Edgar Filing: TENNANT CO

form_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[ü]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2008
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

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.)

701 North Lilac Drive, P.O. Box 1452

Minneapolis, Minnesota 55440

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code 763-540-1200

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

Title of each class		Name of exchange on which registered
Common Stock, par value $0.375 per share		New York Stock Exchange
Preferred Share Purchase Rights		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	ü	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	ü	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.	ü	Yes		No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer		Accelerated filer	ü
Non-accelerated filer	(Do not check if a smaller reporting company)	Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).	Yes	ü	No
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2008, was approximately $579,852,279.
As of March 12, 2009, shares of Common Stock outstanding were 18,317,734.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 2009 annual meeting of shareholders (the “2009 Proxy Statement”) are incorporated by reference in Part III.

Tennant Company

Form 10–K

Table of Contents

PART I			Page
	Item 1	Business	3
	Item 1A	Risk Factors	4
	Item 1B	Unresolved Staff Comments	6
	Item 2	Properties	6
	Item 3	Legal Proceedings	6
	Item 4	Submission of Matters to a Vote of Security Holder	6

PART II
	Item 5	Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	6
	Item 6	Selected Financial Data	8
	Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	9
	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 Statements of Earnings	20
		Consolidated Balance Sheets	21
		Consolidated Statements of Cash Flows	22
		Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)	23
		Notes to the Consolidated Financial Statements	24
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	41
	Item 9A	Controls and Procedures	41
	Item 9B	Other Information	41

PART III
	Item 10	Directors, Executive Officers and Corporate Governance	42
	Item 11	Executive Compensation	43
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	43
	Item 13	Certain Relationships and Related Transactions, and Director Independence	43
	Item 14	Principal Accountant Fees and Services	43
PART IV
	Item 15	Exhibits and Financial Statement Schedules	44

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TENNANT COMPANY

2008

ANNUAL REPORT

Form 10–K

(Pursuant to Securities Exchange Act of 1934)

PART I

ITEM 1 – Business

General Development of Business

Tennant Company, a Minnesota corporation incorporated in 1909, is a world leader in designing, manufacturing and marketing solutions that help create a cleaner, safer world. The Company’s floor maintenance and outdoor cleaning equipment, specialty surface coatings and related products are used to clean and coat floors in factories, office buildings, parking lots and streets, airports, hospitals, schools, warehouses, shopping centers and more. Customers include building service contract cleaners to whom organizations outsource facilities maintenance, as well as end-user businesses, healthcare facilities, schools and local, state and federal governments who handle facilities maintenance themselves. We reach these customers through the industry’s largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.

Industry Segments, Foreign and Domestic Operations and Export Sales

The Company has one reportable business segment. The Company sells its products domestically and internationally. Financial information on the Company’s geographic areas is provided on page 39 of this Annual Report on Form 10–K. Nearly all of the Company’s foreign investments in assets reside within The Netherlands, Australia, the United Kingdom, France, Germany, Canada, Austria, Japan, Spain, Brazil and China.

Principal Products, Markets and Distribution

The Company offers products and solutions mainly consisting of motorized cleaning equipment targeted at commercial and industrial markets; parts, consumables and service maintenance and repair; business solutions such as pay-for-use offerings, rental and leasing programs; and technologies such as chemical-free cleaning technologies that enhance the performance of Tennant cleaning equipment. Adjacent products include specialty surface coatings and floor preservation products. In 2008, the Company expanded its product portfolio by launching six new products which included the S30 mid-sized sweeper, M30 large integrated scrubber-sweeper, T1 and T2 scrubbers, R3 carpet cleaner and E5 extractor. The Company also added its proprietary electrically converted water technology (“ec-water”), which cleans without chemicals, to six of its walk-behind scrubber machines. The Company’s products are sold through direct and distribution channels in various regions around the world. In North America, products are sold through a direct sales organization and independent distributors; in Australia, Japan and 15 countries principally in Western Europe, products are sold primarily through direct sales organizations; and in more than 80 other countries, Tennant relies on a broad network of independent distributors.

Raw Materials and Purchased Components

The Company has not experienced any significant or unusual problems in the availability of raw materials or other product components. 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.

Patents and Trademarks

The Company applies for and is granted United States and foreign patents and trademarks in the ordinary course of business, no one of which is of material importance in relation to the business as a whole.

Seasonality

Although the Company’s business is not seasonal in the traditional sense, historically revenues and earnings have been more concentrated in the fourth quarter of each year reflecting the tendency of customers to increase capital spending during such quarter and the Company’s efforts to close orders and reduce order backlogs. In addition, we offer annual distributor rebates and sales commissions which tend to drive sales in the fourth quarter. Typical seasonality did not occur in the 2008 fourth quarter due to the deterioration of the worldwide economy and global credit crisis.

Working Capital

The Company funds operations through a combination of cash and cash equivalents and cash flows from operations. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. In addition, credit facilities are available for additional working capital needs or investment opportunities.

Major Customers

The Company sells its products to a wide variety of customers, no one of which is of material importance in relation to the business as a whole. The customer base includes several governmental entities; however, these customers generally have terms similar to other customers.

Backlog

The Company processes orders within two weeks on average. Therefore, no significant backlogs existed at December 31, 2008 or December 31, 2007.

Competition

While there is no industry association or industry data, the Company believes, through its own market research, that it is a world-leading manufacturer of floor maintenance equipment. Significant competitors exist in all key geographic regions. However, the key competitors vary by region. 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.

Product Research and Development

The Company strives to be an industry leader in innovation and is committed to investing in research and development. The Company’s new Global Innovation Center is dedicated to various activities including development of new products and technologies, improvements of existing product design or

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manufacturing processes and new product applications. In 2008, 2007 and 2006, the Company spent $24.3 million, $23.9 million and $21.9 million on research and development, respectively.

Environmental Protection

Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had, and the Company does not expect it to have, a material effect upon the Company’s capital expenditures, earnings or competitive position.

Employment

The Company employed 3,002 people in worldwide operations as of December 31, 2008.

Access to Information on the Company’s Website

The Company makes available free of charge, through the Company’s website at www.tennantco.com, its Annual Reports 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 Section 15(d) of the Exchange Act simultaneously when such reports are filed electronically with, or furnished to, the Securities and Exchange Commission (“SEC”).

ITEM 1A – Risk Factors

The following are significant factors known to us that could materially adversely affect our business, financial condition, or operating results. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

We may encounter additional financial difficulties if the United States or other global economies experience a significant long-term economic downturn, decreasing the demand for our products.

To the extent that the U.S. and other global economies in which we do business experience a significant long-term economic downturn, our revenues could decline to the point that we may have to take additional cost saving measures to reduce our fixed costs to a level that is in-line with a lower level of sales and to stay in business long-term in a depressed economic environment. Because our product sales are sensitive to declines in capital spending by our customers, we experienced a significant decline in the demand for our products during the fourth quarter of 2008 as a result of the substantial deterioration in economic conditions. Many of our customers chose to conserve their cash on hand in the fourth quarter of 2008 to ensure it was available for their essential business operations, thus delaying their purchases of our products. Although we believe that over time, customer spending on our products is not discretionary, we are unable to predict when an improvement in economic conditions will return to a level where our customers will increase their capital spending on products such as ours. 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.

If the availability of credit in the market remains constrained, our ability to conduct business as usual with our customers and suppliers may be adversely impacted.

During the 2008 fourth quarter there was a substantial decrease in the availability of credit in the market. Our customers’ ability to obtain credit for financing the purchase of our products may be adversely impacted by the current market conditions, resulting in a decrease in sales of our products. Inability to access credit may also impact our customers’ ability to pay amounts due to us, resulting in increased bad debt expense. In addition, if our suppliers are not able to access credit necessary to maintain their operations, our ability to fulfill customer orders could be negatively impacted, resulting in a loss of sales of our products. If we are unable to access credit in the normal course of business, we may not be able to maintain our operations. We successfully amended our primary credit facility during the first quarter of 2009 to help ensure our compliance with debt covenants throughout 2009. However, in order to amend this facility, we have agreed to new covenant compliance requirements, restrictions on certain payments, increased interest rate spreads, increased facility fees and we have provided security interests on certain of our assets. In addition, our new debt covenants limit our acquisitions to a maximum of $2.0 million for the 2009 fiscal year and the amount of permitted acquisitions in fiscal years after 2009 will be limited according to our then current leverage ratio. Although we do not currently believe we will need additional funding sources, if we do need additional funding sources in the future, this could result in a significant adverse impact to our operating results and financial condition.

We may be required to write down our goodwill or long-lived asset amounts if their carrying values exceed their fair values.

If the price of our stock remains depressed or does not increase to the point that our market capitalization exceeds our carrying value, we may be required to perform interim impairment tests on our goodwill or long-lived assets. There may be other triggering events that also indicate that the carrying amount may not be recoverable from future cash flows. If we determine that any goodwill or long-lived asset amounts 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.

We may consider acquisition of suitable candidates to accomplish our growth objectives. We may not be able to successfully integrate the businesses we acquire.

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 believe 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.

We may encounter difficulties obtaining raw materials or component parts needed to manufacture our products and the prices of these materials are subject to fluctuation.

Raw materials and commodity-based components. As a manufacturer, our sales and profitability are dependent upon availability and cost of raw materials, which are subject to price fluctuations, and the ability to control or pass on an increase in costs of raw materials to our customers. We purchase raw materials, such as steel, rubber, lead and petroleum-based resins and components containing these commodities for use in our manufacturing operations. The availability of these raw materials is subject to market forces beyond our control. Under normal circumstances, these materials are generally

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available on the open market from a variety of sources. From time to time, however, the prices and availability of these raw materials and components fluctuate due to global market demands, which could impair our ability to procure necessary materials, or increase the cost of such materials. Inflationary and other increases in the costs of these raw materials and components have occurred in the past and may recur from time to time, and our financial performance depends in part on our ability to incorporate changes in costs into the selling prices for our products.

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. We do not use derivative commodity instruments to manage our exposure to changes in commodity prices such as steel, oil, gas and lead. Any fluctuations in the supply or prices for any of these commodities could have a material adverse affect on our profit margins and financial condition.

Single-source supply. We depend on many suppliers for the necessary parts to manufacture our products. However, there are some components that are purchased from a single supplier due to price, quality, technology or other business constraints. These components cannot be quickly or inexpensively re-sourced to another supplier. If we are unable to purchase on acceptable terms or experience significant delays or quality issues in the delivery of these necessary parts or components from a particular vendor and we need to locate a new supplier for these parts and components, shipments for products impacted could be delayed, which could have a material adverse affect on our business, financial condition and results of operations.

