(5) The unfunded deferred compensation arrangements covering certain current and retired management employees totaled ~~$6.9~~$7.0 million as of December 31, ~~2007.~~2008. Our estimated distributions in the contractual cash obligations and commitments table are based upon a number of assumptions including termination dates and participant distribution elections.

~~(5)~~

(6) Other long-term employee benefit arrangements are comprised of long-term incentive compensation arrangements with certain key management, foreign defined contribution plans and other long-term arrangements totaling ~~$2.0~~$1.3 million. We cannot predict the timing or amount of our future payments associated with these arrangements; as a result, these obligations are not included in the contractual cash obligations and commitments table.

~~(6)~~

(7) Approximately ~~$6.1~~$7.3 million of unrecognized tax benefits have been recorded as liabilities in accordance with the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN ~~48,~~48”), and we are uncertain as to if or when such amounts may be settled; as a result, these obligations are not included in the table above. ~~Included in the amount above is interest of $0.3 million and potential penalties of $0.1 million.~~

~~Off-balance Sheet Arrangements~~~~– Off-balance sheet arrangements~~

(8) Operating lease commitments consist primarily of ~~operating lease commitments for~~ office and warehouse facilities, vehicles and office equipment as discussed in Note 1213 to the Consolidated Financial ~~Statements as well as unconditional purchase commitments. In accordance with U.S. generally accepted accounting principles, these obligations are not reflected in the Consolidated Balance Sheets.~~

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

(9) Unconditional purchase obligations include purchase orders entered into in the ordinary course of business and contractual purchase commitments. During ~~July 2005,~~2008, we amended our 2003 non-cancellable purchase commitment with a third-party manufacturer to extend the terms of the agreement to ~~September 2008.~~2009. The remaining commitment under this agreement totaled ~~$2.3~~$0.6 million as of December 31, ~~2007.~~2008. This purchase commitment has been included in the contractual cash obligations and commitments table along with purchase orders entered into in the ordinary course of business.

~~Cash Requirements~~

~~Operating Activities~~– Cash provided by operating activities was $39.6 million in 2007, $40.3 million in 2006 and $44.2 million in 2005. In 2007, cash provided by operating activities was driven primarily by strong net earnings as well as an increase in net income taxes payable/prepaid, partially offset by a decrease in employee compensation and benefits and other accrued expenses. The decrease in employee compensation and benefits and other accrued expenses was primarily a result of decreases in performance-based compensation.

Cash flow from operations decreased $0.7 million in 2007 compared to 2006. This decrease was primarily driven by decreased income taxes payable/prepaid and decreased employee compensation and benefits and other accrued expenses.

In 2006, cash provided by operating activities was impacted by strong net earnings and an increase in non-cash share-based compensation expense, an increase in accounts payable, employee compensation and benefits and other accrued expenses. The increase in share-based compensation expense was primarily attributable to the inclusion of stock option expense under SFAS No. 123(R) in 2006 and an increase in expense associated with performance share and restricted stock awards. The increases in accounts payable, employee compensation and benefits and other accrued expenses were attributable to higher accruals for volume-based incentives and warranty, an increase in payroll

accruals as well as timing of payments. Partially offsetting these sources of cash were an increase in receivables driven by higher fourth quarter sales volumes and an increase in inventory. The increase in inventory was in support of new product launches and the addition of our manufacturing facility in China.

As discussed previously, two metrics used by management to evaluate how effectively we utilize our net assets are “Accounts Receivable Days Sales Outstanding” (DSO) and “Days Inventory on Hand” (DIOH), on a FIFO basis. These metrics for the years indicated were as follows (in days):

2007

2006

2005

DSO
61

61

61

DIOH
83

82

82

DIOH increased one day in 2007 compared to 2006. This increase is mainly due to higher inventory levels at our foreign locations due to longer lead times and pipeline fill for new products. Inventory grew at the same pace as demand during 2006 as compared to 2005 resulting in no change in the DIOH.

