Edgar Filing: TENNANT CO

10-K

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, 2015
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 Web site, 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).	ü	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.			[ü]



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	ü		Accelerated filer
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, 2015, was $1,170,672,343.
As of January 29, 2016, there were 17,649,840 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 2016 annual meeting of shareholders (the “2016 Proxy Statement”) are incorporated by reference in Part III.

Tennant Company

Form 10–K

Table of Contents



PART I					Page
	Item 1	Business			3
	Item 1A	Risk Factors			4
	Item 1B	Unresolved Staff Comments			6
	Item 2	Properties			6
	Item 3	Legal Proceedings			6
	Item 4	Mine Safety Disclosures			6
PART II
	Item 5	Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities			7
	Item 6	Selected Financial Data			9
	Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations			10
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk			20
	Item 8	Financial Statements and Supplementary Data			21
			Report of Independent Registered Public Accounting Firm		21
			Consolidated Financial Statements		22
			Consolidated Statements of Earnings		22
			Consolidated Statements of Comprehensive Income		22
			Consolidated Balance Sheets		23
			Consolidated Statements of Cash Flows		24
			Consolidated Statements of Shareholders' Equity		25
			Notes to the Consolidated Financial Statements		26
			1	Summary of Significant Accounting Policies	26
			2	Newly Adopted Accounting Pronouncements	28
			3	Management Actions	28
			4	Divestiture	29
			5	Inventories	29
			6	Assets and Liabilities Held for Sale	30
			7	Property, Plant and Equipment	30
			8	Goodwill and Intangible Assets	31
			9	Debt	32
			10	Other Current Liabilities	34
			11	Derivatives	35
			12	Fair Value Measurements	36
			13	Retirement Benefit Plans	37
			14	Shareholders' Equity	41
			15	Commitments and Contingencies	42
			16	Income Taxes	43
			17	Share-Based Compensation	44
			18	Earnings Per Share	48
			19	Segment Reporting	48
			20	Consolidated Quarterly Data (Unaudited)	49
			21	Related Party Transactions	49
			22	Subsequent Event	49
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			50
	Item 9A	Controls and Procedures			50
	Item 9B	Other Information			50
PART III
	Item 10	Directors, Executive Officers and Corporate Governance			50
	Item 11	Executive Compensation			51
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters			51
	Item 13	Certain Relationships and Related Transactions, and Director Independence			51
	Item 14	Principal Accountant Fees and Services			51
PART IV
	Item 15	Exhibits and Financial Statement Schedules			52

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TENNANT COMPANY

2015

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 founded in 1870 and incorporated in 1909, is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance, significantly reduce environmental impact and help create a cleaner, safer, healthier world. Tennant is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including: floor maintenance and outdoor cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, specialty surface coatings and asset management solutions. Tennant products are used in many types of environments including: Retail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, parking lots and streets, and more. Customers include contract cleaners to whom organizations outsource facilities maintenance, as well as businesses that perform facilities maintenance themselves. The Company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.

Segment and Geographic Area Financial Information

The Company has one reportable business segment. Sales to customers geographically located in the United States were $517.9 million, $479.5 million and $422.6 million for the years ended December 31, 2015, 2014 and 2013, respectively. Long-lived assets located in the United States were $92.2 million and $82.2 million as of the years ended December 31, 2015 and 2014, respectively. Additional financial information on the Company’s segment and geographic areas is provided throughout Item 8 and Note 19 to the Consolidated Financial Statements.

Principal Products, Markets and Distribution

The Company offers products and solutions consisting of mechanized cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, specialty surface coatings, and business solutions such as financing, rental and leasing programs, and machine-to-machine asset management solutions. The Company markets and sells the following brands: Tennant^®, Nobles^®, Green Machines^™, Alfa Uma Empresa Tennant^™, IRIS^® and Orbio^®. Orbio Technologies, which markets and sells Orbio-branded products and solutions, is a group created by the Company to focus on expanding the opportunities for the emerging category of On-Site Generation (OSG). OSG technologies create and dispense effective cleaning and antimicrobial solutions on site within a facility.

As of January 31, 2016, we closed on the sale of our Green Machines outdoor city cleaning line to Green Machines International GmbH and affiliates, subsidiaries of M&F Management and Financing GmbH, which is also parent company of the master distributor of our products in Central Eastern Europe, Middle East and Africa, TCS EMEA GmbH. Therefore, as of February 2016, Green Machines is no longer a Company-owned brand. Further details regarding the sale of our Green Machines outdoor city cleaning line are discussed in Note 6 to the Consolidated Financial Statements.

The Company's principal markets include targeted vertical industries such as retail, manufacturing/warehousing, education, healthcare and hospitality, among others. The Company sells products directly in 15 countries and through distributors in more than 80 countries. The Company serves customers in these geographies via three geographically aligned business units: The Americas, which consists of North America and Latin America, EMEA, which consists of Europe, the Middle East and Africa, and APAC, which consists of the Asia Pacific region.

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.

Intellectual Property

Although the Company considers that its patents, proprietary technologies, customer relationships, licenses, trademarks, trade names and brand names in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent upon any single intellectual property.

Seasonality

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

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 are of material importance in relation to the business as a whole. The customer base includes several governmental entities which generally have terms similar to other customers.

Backlog

The Company processes orders within two weeks, on average. Therefore, no significant backlogs existed at December 31, 2015 and 2014.

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Competition

While there is no publicly 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. Several global competitors compete with Tennant in virtually every geography in the world. However, small regional competitors also exist who vary by country, vertical market, product category or channel. The Company competes primarily on the basis of offering a broad line of high-quality, innovative products supported by an extensive sales and service network in major markets.

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 its global locations are dedicated to various activities, including researching new technologies to create meaningful product differentiation, development of new products and technologies, improvements of existing product design or manufacturing processes and exploring new product applications with customers. In 2015, 2014 and 2013, the Company spent $32.4 million, $29.4 million and $30.5 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 3,164 people in worldwide operations as of December 31, 2015.

Available Information

The Company makes available free of charge, through the Investor Relations website at investors.tennantco.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the 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 financial difficulties if the United States or other global economies experience an additional or continued significant long-term economic downturn, decreasing the demand for our products and negatively affecting our sales growth.

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

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

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

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

Foreign currency exchange rate fluctuations, particularly the strengthening of the U.S. dollar against other major currencies, could result in declines in our reported net sales and net earnings.

We earn revenues, pay expenses, own assets and incur liabilities in countries using functional currencies other than the U.S. dollar. Because our consolidated financial statements are presented in U.S. dollars, we translate revenues and expenses into U.S. dollars at the average exchange rate during each reporting period, as well as assets and liabilities into U.S. dollars at exchange rates in effect at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies will affect our net revenues, net earnings, earnings per share and the value of balance sheet items denominated in foreign currencies as we translate them into the U.S. dollar reporting currency. We use derivative financial instruments to hedge our estimated transactional or translational exposure to certain foreign currency-denominated assets and liabilities as well as our foreign currency denominated revenue. While we actively manage the exposure of our foreign currency market risk in the normal course of business by utilizing various foreign exchange financial instruments, these instruments involve risk and may not effectively limit our underlying exposure from foreign currency exchange rate fluctuations or minimize the effects on our net earnings and the cash volatility associated with foreign currency exchange rate changes. Fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies, could materially affect our financial results, such as it did in 2015.

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

Our continued success will depend on, among other things, the skills and services of our executive officers and other key personnel. Our ability to attract and retain highly qualified managerial, technical, manufacturing, research, sales and marketing personnel also impacts our ability to effectively operate our business. As 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. We believe the increased loss of key personnel within a concentrated region could adversely affect our sales growth.

In addition, there is a risk that there may not be adequate talent acquisition resources in place to support the hiring of new employees in a timely and efficient manner to appropriately align with our growth strategy. The lack of talent acquisition resources could also inhibit our ability to provide training and development opportunities to all employees. This, in turn, could impede our workforce from embracing change and leveraging the improvements we have made in technology and other business process enhancements.

We may not be able to upgrade and evolve our information technology systems as quickly as we wish and we may encounter difficulties as we upgrade and evolve these systems, which could adversely impact our abilities to accomplish anticipated future cost savings, better serve our customers and protect against information system disruption, corruption or intrusions.

We have many information technology systems that are important to the operation of our business and are in need of upgrading in order to effectively implement our growth strategy. Given our greater emphasis on customer-facing technologies, we may not have adequate resources to upgrade our systems at the pace which the current business environment demands. This could increase the risk that the Information Technology infrastructure, such as access and cybersecurity, is not adequately designed to protect critical data and systems from theft, corruption, unauthorized usage, viruses, sabotage or unintentional misuse. Additionally, significantly upgrading and evolving the capabilities of our existing systems could lead to inefficient or ineffective use of our technology due to lack of training or expertise in these evolving technology systems. These factors could lead to significant expenses, adversely impacting our results of operations and hinder our ability to offer better technology solutions to our customers.

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

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

The SEC has adopted rules regarding disclosure of the use of “conflict minerals” (commonly referred to as tin, tantalum, tungsten and gold) which are mined from the Democratic Republic of the Congo in products we manufacture or contract to manufacture. These rules have required and will continue to require due diligence and disclosure efforts. There are and will continue to be costs associated with complying with this disclosure requirement, including costs to determine which of our products are subject to the rules and the source of any "conflict minerals" used in these products. Since our supply chain is complex, ultimately we may not be able to sufficiently discover the origin of the conflict minerals used in our products through the due diligence procedures that we implement. If we are unable to, or choose not to certify that our products are conflict mineral free, customers may choose not to purchase our products. Alternatively, if we choose to use only suppliers offering conflict free minerals, we cannot be sure that we will be able to obtain metals, if necessary, from such suppliers in sufficient quantities or at competitive prices. Any one or a combination of these various factors could harm our business, reduce market demand for our products, and adversely affect our profit margins, net sales, and overall financial results.