We are subject to risks associated with developing innovative products and technologies, which could delay the timing and success of new product releases.

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 provide competitive solutions for our customers’ needs, there can be no assurance that our customers will continue to choose our products over products offered by our competitors.

The market for our products is characterized by changing technological and industry standards. Our product lines may be threatened by these new technologies or market demands for competitors’ products may reduce the value of our current product lines. Our success is based in part on our ability to develop innovative new products and services and bring them to market more quickly than our competitors. Our ability to compete successfully will depend on our ability to enhance and improve our existing products, to continue to bring innovative products to market in a timely fashion, to adapt our products to the needs and standards of our customers and potential customers, and to continue to improve operating efficiencies and lower manufacturing costs. Product development requires substantial investment by us. If our products, markets and services are not competitive, we may experience a decline in sales, pricing, and market share, which adversely impacts revenues, margin, and the success of our operations.

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. 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.

We are subject to risks associated with changes in foreign currency exchange rates.

We are exposed to market risks from changes in foreign currency exchange rates. As a result of our increasing international presence, we have experienced an increase in transactions and balances denominated in currencies other than the U.S. dollar. There is a direct financial impact of foreign currency exchange when translating profits from local currencies to U.S. dollars. Our primary exposure is to transactions denominated in the Euro, British pound, Australian and Canadian dollar, Japanese yen, Chinese yuan and Brazilian real. Any significant change in the value of the currencies of the countries in which we do business against the U.S. dollar could affect our ability to sell products competitively and control our cost structure. Because a substantial portion of our products are manufactured in the United States, a stronger U.S. dollar generally has a negative impact on results from operations outside the United States while a weaker dollar generally has a positive effect. Unfavorable changes in exchange rates between the U.S. dollar and these currencies impact the cost of our products sold internationally and could significantly reduce our reported sales and earnings. We periodically enter into contracts, principally forward exchange contracts, to protect the value of certain of our foreign currency-denominated assets and liabilities. The gains and losses on these contracts generally approximate changes in the value of the related assets and liabilities. However, all foreign currency exposures cannot be fully hedged, and there can be no assurances that our future results of operations will not be adversely affected by currency fluctuation.

We may not be able to effectively manage organizational changes which could negatively impact our operating results or financial condition.

During the fourth quarter of 2008, we implemented a workforce reduction program to resize our workforce based on the current global economic conditions. Our operating results may be negatively impacted if we are unable to assimilate the work of the positions that were, and may additionally be, eliminated as part of this action. In addition, if we do not effectively manage the transition of the workforce reduction program, we may not fully realize the anticipated savings of this action or it may negatively impact our ability to serve our customers or meet other strategic objectives.

We may not be able to adequately acquire, retain and protect our proprietary intellectual property rights which could put us at a competitive disadvantage.

We rely on trade secret, copyright, trademark and patent laws and contractual protections to protect our proprietary technology and other proprietary rights. Our competitors may attempt to copy our products or gain access to our trade secrets. Our efforts to secure patent protection on our inventions may be unsuccessful. Notwithstanding the precautions we take to protect our intellectual property rights, it is possible that third parties may illegally copy or otherwise obtain and use our proprietary technology without our consent. Any litigation concerning infringement could result in substantial cost to us and diversions of our resources, either of which could adversely affect our business. In some cases, there may be no effective legal recourse against duplication of products or services by competitors. Intellectual property rights in foreign jurisdictions may be limited or unavailable. Patents of third parties also have an important bearing on our ability to offer some of our products and services. Our competitors may obtain patents related to the types of products and services we offer or plan to offer. Any infringement by us on intellectual property rights of others could result in litigation and adversely affect our ability to continue to provide, or could increase the cost of providing, our products and services.

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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 are located in the states of Minnesota, Michigan, Kentucky and in Uden, The Netherlands, the United Kingdom, Sao Paulo, Brazil and Shanghai, China. Sales offices, warehouse and storage facilities are leased in various locations in North America, Europe, Japan, China, Asia, Australia and Latin America. 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 on pages 15 and 36 of this Annual Report on Form 10-K.

ITEM 3 – Legal Proceedings

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

ITEM 4 – Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of 2008.

PART II

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

STOCK MARKET INFORMATION – Tennant common stock is traded on the New York Stock Exchange, under the ticker symbol TNC. As of January 30, 2009, there were approximately 500 shareholders of record and 4,800 beneficial shareholders. The common stock price was $13.54 per share on January 30, 2009.

STOCK SPLIT – On April 26, 2006, the Board of Directors declared a two-for-one common stock split effective July 26, 2006. As a result of the stock split, shareholders of record received one additional common share for every share held at the close of business on July 12, 2006. All share and per share data has been retroactively adjusted to reflect the stock split, except for the Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) in Item 8 of this Annual Report on Form 10-K.

QUARTERLY PRICE RANGE – The accompanying chart shows the quarterly price range of the Company’s shares over the past two years:

	First	Second	Third	Fourth
2008	$ 31.88-45.41	$ 30.07-41.00	$ 24.90-40.48	$ 15.33-33.26
2007	$ 27.84-32.82	$ 31.16-37.31	$ 35.40-49.32	$ 41.26-48.40

DIVIDEND INFORMATION – Cash dividends on Tennant’s common stock have been paid for 64 consecutive years. Tennant’s cash dividend payout increased for the 37th consecutive year to $0.52 per share in 2008, an increase of $0.04 per share over 2007. Dividends generally are declared each quarter. The Company announced a cash dividend of $0.13 per share payable March 16, 2009, to shareholders of record on February 27, 2009. Following are the anticipated remaining record dates for 2009: May 29, 2009, August 31, 2009 and November 30, 2009.

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:

Wells Fargo Bank, N.A.

Shareowner Services

P.O. Box 64854

South St. Paul, MN 55164-0854

(800) 468-9716

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SHARE REPURCHASES – On May 3, 2007, the Board of Directors authorized the repurchase of 1,000,000 shares of our common stock. Share repurchases are made from time to time in the open market or through privately negotiated transactions, primarily to offset the dilutive effect of shares issued through our stock-based compensation programs.

For the Quarter Ended 12/31/2008	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1–31, 2008		131	$	29.18		-		288,874
November 1–30, 2008		33		23.48		-		288,874
December 1–31, 2008		18,156		23.04		-		288,874
Total		18,320	$	23.08		-		288,874

(1) Includes 18,320 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 stock compensation plans.

COMPARATIVE STOCK PERFORMANCE – The following graph compares the cumulative total shareholder return on the common stock of the Company for the last five fiscal years with the cumulative total return over the same period on the Overall Stock Market Performance Index (Hemscott Composite Index) and the Industry Index (Hemscott Group Index 62 – Industrial Goods, Manufacturing).

This assumes an investment of $100 in the Company’s common stock, the Hemscott Composite Index and the Hemscott Group Index on December 31, 2003, with reinvestment of all dividends.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN

AMONG TENNANT COMPANY

HEMSCOTT COMPOSITE INDEX AND HEMSCOTT GROUP INDEX

	2003		2004		2005		2006		2007		2008
Tennant Company	$	100.00	$	93.57	$	125.44	$	142.44	$	220.39	$	78.27
Hemscott Group Index		100.00		123.06		135.52		163.13		214.51		115.86
Hemscott Composite Index		100.00		112.17		120.11		139.03		147.95		91.72

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ITEM 6 – Selected Financial Data

(In thousands, except shares and per share data)

Years Ended December 31	2008			2007			2006			2005			2004
Year End Financial Results
Net Sales	$	701,405			664,218			598,981			552,908			507,785
Cost of Sales	$	415,155			385,234			347,402			318,044			305,277
Gross Margin – %		40.8			42.0			42.0			42.5			39.9
Research and Development Expense	$	24,296			23,869			21,939			19,351			17,198
% of Net Sales		3.5			3.6			3.7			3.5			3.4
Selling and Administrative Expense	$	243,385	(1)		200,270	(2)		189,676			180,676			164,003	(3)
% of Net Sales		34.7			30.2			31.7			32.7			32.3
Profit from Operations	$	18,569	(1)		54,845	(2)		39,964			34,837			21,307	(3)
% of Net Sales		2.6			8.3			6.7			6.3			4.2
Other Income (Expense)	$	(994			2,867	(2)		3,338			157			72
Income Tax Expense	$	6,951	(1)		17,845	(2)		13,493			12,058			7,999	(3)
% of Earnings Before Income Taxes		39.6			30.9			31.2			34.5			37.4
Net Earnings	$	10,624	(1)		39,867	(2)		29,809			22,936			13,380	(3)
% of Net Sales		1.5			6.0			5.0			4.2			2.6
Return on beginning Shareholders’ Equity – %		4.2			17.4			15.4			13.2			8.1
Per Share Data
Basic Net Earnings	$	0.58	(1)		2.14	(2)		1.61			1.27			0.74	(3)
Diluted Net Earnings	$	0.57	(1)		2.08	(2)		1.57			1.26			0.73	(3)
Cash Dividends	$	0.52			0.48			0.46			0.44			0.43
Shareholders’ Equity (ending)	$	11.48			13.65			12.25			10.50			9.67
Year-End Financial Position
Cash and Cash Equivalents	$	29,285			33,092			31,021			41,287			16,837
Total Current Assets	$	250,419			240,724			235,404			211,601			188,631
Property, Plant and Equipment, Net	$	103,730			96,551			82,835			72,588			69,063
Total Assets	$	456,604			382,070			354,250			311,472			285,792
Total Current Liabilities	$	107,159			96,673			94,804			88,965			81,853
Total Long-Term Liabilities	$	139,541			32,966			29,782			29,405			29,905
Shareholders’ Equity	$	209,904			252,431			229,664			193,102			174,034
Current Ratio		2.3			2.5			2.5			2.4			2.5
Debt:
Current	$	3,946			2,127			1,812			2,232			7,674
Long-Term	$	91,393			2,470			1,907			1,608			1,029
Debt-to-capital ratio		31.2			1.8			1.6			1.9			4.8
Cash Flow Increase (Decrease)
Net Cash Provided by (Used for) Operating Activities	$	37,546			39,640			40,319			44,237			36,697
Net Cash Provided by (Used for) Investing Activities	$	(101,979			(10,357			(45,959	)		(11,781	)		(32,062	)
Net Cash Provided by (Used for) Financing Activities	$	62,075			(26,679			(4,876	)		(8,111	)		(12,130	)
Other Data
Interest Income	$	1,042			1,854			2,698			1,691			1,479
Interest Expense	$	3,944			898			737			564			1,147
Depreciation and Amortization	$	22,959			18,054			14,321			13,039			12,972
Purchases of Property, Plant and Equipment	$	20,790			28,720			23,872			20,880			21,089
Proceeds from Disposals of Property, Plant and Equipment	$	656			7,254			632			3,049			1,568
Number of employees at year-end		3,002			2,774			2,653			2,496			2,474
Diluted Weighted Average Shares Outstanding		18,581,840			19,146,025			18,989,248			18,209,888			18,300,414
Closing share price at year-end	$	15.40			44.29			29.00			26.00			19.83
Common stock price range during year	$	15.33-45.41			27.84-49.32			21.71–29.88			17.39-26.23			18.25-22.17
Closing price/earnings ratio		27.0			21.3			18.5			20.6			27.2

The results of operations from our 2008 acquisitions have been included in the Consolidated Financial Statements, as well as the Selected Financial Data presented above, since each of their respective dates of acquisition. Refer to additional information regarding our 2008 acquisitions in Note 4, Acquisitions and Divestitures.