~~Investing Activities~~ – Net cash used in investing activities was $10.4 million in 2007, $46.0 million in 2006 and $11.8 million in 2005. The primary use of cash in investing activities during 2007 was capital expenditures and our acquisition of Floorep Limited. Sources of cash for 2007 investing activities include net sales of short-term investments, which generated $14.3 million in cash and proceeds from the sale of our Maple Grove, Minnesota facility.

Capital expenditures were $28.7 million during 2007 compared to $23.9 million in 2006. Capital expenditures were $20.9 million in 2005. Capital expenditures in 2007 included continued investments in our footprint consolidation initiative, new product tooling and capital spending related to our global expansion initiatives. Capital expenditures in 2006 included continued expansion of our information systems capabilities and investments in new product tooling as well as capital spending in support of our China expansion initiative. Capital expenditures in 2005 included investments in new product tooling and expansion of our information system capabilities.

In 2008, capital expenditures are expected to approximate $25 to $29 million. Significant capital projects planned for 2008 include upgrades to our information technology systems and related infrastructure and investments in tooling in support of new products. In addition, we plan to invest in our corporate facilities to create a global center for research and development. Capital expenditures in 2008 are expected to be financed primarily with funds from operations.

~~Proceeds from dispositions of property, plant and equipment in 2005 include $1.5 million in proceeds from the sale of a distribution center in Holland, Michigan.~~

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

In February 2007, we acquired Floorep Limited (“Floorep”), a distributor of cleaning equipment based in Scotland, for a purchase price of $3.6 million in cash, subject to certain post-closing adjustments. The results of Floorep’s operations have been included in the Consolidated Financial Statements since February 2, 2007, the date of acquisition.

~~Financing Activities~~ – Net cash used in financing activities was $26.7 million in 2007, $4.9 million in 2006 and $8.1 million in 2005. In 2007, significant uses of cash included $29.0 million in repurchases of common stock related to our share repurchase program and $9.0 million of dividends paid. In 2006, significant uses of cash included $8.6 million of dividends paid and $5.3 million in repurchases of common stock related to our share repurchase program.

Proceeds from issuance of common stock generated $8.7 million in 2007 and $8.5 million in 2006. Proceeds in both years were driven by an increase in employees’ stock option exercises due to a higher average stock price and senior management transitions.

~~Our cash dividend payout increased for the 36~~^th ~~consecutive year to $0.48 per share in 2007, an increase of $0.02 per share over 2006.~~

In November 2004, an additional 400,000 shares were authorized under the share repurchase program approved by the Board of Directors in May 2001. In August 2006, the Board of Directors approved the adjustment of the number of shares then available for repurchase to reflect the impact of the two-for-one stock split, which increased the number of shares available for repurchase from approximately 281,000 immediately before the stock split to approximately 562,000. On May 3, 2007, the Board of Directors authorized the repurchase of 1,000,000 additional shares of our common stock.

Shares repurchased during 2007 approximated 735,900, with the average repurchase price of $39.34. Repurchases made in 2006 prior to the stock split on July 26, 2006 totaled approximately 61,000 shares at an average repurchase price of $46.36 or 122,000 shares at $23.18, post-split. Following the stock split, approximately 87,000 shares were repurchased at an average price of $27.96. Shares repurchased during 2005 approximated 92,000 on a post-split basis. With the average post-split repurchase price of $18.83.

