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, 2010
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.	ü	Yes		No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.		Yes	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 whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).		Yes		No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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.
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, 2010, was $633,442,521.
As of February 22, 2011, there were 19,073,747 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 2011 annual meeting of shareholders (the “2011 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					5
	Item 2	Properties					5
	Item 3	Legal Proceedings					5
	Item 4	(Removed and Reserved)					5

PART II
	Item 5	Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities					5
	Item 6	Selected Financial Data					7
	Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations					8
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk					14
	Item 8	Financial Statements and Supplementary Data					15
			Report of Independent Registered Public Accounting Firm				15
			Consolidated Financial Statements				16
				Consolidated Statements of Operations			16
				Consolidated Balance Sheets			17
				Consolidated Statements of Cash Flows			18
				Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)			19
					Notes to the Consolidated Financial Statements		20
					1	Summary of Significant Accounting Policies	20
					2	Newly Adopted Accounting Pronouncements	21
					3	Management Actions	21
					4	Acquisitions and Divestitures	22
					5	Inventories	22
					6	Property, Plant and Equipment	22
					7	Goodwill and Intangible Assets	23
					8	Debt	24
					9	Other Current Liabilities	25
					10	Fair Value Measurements	25
					11	Retirement Benefit Plans	25
					12	Shareholders' Equity	29
					13	Commitments and Contingencies	30
					14	Income Taxes	30
					15	Stock-Based Compensation	31
					16	Employee Stock Ownership Plan	33
					17	Earnings (Loss) Per Share	33
					18	Segment Reporting	33
					19	Consolidated Quarterly Data (Unaudited)	34
					20	Related Party Transactions	34
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure					35
	Item 9A	Controls and Procedures					35
	Item 9B	Other Information					35

PART III
	Item 10	Directors, Executive Officers and Corporate Governance					36
	Item 11	Executive Compensation					36
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters					37
	Item 13	Certain Relationships and Related Transactions, and Director Independence					37
	Item 14	Principal Accountant Fees and Services					37

PART IV
	Item 15	Exhibits and Financial Statement Schedules					38

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TENNANT COMPANY

2010

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 that was incorporated in 1909, is a world leader in designing, manufacturing and marketing solutions that help create a cleaner, safer, healthier world. The Company’s floor maintenance and outdoor cleaning equipment, chemical-free cleaning technologies, specialty surface coatings and related products are used to clean and coat surfaces in factories, office buildings, parking lots and streets, airports, hospitals, schools, warehouses, shopping centers and other retail environments, 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.

Segment and Geographic Area Financial Information

The Company has one reportable business segment. Sales to customers geographically located in the United States were $354.5 million, $313.8 million and $359.8 million for the years ended December 31, 2010, 2009 and 2008, respectively. Additional financial information on the Company’s segment and geographic areas is provided in Note 18 of the Consolidated Financial Statements.

Principal Products, Markets and Distribution

The Company offers products and solutions mainly consisting of mechanized 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 2010 in order to drive the Company’s vision of becoming a global leader in chemical-free cleaning solutions, the Company established a new brand for its chemical-free cleaning technologies, OrbioTM, and established a group named Orbio Technologies to focus on expanding this new and innovative technology. During 2010, the Company continued to extend the availability of its proprietary electrically converted water technology (“ec-water”), which cleans without chemicals, to three large rider scrubber machines. The Company now offers ec-water technology on fifteen scrubbers: six walk-behind scrubbers and nine rider scrubbers. Also in 2010, the Company launched the Green Machine 500zeTM, an all-electric vacuum street sweeper. The 500ze, with its lithium-ion powered battery pack, is an environmentally friendly solution to clean crowded urban areas with zero carbon emissions and reduced noise levels. The Company’s products are sold through direct and distribution channels in various regions around the world. In the Americas, products are sold through a direct sales organization and independent distributors; in Australia, Japan and many 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

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, none 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 those orders which then reduces order backlogs. In addition, the Company offers annual distributor rebates and sales commissions which tend to drive sales in the fourth quarter.

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, none of which is of material importance in relation to the business as a whole. The customer base includes several governmental entities which generally have terms similar to other customers.

Competition

While there is no publically available industry data concerning market share, the Company believes, through its own market research, that it is a world-leading manufacturer of floor maintenance and cleaning 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.

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 Global Innovation Center in Minnesota and engineers throughout our global locations

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are dedicated to various activities including development of new products and technologies, improvements of existing product design or manufacturing processes and new product applications. In 2010, 2009 and 2008, the Company spent $26.0 million, $23.0 million and $24.3 million on research and development, respectively.

Environmental Compliance

Compliance with Federal, State and local provisions which have been enacted or adopted 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.

Employees

The Company employed 2,793 people in worldwide operations as of December 31, 2010.

Available Information

The Company makes available free of charge, through the Company’s website at www.tennantco.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable when such material is 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.

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

To the extent that the U.S. and other global economies experience a continued 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 in order to stay in business long-term in a depressed economic environment. Our product sales are sensitive to declines in capital spending by our customers. Decreased demand for our products could result in decreased revenues, profitability and cash flows and may impair our ability to maintain our operations and fund our obligations to others.

We are subject to competitive risks associated with developing innovative products and technologies, which generally cost more than our competitors’ products.

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, because of our dedication to innovation and continued investments in research and development, our products generally cost more than our competitor’s products. We believe that customers will pay for the innovation and quality in our products; however, in the current economic environment, it may be difficult for us to compete with lower cost products offered by our competitors and there can be no assurance that our customers will continue to choose our products over products offered by our competitors. If our products, markets and services are not competitive, we may experience a decline in sales, pricing and market share, which adversely impacts revenues, margin and the success of our operations.

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

We are continuing to implement global standardized processes in our business and asking our workforce to perform at a high level despite reduced staffing levels as a result of our workforce reduction and restructuring actions. This consolidation and reallocation of resources is part of our ongoing efforts to optimize our cost structure in the current economy. Our operating results may be negatively impacted if we are unable to manage these organizational changes by failing to assimilate the work of the positions that are eliminated or redeployed as part of our actions to reduce headcount and restructure positions. In addition, if we do not effectively manage the transition of these positions, we may not fully realize the anticipated savings of these actions or they may negatively impact our ability to serve our customers or meet our strategic objectives.

We may encounter difficulties as we invest in changes to our processes and computer systems that are foundational to our ability to maintain and manage the data in our systems.

We rely on our computer systems to effectively manage our business, serve our customers and report financial data. Our current systems are adequate for our current business operations; however, we are in the process of standardizing our processes and the way we utilize our computer systems with the objective that we will improve our ability to effectively maintain and manage our systems data so that as our business grows, our processes will be able to more efficiently handle this growth. There are inherent risks in changing processes and systems data and if we are not successful in our attempts to improve our data and system processes, we may experience higher costs or an interruption in our business which could adversely impact our ability to serve our customers and our operating results.