(1) 2008 includes workforce reduction charge and associated expenses of $14,551 pretax ($12,003 aftertax or $0.65 per diluted share), increase in Allowance for Doubtful Accounts of $3,361 pretax ($3,038 aftertax or $0.16 per diluted share), write-off of technology investments of $1,842 pretax ($1,246 aftertax or $0.07 per diluted share), gain on sale of Centurion assets of $229 pretax ($143 aftertax or $0.01 per diluted share). (2) 2007 includes restructuring charge and associated expenses of $2,507 pretax ($1,656 aftertax or $0.09 per diluted share), a one-time tax benefit relating to a reduction in valuation reserves, net of the impact of tax rate changes in foreign jurisdictions on deferred taxes of $3,644 aftertax or $0.19 per diluted share and gain on sale of the Maple Grove, Minnesota facility of $5,972 pretax ($3,720 aftertax or $0.19 per diluted share). (3) 2004 includes workforce reduction expenses of $2,301 pretax ($1,458 aftertax or $0.08 per diluted share).

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

Overview

Tennant Company is a world leader in designing, manufacturing and marketing solutions that help create a cleaner, safer world. We provide equipment, parts and consumables and specialty surface coatings to contract cleaners, end-user businesses, healthcare facilities, schools and local, state and federal governments. We sell our products through our direct sales and service organization and a network of authorized distributors worldwide. Geographically, our customers are primarily located in North America, Europe, the Middle East, Africa, Asia-Pacific and Latin America. We strive to be an innovator in our industry through our commitment to understanding our customers’ needs and using our expertise to create innovative products and solutions.

Net Earnings for 2008 were down 73.4% to $10.6 million, or $0.57 per diluted share, compared to 2007. Net Sales totaled $701.4 million, up 5.6% over 2007 driven primarily by sales from strategic acquisitions during the year, a net favorable impact from foreign currency exchange and benefits from pricing actions taken earlier in the year, partially offset by unit volume declines within our equipment business year over year. Gross Margins declined 120 basis points to 40.8% principally due to our inability to leverage our fixed manufacturing costs as a result of the significant unit volume decline experienced in the fourth quarter of 2008. Selling and Administrative Expense (“S&A Expense”) increased 360 basis points as a percentage of Net Sales to 34.7% compared to 2007 due to the inclusion of a workforce reduction and other charges recognized in the fourth quarter of 2008 as well as S&A Expense incurred earlier in the year to expand international market coverage and support new product launches.

During the fourth quarter of 2008, Tennant announced a workforce reduction program to resize its worldwide employee base by approximately 8%, or about 240 people. A pretax workforce reduction charge totaling $14.6 million ($0.65 per diluted share) was recognized in the fourth quarter of 2008 as a result of this program. The workforce reduction was accomplished primarily through the elimination of salaried positions across the organization. When completed, this measure is estimated to achieve annualized savings of at least $15 million in 2009 and approximately $20 million in 2010. Additionally, early retirements, elimination of contracted positions and attrition will account for some of the eliminated positions and contribute to these annualized savings. The pretax charge consisted primarily of severance and outplacement service expenses and was included within S&A Expense in the Consolidated Statements of Earnings.

S&A Expense was also impacted by a significant increase in bad debt expense of $3.4 million ($0.16 per diluted share) resulting from increased Accounts Receivable reserves due to the global credit crisis and a write-off of $1.8 million ($0.07 per diluted share) related to technology investments that will be replaced by new solutions.

Net Earnings were impacted by a $0.15 per diluted share loss from our 2008 acquisitions. This amount includes the effect of purchase accounting items such as amortization expense on acquired intangible assets, the flow-through of the fair market value inventory step-up, the unfavorable movement in the foreign currency exchange rates related to a deal contingent non-speculative forward contract that we entered into which fixed the cash outlay in U.S. dollars for our Sociedade Alfa Ltda (“Alfa”) acquisition, as well as the increase in interest expense related to borrowing against our revolving credit facility during the year to fund our first quarter acquisitions.

In addition, Net Earnings were also impacted by the following items:

§	The inclusion of a $2.7 million ($0.09 per diluted share) net foreign currency gain in the third quarter of 2008 from settlement of forward contracts related to a British pound denominated loan.

§	A net benefit from discrete tax items, primarily related to U.S. federal tax settlements, added $0.07 per diluted share.

§	Legal settlement expenses of $0.06 per diluted share primarily related to the settlement of a claim filed in the second quarter by a terminated distributor in Brazil.

§	Expenses of $0.02 per diluted share related to curtailed acquisition initiatives.

§	A net gain of $0.2 million ($0.01 per diluted share) associated with the divestiture of assets related to the Centurion street sweeper product.

The total net effect of these items in 2008 was a reduction in earnings of $0.79 per diluted share.

Back in 2006, we launched initiatives aimed at consolidating our global footprint, expanding our presence in China and establishing global sourcing capabilities. Through these initiatives, we continue to broaden our global sourcing capabilities, reduce product costs and improve operating efficiencies. Our global sourcing initiative contributed approximately $6 million in savings during 2008, allowing us to essentially offset the impact of inflation in 2008 despite experiencing rising material costs throughout the majority of the year. We also successfully increased the percentage of materials and components sourced from low-cost regions from approximately 14% in 2007 to approximately 20% in 2008. Our footprint consolidation and lean initiatives contributed approximately $4 million in savings in 2008, in part from benefits of closing our Maple Grove, MN facility toward the end of 2007.

Tennant continues to invest in innovative product development, with 3.5% of Net Sales spent on Research and Development in 2008. We launched six new products in 2008 in addition to the global introduction of our electrically converted water technology (“ec-water”) on six of our walk-behind scrubbers. Sales of new products introduced in the past three years generated approximately 44% of our equipment sales during 2008, exceeding our target of 30%. Our new product launches in 2009 will focus on expanding the roll-out of ec-water. This game-changing technology will be introduced on five rider scrubbers in 2009 in addition to the six walk-behind scrubbers introduced during 2008.

We ended 2008 with a debt-to-capital ratio of 31.2%, $29.3 million in Cash and Cash Equivalents and Shareholders’ Equity of $209.9 million. During 2008 we generated operating cash flows of $37.5 million. During 2008, we repurchased $14.3 million in Tennant stock under our share repurchase program.

The relative strength or weakness of the global economies in 2009 is expected to impact demand for our products and services in the markets we serve. As both global and regional economies are currently difficult to predict, we continue to monitor macro-economic indicators closely and conservatively manage the business.

Our results are also impacted by changes in value of the U.S. dollar primarily against the Euro, British pound, Australian and Canadian dollars, Japanese yen, Chinese yuan and Brazilian real. To the extent the applicable exchange rates weaken relative to the U.S. dollar, the related direct foreign currency exchange effect would generally have an unfavorable impact on our 2009 results. If the applicable exchange rates strengthen relative to the U.S. dollar, our results would generally be favorably impacted.

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Historical Results

The following table compares the historical results of operations for the years ended December 31, 2008, 2007 and 2006 in dollars and as a percentage of Net Sales (in thousands, except per share amounts):

	2008			%			2007			%			2006			%
Net Sales	$	701,405			100.0		$	664,218			100.0		$	598,981			100.0
Cost of Sales		415,155			59.2			385,234			58.0			347,402			58.0
Gross Profit		286,250			40.8			278,984			42.0			251,579			42.0
Operating Expense:
Research and Development Expense		24,296			3.5			23,869			3.6			21,939			3.7
Selling and Administrative Expense		243,614			34.7			206,242			31.1			189,676			31.7
Gain on Sale of Facility		-			-			(5,972	)		(0.9	)		-			-
Gain on Divestiture of Assets		(229	)		-			-			-			-			-
Total Operating Expenses		267,681			38.2			224,139			33.7			211,615			35.3
Profit from Operations		18,569			2.6			54,845			8.3			39,964			6.7
Other Income (Expense):
Interest Income		1,042			0.1			1,854			0.3			2,698			0.5
Interest Expense		(3,944	)		(0.6	)		(898	)		(0.1	)		(737	)		(0.1	)
Net Foreign Currency Transaction Gain (Loss)		1,368			0.2			39			-			516			0.10
ESOP Income		2,219			0.3			2,568			0.4			1,205			0.2
Other Income (Expense), Net		(1,679	)		(0.2	)		(696	)		(0.1	)		(344	)		(0.1	)
Total Other Income (Expense), Net		(994	)		(0.1	)		2,867			0.4			3,338			0.6
Profit Before Income Taxes		17,575			2.5			57,712			8.7			43,302			7.2
Income Tax Expense		6,951			1.0			17,845			2.7			13,493			2.3
Net Earnings	$	10,624			1.5		$	39,867			6.0		$	29,809			5.0
Earnings per Diluted Share	$	0.57					$	2.08					$	1.57

Consolidated Financial Results

In 2008, Net Earnings declined 73.4% to $10.6 million or $0.57 per diluted share as compared to 2007. Net Earnings were impacted by:

§	Growth in Net Sales of 5.6% to $701.4 million, driven by 2008 acquisitions and increases in Other International.

§	A 120 basis point decline in Gross Margins to 40.8% as fixed manufacturing costs within our plants were not fully leveraged due to a significant equipment unit volume decline of $22.9 million experienced in the fourth quarter of 2008.

An increase in S&A Expense as a percentage of Net Sales of 360 basis points due to the inclusion of $19.8 million of expenses associated with the fourth quarter workforce reduction charge and other charges as well as expenses incurred earlier in the year to expand international market coverage and support new product launches.

§	The inclusion of a $2.7 million net foreign currency gain from settlement of forward contracts related to a British pound denominated loan.

§	A net benefit from discrete tax items, primarily related to U.S. federal tax settlements added $0.07 per diluted share.