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 despite lean staffing levels. We continue to consolidate and reallocate resources as 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 implement new processes and manage organizational changes. In addition, if we do not effectively realize and sustain the benefits that these transformations are designed to produce, we may not fully realize the anticipated savings of these actions or they may negatively impact our ability to serve our customers or meet our strategic objectives.

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

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

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

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

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We may experience a disruption to the value chain process, such as sourcing, distribution, logistics or customer support, and related systems causing delays in delivery, customer dissatisfaction and potentially high costs and litigation.

We rely on our sourcing, distribution, logistics and customer support functions in order to effectively deliver raw materials to our manufacturing facilities, fulfill customer orders and deliver our products and services to our customers. Should we experience disruptions in any of these areas for any reason such as natural disasters or severe weather events, information technology failures, port labor disputes, employee turnover or civil disturbances, our costs could increase and there could be an adverse impact on our customers.

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

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

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

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

ITEM 1B – Unresolved Staff Comments

None.

ITEM 2 – Properties

The Company’s corporate offices are owned by the Company and are located in the Minneapolis, Minnesota, metropolitan area. Manufacturing facilities located in Minneapolis, Minnesota; Holland, Michigan; and Uden, the Netherlands are owned by the Company. Manufacturing facilities located in Louisville, Kentucky; Falkirk, United Kingdom; São Paulo, Brazil; and Shanghai, China are leased to the Company. Sales offices, warehouse and storage facilities are leased in various locations in North America, Europe, Japan, China, 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 15 to the Consolidated Financial Statements.

Effective with the sale of our Green Machines outdoor city cleaning line in January 2016, we sub-leased the manufacturing facility in Falkirk, United Kingdom to the buyer of the Green Machines business. Further details regarding the sale of our Green Machines outdoor city cleaning line are discussed in Note 6 to the Consolidated Financial Statements.

ITEM 3 – Legal Proceedings

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

ITEM 4 – Mine Safety Disclosures

Not applicable.

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PART II

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

MARKET INFORMATION – Tennant's common stock is traded on the New York Stock Exchange, under the ticker symbol TNC. As of January 29, 2016, there were 380 shareholders of record. The common stock price was $54.11 per share on January 29, 2016.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:



	2015				2014
	High		Low		High		Low
First Quarter	$	72.52	$	63.14	$	67.81	$	57.15
Second Quarter	70.12		62.59		77.35		61.17
Third Quarter	66.38		54.00		77.78		66.77
Fourth Quarter	62.92		54.39		75.01		63.91

DIVIDEND INFORMATION – Cash dividends on Tennant’s common stock have been paid for 71 consecutive years. Tennant’s annual cash dividend payout increased for the 44^th consecutive year to $0.80 per share in 2015, an increase of $0.02 per share over 2014. Dividends are generally declared each quarter. On February 17, 2016, the Company announced a quarterly cash dividend of $0.20 per share payable March 15, 2016, to shareholders of record on February 29, 2016.

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 64874

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 incorporated by reference in Item 12 of this annual report on Form 10-K from the 2016 Proxy Statement.

SHARE REPURCHASES – On June 22, 2015, the Board of Directors authorized the repurchase of an additional 1,000,000 shares of our common stock. Share repurchases are made from time to time in the open market or through privately negotiated transactions, primarily to offset the dilutive effect of shares issued through our share-based compensation programs. Our Amended and Restated Credit Agreement and Shelf Agreement restrict the payment of dividends or repurchasing of stock if, after giving effect to such payments, our leverage ratio is greater than 2.00 to 1, in such case limiting such payments to an amount ranging from $50.0 million to $75.0 million during any fiscal year. If our leverage ratio is greater than 3.25 to 1, our Amended and Restated Credit Agreement and Shelf Agreement restrict us from paying any dividends or repurchasing stock, after giving effect to such payments.



For the Quarter Ended December 31, 2015	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, 2015	6,448	$57.84	6,069	751,021
November 1–30, 2015	110,211	59.58	109,498	641,523
December 1–31, 2015	66	62.19	—	641,523
Total	116,725	$59.48	115,567	641,523


⁽¹⁾	Includes 1,158 shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by employees who exercised stock options or restricted stock under employee share-based compensation plans.

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STOCK PERFORMANCE GRAPH – The following graph compares the cumulative total shareholder return on Tennant’s common stock to two indices: S&P SmallCap 600 and Morningstar Industrials Sector. The graph below compares the performance for the last five fiscal years, assuming an investment of $100 on December 31, 2010, including the reinvestment of all dividends.

5-YEAR CUMULATIVE TOTAL RETURN COMPARISON



	2010	2011	2012	2013	2014	2015
Tennant Company	$100	$103	$118	$185	$199	$157
S&P SmallCap 600	$100	$101	$118	$166	$176	$172
Morningstar Industrials Sector	$100	$99	$114	$163	$178	$173

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ITEM 6 – Selected Financial Data

(In thousands, except shares and per share data)



Years Ended December 31	2015				2014			2013				2012				2011
Financial Results:
Net Sales	$	811,799			$	821,983		$	752,011			$	738,980			$	753,998
Cost of Sales	462,739				469,556			426,103				413,684			(3)	434,817			(4)
Gross Margin - %	43.0				42.9			43.3				44.0				42.3
Research and Development Expense	32,415				29,432			30,529				29,263				27,911
% of Net Sales	4.0				3.6			4.1				4.0				3.7
Selling and Administrative Expense	252,270			(1)	250,898			232,976			(2)	234,114			(3)	241,625			(4)
% of Net Sales	31.1				30.5			31.0				31.7				32.0
Gain on Sale of Business	—				—			—				(784		)	(3)	—
% of Net Sales	—				—			—				(0.1		)		—
Impairment of Long-Lived Assets	11,199				—			—				—				—
% of Net Sales	1.4				—			—				—				—
Profit from Operations	53,176			(1)	72,097			62,403			(2)	62,703			(3)	49,645			(4)
% of Net Sales	6.6				8.8			8.3				8.5				6.6
Total Other Expense, Net	(2,752		)		(2,559		)	(2,525		)		(2,813		)		(915		)
Profit Before Income Taxes	50,424			(1)	69,538			59,878			(2)	59,890			(3)	48,730			(4)
% of Net Sales	6.2				8.5			8.0				8.1				6.5
Income Tax Expense	18,336			(1)	18,887			19,647			(2)	18,306			(3)	16,017			(4)
Effective Tax Rate - %	36.4				27.2			32.8				30.6				32.9
Net Earnings	32,088			(1)	50,651			40,231			(2)	41,584			(3)	32,713			(4)
% of Net Sales	4.0				6.2			5.3				5.6				4.3
Per Share Data:
Basic Net Earnings	$	1.78		(1)	$	2.78		$	2.20		(2)	$	2.24		(3)	$	1.74		(4)
Diluted Net Earnings	$	1.74		(1)	$	2.70		$	2.14		(2)	$	2.18		(3)	$	1.69		(4)
Diluted Weighted Average Shares	18,493,447				18,740,858			18,833,453				19,102,016				19,360,428
Cash Dividends	$	0.80			$	0.78		$	0.72			$	0.69			$	0.68
Financial Position:
Total Assets	$	432,295			$	486,932		$	456,306			$	420,760			$	424,262
Total Debt	24,653				28,137			31,803				32,323				36,455
Total Shareholders’ Equity	252,207				280,651			263,846				235,054				220,852
Current Ratio	2.2				2.4			2.4				2.2				2.2
Debt-to-Capital Ratio	8.9		%		9.1		%	10.8		%		12.1		%		14.2		%
Cash Flows:
Net Cash Provided by Operations	$	45,232			$	59,362		$	59,814			$	47,566			$	56,909
Capital Expenditures, Net of Disposals	(24,444		)		(19,292		)	(14,655		)		(14,595		)		(13,301		)
Free Cash Flow	20,788				40,070			45,159				32,971				43,608
Other Data:
Depreciation and Amortization	$	18,031			$	20,063		$	20,246			$	20,872			$	21,418
Number of employees at year-end	3,164				3,087			2,931				2,816				2,865

The results of operations from our 2011 acquisition has been included in the Selected Financial Data presented above since its acquisition date.


⁽¹⁾	2015 includes restructuring charges of $3,744 pre-tax ($3,095 after-tax or $0.17 per diluted share) and a non-cash Impairment of Long-Lived Assets of $11,199 pre-tax ($10,822 after-tax or $0.58 per diluted share).


⁽²⁾	2013 includes restructuring charges of $3,017 pre-tax ($2,938 after-tax or $0.15 per diluted share) and a tax benefit of $582 (or $0.03 per diluted share) related to the retroactive reinstatement of the 2012 U.S. Federal Research and Development ("R&D") Tax Credit.


⁽³⁾	2012 includes a gain on sale of business of $784 pre-tax ($508 after-tax or $0.03 per diluted share), a restructuring charge of $760 pre-tax ($670 after-tax or $0.04 per diluted share) and tax benefits from an international entity restructuring of $2,043 (or $0.11 per diluted share).