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

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

We may encounter difficulties as we upgrade and evolve the capabilities of our computer systems, which could adversely impact our abilities to accomplish anticipated future cost savings and better serve our customers.

We have many information technology systems that are important to the operation of our business. Significantly upgrading and evolving the capabilities of our existing systems could lead to inefficient or ineffective use of our technology due to lack of training or expertise in these evolving technology systems. These factors could lead to significant expenses, adversely impacting the Company’s results of operations and hinder our ability to offer better technology solutions to our customers.

Our ability to effectively operate our Company could be adversely affected if we are unable to attract and retain key personnel and other highly skilled employees.

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

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

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

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 Minneapolis, Minn.; Holland, Mich.; Louisville, Ky; Uden, The Netherlands; the United Kingdom; São Paulo, Brazil; and Shanghai, China. Sales offices, warehouse and storage facilities are leased in various locations in North America, Europe, Japan, China, Asia, Australia, New Zealand 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 in the Contractual Obligations section of Item 7 and in Note 13 of the Consolidated Financial Statements.

ITEM 3 – Legal Proceedings

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

ITEM 4 – (Removed and Reserved)

PART II

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

MARKET INFORMATION – Tennant common stock is traded on the New York Stock Exchange, under the ticker symbol TNC. As of January 31, 2011, there were 506 shareholders of record. The common stock price was $40.34 per share on January 31, 2011.

The accompanying chart shows the high and low sales prices for the Company’s shares for each full quarterly period over the past two years as reported by the New York Stock Exchange:

	2010				2009
	High		Low		High		Low
First	$	28.38	$	21.84	$	16.41	$	7.76
Second		37.42		27.17		21.26		9.89
Third		38.13		28.82		30.79		15.79
Fourth		38.82		30.30		31.92		26.16

DIVIDEND INFORMATION – Cash dividends on Tennant’s common stock have been paid for 66 consecutive years. Tennant’s annual cash dividend payout increased for the 39th consecutive year to $0.59 per share in 2010, an increase of $0.06 per share over 2009. Dividends are generally declared each quarter. On February 16, 2011, the Company announced a quarterly cash dividend of $0.17 per share payable March 15, 2011, to shareholders of record on February 28, 2011.

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.

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

EQUITY COMPENSATION PLAN INFORMATION – Information regarding equity compensation plans required by Regulation S-K Item 201(d) is provided in Item 12 of this Form 10-K.

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SHARE REPURCHASES – On February 21, 2011, the Board of Directors authorized the repurchase of an additional 1,000,000 shares of our common stock. This is in addition to the 188,874 shares remaining under our current repurchase program as of December 31, 2010. 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. Our Credit Agreement limits the payment of dividends and repurchases of stock to an amount ranging from $12.0 million to $40.0 million based on our leverage ratio after giving effect to such payments.

For the Quarter Ended December 31, 2010	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, 2010		1,086	$	33.53		-		188,874
November 1–30, 2010		35		35.39		-		188,874
December 1–31, 2010		-		-		-		188,874
Total		1,121	$	33.59		-		188,874

(1) Includes 1,121 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.

STOCK PERFORMANCE GRAPH – The following graph compares the cumulative total shareholder return on Tennant’s common stock, the Overall Stock Market Performance Index (Morningstar U.S. Market) and Manufacturing Peer Group (Morningstar Manufacturing Sector) for the last five fiscal years, assuming an investment of $100 on December 31, 2005, including the reinvestment of all dividends.

5-YEAR CUMULATIVE TOTAL RETURN COMPARISON

	2005		2006		2007		2008		2009		2010
Tennant Company	$	100	$	113	$	175	$	62	$	108	$	162
Morningstar U.S. Market	$	100	$	116	$	123	$	77	$	99	$	116
Morningstar Manufacturing Sector	$	100	$	120	$	145	$	93	$	116	$	139

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ITEM 6 – Selected Financial Data

(In thousands, except shares and per share data)

Years Ended December 31	2010			2009			2008			2007			2006
Financial Results:
Net Sales	$	667,667		$	595,875		$	701,405		$	664,218		$	598,981
Cost of Sales		383,341	(1)		349,767			415,155			385,234			347,402
Gross Margin – %		42.6			41.3			40.8			42.0			42.0
Research and Development Expense		25,957			22,978			24,296			23,869			21,939
% of Net Sales		3.9			3.9			3.5			3.6			3.7
Selling and Administrative Expense		221,235	(1)		245,623	(2)		243,385	(3)		200,270	(4)		189,676
% of Net Sales		33.1			41.2			34.7			30.2			31.7
Profit (Loss) from Operations		37,134	(1)		(22,493	)(2)		18,569	(3)		54,845	(4)		39,964
% of Net Sales		5.6			(3.8	)		2.6			8.3			6.7
Total Other (Expense) Income, Net		(2,407	)		(1,827	)		(994	)		2,867	(4)		3,338
Income Tax Expense		(76	)(1)		1,921	(2)		6,951	(3)		17,845	(4)		13,493
Effective Tax Rate - %		(0.2	)		7.9			39.6			30.9			31.2
Net Earnings (Loss)		34,803	(1)		(26,241	)(2)		10,624	(3)		39,867	(4)		29,809
% of Net Sales		5.2			(4.4	)		1.5			6.0			5.0
Per Share Data:
Basic Net Earnings (Loss)	$	1.85	(1)	$	(1.42	)(2)	$	0.58	(3)	$	2.14	(4)	$	1.61
Diluted Net Earnings (Loss)	$	1.80	(1)	$	(1.42	)(2)	$	0.57	(3)	$	2.08	(4)	$	1.57
Diluted Weighted Average Shares		19,332,103			18,507,772			18,581,840			19,146,000			18,989,000
Cash Dividends	$	0.59		$	0.53		$	0.52		$	0.48		$	0.46
Financial Position:
Total Assets	$	403,668		$	377,726		$	456,604		$	382,070		$	354,250
Total Debt		30,828			34,211			95,339			4,597			3,719
Total Shareholders’ Equity		216,133			184,279			209,904			252,431			229,664
Current Ratio		2.1			1.9			2.3			2.5			2.5
Debt to Capital Ratio		12.5			15.7			31.2			1.8			1.6
Cash Flows:
Net Cash Provided by Operations	$	42,530		$	75,185		$	37,394		$	39,640		$	40,319
Capital Expenditures, Net of Disposals		(9,934	)		(11,172	)		(19,982	)		(21,466	)		(23,240	)
Free Cash Flow		32,596			64,013			17,412			18,174			17,079
Other Data:
Depreciation and Amortization	$	21,192		$	22,803		$	22,959		$	18,054		$	14,321
Number of employees at year-end		2,793			2,786			3,002			2,774			2,653

The results of operations from our 2009 and 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.