§	A dilutive impact to Net Earnings related to our 2008 acquistions of $2.8 million.

In 2007, Net Earnings increased 33.7% to $39.9 million or $2.08 per diluted share as compared to 2006. Net Earnings were impacted by:

§	Growth in Net Sales of 10.9% to $664.2 million, driven by increases in all geographic regions (North America; Europe, Middle East, Africa (‘EMEA”) and Other International) and all product categories (equipment; service, parts and consumables; and specialty surface coatings).

§	Holding margins flat with 2006 at 42.0%, despite higher material costs and investments in our footprint consolidation and China expansion initiatives.

§	A decrease in S&A Expense as a percentage of Net Sales of 0.6 percentage points as growth in Net Sales outpaced increases in S&A Expense, despite the inclusion of a $2.5 million restructuring charge and higher costs in support of strategic initiatives and other cost increases.

§	A gain of $6.0 million associated with the sale of our Maple Grove, Minnesota facility.

A decrease in Interest Income, Net of $1.0 million primarily reflecting a lower average interest rate and a lower level of Cash and Cash Equivalents and Short-term Investments. In addition, Tennant contributed $0.5 million to the Tennant Foundation increasing Other Expense, Net. Partially offsetting these decreases is an increase of $1.4 million in ESOP Income due to a higher average stock price.

For 2008, we used Economic Profit as a key indicator of financial performance and the primary metric for performance-based incentives. Economic Profit is based on our Net Operating Profit After Taxes less a charge for the net assets used in the business. The key drivers of Net Operating Profit we focus on include Net Sales, Gross Margin and Operating Expense. The key drivers we focus on to measure how effectively we utilize net assets in the business include “Accounts Receivable Days Sales Outstanding” (DSO), “Days Inventory on Hand” (DIOH) and capital expenditures. These key drivers are discussed in greater depth throughout Management’s Discussion and Analysis.

Net Sales

In 2008, consolidated Net Sales were $701.4 million, increasing 5.6% over 2007. Consolidated Net Sales were $664.2 million in 2007, an increase of 10.9% from 2006.

The components of the consolidated Net Sales change for 2008 as compared to 2007 and 2007 compared to 2006 were as follows:

		% Change	% Change
		from 2007	from 2006
Organic Growth (Decline):
	Volume	(5%)	3%
	Price	4%	3%
		(1%)	6%
Foreign Currency		2%	3%
Acquisitions		5%	2%
	Total	6%	11%

The 5.6% increase in consolidated Net Sales for 2008 from 2007 was primarily driven by:

§	An organic decline of 1%, which includes a decline in base business volume, primarily within North America, partially offset by the net benefit from pricing actions taken during the year.

§	A favorable direct foreign currency exchange impact of 2%.

§	An increase of 5% in sales volume due to our March 28, 2008 acquisition of Alfa , our February 29, 2008 acquisition of Applied Sweepers, Ltd. (“Applied Sweepers”) and our February 1, 2007 acquisition of Floorep Limited (“Floorep”).

The 10.9% increase in consolidated Net Sales for 2007 from 2006 was primarily driven by:

§	Organic growth in all geographic regions and all product categories.

§	A favorable direct foreign currency exchange impact of 3%.

§	An increase of 2% in sales volume due to our February 1, 2007 acquisition of Floorep.

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The following table sets forth annual Net Sales by geography and the related percent change from the prior year (in thousands, except percentages):

	2008		%			2007		%		2006		%
North America	$	402,174		(3.7	)	$	417,757		6.8	$	391,309		5.7
Europe, Middle East and Africa		217,594		18.8			183,188		17.6		155,710		16.9
Other International		81,637		29.0			63,273		21.8		51,962		4.9
Total	$	701,405		5.6		$	664,218		10.9	$	598,981		8.3

North America – In 2008, North American Net Sales declined 3.7% to $402.2 million compared with $417.8 million in 2007. The primary driver of the decrease in Net Sales is attributable to a decline in equipment unit volume, with the most significant declines occurring in the fourth quarter as a result of the credit crisis and its impact on an already sluggish U.S. economy. Partially offsetting these declines were benefits from pricing actions taken during the year and a net favorable impact from foreign currency translation. Our acquisition of Applied Sweepers contributed approximately 1% to North America’s 2008 Net Sales.

In 2007, North American Net Sales increased 6.8% to $417.8 million compared with $391.3 million in 2006. The primary drivers of the increase in Net Sales were price increases in all product categories and an increase in equipment volume within all sales channels. Shipment of several large non-recurring orders, primarily to national account customers, and continued success with new products were significant contributors to the growth in equipment volume in North America in 2007. Organic volume growth in service, parts and consumables sales also contributed to the increase.

Europe, Middle East and Africa – EMEA Net Sales in 2008 increased 18.8% to $217.6 million compared to 2007 Net Sales of $183.2 million. Positive direct foreign currency exchange effects increased EMEA Net Sales by approximately 6% in 2008. Our Applied Sweepers acquisition contributed approximately 14% to EMEA’s 2008 Net Sales. EMEA’s organic base was essentially flat in 2008 when compared to 2007. Pricing increases and volume growth in emerging markets were offset by lower sales of equipment in the mature markets within Europe. The majority of the equipment unit volume decline occurred in the fourth quarter following the global credit crisis and a significant slowdown in these economies.

EMEA Net Sales in 2007 increased 17.6% to $183.2 million compared to 2006 Net Sales of $155.7 million. Positive direct foreign currency exchange effects increased EMEA Net Sales by approximately 9% in 2007. Our Hofmans and Floorep acquisitions contributed approximately 5% to EMEA’s 2007 Net Sales. EMEA’s organic base grew slightly in 2007 when compared to 2006. Volume growth from our Hofmans line of outdoor products during the second half of 2007, volume growth within our emerging markets of this region, such as the Middle East, along with benefits from price increases were partially offset by lower sales of equipment in the United Kingdom, one of our largest markets within the region.

Other International – Other International Net Sales in 2008 increased 29.0% to $81.6 million over 2007 Net Sales of $63.3 million. Growth in Net Sales was driven in part by organic growth, resulting from expanded market coverage in Brazil and China as well as a net benefit from pricing actions taken during the year. Our acquisitions contributed approximately 12% to Other International’s 2008 Net Sales. Price increases also contributed to the 2008 growth in Net Sales. Positive direct foreign currency exchange effects increased Net Sales in Other International markets by approximately 3% in 2008.

Other International Net Sales in 2007 increased 21.8% to $63.3 million over 2006 Net Sales of $52.0 million. Growth in Net Sales was primarily driven by organic growth, resulting in part from expanded market coverage in Brazil and China as well as volume growth in Australia and Mexico. Price increases also contributed to the 2007 growth in Net Sales. Positive direct foreign currency exchange effects increased Net Sales in Other International markets by approximately 5% in 2007.

Gross Profit

Gross Margin was 40.8% in 2008, down 120 basis points as compared to 2007. Although benefits from pricing actions and cost reduction initiatives were able to essentially offset higher raw material and purchased component costs during 2008, the inability to leverage the fixed manufacturing costs in our plants, due to the significant decline in unit volume experience in the fourth quarter, drove a decline in margins year over year. Gross Margin was also impacted by an unfavorable sales mix and by the inclusion of $1.2 million in expense from the flow-through of fair market value inventory step-up from our acquisitions of Applied Sweepers and Alfa.

Gross Margin was 42.0% in 2007, the same as in 2006. Price increases and cost reduction actions in 2007 nearly offset higher costs for raw materials and purchased components such as the high battery costs experienced during the year driven by increases in the cost of lead.

We implemented a selling price surcharge during the fourth quarter of 2007 on certain products including batteries and battery-operated equipment in North America. Price increases on similar products in Europe were implemented during the third quarter of 2007. The benefits from our global sourcing initiative along with these pricing actions allowed us to nearly fully mitigate the impact of rising material costs during 2007.

Gross Margin in 2007 was also impacted by positive direct foreign currency exchange effects and a favorable mix of products sold, which offset costs associated with our manufacturing footprint consolidation, China expansion and the integration of the Hofmans acquisition.

Future gross margins could continue to be impacted by fluctuations in the cost of raw materials and other product components, decreased unit volume, competitive market conditions, the mix of products both within and among product lines and geographies, and foreign currency exchange effects.

Operating Expenses

Research and Development Expense – Research and Development Expense (“R&D Expense”) increased $0.4 million, or 1.8%, in 2008 compared to 2007 and decreased 10 basis points to 3.5% as a percentage of Net Sales, which is in line with our target of investing 3% to 4% of Net Sales annually on research and development. R&D Expense increased $1.9 million, or 8.8%, in 2007 compared to 2006, and decreased 10 basis points to 3.6% of Net Sales.

We strive to be the industry leader in innovation and are committed to investing in research and development. We expect to maintain our spending on research and development at 3% to 4% of Net Sales annually in support of this commitment.

Selling and Administrative Expense – S&A Expense increased by $37.4 million, or 18.1%, in 2008 compared to 2007. The inclusion of expense from our 2008 acquisitions of Applied Sweepers, Alfa and Shanghai ShenTan added $10.7 million to S&A Expense during 2008. S&A Expense included a $14.6 million workforce reduction charge as discussed in Note 3 to the Consolidated Financial Statements. S&A Expense was also impacted by a significant increase in bad debt expense of $3.4 million resulting from increased Accounts Receivable reserves due to the global credit crisis and a write-off of $1.8 million related to technology investments that will be replaced by new solutions. Unfavorable foreign currency exchange was approximately $4.5 million in 2008.

The remaining approximate 1% increase in S&A Expense was due to infrastructure investments implemented in the first quarter to expand market coverage within our international geographies, higher marketing expenses for new product launches, and higher base compensation and benefit costs as a result of wage rate and cost increases. Partially offsetting these increases was a decrease in performance-based compensation expenses as compared to 2007.

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As a percentage of Net Sales, 2008 S&A Expense increased 360 basis points to 34.7%, in part due to the inclusion of the fourth quarter workforce reduction and other charges totaling $19.8 million, or 280 basis points. The remaining increase in S&A Expense as a percentage of sales is attributable to expenses incurred earlier in the year to expand international market coverage and support new product launches.

S&A Expense increased by $16.6 million, or 8.7%, in 2007 compared to 2006. S&A Expense included a $2.5 million charge for a restructuring action approved by management during the third quarter as discussed in Note 3 to the Consolidated Financial Statements. The charge consisted primarily of severance and outplacement benefits. The impact of unfavorable foreign currency translation on S&A Expense was approximately $6.0 million in 2007. The remaining approximate 4% increase in S&A Expense was due in part to investments associated with expanding our international market coverage, the inclusion of expenses of acquired operations and recruiting expenses associated with filling restructured positions and other openings. Increased bad debt expense, benefit costs and depreciation expense also contributed to the increase in S&A Expense in comparison to 2006. Partially offsetting these increases was a decrease in performance-based compensation expenses and a reduction in warranty costs.

