidiary. We enter into these foreign exchange cross-currency swaps to hedge the foreign currency risk associated with this intercompany loan, and accordingly, they are not speculative in nature. These cross-currency swaps are designated as fair value hedges. As of December 31, 2025, these cross-currency swaps included €75.0 million of total notional value. As of December 31, 2025, the aggregated scheduled interest payments over the course of the loan and related swaps amounted to €3.0 million. These swaps are scheduled to mature in April 2027.

Net Investment Hedges

On April 5, 2022, we entered into Euro to U.S. dollar foreign exchange cross-currency swaps to hedge our exposure to adverse foreign currency exchange rate movements between Tennant Company and its Euro denominated subsidiaries. We enter into these fixed-to-fixed cross-currency swap agreements to protect a designated monetary amount of the Company’s net investment in its Euro functional currency subsidiaries against the risk of changes in the Euro to U.S. dollar foreign exchange rate. These cross-currency swaps are designated as net investment hedges. As of December 31, 2025, the cross-currency swaps included €75.0 million of total notional values. These swaps are scheduled to mature in April 2027.

The fair value of derivative instruments on our consolidated balance sheets as of December 31 consisted of the following:

(a)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.

As of December 31, 2025, we anticipate reclassifying approximately $0.6 million of gains from accumulated other comprehensive loss to net income during the next 12 months.

The following tables include the amounts in the consolidated statements of income in which the effects of derivative instruments are recorded and the effects of derivative instruments activity on these line items for the years ended December 31, 2025 and December 31, 2024:

The effect of derivative instruments designated as hedges and derivative instruments not designated as hedges in our consolidated statements of income for the three years ended December 31 were as follows:

(a)Net change in the fair value of the effective portion classified in other comprehensive income (loss).

(b)Classified in net foreign currency transaction (loss) gain.