(1) 2010 includes a tax benefit from the international entity restructuring of $10,913 (or $0.56 per diluted share), a workforce redeployment charge of $1,671 pretax ($1,196 aftertax or $0.06 per diluted share), an inventory revaluation from change in functional currency designation due to international entity restructuring of $647 pretax ($453 aftertax or $0.02 per diluted share) and a revision of our 2008 workforce reduction reserve of $277 pretax ($173 aftertax or $0.01 per diluted share).

(2) 2009 includes a goodwill impairment charge of $43,363 pretax ($42,289 aftertax or $2.29 per diluted share), a benefit from a revision during the first quarter of 2009 to the 2008 workforce reduction charge of $1,328 pretax ($1,249 aftertax or $0.07 per diluted share) and a net tax benefit, primarily from a United Kingdom business reorganization, of $1,864 aftertax (or $0.10 per diluted share).

(3) 2008 includes a 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) and a gain on sale of Centurion assets of $229 pretax ($143 aftertax or $0.01 per diluted share).

(4) 2007 includes a 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 a gain on the sale of the Maple Grove, Minnesota facility of $5,972 pretax ($3,720 aftertax or $0.19 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, healthier world. Our products include equipment for maintaining surfaces in industrial, commercial and outdoor environments; chemical-free cleaning technologies; and specialty surface coatings for protecting, repairing and upgrading floors. We sell our products through our direct sales and service organization and a network of authorized distributors worldwide. Geographically, our customers are located in North America, Latin America, Europe, the Middle East, Africa and Asia Pacific. 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 2010 were $34.8 million, or $1.80 per diluted share, compared to a Net Loss of $26.2 million, or $1.42 loss per diluted share, for 2009. Net Earnings for 2010 were favorably impacted by a tax benefit from an international entity restructuring and increased Net Sales and profitability as compared to the prior year. Also, the prior year was impacted by a non-cash pretax goodwill impairment charge of $43.4 million, or $2.29 loss per diluted share. Net Sales totaled $667.7 million, up 12.0% from 2009 driven primarily by an increase in equipment unit sales volume. Gross Margins increased 130 basis points to 42.6%. Selling and Administrative Expense (“S&A Expense”) decreased 80 basis points as a percentage of Net Sales to 33.1% as compared to 33.9% in 2009 due to tight spending controls and leveraging our existing resources.

Tennant continues to invest in innovative product development, with 3.9% of Net Sales spent on Research and Development in 2010. During 2010, the Company continued to extend the availability of its proprietary ec-water technology that cleans without chemicals, to three large rider scrubber machines. The Company now offers ec-water technology on fifteen scrubbers: six walk-behind scrubbers and nine rider scrubbers. Also in 2010, the Company launched the Green Machine 500ze, an all-electric vacuum street sweeper. The 500ze, with its lithium-ion powered battery pack, is an environmentally friendly solution to clean crowded urban areas with zero carbon emissions and reduced noise levels. Sales of new products introduced in the past three years generated approximately 47% of our equipment sales during 2010, exceeding our long-stated goal of 30%.

We ended 2010 with a Debt-to-Capital ratio of 12.5%, $39.5 million in Cash and Cash Equivalents and Shareholders’ Equity of $216.1 million. During 2010, we generated operating cash flows of $42.5 million. Total debt was $30.8 million as of December 31, 2010 compared to $34.2 million at the end of 2009.

Historical Results

The following table compares the historical results of operations for the years ended December 31, 2010, 2009 and 2008 in dollars and as a percentage of Net Sales (in thousands, except per share amounts and percentages):

	2010			%			2009			%			2008			%
Net Sales	$	667,667			100.0		$	595,875			100.0		$	701,405			100.0
Cost of Sales		383,341			57.4			349,767			58.7			415,155			59.2
Gross Profit		284,326			42.6			246,108			41.3			286,250			40.8
Operating Expense:
Research and Development Expense		25,957			3.9			22,978			3.9			24,296			3.5
Selling and Administrative Expense		221,235			33.1			202,260			33.9			243,614			34.7
Goodwill Impairment Charge		-			-			43,363			7.3			-			-
Gain on Divestiture of Assets		-			-			-			-			(229	)		-
Total Operating Expenses		247,192			37.0			268,601			45.1			267,681			38.2
Profit (Loss) from Operations		37,134			5.6			(22,493	)		(3.8	)		18,569			2.6
Other Income (Expense):
Interest Income		133			-			393			0.1			1,042			0.1
Interest Expense		(1,619	)		(0.2	)		(2,830	)		(0.5	)		(3,944	)		(0.6	)
Net Foreign Currency Transaction (Losses) Gains		(902	)		(0.1	)		(412	)		(0.1	)		1,368			0.2
ESOP Income		-			-			990			0.2			2,219			0.3
Other (Expense) Income, Net		(19	)		-			32			-			(1,679	)		(0.2	)
Total Other (Expense) Income, Net		(2,407	)		(0.4	)		(1,827	)		(0.3	)		(994	)		(0.1	)
Profit (Loss) Before Income Taxes		34,727			5.2			(24,320	)		(4.1	)		17,575			2.5
Income Tax Expense		(76	)		-			1,921			0.3			6,951			1.0
Net Earnings (Loss)	$	34,803			5.2		$	(26,241	)		(4.4	)	$	10,624			1.5
Net Earnings (Loss) per Diluted Share	$	1.80					$	(1.42	)				$	0.57

Consolidated Financial Results

Net Earnings for 2010 were $34.8 million, or $1.80 per diluted share, compared to a Net Loss of $26.2 million, or $1.42 loss per diluted share for 2009. Net Earnings were impacted by:

·	An increase in Net Sales of 12.0%, primarily driven by equipment unit volume increases.

·	A 130 basis point increase in Gross Margins to 42.6% due to higher sales volume, continued tight spending controls and flexible production management.

·	A decrease in S&A Expense as a percentage of Net Sales of 80 basis points due to continued tight spending controls and leveraging our existing resources.

·	A tax benefit from an international entity restructuring contributed $0.56 per diluted share.

Net Loss for 2009 was $26.2 million, or $1.42 loss per diluted share, compared to Net Earnings of $10.6 million, or $0.57 per diluted share for 2008. Net Loss was impacted by:

·	A decline in Net Sales of 15.0%, primarily due to a decrease in equipment unit sales volume experienced during 2009.

·	A 50 basis point increase in Gross Margins to 41.3% due to benefits from commodity price deflation, cost reductions, flexible production management and workforce reductions which more than offset the decline in equipment unit sales volume.

·	A decrease in S&A Expense as a percentage of Net Sales of 80 basis points due to benefits from our workforce reduction program, reductions in volume-related expenses and delays in discretionary spending.

·	Non-cash pretax goodwill impairment charge of $43.4 million during the first quarter of 2009.

·	A benefit from net favorable discrete tax items contributed $0.03 per diluted share and a tax benefit from a United Kingdom business reorganization contributed $0.10 per diluted share.

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Net Sales

In 2010, consolidated Net Sales were $667.7 million, an increase of 12.0% as compared to 2009. Consolidated Net Sales were $595.9 million in 2009, a decrease of 15.0% over 2008.