Gain on Divestiture of Assets – We sold assets related to our Centurion line of sweepers during the second quarter of 2008 for a pretax gain of $0.2 million.

Gain on Sale of Facility – We completed the sale of our Maple Grove, Minnesota facility during the fourth quarter of 2007 for a net pretax gain of $6.0 million.

Total Other Income (Expense), Net

Interest Income – Interest Income was $1.0 million in 2008, a decrease of $0.8 million from 2007. The decrease between 2008 and 2007 reflects the impact of a decline in interest rates between periods on lower average cash levels.

Interest Income was $1.9 million in 2007, a decrease of $0.8 million from 2006. The decrease was a result of lower interest rates and lower average levels of Cash and Cash Equivalents and Short-Term Investments during 2007 compared to 2006.

Interest Expense – Interest Expense was $3.9 million in 2008 as we became a net debtor during the first quarter of 2008 borrowing against our revolving credit facility, primarily to fund the two acquisitions that closed during the first quarter of 2008.

Interest Expense was $0.9 million in 2007, an increase of $0.2 million as compared to 2006. Interest Expense for both years was 0.1% of Net Sales.

Net Foreign Currency Transaction Gains (Losses) – Net Foreign Currency Transaction Gains increased $1.3 million between 2008 and 2007. A $2.7 million net foreign currency gain from the settlement of forward contracts related to a British pound denominated loan was the most significant contributor to the change between years. This gain was partially offset by the $0.9 million unfavorable movement in the foreign currency exchange rates related to a deal contingent non-speculative forward contract that we entered into that fixed the cash outlay in U.S. dollars for the Alfa acquisition in the first quarter of 2008. The remaining change was due to a net favorable impact from other foreign currency fluctuations between years.

Net Foreign Currency Transaction Gains decreased $0.5 million between 2007 and 2006 due to fluctuations in foreign currency exchange rates.

ESOP Income – ESOP Income decreased $0.3 million between 2008 and 2007 due to a lower average stock price. We benefit from ESOP Income when the shares held by Tennant’s ESOP Plan are utilized and the basis of those shares is lower than the current average stock price. This benefit is offset in periods when the number of shares needed exceeds the number of shares available from the ESOP as the shortfall must be issued at the current market rate, which is generally higher than the basis of the ESOP shares. During the year ended 2008 compared to 2007, we experienced a lower average stock price and issued additional shares during the fourth quarter of 2008.

ESOP Income increased $1.4 million between 2007 and 2006 due to a higher average stock price. We benefit from ESOP Income when the shares held by the Company’s ESOP plan are utilized as the basis of those shares is lower than the current average stock price.

Other Income (Expense), Net – Other Expense, Net increased $1.0 million between 2008 and 2007. The increase in Other Expense, Net was primarily due to an increase in discretionary contributions to Tennant’s charitable foundation.

The change in Other Expense, Net of $0.4 million between 2007 and 2006 was primarily due to an increase in discretionary contributions to Tennant’s charitable foundation.

Income Taxes

Our effective income tax rate was 39.6%, 30.9% and 31.2% for the years 2008, 2007 and 2006, respectively. The increase in the 2008 effective tax rate was substantially related to changes in our operating profit in total and by taxing jurisdiction. The effective rate was also negatively impacted due to a correction of an immaterial error related to reserves for uncertain tax positions covering tax years 2004 to 2006. See Note 14 for further discussion. The change in the rate as compared to 2007 was also negatively impacted due to the 2007 favorable one-time discrete item related to the reversal of a German valuation allowance as noted below.

During 2007, a favorable one-time discrete item of $3.6 million related to the reversal of a German valuation allowance, net of the impact of tax rate changes in foreign jurisdictions on deferred taxes, was recognized in the third quarter. It was determined that it was now more likely than not that a tax loss carryforward in Germany will be utilized in the future and accordingly the valuation allowance on the related deferred tax asset was reduced to zero.

During 2006, we had a favorable impact from the Extraterritorial Income Exclusion Act (ETI Act), a U.S. tax law, of approximately 2% on our effective tax rate. On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, which phased out the ETI Act tax benefit during 2005 and 2006. In addition, the new law established a manufacturing deduction for profits on U.S. manufactured product to be phased in through 2010. For 2007 and 2008, these changes resulted in an increase in our effective tax rate of slightly more than 1%.

We expect our effective tax rate in 2009 to be between 36% and 38%. This rate may vary based on changes in mix of taxable earnings by country and our ability to utilize the available foreign net operating loss carryforwards.

Liquidity and Capital Resources

Liquidity – Cash and Cash Equivalents totaled $29.3 million at December 31, 2008, as compared to $33.1 million of Cash and Cash Equivalents as of December 31, 2007. We did not have any Short-Term Investments as of December 31, 2008 or 2007. Cash and Cash Equivalents held by our foreign subsidiaries totaled $14.6 million as of December 31, 2008 as compared to $3.8 million of Cash and Cash Equivalents held by our foreign subsidiaries as of December 31, 2007. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 2.3 and 2.5 as of December 31, 2008 and 2007, based on working capital of $143.3 million and $144.1 million, respectively.

During the first quarter of 2008, we borrowed $87.5 million on our Credit Agreement (defined below) in connection with our acquisitions of Applied Sweepers and Alfa. Our debt-to-capital ratio was 31.2% as of December 31, 2008, compared with 1.8% as of December 31, 2007. Our capital structure was comprised of $91.4 million of Long-Term Debt and $209.9 million of Shareholders’ Equity as of December 31, 2008.

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If the global economy deteriorates further, it could have an unfavorable impact on the demand for our products and, as a result, our operating cash flow. We rely primarily on operating cash flow to provide for the working capital needs of our operations. However, we also have short-term and long-term debt facilities available to us to assist in meeting our cash flow requirements if needed. We believe that the combination of internally generated funds and present capital resources are more than sufficient to meet our cash requirements for 2009.

Cash Flow Summary – Cash provided by (used in) our operating, investing and financing activities is summarized as follows (in thousands):

	2008			2007			2006
Operating Activities	$	37,546		$	39,640		$	40,319
Investing Activities:
Purchases of Property, Plant and Equipment, Net of Disposals		(20,134	)		(21,466	)		(23,240	)
Acquisitions of Businesses, Net of Cash Acquired		(81,845	)		(3,141	)		(8,469	)
Change in Short-Term Investments		-			14,250			(14,250	)
Financing Activities		62,075			(26,679	)		(4,876	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(1,449	)		(533	)		250
Net Increase (Decrease) in Cash and Cash Equivalents	$	(3,807	)	$	2,071		$	(10,266	)

Operating Activities – Cash provided by operating activities was $37.5 million in 2008, $39.6 million in 2007 and $40.3 million in 2006. In 2008, cash provided by operating activities was driven by Net Earnings, as well as increases in Employee Compensation and Benefits and Other Accrued Expenses and Accounts Receivable, partially offset by a decrease in Income Taxes Payable/Prepaid.

Cash flow provided by operating activities decreased $2.1 million in 2008 compared to 2007. This decrease was primarily driven by lower Net Earnings in 2008 compared to 2007.

In 2007, cash provided by operating activities was driven primarily by strong Net Earnings as well as an increase in net Income Taxes Payable/Prepaid, partially offset by a decrease in Employee Compensation and Benefits and Other Accrued Expenses. The decrease in Employee Compensation and Benefits and Other Accrued Expenses was primarily a result of decreases in performance-based compensation.

As discussed previously, two metrics used by management to evaluate how effectively we utilize our net assets are “Accounts Receivable Days Sales Outstanding” (DSO) and “Days Inventory on Hand” (DIOH), on a FIFO basis. The metrics are calculated on a rolling three month basis in order to more readily reflect changing trends in the business. These metrics for the quarters ended December 31, were as follows (in days):

	2008	2007	2006
DSO	77	61	61
DIOH	101	83	82

DSO increased 16 days in 2008 compared to 2007 due to a decline in sales volume in late 2008 as well as a higher mix of international receivables which carry longer payment terms and a recent slowing of payments due to the credit crisis in the fourth quarter of 2008.

DIOH increased 18 days in 2008 compared to 2007 due primarily to the decline in sales volume late in 2008 as well as higher inventory levels due to higher demo and used Inventories related to the introduction of new products and higher Inventories in the distribution center and China due to longer lead times for product sourced from low cost regions.

Investing Activities – Net cash used in investing activities was $102.0 million in 2008, $10.4 million in 2007 and $46.0 million in 2006. The primary use of cash in investing activities during 2008 was capital expenditures and our acquisitions, most notably Applied Sweepers and Alfa.

Net capital expenditures were $20.1 million during 2008 compared to $21.5 million in 2007. Net capital expenditures were $23.2 million in 2006. Capital expenditures in 2008 included upgrades to our information technology systems and related infrastructures and investments in tooling in support of new products, as well as investment in our corporate facilities to create a Global Innovation Center for research and development. Net capital expenditures in 2007 included continued investments in our footprint consolidation initiative, new product tooling and capital spending related to our global expansion initiatives. Net capital expenditures in 2006 included continued expansion of our information systems capabilities and investments in new product tooling as well as capital spending in support of our China expansion initiative.

In 2009, net capital expenditures are expected to approximate $15 million or less. Significant capital projects planned for 2009 include new product development tooling and assembly line set-up. In addition, we plan to continue to make investments to maintain and enhance our IT infrastructure and systems. Capital expenditures in 2009 are expected to be financed primarily with funds from operations.

On December 1, 2008, we entered into an asset purchase agreement with Hewlett Equipment (“Hewlett”) for a purchase price of $0.6 million in cash. The assets purchased consist of industrial equipment. Hewlett has been a distributor and service agent for Tennant Industrial and Commercial Equipment in Queensland, Australia since 1980. The purchase of Hewlett’s existing rental fleet of industrial equipment will accelerate Tennant’s strategy to grow its direct sales and service business in Brisbane, Australia. Hewlett will continue as a distributor and service agent of Tennant’s commercial equipment.