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⁽⁴⁾	2011 includes a Product Line Obsolescence charge of $4,300 pre-tax ($3,811 after-tax or $0.20 per diluted share) and an international executive severance charge of $1,217 (or $0.06 per diluted share).

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 empower customers to achieve quality cleaning performance, significantly reduce environmental impact and help create a cleaner, safer, healthier world. Tennant is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including: floor maintenance and outdoor cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, specialty surface coatings and asset management solutions. Tennant products are used in many types of environments including: Retail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, parking lots and streets, and more. Customers include contract cleaners to whom organizations outsource facilities maintenance, as well as businesses that perform facilities maintenance themselves. The Company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.

Net Sales in 2015 totaled $811.8 million, down from $822.0 million in the prior year primarily due to an unfavorable impact from foreign currency exchange of approximately 5.5%, lower sales of outdoor equipment and sales declines to our Master Distributor for Russia. These impacts were partially offset by robust sales to strategic accounts in North America and global sales of new products and also selling list price increases. 2015 organic sales growth, which excludes the impact of foreign currency exchange (and acquisitions and divestitures when applicable), was up approximately 4.3% from 2014 with growth in the Americas and APAC geographical regions. 2015 Gross Profit margin increased 10 basis points to 43.0% from 42.9% in 2014 primarily due to improved operating efficiencies in both the direct service organization and manufacturing operations. This was somewhat offset by foreign currency headwinds that unfavorably impacted gross margin by approximately 80 basis points. Selling and Administrative Expense (“S&A Expense”) increased 0.5% from $250.9 million in 2014 to $252.3 million in 2015 primarily due to our 2015 third and fourth quarter restructuring charges, described in Note 3 to the Consolidated Financial Statements, of $3.7 million, or 50 basis points as a percentage of Net Sales. This was somewhat offset by continued cost controls and improved operating efficiencies that favorably impacted S&A Expense in 2015. Operating Profit of $53.2 million in 2015 was down from $72.1 million in the prior year and Operating Profit margin decreased 220 basis points to 6.6% in 2015 from 8.8% in 2014. Operating Profit during 2015 was unfavorably impacted by $14.9 million, or 180 basis points as a percentage of Net Sales, for the non-cash Impairment of Long-Lived Assets and the third and fourth quarter restructuring charges. Operating Profit was also unfavorably impacted by higher R&D Expense of $3.0 million as compared to 2014. Due to the strength of the U.S. dollar in 2015, foreign currency exchange reduced Operating Profit by approximately $13.0 million. Net Earnings for 2015 were unfavorably impacted by the $11.2 million pre-tax, or $0.58 per diluted share after-tax, non-cash Impairment of Long-Lived Assets as a result of the classification of our Green Machines assets as held for sale in the third quarter of 2015. There were also two restructuring charges included in the 2015 S&A Expense of $3.7 million pre-tax, or $0.17 per diluted share after-tax, to reduce our infrastructure costs.

Net Earnings for 2014 were $10.4 million greater than 2013. The increase in net earnings resulted primarily from robust organic sales growth and a lower tax rate in 2014 compared to 2013 due to the mix in taxable earnings by country and favorable settlements on tax positions from prior years. 2014 Gross Profit margin decreased 40 basis points to 42.9% from 43.3% in 2013 primarily due to strong sales to strategic accounts and through distribution that tend to have lower gross margins and also costs related to hiring and training additional manufacturing employees to support higher levels of production. Net Sales in 2014 totaled $822.0 million, up from $752.0 million in the prior year primarily due to strong sales to strategic accounts and through distribution, continued demand for new products such as the T17 rider scrubber, gains in commercial, industrial and outdoor equipment and selling price increases. 2014 organic sales growth, excluding the unfavorable impact of foreign currency exchange of approximately 1.0%, was up approximately 10.3% with growth in all major geographical regions. S&A Expense increased 7.7%, but decreased 50 basis points as a percentage of Net Sales, from $233.0 million in 2013 to $250.9 million in 2014 primarily due to investments in direct sales, distribution and marketing to build organic sales. Operating Profit increased 15.5% and Operating Profit margin increased 50 basis points to 8.8% in 2014 from 8.3% in 2013 due to higher Net Sales and lower R&D Expense and S&A Expense, somewhat offset by lower Gross Margin, as a percentage of Net Sales.

Tennant continues to invest in innovative product development with 4.0% of 2015 Net Sales spent on R&D. During 2015, we continued to invest in developing innovative new products for our traditional core business, as well as in our Orbio Technologies Group, which is focused on advancing a suite of sustainable cleaning technologies. New products and technologies are a key driver of sales growth. 36 new products and product variants were launched in 2015, including new ergonomic backpack vacuum models, our next generation ec-H2O NanoClean™ technology, the T300 family of walk-behind commercial floor scrubbers and our IRIS^® Asset Manager onboard technologies to remotely track machine productivity and maintenance needs.

We ended 2015 with a Debt-to-Capital ratio of 8.9%, $51.3 million in Cash and Cash Equivalents compared to $93.0 million at the end of 2014, and Shareholders’ Equity of $252.2 million. During 2015, we generated operating cash flows of $45.2 million, paid a total of $14.5 million in cash dividends and repurchased $46.0 million of common stock. Total debt was $24.7 million as of December 31, 2015, compared to $28.1 million at the end of 2014.

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Historical Results

The following table compares the historical results of operations for the years ended December 31, 2015, 2014 and 2013 in dollars and as a percentage of Net Sales (in thousands, except per share amounts and percentages):



	2015			%		2014			%		2013			%
Net Sales	$	811,799		100.0		$	821,983		100.0		$	752,011		100.0
Cost of Sales	462,739			57.0		469,556			57.1		426,103			56.7
Gross Profit	349,060			43.0		352,427			42.9		325,908			43.3
Operating Expense:
Research and Development Expense	32,415			4.0		29,432			3.6		30,529			4.1
Selling and Administrative Expense	252,270			31.1		250,898			30.5		232,976			31.0
Impairment of Long-Lived Assets	11,199			1.4		—			—		—			—
Total Operating Expenses	295,884			36.4		280,330			34.1		263,505			35.0
Profit from Operations	53,176			6.6		72,097			8.8		62,403			8.3
Other Income (Expense):
Interest Income	172			—		302			—		390			0.1
Interest Expense	(1,313		)	(0.2	)	(1,722		)	(0.2	)	(1,761		)	(0.2	)
Net Foreign Currency Transaction Losses	(954		)	(0.1	)	(690		)	(0.1	)	(671		)	(0.1	)
Other Expense, Net	(657		)	(0.1	)	(449		)	(0.1	)	(483		)	(0.1	)
Total Other Expense, Net	(2,752		)	(0.3	)	(2,559		)	(0.3	)	(2,525		)	(0.3	)
Profit Before Income Taxes	50,424			6.2		69,538			8.5		59,878			8.0
Income Tax Expense	18,336			2.3		18,887			2.3		19,647			2.6
Net Earnings	$	32,088		4.0		$	50,651		6.2		$	40,231		5.3
Net Earnings per Diluted Share	$	1.74				$	2.70				$	2.14

Consolidated Financial Results

Net Earnings for 2015 were $32.1 million, or $1.74 per diluted share, compared to $50.7 million, or $2.70 per diluted share for 2014. Net Earnings were impacted by:

•

A decrease in Net Sales of 1.2% primarily due to an unfavorable impact from foreign currency exchange of approximately 5.5%, lower sales of outdoor equipment and sales declines to our Master Distributor for Russia. These impacts were partially offset by robust sales to strategic accounts in North America and global sales of new products, such as the T12 and T17 rider scrubbers and the T300 walk behind scrubber, and also selling list price increases.


•	A 10 basis point increase in Gross Profit margin due to improved operating efficiencies in both the direct service organization and manufacturing operations, somewhat offset by foreign currency headwinds that unfavorably impacted gross margin by approximately 80 basis points.


•	An increase in S&A Expense as a percentage of Net Sales of 60 basis points primarily due to our 2015 third and fourth quarter restructuring charges, described in Note 3 to the Consolidated Financial Statements. This was somewhat offset by continued cost controls and improved operating efficiencies that favorably impacted S&A Expense.


•	An unfavorable impact of 130 basis points, as a percentage of Net Sales, net of tax, for the non-cash Impairment of Long-Lived Assets.


•	An unfavorable direct foreign currency exchange impact to Net Earnings of 110 basis points, as a percentage of Net Sales.

Net Earnings for 2014 were $50.7 million, or $2.70 per diluted share, compared to $40.2 million, or $2.14 per diluted share for 2013. Net Earnings were impacted by:


•	An increase in Net Sales of 9.3%, primarily due to increased sales to strategic accounts and through distribution, continued demand for new products, gains in commercial, industrial and outdoor equipment, and selling list price increases, typically in the range of 2 percent to 4 percent in most geographies, in March 2014.


•	A 40 basis point decrease in Gross Profit margin due to strong sales to strategic accounts and through distribution that tend to have lower gross profit margins and also costs related to hiring and training additional manufacturing employees to support the higher levels of production.


•	A decrease in S&A Expense as a percentage of Net Sales of 50 basis points due to continued cost controls and improved operating efficiencies, somewhat offset by investments in direct sales, distribution and marketing to build organic sales.

Profit Before Income Taxes for 2015 was $50.4 million compared to $69.5 million for 2014 and $59.9 million in 2013.