The components of the consolidated Net Sales change for 2010 as compared to 2009, and 2009 as compared to 2008, were as follows:

Growth Elements		2010 v. 2009	2009 v. 2008
Organic Growth (Decline):
	Volume	12%	(14%)
	Price	-	1%
	Organic Growth (Decline)	12%	(13%)
Foreign Currency		-	(3%)
Acquisitions		-	1%
	Total	12%	(15%)

The 12.0% increase in consolidated Net Sales for 2010 as compared to 2009 was primarily driven by an increase in equipment unit sales volume.

The 15.0% decrease in consolidated Net Sales for 2009 from 2008 was primarily driven by:

·	An organic decline of 13%, which includes a decline in base business equipment sales volume experienced in almost all geographic regions, slightly offset by the net benefit from higher year-over-year selling prices.

·	An unfavorable direct foreign currency exchange impact of 3%.

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

	2010		%			2009		%			2008		%
Americas	$	424,462		16.0		$	366,034		(15.2	)	$	431,559		(0.6	)
Europe, Middle East and Africa		172,619		(2.9	)		177,829		(18.3	)		217,594		18.8
Asia Pacific		70,586		35.7			52,012		(0.5	)		52,252		11.0
Total	$	667,667		12.0		$	595,875		(15.0	)		701,405		5.6

Americas – In 2010, Americas Net Sales increased 16.0% to $424.5 million as compared with $366.0 million in 2009. The primary driver of the increase in Net Sales is attributable to sales unit volume increases, primarily from industrial equipment and scrubbers equipped with our ec-H2OTM technology. Favorable direct foreign currency translation exchange effects increased Net Sales by approximately 1%.

In 2009, Americas Net Sales declined 15.2% to $366.0 million as compared with $431.6 million in 2008. The primary driver of the decrease in Net Sales was attributable to a decline in equipment unit volume, during the first three quarters of 2009, somewhat offset by benefits from slightly higher selling prices. There was minimal impact from foreign currency translation or our Sociedade Alfa Ltda. (“Alfa”) acquisition during 2009.

Europe, Middle East and Africa – Europe, Middle East and Africa (“EMEA”) Net Sales in 2010 decreased 2.9% to $172.6 million as compared to 2009 Net Sales of $177.8 million. Unfavorable direct foreign currency exchange effects decreased EMEA Net Sales by approximately 4.5% in 2010. An organic sales increase of approximately 1.6% was primarily due to increased unit volume in our service, parts and consumables business, partially offset by lower equipment unit volume.

EMEA Net Sales in 2009 decreased 18.3% to $177.8 million as compared to 2008 Net Sales of $217.6 million. An organic sales decline of approximately 12% was primarily due to lower equipment unit volume in most regions due to weak economic conditions somewhat offset by higher equipment unit volume in the UK and Italy and slightly higher selling prices. Unfavorable direct foreign currency exchange effects decreased EMEA Net Sales by approximately 7% in 2009. Our Applied Sweepers Ltd. (“Applied Sweepers”) acquisition contributed approximately 1% to EMEA Net Sales in 2009.

Asia Pacific – Asia Pacific Net Sales in 2010 increased 35.7% to $70.6 million over 2009 Net Sales of $52.0 million. Organic sales increase of approximately 25.2% was primarily due to equipment unit volume increases in both Australia and China. Favorable direct foreign currency exchange effects increased Net Sales by approximately 10.5% in 2010.

Asia Pacific Net Sales in 2009 decreased 0.5% to $52.0 million over 2008 Net Sales of $52.3 million. Unfavorable direct foreign currency exchange effects decreased Net Sales by approximately 0.5% in 2009, with organic sales essentially flat.

Gross Profit

Gross Profit margin was 42.6% in 2010, an increase of 130 basis points as compared to 2009. Gross Margin was favorably impacted by manufacturing efficiencies from increased sales volume, somewhat offset by higher commodity costs.

Gross Profit margin was 41.3% in 2009, an increase of 50 basis points as compared to 2008. Gross Margin was unfavorably impacted by the decline in equipment unit volume as compared to the prior year; however, this was more than offset by commodity price deflation, cost reductions, flexible production management and savings from workforce reductions.

Operating Expenses

Research and Development Expense – Research and Development Expense (“R&D Expense”) increased $3.0 million, or 13.0%, in 2010 as compared to 2009 and remained consistent with the prior year at 3.9% as a percentage of Net Sales. Higher sales and improved profitability in 2010 allowed increased investment levels in key research and development projects, primarily for our chemical-free technologies.

R&D Expense decreased $1.3 million, or 5.4%, in 2009 as compared to 2008 and increased 40 basis points to 3.9% as a percentage of Net Sales. Despite lower sales levels in 2009, investments continued to be made in key research and development projects and technologies.

Selling and Administrative Expense – S&A Expense increased by $19.0 million, or 9.4%, in 2010 as compared to 2009 due primarily to higher variable selling expenses and incentives. As a percentage of Net Sales, 2010 S&A Expense decreased 80 basis points to 33.1%. S&A Expense benefited from tight spending controls and leveraging our existing resources as we have kept our employee headcount consistent with 2009 year end levels.

S&A Expense decreased by $41.4 million, or 17.0%, in 2009 as compared to 2008. As a percentage of Net Sales, 2009 S&A Expense decreased 80 basis points to 33.9%. S&A Expense benefited from decreased headcount in 2009 due to the fourth quarter 2008 workforce reduction, decreased selling costs associated with a lower level of sales and delays in discretionary spending, partially offset by higher incentives as compared to the prior period due to strong operating profit results and cash flows from operations. Favorable foreign currency exchange was approximately $3.4 million in 2009.

Goodwill Impairment Charge – During the first quarter of 2009, we recorded a non-cash pretax goodwill impairment charge of $43.4 million related to our EMEA reporting unit. Only $3.8 million of this charge was tax deductible.

Total Other Income (Expense), Net

Interest Income – Interest Income was $0.1 million in 2010, a decrease of $0.3 million from 2009. The decrease between 2010 and 2009 mainly reflects the impact of no ESOP interest income in 2010 as the ESOP loan matured on December 31, 2009.

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Interest Income was $0.4 million in 2009, a decrease of $0.6 million from 2008. The decrease reflects the impact of a lower level of cash on hand during 2009 as compared to 2008 as well as a slightly lower interest rate.

Interest Expense – Interest Expense was $1.6 million in 2010 as compared to $2.8 million in 2009. This decline is primarily due to a lower level of borrowings against our revolving credit facility in 2010 as compared to 2009.

Interest Expense was $2.8 million in 2009 as compared to $3.9 million in 2008. This decline is primarily due to significant repayments of debt during 2009 as compared to 2008.

Net Foreign Currency Transaction Gains (Losses) – Net Foreign Currency Transaction Losses were $0.9 million in 2010 as compared to $0.4 million in 2009. The decrease from the prior year was due to fluctuations in foreign currency rates in the normal course of business.