On August 15, 2008, we acquired Shanghai ShenTan Mechanical and Electrical Equipment Co. Ltd. (“Shanghai ShenTan”) for a purchase price of $0.6 million in cash. The acquisition of Shanghai ShenTan, a 12 year exclusive distributor of Tennant products in Shanghai, China, will accelerate Tennant’s strategy to grow its direct sales and service business in the key economic area of Shanghai. The purchase agreement also provides for additional contingent consideration to be paid in each of the three one-year periods following the acquisition date if certain future revenue targets are met and if other future events occur. We anticipate that any amount paid under this earn-out would be considered additional purchase price. The earn-out is denominated in foreign currency which approximates $0.6 million in the aggregate and is to be calculated based on 1) growth in revenues and 2) visits to specified customer

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locations during each of the three one-year periods following the acquisition date.

On March 28, 2008, we acquired Alfa for a purchase price of $11.8 million in cash and $1.4 million in debt assumed, subject to certain post-closing adjustments. Alfa manufactures the Alfa brand of commercial cleaning machines, is based in Sao Paulo, Brazil, and is recognized as the market leader in the Brazilian cleaning equipment industry. The purchase agreement with Alfa also provides for additional contingent consideration to be paid if certain future revenue targets are met. We anticipate that any amount paid under this earn-out would be considered additional purchase price. The earn-out is denominated in foreign currency which approximates $5.2 million and is to be calculated based on growth in revenues during the 2009 calendar year, with an interim calculation based on growth in 2008 revenues. There is no maximum earn-out that can be earned during the interim period; however, the maximum earn-out that can be paid for the interim period approximates $1.2 million. Any amount earned as of the interim date in excess of the maximum payment will be held in escrow and will not be paid until the final earn-out calculation is completed.

On February 29, 2008, we acquired Applied Sweepers, a privately-held company based in Falkirk, Scotland, for a purchase price of $75.2 million in cash. Applied Sweepers is the manufacturer of Green Machines™ and is recognized as the leading manufacturer of sub-compact outdoor sweeping machines in the United Kingdom. Applied Sweepers also has locations in the United States, France and Germany and sells through a broad distribution network around the world.

In February 2007, we acquired Floorep, a distributor of cleaning equipment based in Scotland, for a purchase price of $3.6 million in cash. The results of Floorep’s operations have been included in the Consolidated Financial Statements since February 2, 2007, the date of acquisition.

In July 2006, we acquired Hofmans Machinefabriek (“Hofmans”) for a purchase price of $8.6 million. The cost of the acquisition was paid for in cash with funds provided by operations.

Financing Activities – Net cash provided by financing activities was $62.1 million in 2008. Net cash used in financing activities was $26.7 million in 2007 and $4.9 million in 2006. In 2008, issuance of long-term debt for our 2008 acquisitions provided $87.5 million and significant uses of cash included $14.3 million in repurchases of Common Stock related to our share repurchase program and $9.6 million of dividends paid. Our cash dividend payout increased for the 37th consecutive year to $0.52 per share in 2008, an increase of $0.04 per share over 2007. In 2007, significant uses of cash included $29.0 million in repurchases of Common Stock related to our share repurchase program and $9.0 million of dividends paid.

Proceeds from the issuance of Common Stock generated $1.9 million in 2008 and $8.7 million in 2007. Proceeds in both years were driven by an increase in employees’ stock option exercises due to a higher average stock price during the first thee quarters of 2008 and during all of 2007.

In August 2006, the Board of Directors approved the adjustment of the number of shares then available for repurchase to reflect the impact of the two-for-one stock split, which increased the number of shares available for repurchase from approximately 281,000 immediately before the stock split to approximately 562,000. On May 3, 2007, the Board of Directors authorized the repurchase of 1,000,000 additional shares of our Common Stock. At December 31, 2008, there remained approximately 289,000 shares authorized for repurchase.

Approximately 476,900 and 735,900 shares were repurchased during the years ended 2008 and 2007, respectively, at average repurchase prices of $31.62 and $39.34. Beginning in September 2008, repurchases were temporarily suspended in order to conserve cash. Repurchases made in 2006 prior to the stock split on July 26, 2006 totaled approximately 61,000 shares at an average repurchase price of $46.36 or 122,000 shares at $23.18, post-split. Following the stock split, approximately 87,000 shares were repurchased in 2006 at an average price of $27.96.

Indebtedness – As of December 31, 2008, we had available lines of credit totaling $136.3 million and stand alone letters of credit of approximately $2.1 million. There were $87.5 million in outstanding borrowings under these facilities and we were in compliance with all debt covenants as of December 31, 2008.

JPMorgan Chase Bank

On June 19, 2007, we entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, BMO Capital Markets Financing, Inc. and U.S. Bank National Association, as Co-Documentation Agents and the Lenders from time to time party thereto. The Credit Agreement provides us and certain of our foreign subsidiaries access to a $125.0 million revolving credit facility until June 19, 2012. Borrowings may be denominated in U.S. dollars or certain other currencies. The facility is available for general corporate purposes, working capital needs, share repurchases and acquisitions. The Credit Agreement contains customary representations, warranties and covenants, including but not limited to covenants restricting our ability to incur indebtedness and liens and to merge or consolidate with another entity. Further, the Credit Agreement initially contained a covenant requiring us to maintain indebtedness to EBITDA ratio as of the end of each quarter of not greater than 3.5 to 1, and to maintain an EBITDA to interest expense ratio of no less than 3.5 to 1. We were in compliance with all such covenants as of December 31, 2008.

On February 21, 2008, we amended the Credit Agreement to increase the sublimit on foreign currency borrowings from $75.0 million to $125.0 million and to increase the sublimit on borrowings by the foreign subsidiaries from $50.0 million to $100.0 million.

To allow for flexibility during this volatile economic environment, on March 4, 2009, we entered into a second amendment to the Credit Agreement. This amendment principally provides: (i) an exclusion from our EBITDA calculation for: all non-cash losses and charges up to $15.0 million cash restructuring charges during the 2008 fiscal year and up to $3.0 million cash restructuring charges during the 2009 fiscal year, (ii) an amendment of the indebtedness to EBITDA financial ratio required for the second and third quarters of 2009 to not greater than 4.0 to 1 and 5.5 to 1, respectively, (iii) an amendment to the EBITDA to interest expense financial ratio for the third quarter of 2009 to not less than 3.25 to 1, and (iv) gives us the ability to incur up to an additional $80.0 million of indebtedness pari passu with the lenders under the Credit Agreement. The revolving credit facility available under the Credit Facility remains at $125.0 million, but the amendment reduced the expansion feature under the Credit Agreement from $100.0 million to $50.0 million. The amendment put a cap on permitted acquisitions of $2.0 million for the 2009 fiscal year and the amount of permitted acquisitions in fiscal years after 2009 will be limited according to our then current leverage ratio. The amendment prohibits us from conducting share repurchases during the 2009 fiscal year and limits the payment of dividends or repurchases of stock in fiscal years after 2009 to an amount ranging from $12.0 million to $40.0 million based on our leverage ratio after giving effect to such payments. Finally, if we obtain additional indebtedness as permitted under the amendment, to the extent that any revolving loans under the credit agreement are then outstanding we are required to prepay the revolving loans in an amount equal to 100% of the proceeds from the additional indebtedness. Additionally, proceeds over $25.0 million and under $35.0 million will reduce the revolver commitment on a 50% dollar for dollar basis and proceeds over $35.0 million will reduce the revolver commitment on a 100% dollar for dollar basis.

In conjunction with the amendment to the Credit Agreement, we gave the lenders a security interest on most of our personal property and pledged 65% of the stock of all domestic and first tier foreign subsidiaries. The obligations under the Credit Agreement are also guaranteed by our domestic subsidiaries and those subsidiaries also provide a security interest in their similar personal property.

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Included in the amendment were increased interest spreads and increased facility fees. The fee for committed funds under the Credit Agreement now ranges from an annual rate of 0.30% to 0.50%, depending on our leverage ratio. Borrowings under the Credit Agreement bear interest at an annual rate of, at our option, either (i) between LIBOR plus 2.2% to LIBOR plus 3.0%, depending on our leverage ratio; or (ii) the highest of (A) the prime rate, (B) the federal funds rate plus 0.50%, and (C) the adjusted LIBOR rate for a one month period plus 1.0%; plus, in any such case under this clause (ii), an additional spread of 1.2% to 2.0%, depending on our leverage ratio.

There was $87.5 million in outstanding borrowings under this facility at December 31, 2008, with a weighted average interest rate of 0.88%.

ABN AMRO Bank

We have a revolving credit facility with ABN AMRO Bank N.V. (“ABN AMRO”) of 5.0 million Euros, or approximately $7.0 million, for general working capital purposes. Borrowings under this facility incur interest generally at a rate of 1.25% over the ABN AMRO base rate as calculated daily on the cleared account balance. This facility may also be used for short-term loans up to 3.0 million Euros, or approximately $4.2 million. The terms and conditions of these loans would be incorporated in a separate short-term loan agreement at the time of the transaction. There was no balance outstanding on this facility at December 31, 2008.

Bank of America

On August 23, 2007, we entered into an unsecured revolving credit facility with Bank of America, National Association, Shanghai Branch. During 2008 we extended the term of this facility for an additional year and the agreement will expire on August 28, 2009. This credit facility is denominated in renminbi (“RMB”) in the amount of 20.1 million RMB, or approximately $2.9 million, and is available for general corporate purposes, including working capital needs of our China location. As part of the March 4, 2009 amendment to the Credit Agreement with JPMorgan Chase Bank, this Credit Facility with Bank of America was reduced to an RMB amount equivalent to $2.0 million. The interest rate on borrowed funds is equal to the People’s Bank of China’s base rate. This facility also allows for the issuance of standby letters of credit, performance bonds and other similar instruments over the term of the facility for a fee of 0.95% of the amount issued. There was no balance outstanding on this facility at December 31, 2008.

Bank of Scotland

On April 30, 2008, we entered into a committed credit facility with Bank of Scotland (“BoS”). The credit facility provides us with 0.5 million British pounds, or approximately $0.7 million, and is available for general working capital purposes. Borrowings under the credit facility generally bear interest at a rate of 1.75% over the BoS base rate as calculated daily on the cleared account balance. This facility contains a covenant requiring us to maintain a total assets (excluding certain amounts) to borrowings ratio of 2.5 to 1 as of the end of each month and an EBIT to total interest ratio of 2 to 1 as of the end of each quarter. We were in compliance with all such covenants at December 31, 2008. There was no balance outstanding on this facility at December 31, 2008.

Unibanco

During 2008, we entered in a revolving credit facility with Unibanco Bank (“Unibanco”) in Brazil for 1.0 million real, or approximately $0.4 million. Borrowings under this credit facility generally bear interest at a rate of 0.32% over Future Contracts on Interbank Deposit Certificates (“CDI”). This facility is collateralized by a letter of credit of $0.6 million.There was no balance outstanding on this facility at December 31, 2008.