The breakdown of Profit Before Income Taxes between U.S. and foreign operations for each year ended December 31 were as follows:



	2015			%	2014		%	2013		%
U.S. operations	$	51,189		101.5	$	52,315	75.2	$	54,702	91.4
Foreign operations	(765		)	(1.5)	17,223		24.8	5,176		8.6
Total	$	50,424		100.0	$	69,538	100.0	$	59,878	100.0

Profit Before Income Taxes from foreign operations decreased by $18.0 million in 2015 compared to 2014. The decrease was partially due to the $11.2 million non-cash Impairment of Long-Lived Assets recorded in 2015 as a result of our decision to hold the assets and liabilities of our Green Machines outdoor city cleaning line for sale. We further describe this decision in Note 6 to the Consolidated Financial Statements. This impairment affects the results of operations in our EMEA region. In addition, Profit Before Income Taxes in our EMEA subsidiaries decreased by an additional $1.9 million as a result of two worldwide restructuring actions, which are more fully described in Note 3 to the Consolidated Financial Statements. These restructuring actions also unfavorably impacted Profit Before Income Taxes in our APAC subsidiaries by an additional $0.7 million. Furthermore, Profit Before Income Taxes in our EMEA subsidiaries decreased by an additional $2.9 million in 2015 compared to 2014 primarily due to a 15.6% decrease in Net Sales as a result of foreign exchange devaluations and the difficult economic conditions in the European region. Profit Before Income Taxes in our Latin America subsidiaries decreased by approximately $2.8 million in 2015 primarily due to a 26% decrease in net sales due to the devaluation of the Brazilian real and difficult economic conditions in the Latin American countries. Profit Before Income Taxes in our APAC subsidiaries increased by $1.3 million primarily due to lower intercompany interest expense as a result of new intercompany financing agreements and lower intercompany allocations as a result of a legal entity reorganization in 2014.

Profit Before Income Taxes from foreign operations increased by $12.0 million in 2014 compared to 2013. The increase was partially due to a $3.0 million restructuring charge recorded in 2013 as a result of two restructuring actions in our EMEA region, which were not present in 2014. Additionally, Profit Before Income Taxes in our EMEA subsidiaries increased by an additional $5.6 million in 2014 compared to 2013, primarily due to a 5.4% increase in net sales, strong cost controls over S&A Expense and improved manufacturing efficiencies. Profit Before Income Taxes in our APAC region increased by approximately $3.1 million in 2014, primarily due to an 8.8% increase in Net Sales, strong cost controls over S&A Expense and lower foreign exchange losses.

Other Comprehensive (Loss) Income Changes

Foreign Currency Translation Adjustments – For the years ended December 31, 2015, 2014 and 2013, we recorded pre-tax foreign currency translation losses of $12.5 million, $10.1 million and $2.2 million, respectively, in Other Comprehensive (Loss) Income. These adjustments resulted from translating the financial statements of our non-U.S. dollar functional currency subsidiaries into our reporting currency, which is the U.S. dollar, as well as other adjustments permitted by ASC 830 – Foreign Currency Matters.

During 2015, we recorded translation losses of $6.5 million relating to the Brazilian real, $5.3 million for the Euro, $0.6 million for the Chinese renminbi and $0.1 million for various other currencies. These adjustments were caused by the appreciation of the U.S. dollar against these currencies of between 5% and 32% in 2015.

During 2014, we recorded translation losses of $7.0 million relating to the Euro, $1.7 million for the Brazilian real, $1.1 million for the British pound and $0.3 million for various other currencies. These adjustments were caused by the appreciation of the U.S. dollar against these currencies of between 5% and 15% in 2014.

During 2013, we recorded translation losses of $3.5 million relating to the Brazilian real, offset partially by translation gains of $0.7 million for the British pound, and translation gains for various other currencies of $0.6 million. The Brazilian real weakened by approximately 13% at the end of 2013, while the British pound strengthened slightly.

Pension and Retiree Medical Benefits – For the years ended December 31, 2015 and 2014, we recorded pre-tax pension and postretirement liability adjustments consisting of gains of $4.1 million and losses of $5.4 million, respectively, in Other Comprehensive (Loss) Income as further disclosed in Note 13 to the Company's Consolidated Financial Statements. For the year ended December 31, 2013, we recorded a gain of $12.3 million in Other Comprehensive (Loss) Income for these items.

The summarized changes in Accumulated Other Comprehensive Loss for the three years ended December 31 were as follows:



	Pension and Postretirement Medical Benefits
	2015			2014			2013
Net actuarial (gain) loss	$	(2,940	)	$	5,931		$	(10,351	)
Amortization of prior service (cost) credit	(67		)	(37		)	30
Amortization of net actuarial loss	(1,114		)	(512		)	(1,961		)
Total recognized in other comprehensive (income) loss	$	(4,121	)	$	5,382		$	(12,282	)

The $4.1 million gain in 2015 was primarily due to a $2.9 million net actuarial gain relating to a decrease of $2.4 million in the projected benefit obligation resulting from a 32 basis point increase in the U.S. Pension discount rate, a 21 basis point increase in the non-U.S. discount rate and a 31 basis point increase in the postretirement discount rate. There was an approximate $3.3 million decrease in the pension benefit obligation in 2015 relating to demographic experience and other changes, as well as a $3.0 million increase due to a lower than expected actual return of assets. The net actuarial gain was supplemented by a $1.2 million credit relating to amortization of accumulated losses and prior service costs.

The $5.4 million loss in 2014 was primarily due to a $5.9 million net actuarial loss relating to an increase of $2.1 million in the projected benefit obligation from adopting a new mortality table in 2014, as well as an increase of $6.6 million in the projected benefit obligation resulting from an 87 basis point decease in the U.S. pension discount rate, a 95 basis point decrease in the non-U.S. discount rate and a 71 basis point decrease in the postretirement discount rate. There was an approximate $0.8 million decrease in the pension benefit obligation in 2014 relating to demographic experience and other changes, as well as a $2.0 million decrease due to higher than expected actual return on assets. The net actuarial loss was partially offset by a $0.5 million credit relating to amortization of accumulated actuarial losses and prior service costs.

The $12.3 million gain in 2013 was primarily due to a $10.4 million net actuarial gain relating to a $5.6 million decrease in the projected benefit obligation resulting from an 84 basis point increase in the U.S. pension discount rate, and an 83 basis point increase in the postretirement discount rate. There was an approximate $0.3 million increase in the pension benefit obligation in 2013 relating to demographic experience and other changes, as well as a $5.1 million decrease due to a higher than expected actual return on assets. The net actuarial gain was supplemented by a $1.9 million credit relating to amortization of accumulated actuarial losses and prior service costs.

Net Sales

In 2015, consolidated Net Sales were $811.8 million, a decrease of 1.2% as compared to 2014. Consolidated Net Sales were $822.0 million in 2014, an increase of 9.3% as compared to 2013.

The components of the consolidated Net Sales change for 2015 as compared to 2014, and 2014 as compared to 2013, were as follows:



Growth Elements	2015 v. 2014	2014 v. 2013
Organic Growth:
Volume	3.3%	9.3%
Price	1.0%	1.0%
Organic Growth	4.3%	10.3%
Foreign Currency	(5.5%)	(1.0%)
Total	(1.2%)	9.3%

The 1.2% decrease in consolidated Net Sales for 2015 as compared to 2014 was primarily due to an unfavorable impact from foreign currency exchange of approximately 5.5%, lower sales of outdoor equipment and sales declines to our Master Distributor in Russia. These impacts were partially offset by robust sales to strategic accounts in North America and global sales of new products, such as the T12 and T17 rider scrubbers and the T300 walk behind scrubber. Sales of new products introduced within the past three years totaled 26% of equipment revenue in 2015. The 1 percent price increase was the result of selling list price increases, typically in the range of 2 percent to 4 percent in most geographies, with an effective date of February 1, 2015.

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The 9.3% increase in consolidated Net Sales for 2014 as compared to 2013 was primarily due to sales volume increases to strategic accounts and through distribution, continued demand for new products such as the T17 rider scrubber and gains in commercial, industrial and outdoor equipment.

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



	2015		%		2014		%	2013
Americas	$	591,405	3.9		$	569,004	10.6	$	514,544
Europe, Middle East and Africa	139,834		(15.6	)	165,686		5.4	157,208
Asia Pacific	80,560		(7.7	)	87,293		8.8	80,259
Total	$	811,799	(1.2	)	$	821,983	9.3	$	752,011

Americas – In 2015, Americas Net Sales increased 3.9% to $591.4 million as compared with $569.0 million in 2014. The primary driver of the increase in Net Sales was attributable to robust sales to strategic accounts in North America and sales of newly introduced products, including the T12 and T17 rider scrubbers and the T300 walk behind scrubber. The direct impact of foreign currency translation exchange effects within the Americas unfavorably impacted Net Sales by approximately 2.5%. As a result, organic sales increased approximately 6.4% in 2015.

In 2014, Americas Net Sales increased 10.6% to $569.0 million as compared with $514.5 million in 2013. The primary driver of the increase in Net Sales was attributable to higher sales to strategic accounts, including sales of scrubbers in North America, scrubbers equipped with ec-H2O technology and walk-behind burnishers. Unfavorable direct foreign currency translation exchange effects decreased Net Sales by approximately 1.0%.

Europe, Middle East and Africa – Europe, Middle East and Africa (“EMEA”) Net Sales in 2015 decreased 15.6% to $139.8 million as compared to 2014 Net Sales of $165.7 million. Organic sales decreased approximately 2.1% in 2015, which reflected a fragile European economy resulting in lower sales of outdoor equipment and sales declines to our Master Distributor for Russia, somewhat offset by higher sales to strategic accounts and through distribution in Western Europe. Unfavorable direct foreign currency exchange effects decreased EMEA Net Sales by approximately 13.5% in 2015.