Net Foreign Currency Transaction Gains decreased $1.8 million between 2009 and 2008 from a $1.4 million net gain in 2008 to a $0.4 million net loss during 2009. Included in the 2008 net gain of $1.4 million was a $2.7 million net foreign currency gain from the settlement of forward contracts related to a British pound denominated loan, partially offset by a $0.9 million unfavorable movement in the foreign currency exchange rates related to a deal contingent non-speculative forward contract. There were no individually significant transactions in the 2009 activity, resulting in a net unfavorable impact from other foreign currency fluctuations between years.

ESOP Income – There was no ESOP Income during 2010. On December 31, 2009, the term for this ESOP program expired.

ESOP Income decreased $1.2 million between 2009 and 2008 due to a lower average stock price. In the past, we benefited from ESOP Income when the shares held by Tennant’s ESOP Plan were utilized and the basis of those shares was lower than the current average stock price. This benefit was offset in periods when the number of shares needed exceeded the number of shares available from the ESOP as the shortfall would have been issued at the current market rate, which was generally higher than the basis of the ESOP shares. We issued additional shares throughout 2009 as we experienced a lower average stock price during 2009 as compared to 2008.

Other (Expense) Income, Net – There was no significant change in Other (Expense) Income, Net in 2010 as compared to 2009.

Other (Expense) Income, Net decreased $1.7 million between 2009 and 2008 primarily due to a decrease in discretionary contributions to Tennant’s charitable foundation.

Income Taxes

Our overall effective income tax rate was (0.2%), 7.9% and 39.6% in 2010, 2009 and 2008, respectively. The 2010 net tax benefit included a $10.9 million tax benefit associated with a restructuring and realignment of international operations recorded in the fourth quarter, materially impacting the overall effective rate. Excluding the tax benefit associated with the fourth quarter restructuring and realignment of international operations, the 2010 overall effective tax rate would have been 31.3%. The increase in the 2010 overall effective tax rate was primarily related to changes in our operating profit by taxing jurisdiction.

The 2009 tax expense includes a $1.1 million tax benefit associated with the $43.4 million impairment of Goodwill recorded in the first quarter, materially impacting the overall effective tax rate. Excluding the $1.1 million tax benefit associated with the first quarter goodwill impairment, the 2009 effective tax rate would have been 15.7%. The 2009 tax expense also includes a $2.3 million tax benefit associated with a United Kingdom business reorganization in the fourth quarter, also materially impacting the overall effective tax rate. Excluding the tax benefit associated with the first quarter goodwill impairment and the fourth quarter United Kingdom business reorganization, the 2009 overall effective tax rate would have been 27.8%. The decrease in the 2009 overall effective tax rate excluding these items was substantially related to changes in our operating profit by taxing jurisdiction.

Liquidity and Capital Resources

Liquidity – Cash and Cash Equivalents totaled $39.5 million at December 31, 2010, as compared to $18.1 million of Cash and Cash Equivalents as of December 31, 2009. Cash and Cash Equivalents held by our foreign subsidiaries totaled $10.6 million as of December 31, 2010 as compared to $10.1 million of Cash and Cash Equivalents held by our foreign subsidiaries as of December 31, 2009. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 2.1 and 1.9 as of December 31, 2010 and 2009, respectively, based on working capital of $132.1 million and $99.8 million, respectively.

Our Debt-to-Capital ratio was 12.5% as of December 31, 2010, compared with 15.7% as of December 31, 2009. Our capital structure was comprised of $30.8 million of Long-Term Debt and $216.1 million of Shareholders’ Equity as of December 31, 2010.

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

	2010			2009			2008
Operating Activities	$	42,530		$	75,185		$	37,394
Investing Activities:
Purchases of Property, Plant and Equipment, Net of Disposals		(9,934	)		(11,172	)		(19,982	)
Acquisitions of Businesses, Net of Cash Acquired		(86	)		(2,162	)		(81,845	)
Financing Activities		(10,342	)		(74,068	)		62,075
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(701	)		994			(1,449	)
Net Increase (Decrease) in Cash and Cash Equivalents	$	21,467		$	(11,223	)	$	(3,807	)

Operating Activities – Cash provided by operating activities was $42.5 million in 2010, $75.2 million in 2009 and $37.4 million in 2008. In 2010, cash provided by operating activities was driven by $34.8 million of Net Earnings as well as increased Accrued Expenses, primarily from sales and management incentives, somewhat offset by increases in Receivables and Inventories, both increasing at year end due to strong fourth quarter Net Sales. Cash flow provided by operating activities was $32.7 million lower in 2010 as compared to 2009. This decrease was primarily driven by higher working capital related to higher sales levels as of year end 2010 as compared to year end 2009.

In 2009, cash provided by operating activities was driven by strong working capital management, offset somewhat by a decrease in Employee Compensation and Benefits and Other Accrued Expenses due in part to the cash payments in 2009 for the workforce reduction, which were accrued in 2008. Cash flow provided by operating activities was $37.8 million higher in 2009 as compared to 2008. This increase was primarily driven by a reduction in Inventories and an increase in Income Taxes Payable and Accounts Payable, offset by a decrease in Employee Compensation and Benefits and Other Accrued Expenses.

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For 2010, we used operating profit and working capital as key indicators of financial performance and the primary metrics for performance-based incentives.

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):

	2010	2009	2008
DSO	59	67	77
DIOH	83	87	101

DSO decreased 8 days in 2010 as compared to 2009 primarily due to increased Net Sales as well as our continued focus on proactively managing Accounts Receivable by enforcing tighter credit limits and collecting past due balances.

DIOH decreased 4 days in 2010 as compared to 2009 primarily due to increased sales volume in the fourth quarter of 2010 as compared to the fourth quarter of 2009 and continued progress from inventory management initiatives.

Investing Activities – Net cash used for investing activities was $10.0 million in 2010, $13.3 million in 2009 and $101.8 million in 2008. Net capital expenditures were $9.9 million during 2010 as compared to $11.2 million in 2009. Net capital expenditures were $20.0 million in 2008. Our 2010 capital expenditures included technology upgrades and tooling related to new product development and manufacturing equipment. Capital expenditures in 2009 included technology upgrades, tooling related to new product development and investments in our Minnesota facilities to complete the Global Innovation Center to support new product innovation efforts. 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. In 2008, acquisitions of businesses used $81.8 million of cash related to our Applied Sweepers and Alfa acquisitions.

Financing Activities – Net cash used for financing activities was $10.3 million in 2010 and $74.1 million in 2009. Net cash provided by financing activities was $62.1 million in 2008. In 2010, payments of dividends used $11.2 million and payments of Long-Term Debt used $4.2 million. In 2009, payments of Long-Term Debt used $67.2 million and dividend payments used $9.9 million. Our annual cash dividend payout increased for the 39th consecutive year to $0.59 per share in 2010, an increase of $0.06 per share over 2009.