Contractual Obligations – Our contractual cash obligations and commitments as of December 31, 2008, are summarized by period due in the following table (in thousands):

	Total		Less Than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
Long-term debt obligations(1)	$	87,563	$	17	$	34	$	87,512	$	-
Collateralized borrowings(2)		1,758		670		1,088		-		-
Capital leases		6,018		3,306		2,508		204		-
Interest payments on capital leases		477		258		212		7		-
Residual value guarantees(3)		900		535		362		3		-
Retirement benefit plans(4)		1,093		1,093		-		-		-
Deferred compensation arrangements(5)		7,043		956		1,388		511		4,188
Other long-term employee benefits(6)		-		-		-		-		-
Unrecognized tax benefits(7)		-		-		-		-		-
Operating leases(8)		19,694		7,919		8,898		2,515		362
Purchase obligations(9)		32,053		32,053		-		-		-
Total contractual obligations	$	156,599	$	46,807	$	14,490	$	90,752	$	4,550

(1) Our Credit Agreement does not have specified repayment terms; therefore, repayment is due upon expiration of the agreement on June 19, 2012.

(2) Collateralized borrowings represent deferred sales proceeds on certain leasing transactions with third-party leasing companies. These transactions are accounted for as borrowings under Statement of Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases” (“SFAS No. 13”). We would be expected to fund these obligations only as a result of a default in lease payments by the purchaser.

(3) Certain operating leases for vehicles contain residual value guarantee provisions, which would become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. Of those leases that contain residual value guarantees, the aggregate residual value at lease expiration is $11.4 million, of which we have guaranteed $9.1 million. As of December 31, 2008, we have recorded a liability for the fair value of this residual value guarantee of $0.9 million.

(4) Our retirement benefit plans, as described in Note 11 to the Consolidated Financial Statements, require us to make contributions to the plans from time to time. Our plan obligations totaled $21.8 million as of December 31, 2008. 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 $1.1 million of 2009 expected contributions in the contractual cash obligations and commitments table.

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(5) The unfunded deferred compensation arrangements covering certain current and retired management employees totaled $7.0 million as of December 31, 2008. Our estimated distributions in the contractual cash obligations and commitments table are based upon a number of assumptions including termination dates and participant distribution elections.

(6) Other long-term employee benefit arrangements are comprised of long-term incentive compensation arrangements with certain key management, foreign defined contribution plans and other long-term arrangements totaling $1.3 million. We cannot predict the timing or amount of our future payments associated with these arrangements; as a result, these obligations are not included in the contractual cash obligations and commitments table.

(7) Approximately $7.3 million of unrecognized tax benefits have been recorded as liabilities in accordance with the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), and we are uncertain as to if or when such amounts may be settled; as a result, these obligations are not included in the table above.

(8) Operating lease commitments consist primarily of office and warehouse facilities, vehicles and office equipment as discussed in Note 13 to the Consolidated Financial Statements. We have applied the provisions of Emerging Issues Task Force (‘EITF”) Issue No. 01-8, “Determining Whether an Arrangement Contains a Lease,” and have determined that our agreement with our third-party logistics provider contains an operating lease under SFAS No. 13. As a result, we have included the future minimum lease payments related to the underlying building lease in our operating lease commitments in the contractual cash obligations and commitments table. In the event we elect to cancel the agreement with our third-party logistics provider prior to the contract expiration date we would be required to assume the underlying building lease for the remainder of its term.

(9) Unconditional purchase obligations include purchase orders entered into in the ordinary course of business and contractual purchase commitments. During 2008, we amended our 2003 non-cancellable purchase commitment with a third-party manufacturer to extend the terms of the agreement to 2009. The remaining commitment under this agreement totaled $0.6 million as of December 31, 2008. This purchase commitment has been included in the contractual cash obligations and commitments table along with purchase orders entered into in the ordinary course of business.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosure about fair value measurements. In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP FAS 157-1”) which states that SFAS No. 157 does not address fair value measurements for purposes of lease classification or measurement. FSP FAS 157-1 does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value under SFAS No. 141, “Business Combinations” (“SFAS No. 141”) or SFAS No. 141 (revised 2007) (“SFAS No. 141(R)”), regardless of whether those assets and liabilities are related to leases. In February 2008, the FASB also issued FSP FAS 157-2, “Effective date of FASB Statement No. 157” (“FSP FAS 157-2”). FSP FAS 157-2 defers the implementation of SFAS No. 157 for certain nonfinancial assets and liabilities. We adopted the required provisions of SFAS No. 157 as of January 1, 2008 and will adopt the provisions of FSP FAS 157-2 on January 1, 2009. The adoption of SFAS No. 157 did not have an impact on our financial position or results of operations and we do not expect that the adoption of FSP FAS 157-2 will have an impact on our financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141(R). SFAS No. 141(R) requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired to be recorded at full fair value. This statement also establishes disclosure requirements that will enable users to evaluate the nature and financial effects of the business combination. The requirements are effective for fiscal years beginning after December 15, 2008. The adoption of SFAS No. 141(R) will apply prospectively to business combinations completed on or after January 1, 2009.

In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and should be applied prospectively to intangible assets acquired after the effective date.

In December 2008, the FASB issued FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets (“FSP FAS 132(R)-1”). FSP FAS 132(R)-1 provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The requirements are effective for fiscal years beginning after December 15, 2009. This staff position pertains only to the disclosures and does not affect the accounting for defined benefit pensions or other postretirement plans; therefore, we do not anticipate that the adoption of FSP FAS 132(R)-1 will have an impact on our Consolidated Financial Statements.

Critical Accounting Estimates

Our Consolidated Financial Statements are based on the selection and application of accounting principals 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. 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.

Allowance for Doubtful Accounts – We record a reserve for accounts receivable that are potentially uncollectible. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past-due balances. In order to assess the collectibility of these receivables, we perform ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information becomes available. Our reserves are also based on amounts determined by using percentages applied to trade receivables. These percentages are determined by a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. We are not able to predict changes in the financial condition of our customers and if circumstances related to these customers deteriorate, our estimates of the recoverability of accounts receivable could be materially affected and we may be required to record additional allowances. Alternatively, if more allowances are provided than are ultimately required, we may reverse a portion of such provisions in future periods based on the actual collection experience. Bad debt write-offs as a percentage of Net Sales were less than 0.1% in 2008, 0.1% in 2007 and 0.2% in 2006. As of December 31, 2008, we had $6.5 million reserved against our Accounts Receivable for doubtful accounts.

Inventory Reserves – We value our inventory at the lower of the cost of inventory or fair market value through the establishment of a reserve for excess,

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slow moving and obsolete inventory. In assessing the ultimate realization of inventories, we are required to make judgments as to future demand requirements compared with inventory levels. Reserve requirements are developed by comparing our inventory levels to our projected demand requirements based on historical demand, market conditions and technological and product life cycle changes. It is possible that an increase in our reserve may be required in the future if there are significant declines in demand for certain products. This reserve creates a new cost basis for these products and is considered permanent.

We also record a reserve for inventory shrinkage. Our inventory shrinkage reserve represents anticipated physical inventory losses that are recorded and adjusted as a part of our cycle counting and physical inventory procedures. The reserve amount is based on historical loss trends, historical physical and cycle-count adjustments as well as inventory levels. Changes in the reserve result from the completed cycle counts and physical Inventories. As of December 31, 2008, we had $5.1 million reserved against Inventories.

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. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), we test goodwill on an annual basis and when an event occurs or circumstances change that may reduce the fair value of one of our reporting units below its carrying amount. A goodwill impairment loss occurs if the carrying amount of a reporting unit’s goodwill exceeds its fair value.

Goodwill impairment testing is a two-step process. The first step is used as an indicator to identify if there is a potential goodwill impairment loss. If the first step indicates there may be a loss, the second step is performed which measures the amount of goodwill impairment loss, if any. We perform our goodwill impairment test as of year end and use our judgment to develop assumptions for the discounted cash flow model that we use. Management assumptions include forecasting revenues and margins, estimating capital expenditures, depreciation, amortization and discount rates.

If our goodwill impairment testing resulted in one or more of our reporting units’ carrying amount exceeding its fair value, we would write down our reporting units’ carrying amount to its fair value and would record an impairment loss in our results of operations in the period such determination is made. Subsequent reversal of goodwill impairment losses is not permitted. Each of our reporting units were tested for impairment as of December 31, 2008 and based upon our analysis, the estimated fair values of our reporting units exceeded their carrying amounts and therefore we have not recorded an impairment loss as of December 31, 2008. We had Goodwill of $62.1 million as of December 31, 2008.

Warranty Reserves – We record a liability for warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to net sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. Future claims experience could be materially different from prior results because of the introduction of new, more complex products, a change in our warranty policy in response to industry trends, competition or other external forces, or manufacturing changes that could impact product quality. In the event we determine that our current or future product repair and replacement costs exceed our estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. Warranty expense as a percentage of Net Sales was 1.2% in 2008, 1.2% in 2007 and 1.4% in 2006. As of December 31, 2008, we had $6.0 million reserved for future estimated warranty costs.

Income Taxes – When preparing our Consolidated Financial Statements, 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 Earnings.

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 Earnings. 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 less 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, 2008, a valuation allowance of $9.3 million was recorded against foreign tax loss carryforwards.

Cautionary Factors Relevant to Forward-Looking Information

Certain statements contained in this document as well as other written and oral statements made by us from time to time are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. These statements do not relate to strictly historical or current facts and provide current expectations or forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. These include factors that affect all businesses operating in a global market as well as matters specific to us and the markets we serve. Particular risks and uncertainties presently facing us include:

·	Geopolitical, economic and credit market uncertainty throughout the world.

·	Availability of credit in the open markets.

·	Effects of potential impairment write down of our intangible assets values.
·	Successful integration of acquisitions, including ability to carry acquired goodwill at current values.

·	Ability to achieve growth plans.

·	Ability to achieve projections of future financial and operating results.

·	Ability to achieve operational efficiencies, including synergistic and other benefits of acquisitions.

·	Fluctuations in the cost or availability of raw materials and purchased components.

·	Ability to achieve anticipated global sourcing cost reductions.

·	Success and timing of new technologies and products.

·	Unforeseen product quality problems.

·	Effects of litigation, including threatened or pending litigation.

·	Relative strength of the U.S. dollar, which affects the cost of our materials and products purchased and sold internationally.

·	Ability to effectively manage organizational changes, including workforce reductions.

·	Ability to achieve anticipated savings from our workforce reductions.
·	Ability to attract and retain key personnel.