EMEA Net Sales in 2014 increased 5.4% to $165.7 million as compared to 2013 Net Sales of $157.2 million. An organic sales increase of approximately 4.4% was primarily due to higher sales of outdoor equipment, including strong sales of 500ze lithium-ion battery-powered sweepers. Favorable direct foreign currency exchange effects increased EMEA Net Sales by approximately 1.0% in 2014.

Asia Pacific – Asia Pacific Net Sales in 2015 decreased 7.7% to $80.6 million as compared to 2014 Net Sales of $87.3 million. Organic sales increased approximately 1.3% in 2015 due primarily to organic sales growth in China and Australia, more than offsetting the slower economy in other Asian countries. Unfavorable direct foreign currency exchange effects decreased Net Sales by approximately 9.0% in 2015.

Asia Pacific Net Sales in 2014 increased 8.8% to $87.3 million as compared to 2013 Net Sales of $80.3 million. An organic sales increase of approximately 12.8% was primarily due to strong sales performance in China, Japan, Southeast Asia and Korea. Unfavorable direct foreign currency exchange effects decreased Net Sales by approximately 4.0% in 2014.

Gross Profit

Gross Profit margin was 43.0% in 2015, an increase of 10 basis points as compared to 2014. Gross Profit margin in 2015 was favorably impacted by operating efficiencies in both the direct service organization and manufacturing operations. This was somewhat offset by foreign currency headwinds that unfavorably impacted gross margin by approximately 80 basis points.

Gross Profit margin was 42.9% in 2014, a decrease of 40 basis points as compared to 2013. Gross Profit margin in 2014 was unfavorably impacted by stronger sales to sales channels that tend to have lower gross margins and also costs related to hiring and training additional manufacturing employees and temporary workers to support the higher levels of production, including the continued ramp up to meet the growing demand for new products.

Operating Expenses

Research and Development Expense – R&D Expense increased $3.0 million, or 10.1%, in 2015 as compared to 2014. As a percentage of Net Sales, 2015 R&D Expense increased 40 basis points to 4.0% in 2015 from 3.6% in the prior year primarily due to an increase in the number of R&D employees and the timing of new product development projects. We continued to invest in developing innovative new products and technologies.

R&D Expense decreased $1.1 million, or 3.6%, in 2014 as compared to 2013. As a percentage of Net Sales, 2014 R&D Expense decreased 50 basis points to 3.6% in 2014 from 4.1% in the prior year primarily due to the timing of new product development projects. We continued to invest in developing innovative new products for our traditional core business, as well as our Orbio business.

Selling and Administrative Expense – S&A Expense increased by $1.4 million, or 0.5%, in 2015 compared to 2014. As a percentage of Net Sales, 2015 S&A Expense increased 60 basis points to 31.1% from 30.5% in 2014 due to continued investments in direct sales and marketing to build organic sales. There were also two restructuring charges totaling $3.7 million, or 50 basis points as a percentage of Net Sales, to reduce our infrastructure costs. These were somewhat offset by strong cost controls and improved operating efficiencies that favorably impacted S&A Expense.

S&A Expense increased by $17.9 million, or 7.7%, in 2014 compared to 2013. As a percentage of Net Sales, 2014 S&A Expense decreased 50 basis points to 30.5% from 31.0% in 2013 due to continued cost controls and improved operating efficiencies, somewhat offset by investments in direct sales, distribution and marketing to build organic sales that unfavorably impacted S&A Expense.

Other Income (Expense)

Interest Income – Interest Income was $0.2 million in 2015, a decrease of $0.1 million from 2014. The decrease between 2015 and 2014 was due to lower levels of cash deposits.

Interest Income was $0.3 million in 2014, a decrease of $0.1 million from 2013. The decrease between 2014 and 2013 was due to decreases in interest rates on cash invested.

Interest Expense – Interest Expense was $1.3 million in 2015 as compared to $1.7 million in 2014. This decrease was primarily due to a lower level of debt.

Interest Expense was $1.7 million in 2014 as compared to $1.8 million in 2013. This decrease was primarily due to lower interest rates on long-term adjustable rate borrowings.

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Net Foreign Currency Transaction Losses – Net Foreign Currency Transaction Losses were $1.0 million in 2015 as compared to $0.7 million in 2014. The unfavorable change in the impact from foreign currency transactions in 2015 was due to fluctuations in foreign currency rates and settlements of transactional hedging activity in the normal course of business.

Net Foreign Currency Transaction Losses were $0.7 million in 2014 and 2013.

Income Taxes

The overall effective income tax rate was 36.4%, 27.2% and 32.8% in 2015, 2014 and 2013, respectively.

The tax expense for 2015 included a $0.4 million tax benefit associated with an $11.2 million Impairment of Long-Lived Assets and a $0.6 million tax benefit associated with restructuring charges of $3.7 million. We are not able to recognize a tax benefit on the impairment charge until the assets are sold due to a tax valuation allowance. Excluding these items, the 2015 overall effective tax rate would have been 29.6%.

The increase in the 2015 overall effective tax rate as compared to the prior year, excluding the effect of the 2015 one-time charges, was primarily related to the mix in our full year taxable earnings by country.

There were no special items that affected the tax rate in 2014.

The tax expense for 2013 included a $0.1 million tax benefit associated with restructuring charges of $3.0 million. The tax expense also included a first quarter discrete tax benefit of $0.6 million for the enactment of the Federal R&D credit retroactively impacting the tax year ended December 31, 2012. Excluding these special items, the 2013 overall tax rate would have been 32.3%.

We do not have any plans to repatriate the undistributed earnings of non-U.S. subsidiaries. Any repatriation from foreign subsidiaries that would result in incremental U.S. taxation is not being considered. It is management's belief that reinvesting these earnings outside the U.S. is the most efficient use of capital.

Liquidity and Capital Resources

Liquidity – Cash and Cash Equivalents totaled $51.3 million at December 31, 2015, as compared to $93.0 million as of December 31, 2014. Cash and Cash Equivalents held by our foreign subsidiaries totaled $14.9 million as of December 31, 2015, as compared to $15.8 million as of December 31, 2014. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 2.2 as of December 31, 2015 and was 2.4 as of December 31, 2014, and our working capital was $160.4 million and $201.5 million, respectively.

Our Debt-to-Capital ratio was 8.9% as of December 31, 2015, compared with 9.1% as of December 31, 2014. Our capital structure was comprised of $24.7 million of Debt and $252.2 million of Shareholders’ Equity as of December 31, 2015.

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



	2015			2014			2013
Operating Activities	$	45,232		$	59,362		$	59,814
Investing Activities:
Purchases of Property, Plant and Equipment, Net of Disposals	(24,444		)	(19,292		)	(14,655		)
Acquisitions of Businesses, Net of Cash Acquired	—			—			(750		)
Proceeds from Sale of Business	1,185			1,416			4,261
(Increase) Decrease in Restricted Cash	(322		)	6			(253		)
Financing Activities	(61,405		)	(28,038		)	(21,495		)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	(1,908		)	(1,476		)	122
Net (Decrease) Increase in Cash and Cash Equivalents	$	(41,662	)	$	11,978		$	27,044

Operating Activities – Cash provided by operating activities was $45.2 million in 2015, $59.4 million in 2014 and $59.8 million in 2013. In 2015, cash provided by operating activities was driven primarily by cash inflows resulting from $32.1 million of Net Earnings, which includes a non-cash pre-tax impairment charge of $11.2 million, and a decrease in Receivables, somewhat offset by a decrease in Accounts Payable and an increase in Inventories. The decrease in Receivables was the continued proactive management of our receivables by enforcing tighter credit limits and continuing to successfully collect past due balances.The increase in Inventories was in support of the launches of many new products. Cash provided by operating activities was $14.1 million lower in 2015 as compared to 2014 primarily due to lower Net Earnings and a year over year increase in Inventories to support the launches of many new products.

In 2014, cash provided by operating activities was driven by $50.7 million of Net Earnings and increases in Accounts Payable somewhat offset by increases in Inventories and Receivables. The increase in Inventories was in support of higher sales levels and the launches of many new products. The increase in Receivables was due to higher sales levels, the variety of terms offered and mix of business. Cash provided by operating activities was $0.5 million lower in 2014 as compared to 2013 primarily due to increases year over year in working capital to support the growth in sales.

For 2015, we used operating profit and operating profit margin 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 first-in, first-out (“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):



	2015	2014	2013
DSO	61	62	61
DIOH	89	84	81

DSO decreased 1 day in 2015 as compared to 2014 primarily due to the continued proactive management of our receivables by enforcing tighter credit limits and continuing to successfully collect past due balances having a larger favorable impact than the unfavorable trend in the variety of terms offered and mix of business.

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DIOH increased 5 days in 2015 as compared to 2014 primarily due to increased levels of inventory in support of higher sales levels and the launches of many new products somewhat offset by progress from inventory reduction initiatives.

Investing Activities – Net cash used for investing activities was $23.6 million in 2015, $17.9 million in 2014 and $11.4 million in 2013. Net capital expenditures were $24.4 million during 2015 as compared to $19.3 million in 2014 and $14.7 million in 2013. Our 2015 capital expenditures included investments in information technology process improvement projects, tooling related to new product development, and manufacturing equipment. Proceeds from Sale of Business provided $1.2 million in 2015, $1.4 million in 2014 and $4.3 million in 2013.