Proceeds from the issuance of Common Stock generated $6.5 million in 2010, $0.9 million in 2009 and $1.9 million in 2008.

On May 3, 2007, the Board of Directors authorized the repurchase of 1,000,000 shares of our Common Stock. At December 31, 2010, there remained 188,874 shares authorized for repurchase. On February 21, 2011, the Board of Directors authorized the repurchase of an additional 1,000,000 shares of our common stock.

There were 100,000 shares repurchased in 2010, no shares repurchased during 2009 and 450,100 shares repurchased in 2008, at average repurchase prices of $31.53 during 2010 and $31.88 during 2008. Our Credit Agreement with JPMorgan Chase Bank limits the payment of dividends and repurchases of stock to amounts ranging from $12.0 million to $40.0 million based on our leverage ratio after giving effect to such payments for the life of the agreement.

Indebtedness – As of December 31, 2010, we had committed lines of credit totaling approximately $125.0 million and uncommitted lines of credit totaling $82.7 million. There was $25.0 million in outstanding borrowings under our JPMorgan facility and no borrowings under any other facilities as of December 31, 2010. In addition, we had stand alone letters of credit of approximately $1.9 million outstanding and bank guarantees in the amount of approximately $0.9 million. Commitment fees on unused lines of credit for the year ended December 31, 2010 were $0.4 million.

Our most restrictive covenants are part of our Credit Agreement with JPMorgan, which are the same covenants in the Shelf Agreement with Prudential, and require us to maintain an indebtedness to EBITDA ratio of not greater than 3.50 to 1 and to maintain an EBITDA to interest expense ratio of no less than 3.50 to 1 as of the end of each quarter. As of December 31, 2010, our indebtedness to EBITDA ratio was 0.60 to 1 and our EBITDA to interest expense ratio was 35.28 to 1.

JPMorgan Chase Bank, National Association

Our June 19, 2007 Credit Agreement (the “Credit Agreement”), as amended from time to time, with our bank group led by JPMorgan Chase Bank, National Association (“JPMorgan”), 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 includes a security interest on most of our personal property and a pledge of 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.

The fee for committed funds under the Credit Agreement 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 2.20% to LIBOR plus 3.00%, 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 1.00%; plus, in any such case under this clause (ii), an additional spread of 1.20% to 2.00%, depending on our leverage ratio.

If we obtain additional indebtedness in excess of $25.0 million, to the extent that any revolving loans under the Credit Agreement are then outstanding we are required to prepay the revolving loans. Proceeds over $25.0 million and under $35.0 million require repayment of the revolver commitment on a 50% dollar for dollar basis and proceeds over $35.0 million require prepayment on the revolver commitment on a 100% dollar for dollar basis. The Credit Agreement limits the payment of dividends and repurchases of stock to an amount ranging from $12.0 million to $40.0 million based on our leverage ratio after giving effect to such payments. 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.

As of December 31, 2010 we were in compliance with all covenants under the Credit Agreement. There was $25.0 million in outstanding borrowings under this facility at December 31, 2010, with a weighted average interest rate of 2.47%.

Prudential Investment Management, Inc.

On July 29, 2009, we entered into a Private Shelf Agreement (the “Shelf Agreement”) with Prudential Investment Management, Inc. (“Prudential”) and Prudential affiliates from time to time party thereto. The Shelf Agreement provides us and our subsidiaries access to an uncommitted, senior secured, maximum aggregate principal amount of $80.0 million of debt capital. The Shelf Agreement contains 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. The Shelf Agreement limits the payment of dividends or repurchases of stock to an amount ranging from $12.0 million to $40.0 million based on our leverage ratio after giving effect to such payments.

As of December 31, 2010, there was no balance outstanding on this facility and therefore no requirement to be in compliance with the financial covenants

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under this facility. However, the financial covenants under this facility are the same as the financial covenants in the Credit Agreement, all of which we were in compliance with as of December 31, 2010. Should notes be issued under the Shelf Agreement, such notes will be pari passu with any outstanding debt under the Credit Agreement.

The Royal Bank of Scotland N.V.

On September 14, 2010, we entered into an overdraft facility with The Royal Bank of Scotland N.V. in the amount of 2.0 million Euros or approximately $2.7 million. There was no balance outstanding on this facility as of December 31, 2010.

Contractual Obligations – Our contractual obligations as of December 31, 2010, 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 (1)	$	25,128	$	73	$	25,044	$	11	$	-
Interest payments on long-term debt (1)		1,009		634		373		2		-
Capital leases		5,229		2,750		2,375		104		-
Interest payments on capital leases		309		174		128		7		-
Retirement benefit plans(2)		1,024		1,024		-		-		-
Deferred compensation arrangements(3)		6,522		749		1,050		731		3,992
Operating leases (4)		15,212		6,716		5,779		1,721		996
Purchase obligations (5)		38,633		38,229		404		-		-
Other (6)		1,741		1,511		230
Total contractual obligations	$	94,807	$	51,860	$	35,383	$	2,576	$	4,988

(1) Long-term debt represents bank borrowings and borrowings through our Credit Agreement. Our Credit Agreement does not have specified repayment terms; therefore, repayment is due upon expiration of the agreement on June 19, 2012. Interest payments on our Credit Agreement were calculated using the December 31, 2010 LIBOR rate based on the assumption that the principal would be repaid in full upon the expiration of the agreement.

(2) Our retirement benefit plans, as described in Note 11 of the Consolidated Financial Statements, require us to make contributions to the plans from time to time. Our plan obligations totaled $24.3 million as of December 31, 2010. 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 2011 expected contribution in the contractual obligations table.

(3) The unfunded deferred compensation arrangements covering certain current and retired management employees totaled $6.5 million as of December 31, 2010. Our estimated distributions in the contractual obligations table are based upon a number of assumptions including termination dates and participant distribution elections.

(4) Operating lease commitments consist primarily of office and warehouse facilities, vehicles and office equipment as discussed in Note 13 of the Consolidated Financial Statements.

(5) Purchase obligations include all known open purchase orders, contractual purchase commitments and contractual obligations related to information technology as of December 31, 2010.

(6) Other obligations include collateralized borrowings as discussed in Note 8 of the Consolidated Financial Statements and residual value guarantees as discussed in Note 13 of the Consolidated Financial Statements.

Total contractual obligations exclude our gross unrecognized tax benefits of $5.3 million as of December 31, 2010. We expect to make cash outlays in the future related to uncertain tax positions. However, due to the uncertainty of the timing of future cash flows, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. For further information related to unrecognized tax benefits see Note 14 of the Consolidated Financial Statements.

Newly Issued Accounting Guidance

Intangibles – Goodwill and Other

In December 2010, the Financial Accounting Standards Board (“FASB”) issued amended guidance to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The modified guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2010. We do not expect that the adoption of the guidance will have an impact on our financial position or results of operations.