·	Ability to acquire, retain and protect proprietary intellectual property rights.

·	Potential for increased competition in our business.

·	Changes in laws, including changes in accounting standards and taxation changes.

We caution that forward-looking statements must be considered carefully and that actual results may differ in material ways due to risks and uncertainties

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both known and unknown. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. For additional information about factors that could materially affect Tennant’s results, please see our other Securities and Exchange Commission filings, including disclosures under “Risk Factors” in this document.

We do not undertake to update any forward-looking statement, and investors are advised to consult any further disclosures by us on this matter in our filings with the Securities and Exchange Commission and in other written statements we make from time to time. It is not possible to anticipate or foresee all risk factors, and investors should not consider any list of such factors to be an exhaustive or complete list of all risks or uncertainties.

ITEM 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.

Increases 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.

During 2008, our raw materials and other purchased component costs were unfavorably impacted by commodity prices although we were able to mitigate these higher costs with pricing actions and cost reduction actions. We will continue to focus on mitigating the risk of continued future raw material or other product component cost increases through product pricing, negotiations with our vendors and cost reduction actions. The success of these efforts will depend upon our ability to increase our selling prices in a competitive market and our ability to achieve cost savings. If the commodity prices increase, our results may be unfavorably impacted in 2009.

Foreign Currency Exchange 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, British pound, Australian and Canadian dollars, Japanese yen, Chinese yuan and Brazilian real 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 Tennant operations in the United States and abroad 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.

Because a substantial portion of our products are manufactured or sourced primarily from the United States, a stronger U.S. dollar generally has a negative impact on results from operations outside the United States while a weaker dollar generally has a positive effect. Our objective in managing the exposure to foreign currency fluctuations is to minimize the earnings effects associated with foreign exchange rate changes on certain of our foreign currency-denominated assets and liabilities. We periodically enter into various contracts, principally forward exchange contracts, to protect the value of certain of our foreign currency-denominated assets and liabilities. The gains and losses on these contracts generally approximate changes in the value of the related assets and liabilities. We had forward exchange contracts outstanding in the notional amounts of approximately $63 million and $62 million at the end of 2008 and 2007, respectively. The potential for material loss in fair value of foreign currency contracts outstanding and the related underlying exposures as of December 31, 2008, from a 10% adverse change is unlikely due to the short-term nature of our forward contracts. Our policy prohibits us from entering into transactions for speculative purposes.

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.

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ITEM 8 – Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Tennant Company:

We have audited the accompanying consolidated balance sheets of Tennant Company and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of earnings, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2008. We also have audited Tennant Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Tennant Company’s management is responsible for these consolidated financial statements, 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 these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tennant Company and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Tennant Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

The scope of management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2008 includes all of the Company’s consolidated subsidiaries except for Applied Sweepers, Ltd. (Applied Sweepers), a business acquired by Tennant Company during the first quarter of 2008. Applied Sweepers represented approximately 4% of consolidated net sales and 16% of consolidated net assets of Tennant Company. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over the financial reporting of Applied Sweepers.

As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, as of January 1, 2007 and Statement of Financial Accounting Standards No. 157, Fair Value Measurements, on January 1, 2008.

/s/ KPMG LLP

Minneapolis, MN

March 13, 2009

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Consolidated Statements of Earnings

TENNANT COMPANY AND SUBSIDIARIES

(In thousands, except shares and per share data)

Years ended December 31	2008			2007			2006
Net Sales	$	701,405		$	664,218		$	598,981
Cost of Sales		415,155			385,234			347,402
Gross Profit		286,250			278,984			251,579
Operating Expense:
Research and Development Expense		24,296			23,869			21,939
Selling and Administrative Expense		243,614			206,242			189,676
Gain on Sale of Facility		-			(5,972	)		-
Gain on Divestiture of Assets		(229	)		-			-
Total Operating Expenses		267,681			224,139			211,615
Profit from Operations		18,569			54,845			39,964
Other Income (Expense):
Interest Income		1,042			1,854			2,698
Interest Expense		(3,944	)		(898	)		(737	)
Net Foreign Currency Transaction Gains (Losses)		1,368			39			516
ESOP Income		2,219			2,568			1,205
Other Income (Expense), Net		(1,679	)		(696	)		(344	)
Total Other Income (Expense), Net		(994	)		2,867			3,338
Profit Before Income Taxes		17,575			57,712			43,302
Income Tax Expense		6,951			17,845			13,493
Net Earnings	$	10,624		$	39,867		$	29,809

Earnings per Share:
Basic	$	0.58		$	2.14		$	1.61
Diluted	$	0.57		$	2.08		$	1.57

Weighted Average Shares Outstanding:
Basic		18,303,137			18,640,882			18,561,533
Diluted		18,581,840			19,146,025			18,989,248

Cash Dividends Declared per Common Share	$	0.52		$	0.48		$	0.46

See accompanying Notes to Consolidated Financial Statements.

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Consolidated Balance Sheets

TENNANT COMPANY AND SUBSIDIARIES

(In thousands, except shares and per share data)

December 31	2008			2007
Assets
CURRENT ASSETS
Cash and Cash Equivalents	$	29,285		$	33,092
Receivables:
Trade, less Allowances for Doubtful Accounts and Returns ($7,319 in 2008 and $3,264 in 2007)		120,331			126,520
Other		3,481			971
Net Receivables		123,812			127,491
Inventories		66,828			64,027
Prepaid Expenses		18,131			7,549
Deferred Income Taxes, Current Portion		12,048			8,076
Other Current Assets		315			489
Total Current Assets		250,419			240,724
Property, Plant and Equipment		278,812			263,643
Accumulated Depreciation		(175,082	)		(167,092	)
Property, Plant and Equipment, Net		103,730			96,551
Deferred Income Taxes, Long-Term Portion		6,388			2,670
Goodwill		62,095			29,053
Intangible Assets, Net		28,741			5,500
Other Assets		5,231			7,572
Total Assets	$	456,604		$	382,070
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Current Debt	$	3,946		$	2,127
Accounts Payable		26,536			31,146
Employee Compensation and Benefits		23,334			29,699
Income Taxes Payable		3,154			2,391
Other Current Liabilities		50,189			31,310
Total Current Liabilities		107,159			96,673
LONG-TERM LIABILITIES
Long-Term Debt		91,393			2,470
Employee-Related Benefits		29,059			23,615
Deferred Income Taxes, Long-Term Portion		11,671			752
Other Liabilities		7,418			6,129
Total Long-Term Liabilities		139,541			32,966
Total Liabilities		246,700			129,639
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS’ EQUITY
Preferred Stock of $0.02 par value per share, 1,000,000 shares authorized; no shares issued or outstanding		-			-
Common Stock, $0.375 par value per share, 60,000,000 shares authorized; 18,284,746
and 18,499,458 issued and outstanding, respectively		6,857			6,937
Additional Paid-In Capital		6,649			8,265
Retained Earnings		223,692			233,527
Accumulated Other Comprehensive Income (Loss)		(26,391	)		5,507
Receivable from ESOP		(903	)		(1,805	)
Total Shareholders’ Equity		209,904			252,431
Total Liabilities and Shareholders’ Equity	$	456,604		$	382,070

See accompanying Notes to Consolidated Financial Statements.

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Consolidated Statements of Cash Flows

TENNANT COMPANY AND SUBSIDIARIES

(In thousands)

Years ended December 31	2008			2007			2006
OPERATING ACTIVITIES
Net Earnings	$	10,624		$	39,867		$	29,809
Adjustments to Net Earnings to arrive at operating cash flow:
Depreciation		20,360			16,901			13,711
Amortization		2,599			1,153			610
Deferred Tax (Benefit) Expense		(3,525	)		(1,510	)		(70	)
Stock-Based Compensation Expense (Benefit)		(1,227	)		3,140			3,568
ESOP Expense		(498	)		(659	)		112
Tax Benefit on ESOP		29			46			58
Allowance for Doubtful Accounts and Returns		4,007			1,690			532
Gain on Sale of Facility		-			(5,972	)		-
Other, Net		7,623			3,059			2,730
Changes in Operating Assets and Liabilities, Excluding the Impact of Acquisitions:
Accounts Receivable		5,574			(11,258	)		(9,790	)
Inventories		(3,311	)		(82	)		(3,104	)
Accounts Payable		(8,620	)		(2,337	)		3,308
Employee Compensation and Benefits and Other Accrued Expenses		11,228			(4,323	)		2,650
Income Taxes Payable/Prepaid		(11,247	)		2,056			(2,608	)
Other Current/Noncurrent Assets and Liabilities		3,930			(2,131	)		(1,197	)
Net Cash Provided by (Used for) Operating Activities		37,546			39,640			40,319
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment		(20,790	)		(28,720	)		(23,872	)
Proceeds from Disposals of Property, Plant and Equipment		656			7,254			632
Acquisition of Businesses, Net of Cash Acquired		(81,845	)		(3,141	)		(8,469	)
Purchases of Short-Term Investments		-			(7,925	)		(14,250	)
Sales of Short-Term Investments		-			22,175			-
Net Cash Provided by (Used for) Investing Activities		(101,979	)		(10,357	)		(45,959	)
FINANCING ACTIVITIES
Payments on Capital Leases		(4,495	)		(2,505	)		(2,257	)
Change in Short-Term Debt, Net		(1,039	)		205			-
Payment of Long-Term Debt		(474	)		-			-
Issuance of Long-Term Debt		87,500			-			-
Purchases of Common Stock		(14,349	)		(28,951	)		(5,275	)
Proceeds from Issuances of Common Stock		1,872			8,734			8,477
Tax Benefit on Stock Plans		892			3,255			1,334
Dividends Paid		(9,551	)		(8,979	)		(8,574	)
Principal Payment from ESOP		1,719			1,562			1,419
Net Cash Provided by (Used for) Financing Activities		62,075			(26,679	)		(4,876	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(1,449	)		(533	)		250
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(3,807	)		2,071			(10,266	)
Cash and Cash Equivalents at Beginning of Year		33,092			31,021			41,287
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	29,285		$	33,092		$	31,021
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid During the Year for:
Income Taxes	$	15,329		$	14,543		$	15,207
Interest	$	3,615		$	479		$	322
Supplemental Non-Cash Investing and Financing Activities:
Capital Expenditures Funded Through Capital Leases	$	4,823		$	2,441		$	2,872
Collateralized Borrowings Incurred for Operating Lease Equipment	$	1,758		$	696		$	427

See accompanying Notes to Consolidated Financial Statements.

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Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)

TENNANT COMPANY AND SUBSIDIARIES

(In thousands, except shares and per share data)