Capital expenditures in 2014 and 2013 included investments in tooling related to new product development, and manufacturing and information technology process improvement projects.

Financing Activities – Net cash used for financing activities was $61.4 million in 2015, $28.0 million in 2014 and $21.5 million in 2013. In 2015, the purchases of our common stock per our authorized repurchase program used $46.0 million, dividend payments used $14.5 million and the payment of Long-Term Debt used $3.4 million, partially offset by proceeds from the issuance of Common Stock of $1.7 million and the excess tax benefit on stock plans of $0.9 million. In 2014, payments of dividends used $14.5 million, payments of Long-Term Debt used $2.0 million and payments of Short-Term Debt used $1.5 million. In 2013, payments of dividends used $13.2 million and payments of Long-Term Debt used $1.1 million, partially offset by Short-Term Borrowings of $1.5 million. Our annual cash dividend payout increased for the 44^th consecutive year to $0.80 per share in 2015, an increase of $0.02 per share over 2014.

Proceeds from the issuance of Common Stock generated $1.7 million in 2015, $2.3 million in 2014 and $8.3 million in 2013.

On June 22, 2015, the Board of Directors authorized the repurchase of an additional 1,000,000 shares of our common stock. At December 31, 2015, there were 641,523 remaining shares authorized for repurchase.

There were 764,046 shares repurchased in 2015 in the open market, 225,034 shares repurchased in 2014 and 434,118 shares repurchased during 2013, at average repurchase prices of $60.20 during 2015, $62.64 during 2014 and $51.04 during 2013. Our Amended and Restated Credit Agreement with JPMorgan Chase Bank limits the payment of dividends and repurchases of stock to amounts ranging from $50.0 million to $75.0 million per fiscal year based on our leverage ratio after giving effect to such payments for the life of the agreement.

Indebtedness – As of December 31, 2015, we had committed lines of credit totaling approximately $125.0 million and uncommitted lines of credit totaling approximately $87.2 million. There were $10.0 million in outstanding borrowings under our JPMorgan facility (described below) and $14.6 million in outstanding borrowings under our Prudential facility (described below) as of December 31, 2015. In addition, we had stand alone letters of credit and bank guarantees outstanding in the amount of $3.2 million. Commitment fees on unused lines of credit for the year ended December 31, 2015 were $0.3 million.

Our most restrictive covenants are part of our 2015 Amended and Restated Credit Agreement (as defined below), which are the same covenants in our Shelf Agreement (as defined below) with Prudential (as defined below), and require us to maintain an indebtedness to EBITDA ratio of not greater than 3.25 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, 2015, our indebtedness to EBITDA ratio was 0.37 to 1 and our EBITDA to interest expense ratio was 64.39 to 1.

Credit Facilities

JPMorgan Chase Bank, National Association

On June 30, 2015, we entered into an Amended and Restated Credit Agreement (the "Amended and Restated Credit Agreement") that amended and restated the Credit Agreement dated May 5, 2011 between us and JP Morgan Chase Bank, N.A. ("JPMorgan"), as administrative agent and collateral agent, U.S. Bank National Association, as syndication agent, Wells Fargo Bank, National Association, and RBS Citizens, N.A., as co-documentation agents, and the Lenders (including JPMorgan) from time to time party thereto, as amended by Amendment No. 1 dated April 25, 2013 (the “Credit Agreement”). The Amended and Restated Credit Agreement provides us and certain of our foreign subsidiaries access to a senior unsecured credit facility until June 30, 2020, in the amount of $125.0 million, with an option to expand by up to $62.5 million to a total of $187.5 million. Borrowings may be denominated in U.S. dollars or certain other currencies. The Amended and Restated Credit Agreement contains a $100.0 million sublimit on borrowings by foreign subsidiaries.

The Amended and Restated Credit Agreement principally provides the following changes to the Credit Agreement:


•	changed the fees for committed funds from an annual rate ranging from 0.20% to 0.35%, depending on our leverage ratio, under the Credit Agreement to an annual rate ranging from 0.175% to 0.300%, depending on our leverage ratio, under the Amended and Restated Credit Agreement;


•	removed RBS Citizens, N.A. as a co-documentation agent;


•	changed the rate at which Eurocurrency borrowings bear interest from a rate per annum equal to adjusted LIBOR plus an additional spread of 1.30% to 1.90%, depending on our leverage ratio, under the Credit Agreement to a rate per annum equal to adjusted LIBOR plus an additional spread of 1.075% to 1.700%, depending on our leverage ratio, under the Amended and Restated Credit Agreement;

•

under the Credit Agreement, Alternate Base Rate (“ABR”) borrowings bore interest at a rate per annum equal to the greatest 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, an additional spread of 0.30% to 0.90%, depending on our leverage ratio. The ABR borrowings bear interest under the Amended and Restated Credit Agreement at a rate per annum equal to the greatest 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, an additional spread of 0.075% to 0.700%, depending on our leverage ratio.

The Amended and Restated Credit Agreement gives the Lenders a pledge of 65% of the stock of certain first tier foreign subsidiaries. The obligations under the Amended and Restated Credit Agreement are also guaranteed by certain of our first tier domestic subsidiaries.

The Amended and Restated Credit Agreement contains customary representations, warranties and covenants, including but not limited to covenants restricting our ability to incur indebtedness and liens and merge or consolidate with another entity. It also incorporates new or recently revised financial regulations and other compliance matters. Further, the Amended and Restated Credit Agreement contains the following covenants:


•	a covenant requiring us to maintain an indebtedness to EBITDA ratio as of the end of each quarter of not greater than 3.25 to 1. Under the Credit Agreement, the required indebtedness to EBITDA ratio as of the end of each quarter was not greater than 3.00 to 1;


•	a covenant requiring us to maintain an EBITDA to interest expense ratio as of the end of each quarter of no less than 3.50 to 1;

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•	a covenant restricting us from paying dividends or repurchasing stock if, after giving effect to such payments, our leverage ratio is greater than 2.00 to 1, in such case limiting such payments to an amount ranging from $50.0 million to $75.0 million during any fiscal year based on our leverage ratio after giving effect to such payments;


•	a covenant restricting us from paying any dividends or repurchasing stock, if, after giving effect to such payments, our leverage ratio is greater than 3.25 to 1; and


•	a covenant restricting our ability to make acquisitions, if, after giving pro-forma effect to such acquisitions, our leverage ratio is greater than 3.00 to 1, in such case limiting acquisitions to $25.0 million. Under the Credit Agreement, our leverage ratio restriction under this covenant was 2.75 to 1.

A copy of the full terms and conditions of the Amended and Restated Credit Agreement are incorporated by reference in Item 15 to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 7, 2015.

As of December 31, 2015, we were in compliance with all covenants under this Amended and Restated Credit Agreement. There were $10.0 million in outstanding borrowings under this facility at December 31, 2015, with a weighted average interest rate of 1.29%.

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.

A copy of the full terms and conditions of the Shelf Agreement are incorporated by reference in Item 15 to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 30, 2009.

On May 5, 2011, we entered into Amendment No. 1 to our Private Shelf Agreement (the “Amendment”).

The Amendment principally provided the following changes to the Shelf Agreement:


•	elimination of the security interest in our personal property and subsidiaries; and

•

an amendment to our restriction regarding the payment of dividends or repurchase of stock to restrict us from paying dividends or repurchasing stock if, after giving effect to such payments, our leverage ratio is greater than 2.00 to 1, in such case limiting such payments to an amount ranging from $50.0 million to $75.0 million during any fiscal year based on our leverage ratio after giving effect to such payments.

A copy of the full terms and conditions of the Amendment are incorporated by reference in Item 15 to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30, 2011.

On July 24, 2012, we entered into Amendment No. 2 to our Private Shelf Agreement (“Amendment No. 2”), which amended the Shelf Agreement. The principal change effected by Amendment No. 2 was an extension of the Issuance Period for Shelf Notes under the Shelf Agreement.

A copy of the full terms and conditions of Amendment No. 2 are incorporated by reference in Item 15 to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 26, 2012.

On June 30, 2015, we entered into Amendment No. 3 to our Private Shelf Agreement ("Amendment No. 3"), which amends the Shelf Agreement by and among the Company, Prudential and Prudential affiliates from time to time party thereto, as amended by Amendment No. 1 and Amendment No. 2.

Amendment No. 3 principally provided the following changes to the Shelf Agreement:


•	extended the Issuance Period to June 30, 2018 from July 24, 2015;


•	changed the covenant regarding our indebtedness to EBITDA ratio at the end of each quarter to not greater than 3.25 to 1. The previous covenant required a ratio of not greater than 3.00 to 1;


•	added the covenant restricting us from paying any dividends or repurchasing stock, if, after giving such effect to such payments, our leverage ratio is greater than 3.25 to 1; and


•	changed the covenant restricting us from making acquisitions, if, after giving pro-forma effect to such acquisitions, our leverage ratio is greater than 3.00 to 1, in such case limiting acquisitions to $25.0 million. The previous covenant limiting our ability to make acquisitions under Amendment No. 1 was 2.75 to 1.

A copy of the full terms and conditions of Amendment No. 3 are incorporated by reference in Item 15 to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on July 7, 2015.