Multiple-Deliverable Revenue Arrangements

In October 2009, the FASB issued new guidance that sets forth the requirements that must be met for an entity to recognize revenue for the sale of a delivered item that is part of a multiple-element arrangement when other elements have not yet been delivered. The new guidance is effective for fiscal years beginning on or after June 15, 2010 and therefore we will adopt this guidance on January 1, 2011. We do not expect that the adoption of the guidance will have an impact on our financial position or results of operations.

Business Combinations

In December 2010, the FASB updated guidance to clarify the acquisition date that should be used for reporting the pro forma financial information disclosures when comparative financial statements are presented. The updated guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. We do not expect that the adoption of the guidance will have an impact on our financial position or results of operations as the guidance will be adopted prospectively.

Fair Value Measurements and Disclosures

In January 2010, the FASB updated the disclosure requirements for fair value measurements. The updated guidance requires companies to disclose separately the investments that transfer in and out of Levels 1 and 2 and the reasons for those transfers. Additionally, in the reconciliation for fair value measurements using significant unobservable inputs (Level 3), companies should present separately information about purchases, sales, issuances and settlements. We adopted the updated guidance on January 1, 2010, except for the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation, which are effective for fiscal years beginning after December 15, 2010. We will adopt the remaining guidance on January 1, 2011. The adoption of the required guidance did not have an impact on our financial position or results of operations. We do not expect that the adoption of the remaining guidance will have an impact on our financial position or results of operations.

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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 approximately 0.3% in 2010, 0.7% in 2009 and 0.0% in 2008. As of December 31, 2010, we had $3.4 million reserved against 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, 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. As of December 31, 2010, we had $3.7 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. 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 potential goodwill impairment. If the first step indicates there may be an impairment, the second step is performed which measures the amount of the goodwill impairment, 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 charge in our results of operations in the period such determination is made. Subsequent reversal of goodwill impairment charges is not permitted. During the first quarter of 2009, we recorded a goodwill impairment loss of $43.4 million. Each of our reporting units were tested for impairment as of December 31, 2010 and based upon our analysis, the estimated fair values of our reporting units substantially exceeded their carrying amounts. We had Goodwill of $20.4 million as of December 31, 2010.

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 1.6% in 2010, 1.4% in 2009 and 1.2% in 2008. As of December 31, 2010, we had $7.0 million reserved for future estimated warranty costs.

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

Tax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation expense on property, plant and equipment. These temporary differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years but have already been recorded as an expense in our Consolidated Statements of Operations. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, based on management’s judgment, to the extent we believe that recovery is not more likely than not, we establish a valuation reserve against those deferred tax assets. The deferred tax asset valuation allowance could be materially different from actual results because of changes in the mix of future taxable income, the relationship between book and taxable income and our tax planning strategies. As of December 31, 2010, a valuation allowance of $9.2 million was recorded against foreign tax loss carryforwards and state credit carryforwards.

Cautionary Factors Relevant to Forward-Looking Information

This annual report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or similar words or the negative thereof. These statements do not relate to strictly historical or current facts and provide current expectations of forecasts of future

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events. Any such expectations or forecasts of future events are subject to a variety of factors. Particular risks and uncertainties presently facing us include:

·	Geopolitical and economic uncertainty throughout the world.

·	Competition in our business.

·	Ability to effectively manage organizational changes.

·	Ability to effectively maintain and manage the data in our computer systems.

·	Ability to develop new innovative products and services.

·	Ability to successfully upgrade and evolve the capabilities of our computer systems.

·	Ability to attract and retain key personnel.

·	Occurrence of a significant business interruption.

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

·	Unforeseen product liability claims or product quality issues.

·	Ability to comply with laws and regulations.

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

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

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

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

ITEM 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 2010, our raw materials and other purchased component costs were not significantly impacted by commodity prices. We 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 2011.

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 $40.3 million and $50.8 million at the end of 2010 and 2009, respectively. The potential for material loss in fair value of foreign currency contracts outstanding and the related underlying exposures as of December 31, 2010, 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 (the Company) as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2010. In connection with our audits of the financial statements, we also have audited the financial statement schedule as included in Item 15.A.2, as of and for each of the years in the three-year period ended December 31, 2010. We also have audited the Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements and financial statement schedule, 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 financial statement schedule 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, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the accompanying financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Furthermore, in our opinion, Tennant Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ KPMG LLP

Minneapolis, MN

February 25, 2011

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Consolidated Statements of Operations

TENNANT COMPANY AND SUBSIDIARIES

(In thousands, except shares and per share data)

Years ended December 31	2010			2009			2008
Net Sales	$	667,667		$	595,875		$	701,405
Cost of Sales		383,341			349,767			415,155
Gross Profit		284,326			246,108			286,250
Operating Expense:
Research and Development Expense		25,957			22,978			24,296
Selling and Administrative Expense		221,235			202,260			243,614
Goodwill Impairment Charge		-			43,363			-
Gain on Divestiture of Assets		-			-			(229	)
Total Operating Expenses		247,192			268,601			267,681
Profit (Loss) from Operations		37,134			(22,493	)		18,569
Other Income (Expense):
Interest Income		133			393			1,042
Interest Expense		(1,619	)		(2,830	)		(3,944	)
Net Foreign Currency Transaction (Losses) Gains		(902	)		(412	)		1,368
ESOP Income		-			990			2,219
Other (Expense) Income, Net		(19	)		32			(1,679	)
Total Other Expense, Net		(2,407	)		(1,827	)		(994	)
Profit (Loss) Before Income Taxes		34,727			(24,320	)		17,575
Income Tax (Benefit) Expense		(76	)		1,921			6,951
Net Earnings (Loss)	$	34,803		$	(26,241	)	$	10,624

Net Earnings (Loss) per Share:
Basic	$	1.85		$	(1.42	)	$	0.58
Diluted	$	1.80		$	(1.42	)	$	0.57

Weighted Average Shares Outstanding:
Basic		18,805,494			18,507,772			18,303,137
Diluted		19,332,103			18,507,772			18,581,840