As of December 31, 2015, there were $14.6 million in outstanding borrowings under this facility, consisting of the $6.0 million Series A notes issued in March 2011 with a fixed interest rate of 4.00% and a term of seven years, with remaining serial maturities from 2016 to 2018, and the $8.6 million Series B notes issued in June 2011 with a fixed interest rate of 4.10% and a term of 10 years, with remaining serial maturities from 2016 to 2021. The first payment of $2.0 million on Series A notes was made during the first quarter of 2014. The second payment of $2.0 million on Series A notes was made during the first quarter of 2015. The first payment of $1.4 million on Series B notes was made during the second quarter of 2015. We were in compliance with all covenants under this Shelf Agreement as of December 31, 2015.

The Royal Bank of Scotland Citizens, N.A.

On September 14, 2010, we entered into an overdraft facility with The Royal Bank of Scotland Citizens, N.A. in the amount of €2.0 million or approximately $2.2 million. There was no balance outstanding on this facility as of December 31, 2015.

HSBC Bank (China) Company Limited, Shanghai Branch

On June 20, 2012, we entered into a banking facility with the HSBC Bank (China) Company Limited, Shanghai Branch in the amount of $5.0 million. As of December 31, 2015, there were no outstanding borrowings on this facility.

Collateralized Borrowings

Collateralized borrowings represent deferred sales proceeds on certain leasing transactions with third-party leasing companies. These transactions are accounted for as borrowings, with the related assets capitalized as property, plant and equipment and depreciated straight-line over the lease term.

Capital Lease Obligations

Capital lease obligations outstanding are primarily related to sale-leaseback transactions with third-party leasing companies whereby we sell our manufactured equipment to the leasing company and lease it back. The equipment covered by these leases is rented to our customers over the lease term.

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Contractual Obligations – Our contractual obligations as of December 31, 2015, 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⁾	$	24,571	$	3,429	$	6,857	$	12,857	$	1,428
Interest payments on long-term debt⁽¹⁾	2,065		631		847		493		94
Capital leases	82		31		51		—		—
Interest payments on capital leases	16		6		10		—		—
Retirement benefit plans⁽²⁾	1,419		1,419		—		—		—
Deferred compensation arrangements⁽³⁾	7,127		1,003		1,783		1,284		3,057
Operating leases⁽⁴⁾	23,927		7,707		9,277		4,270		2,673
Purchase obligations⁽⁵⁾	59,446		59,446		—		—		—
Other⁽⁶⁾	9,439		9,439		—		—		—
Total contractual obligations	$	128,092	$	83,111	$	18,825	$	18,904	$	7,252

(1)Long-term debt represents borrowings through our Amended and Restated Credit Agreement with JPMorgan and our Shelf Agreement with Prudential. Our Amended and Restated Credit Agreement with JPMorgan does not have specified repayment terms; therefore, repayment is due upon expiration of the agreement on June 30, 2020. Interest payments on our Amended and Restated Credit Agreement were calculated using the December 31, 2015 LIBOR rate based on the assumption that the principal would be repaid in full upon the expiration of the agreement. Our borrowings under our Shelf Agreement with Prudential have 7 and 10 year terms, with remaining serial maturities from 2016 to 2021 with fixed interest rates of 4.00% and 4.10%, respectively.

(2)Our retirement benefit plans, as described in Note 13 to the Consolidated Financial Statements, require us to make contributions to the plans from time to time. Our plan obligations totaled $5.9 million as of December 31, 2015. 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 2016 expected contribution in the contractual obligations table.

(3)The unfunded deferred compensation arrangements covering certain current and retired management employees totaled $7.1 million as of December 31, 2015. 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 15 to the Consolidated Financial Statements.

(5)Purchase obligations include all known open purchase orders, contractual purchase commitments and contractual obligations as of December 31, 2015.

(6)Other obligations include residual value guarantees as discussed in Note 15 to the Consolidated Financial Statements.

Total contractual obligations exclude our gross unrecognized tax benefits of $2.3 million and accrued interest and penalties of $0.5 million as of December 31, 2015. 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 16 to the Consolidated Financial Statements.

Newly Issued Accounting Guidance

Revenues from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU will replace all existing revenue recognition standards and significantly expand the disclosure requirements for revenue arrangements. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. This guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers.

In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of the new revenue recognition standard by one year from the original effective date specified in ASU No. 2014-09. The guidance now permits us to apply the new revenue recognition standard to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which is our fiscal 2018. The provisions of the ASU permit companies to adopt the new revenue standard early, but not before the original public organization effective date, which is for annual periods beginning after December 15, 2016, which is our fiscal 2017.

The new standard may be adopted retrospectively for all periods presented, or adopted using a modified retrospective approach. Under the retrospective approach, the fiscal 2017 and 2016 financial statements would be adjusted to reflect the effects of applying the new standard on those periods. Under the modified retrospective approach, the new standard would only be applied for the period beginning January 1, 2018 to new contracts and those contracts that are not yet complete at January 1, 2018, with a cumulative catch-up adjustment recorded to beginning retained earnings for existing contracts that still require performance. Management is currently evaluating the methods of adoption allowed by the new standard and the effect the standard is expected to have on our financial statements and related disclosures.

Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The provisions of the ASU are effective for our fiscal year beginning January 1, 2016. We do not anticipate the adoption of this guidance to have a material impact on our financial statements and related disclosures.

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In August 2015, the FASB issued ASU No. 2015-15, Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, which clarifies the treatment of debt issuance costs from line-of-credit arrangements after the adoption of ASU 2015-03. In particular, ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We do not anticipate the adoption of this guidance to have a material impact on our financial statements and related disclosures.

Customer's Accounting for Fees Paid in a Cloud Computing Arrangement

In April 2015, the FASB issued ASU No. 2015-05, Intangibles –Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This amended guidance requires customers to determine whether or not an arrangement includes a software license element. If the arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not contain a software license, the customer should account for the arrangement as a service contract. The provisions of the ASU are effective for our fiscal year beginning January 1, 2016. An entity can elect to adopt the amendments either prospectively to all arrangements entered into or materially modified after the effective date; or retrospectively. We do not anticipate the adoption of this guidance will have a material impact on our financial statements and related disclosures.

Simplifying the Measurement of Inventory

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This amended guidance changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The provisions of the ASU are effective for our fiscal year beginning January 1, 2017. We are currently evaluating the impact of this amended guidance on our consolidated financial statements.

Balance Sheet Classification of Deferred Taxes

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This guidance simplifies the presentation of deferred income taxes by requiring an entity to classify deferred tax liabilities and assets as noncurrent in the classified statement of financial position. The amendments in this update apply to all entities that present a classified statement of financial position and does not affect the current requirement that deferred tax liabilities and assets be offset and presented as a single amount. The amendments in this Update are effective for our annual period beginning January 1, 2017, and interim periods within those annual periods.

However, earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. Thus, we have decided to early adopt ASU No. 2015-17 during the fourth quarter of 2015 and classify any deferred tax liabilities and assets as noncurrent in our Consolidated Balance Sheets. Please refer to Note 2 to the Consolidated Financial Statements for more information on the adoption of this ASU, including the method of transition and the overall impact on our financial position.

No other new accounting pronouncements issued during 2015 but not yet effective have had, or are expected to have, a material impact on our results of operations or financial position.

Critical Accounting Policies and Estimates

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

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 collectability 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 0.2% in 2015, 0.1% in 2014 and 0.2% in 2013. As of December 31, 2015, we had $3.6 million reserved against Accounts Receivable for doubtful accounts and sales returns.

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, 2015, we had $3.5 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 analyze 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.

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We performed an analysis of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative goodwill impairment test. The first step of the two-step model 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 analysis as of year end and use our judgment to develop assumptions for the discounted cash flow model that we use, if necessary. 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. Each of our reporting units were analyzed for impairment as of December 31, 2015 and based upon our analysis, the estimated fair values of our reporting units substantially exceeded their carrying amounts. We had Goodwill of $16.8 million as of December 31, 2015.

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 1.4% in 2015, 1.3% in 2014 and 1.4% in 2013. As of December 31, 2015, we had $10.1 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 Earnings.

Tax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation expense on property, plant and equipment. These temporary differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years but have already been recorded as an expense in our Consolidated Statements of Earnings. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, based on management’s judgment, to the extent we believe that recovery is 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, 2015, a valuation allowance of $5.9 million was recorded against foreign tax loss carryforwards, foreign tax credit 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 certain statements that are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or similar words or the negative thereof. These statements do not relate to strictly historical or current facts and provide current expectations of forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. Particular risks and uncertainties presently facing us include:


•	Geopolitical and economic uncertainty throughout the world.


•	Competition in our business.


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


•	Ability to attract, retain and develop key personnel and create effective succession planning strategies.


•	Ability to successfully upgrade, evolve and protect our information technology systems.


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


•	Ability to effectively manage organizational changes.


•	Ability to develop and commercialize new innovative products and services.


•	Unforeseen product liability claims or product quality issues.


•	Disruptions to the value chain process causing delays in delivery, customer dissatisfaction, high costs and litigation.


•	Occurrence of a significant business interruption.


•	Ability to comply with laws and regulations.

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.

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

During 2015, our raw materials and other purchased component costs were favorably impacted by commodity prices and we were able to negotiate short and long term price reductions on key commodities. We continue to focus on mitigating the risk of future raw material or other product component cost increases through supplier negotiations, ongoing optimization of our supply chain, the continuation of cost reduction actions and product pricing. The success of these efforts will depend upon our ability to leverage our commodity spend in the current global economic environment. If the commodity prices increase significantly and we are not able to offset the increases with higher selling prices, our results may be unfavorably impacted in 2016.

Foreign Currency Exchange Rate Risk – Due to the global nature of our operations, we are subject to exposures resulting from foreign currency exchange fluctuations in the normal course of business. Our primary exchange rate exposures are with the Euro, Australian and Canadian dollars, British pound, Japanese yen, Chinese renminbi 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 our operations in the United States and our international operations and transaction gains and losses. In addition to the direct financial impact, foreign currency exchange has an indirect financial impact on our results, including the effect on sales volume within local economies and the impact of pricing actions taken as a result of foreign exchange rate fluctuations.

In the normal course of business, we actively manage the exposure of our foreign currency exchange rate market risk by entering into various hedging instruments with counterparties that are highly rated financial institutions. In 2015, we expanded our risk management program to include foreign exchange cash flow hedging. We may use foreign exchange purchased options or forward contracts to hedge our foreign currency denominated forecasted revenues or forecasted sales to wholly owned foreign subsidiaries. Additionally, we hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts. We hedge these exposures to reduce the risk that our net earnings and cash flows will be adversely affected by changes in foreign exchange rates. We do not enter into any of these instruments for speculative or trading purposes to generate revenue.

These contracts are carried at fair value and have maturities between one and 15 months. The gains and losses on these contracts generally approximate changes in the value of the related assets, liabilities or forecasted transactions. Some of the derivative instruments we enter into do not meet the criteria for cash flow hedge accounting treatment; therefore, changes in fair value are recorded in Foreign Currency Transaction Losses on our Consolidated Statements of Earnings. For further information regarding our foreign currency derivatives and hedging programs, see Note 11 to the Consolidated Financial Statements.

The average contracted rate and notional amounts of the foreign currency derivative instruments outstanding at December 31, 2015, presented in U.S. dollar equivalents are as follows (dollars in thousands, except average contracted rate):



	Notional Amount		Average Contracted Rate	Maximum Term (Months)
Derivatives designated as hedging instrument:
Foreign currency option contracts:
Canadian dollar	$	11,271	1.347	15
Foreign currency forward contracts:
Canadian dollar	2,486		1.319	3
Derivatives not designated as hedging instruments:
Foreign currency forward contracts:
Australian dollar	$	5,915	1.382	12
Brazilian real	3,061		3.947	1
Canadian dollar	10,129		1.381	12
Euro	22,881		0.908	12
Japanese yen	1,870		120.336	1
Mexican peso	1,995		17.274	1

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

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

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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, 2015 and 2014, and the related consolidated statements of earnings, comprehensive income, cash flows, and shareholders’ equity for each of the years in the three-year period ended December 31, 2015. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as included in Item 15.A.2. We also have audited the Company's internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assertion of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the 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 financial statements, assessing the accounting principles used and significant estimates made by management, as well as 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, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, 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, 2015, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ KPMG LLP

Minneapolis, Minnesota

February 26, 2016

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Consolidated Statements of Earnings

TENNANT COMPANY AND SUBSIDIARIES

(In thousands, except shares and per share data)



Years ended December 31	2015			2014			2013
Net Sales	$	811,799		$	821,983		$	752,011
Cost of Sales	462,739			469,556			426,103
Gross Profit	349,060			352,427			325,908
Operating Expense:
Research and Development Expense	32,415			29,432			30,529
Selling and Administrative Expense	252,270			250,898			232,976
Impairment of Long-Lived Assets	11,199			—			—
Total Operating Expense	295,884			280,330			263,505
Profit from Operations	53,176			72,097			62,403
Other Income (Expense):
Interest Income	172			302			390
Interest Expense	(1,313		)	(1,722		)	(1,761		)
Net Foreign Currency Transaction Losses	(954		)	(690		)	(671		)
Other Expense, Net	(657		)	(449		)	(483		)
Total Other Expense, Net	(2,752		)	(2,559		)	(2,525		)
Profit Before Income Taxes	50,424			69,538			59,878
Income Tax Expense	18,336			18,887			19,647
Net Earnings	$	32,088		$	50,651		$	40,231

Net Earnings per Share:
Basic	$	1.78		$	2.78		$	2.20
Diluted	$	1.74		$	2.70		$	2.14

Weighted Average Shares Outstanding:
Basic	18,015,151			18,217,384			18,297,371
Diluted	18,493,447			18,740,858			18,833,453

Cash Dividends Declared per Common Share	$	0.80		$	0.78		$	0.72

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

TENNANT COMPANY AND SUBSIDIARIES

(In thousands)



Years ended December 31	2015			2014			2013
Net Earnings	$	32,088		$	50,651		$	40,231
Other Comprehensive (Loss) Income:
Foreign currency translation adjustments	(12,520		)	(10,112		)	(2,242		)
Pension and retiree medical benefits	4,121			(5,382		)	12,282
Cash Flow Hedge	164			—			—
Income Taxes:
Foreign currency translation adjustments	25			13			(15		)
Pension and retiree medical benefits	(1,265		)	1,859			(4,663		)
Cash Flow Hedge	(61		)	—			—
Total Other Comprehensive (Loss) Income, net of tax	(9,536		)	(13,622		)	5,362
Comprehensive Income	$	22,552		$	37,029		$	45,593

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	2015			2014
ASSETS
Current Assets:
Cash and Cash Equivalents	$	51,300		$	92,962
Restricted Cash	640			352
Receivables:
Trade, less Allowances of $3,615 and $3,936, respectively	136,344			147,228
Other	4,101			5,155
Net Receivables	140,445			152,383
Inventories	77,292			80,511
Prepaid Expenses	14,656			9,552
Deferred Income Taxes, Current Portion	—			9,738
Other Current Assets	2,485			1,591
Assets Held for Sale	6,826			—
Total Current Assets	293,644			347,089
Property, Plant and Equipment	276,811			262,214
Accumulated Depreciation	(181,853		)	(175,671		)
Property, Plant and Equipment, Net	94,958			86,543
Deferred Income Taxes, Long-Term Portion	12,051			8,165
Goodwill	16,803			18,355
Intangible Assets, Net	3,195			15,588
Other Assets	11,644			11,192
Total Assets	$	432,295		$	486,932
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-Term Debt and Current Portion of Long-Term Debt	$	3,459		$	3,566
Accounts Payable	50,350			61,627
Employee Compensation and Benefits	34,528			33,842
Income Taxes Payable	1,398			1,087
Other Current Liabilities	43,027			45,508
Liabilities Held for Sale	454			—
Total Current Liabilities	133,216			145,630
Long-Term Liabilities:
Long-Term Debt	21,194			24,571
Employee-Related Benefits	21,508			25,711
Deferred Income Taxes, Long-Term Portion	5			5,989
Other Liabilities	4,165			4,380
Total Long-Term Liabilities	46,872			60,651
Total Liabilities	180,088			206,281
Commitments and Contingencies (Note 15)
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; 17,744,381 and 18,415,047 issued and outstanding, respectively	6,654			6,906
Additional Paid-In Capital	—			26,247
Retained Earnings	293,682			286,091
Accumulated Other Comprehensive Loss	(48,129		)	(38,593		)
Total Shareholders’ Equity	252,207			280,651
Total Liabilities and Shareholders’ Equity	$	432,295		$	486,932

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	2015			2014			2013
OPERATING ACTIVITIES
Net Earnings	$	32,088		$	50,651		$	40,231
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation	16,550			17,694			17,686
Amortization	1,481			2,369			2,560
Impairment of Long-Lived Assets	11,199			—			—
Deferred Income Taxes	(1,129		)	129			5,622
Share-Based Compensation Expense	8,222			7,314			6,116
Allowance for Doubtful Accounts and Returns	1,089			1,504			1,279
Other, Net	(100		)	24			219
Changes in Operating Assets and Liabilities:
Receivables, Net	4,547			(18,811		)	(7,618		)
Inventories	(10,190		)	(21,155		)	(11,967		)
Accounts Payable	(10,455		)	10,192			6,120
Employee Compensation and Benefits	716			1,927			(4,178		)
Other Current Liabilities	(402		)	2,782			5,552
Income Taxes	(4,283		)	3,466			(248		)
Other Assets and Liabilities	(4,101		)	1,276			(1,560		)
Net Cash Provided by Operating Activities	45,232			59,362			59,814
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment	(24,780		)	(19,583		)	(14,775		)
Proceeds from Disposals of Property, Plant and Equipment	336			291			120
Acquisition of Businesses, Net of Cash Acquired	—			—			(750		)
Proceeds from Sale of Business	1,185			1,416			4,261
(Increase) Decrease in Restricted Cash	(322		)	6			(253		)
Net Cash Used for Investing Activities	(23,581		)	(17,870		)	(11,397		)
FINANCING ACTIVITIES
Short-Term Debt Borrowings	—			—			1,500
Payments of Short-Term Debt	—			(1,500		)	—
Payments of Long-Term Debt	(3,445		)	(2,016		)	(1,096		)
Purchases of Common Stock	(45,998		)	(14,097		)	(22,157		)
Proceeds from Issuances of Common Stock	1,677			2,269			8,313
Excess Tax Benefit on Stock Plans	859			1,793			5,178
Dividends Paid	(14,498		)	(14,487		)	(13,233		)
Net Cash Used for Financing Activities	(61,405		)	(28,038		)	(21,495		)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	(1,908		)	(1,476		)	122
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(41,662		)	11,978			27,044
Cash and Cash Equivalents at Beginning of Year	92,962			80,984			53,940
CASH AND CASH EQUIVALENTS AT END OF YEAR