Cash Dividends Declared per Common Share	$	0.59		$	0.53		$	0.52

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	2010			2009
ASSETS
Current Assets:
Cash and Cash Equivalents	$	39,529		$	18,062
Receivables:
Trade, less Allowances for Doubtful Accounts and Returns ($4,311 in 2010 and $5,077 in 2009)		123,830			117,146
Other		3,712			4,057
Net Receivables		127,542			121,203
Inventories		61,746			56,646
Prepaid Expenses		7,993			10,295
Deferred Income Taxes, Current Portion		11,459			9,362
Other Current Assets		-			344
Total Current Assets		248,269			215,912
Property, Plant and Equipment		287,751			287,915
Accumulated Depreciation		(200,123	)		(190,698	)
Property, Plant and Equipment, Net		87,628			97,217
Deferred Income Taxes, Long-Term Portion		14,182			7,911
Goodwill		20,423			20,181
Intangible Assets, Net		25,339			29,243
Other Assets		7,827			7,262
Total Assets	$	403,668		$	377,726
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt	$	3,154		$	4,012
Short-term Borrowings		-			7
Accounts Payable		40,498			42,658
Employee Compensation and Benefits		31,281			28,092
Income Taxes Payable		509			3,982
Other Current Liabilities		40,702			37,401
Total Current Liabilities		116,144			116,152
Long-Term Liabilities:
Long-Term Debt		27,674			30,192
Employee-Related Benefits		33,898			31,848
Deferred Income Taxes, Long-Term Portion		4,525			7,417
Other Liabilities		5,294			7,838
Total Long-Term Liabilities		71,391			77,295
Total Liabilities		187,535			193,447
Commitments and Contengencies (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; 19,038,843
and 18,750,828 issued and outstanding, respectively		7,140			7,032
Additional Paid-In Capital		10,876			7,772
Retained Earnings		220,391			192,584
Accumulated Other Comprehensive Loss		(22,274	)		(23,109	)
Total Shareholders’ Equity		216,133			184,279
Total Liabilities and Shareholders’ Equity	$	403,668		$	377,726

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	2010			2009			2008
OPERATING ACTIVITIES
Net Earnings (Loss)	$	34,803		$	(26,241	)	$	10,624
Adjustments to reconcile Net Earnings (Loss) to Net Cash Provided by Operating Activities:
Depreciation		18,026			19,632			20,360
Amortization		3,166			3,171			2,599
Deferred Income Taxes		(11,412	)		(1,433	)		(3,525	)
Goodwill Impairment Charge		-			43,363			-
Stock-Based Compensation Expense (Benefit)		4,639			2,291			(1,227	)
ESOP Income (Expense)		-			426			(498	)
Tax Benefit on ESOP		-			6			29
Allowance for Doubtful Accounts and Returns		1,403			1,253			4,007
Other, Net		503			(77	)		1,344
Changes in Operating Assets and Liabilities, Excluding the Impact of Acquisitions:
Accounts Receivable		(7,931	)		1,889			5,574
Inventories		(4,391	)		10,476			(2,258	)
Accounts Payable		(1,445	)		16,409			(8,184	)
Employee Compensation and Benefits		1,162			4,015			(6,062	)
Other Current Liabilities		6,058			(5,288	)		21,928
Income Taxes		(1,716	)		4,320			(11,247	)
Other Assets and Liabilities		(335	)		973			3,930
Net Cash Provided by Operating Activities		42,530			75,185			37,394
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment		(10,529	)		(11,483	)		(20,790	)
Proceeds from Disposals of Property, Plant and Equipment		595			311			808
Acquisition of Businesses, Net of Cash Acquired		(86	)		(2,162	)		(81,845	)
Net Cash Used for Investing Activities		(10,020	)		(13,334	)		(101,827	)
FINANCING ACTIVITIES
Change in Short-Term Borrowings, Net		(7	)		3			(1,039	)
Payments of Long-Term Debt		(4,192	)		(67,212	)		(4,969	)
Issuance of Long-Term Debt		-			82			87,500
Purchases of Common Stock		(3,153	)		-			(14,349	)
Proceeds from Issuances of Common Stock		6,467			914			1,872
Tax Benefit on Stock Plans		1,724			114			892
Dividends Paid		(11,181	)		(9,861	)		(9,551	)
Principal Payment from ESOP		-			1,892			1,719
Net Cash (Used for) Provided by Financing Activities		(10,342	)		(74,068	)		62,075
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(701	)		994			(1,449	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		21,467			(11,223	)		(3,807	)
Cash and Cash Equivalents at Beginning of Year		18,062			29,285			33,092
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	39,529		$	18,062		$	29,285
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid (Received) During the Year for:
Income Taxes	$	13,908		$	(4,319	)	$	15,329
Interest	$	1,559		$	2,779		$	3,615
Supplemental Non-Cash Investing and Financing Activities:
Capital Expenditures Funded Through Capital Leases	$	2,398		$	5,784		$	4,823
Collateralized Borrowings Incurred for Operating Lease Equipment	$	471		$	1,342		$	1,758

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)

	Common Shares			Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Receivable from ESOP			Total Shareholders' Equity
Balance, December 31, 2007		18,499,458		$	6,937		$	8,265		$	233,527		$	5,507		$	(1,805	)	$	252,431
Net Earnings		-			-			-			10,624			-			-			10,624
Foreign Currency Translation Adjustments		-			-			-			-			(26,455	)		-			(26,455	)
Pension Adjustments, net of income taxes of $3,326		-			-			-			-			(5,443	)		-			(5,443	)
Comprehensive Loss																				(21,274	)

Issue Stock for Directors, Employee Benefit and Stock Plans		235,388			89			1,453			-			-			-			1,542
Share-Based Compensation		-			-			(718	)		-			-			-			(718	)
Dividends paid, $0.52 per Common Share		-			-			-			(9,551	)		-			-			(9,551	)
Tax Benefit on Stock Plans		-			-			892			-			-			-			892
Tax Benefit on ESOP		-			-			-			29			-			-			29
Purchases of Common Stock		(450,100	)		(169	)		(14,180	)		-			-			-			(14,349	)
Principal Payments from ESOP		-			-			-			-			-			1,719			1,719
Shares Allocated		-			-			-			-			-			(817	)		(817	)
Reclassification		-			-			10,937			(10,937	)		-			-			-
Balance, December 31, 2008		18,284,746		$	6,857		$	6,649		$	223,692		$	(26,391	)	$	(903	)	$	209,904
Net Loss		-			-			-			(26,241	)		-			-			(26,241	)
Foreign Currency Translation Adjustments		-			-			-			-			5,104			-			5,104
Pension Adjustments, net of income taxes of $1,048		-			-			-			-			(1,822	)		-			(1,822	)
Comprehensive Loss																				(22,959	)

Issue Stock for Directors, Employee Benefit and Stock Plans		466,082			175			4,327			-			-			-			4,502
Share-Based Compensation		-			-			1,670			-			-			-			1,670
Dividends paid, $0.53 per Common Share		-			-			-			(9,861	)		-			-			(9,861	)
Tax Benefit on Stock Plans		-			-			114			-			-			-			114
Tax Benefit on ESOP		-			-			-			6			-			-			6
Principal Payments from ESOP		-			-			-			-			-			1,892			1,892
Shares Allocated		-			-			-			-			-			(989	)		(989	)
Reclassification		-			-			(4,988	)		4,988						-			-
Balance, December 31, 2009		18,750,828		$	7,032		$	7,772		$	192,584		$	(23,109	)	$	-		$	184,279
Net Earnings		-			-			-			34,803			-			-			34,803
Foreign Currency Translation Adjustments		-			-			-			-			762			-			762
Pension Adjustments, net of income tax benefit of $98		-			-			-			-