~~At December 31, 2007, approximately 739,000 shares were authorized for repurchase.~~

~~New~~

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosure about fair value measurements. ~~The requirements~~In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP FAS 157-1”) which states that SFAS No. 157 does not address fair value measurements for purposes of lease classification or measurement. FSP FAS 157-1 does not apply to assets acquired and liabilities assumed in a business combination that are ~~effective~~required to be measured at fair value under SFAS No. 141, “Business Combinations” (“SFAS No. 141”) or SFAS No. 141 (revised 2007) (“SFAS No. 141(R)”), regardless of whether those assets and liabilities are related to leases. In February 2008, the FASB also issued FSP FAS 157-2, “Effective date of FASB Statement No. 157” (“FSP FAS 157-2”). FSP FAS 157-2 defers the implementation of SFAS No. 157 for ~~fiscal years beginning after November 15, 2007.~~certain nonfinancial assets and liabilities. We ~~do not expect~~adopted the required provisions of SFAS No. 157 as of January 1, 2008 and will adopt the provisions of FSP FAS 157-2 on January 1, 2009. The adoption of SFAS No. 157 ~~will~~did not have ~~a material~~an impact on our financial ~~condition,~~position or results of operations ~~or cash flows.~~

In November 2006, the FASB released EITF No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF Issue No. 06-11”). EITF Issue No. 06-11 defines how an entity should recognize the income tax benefit received on dividends that are (a) paid to employees holding equity-classified nonvested shares, equity-classified nonvested share units, or equity-classified outstanding share options and (b) charged to retained earnings under SFAS No. 123 (revised 2004), “Share Based Payment” (“SFAS No. 123(R)”). The requirements are effective prospectively for fiscal years beginning after December 15, 2007. Wewe do not expect that the adoption of ~~EITF No. 06-11~~FSP FAS 157-2 will have ~~a material~~an impact on our financial ~~condition,~~position or results of ~~operations or cash flows.~~

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings without having to apply complex hedge accounting. The requirements are effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS No. 159 will have a material impact on our financial condition, results of operations or cash flows.

operations.

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

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

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

Critical Accounting Estimates

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

Allowance for Doubtful Accounts – We record a reserve for accounts receivable that are potentially uncollectible. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past-due balances. In order to assess the collectibility of these receivables, we perform ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information becomes available. Our reserves are also based on amounts determined by using percentages applied to trade receivables. These percentages are determined by a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. We are not able to predict changes in the financial condition of our customers and if circumstances related to these customers deteriorate, our estimates of the recoverability of accounts receivable could be materially affected and we may be required to record additional allowances. Alternatively, if more allowances are provided than are ultimately required, we may reverse a portion of such provisions in future periods based on the actual collection experience. Bad debt write-offs as a percentage of ~~net sales~~Net Sales were less than 0.1% in 2008, 0.1% in 2007 ~~0.3% in 2006~~ and 0.2% in ~~2005.~~2006. As of December 31, ~~2007,~~2008, we had ~~$2.2~~$6.5 million reserved against our ~~accounts receivable~~Accounts Receivable for doubtful accounts.

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

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

We also record a reserve for inventory shrinkage. Our inventory shrinkage reserve represents anticipated physical inventory losses that are recorded and adjusted as a part of our cycle counting and physical inventory procedures. The reserve amount is based on historical loss trends, historical physical and cycle-count adjustments as well as inventory levels. Changes in the reserve result from the completed cycle counts and physical ~~inventories.~~

Inventories. As of December 31, ~~2007,~~2008, we had ~~$4.4~~$5.1 million reserved against ~~inventories.~~

Inventories.

Goodwill – Goodwill represents the excess of cost over the fair value of net assets of businesses acquired and is allocated to our reporting units at the time of the acquisition. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), we test goodwill on an annual basis and when an event occurs or circumstances change that may reduce the fair value of one of our reporting units below its carrying amount. A goodwill impairment loss occurs if the carrying amount of a reporting unit’s goodwill exceeds its fair value.

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

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

Warranty Reserves – We record a liability for warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to net sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. Future claims experience could be materially different from prior results because of the introduction of new, more complex products, a change in our warranty policy in response to industry trends, competition or other external forces, or manufacturing changes that could impact product quality. In the event we determine that our current or future product repair and replacement costs exceed our estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. Warranty expense as a percentage of ~~net sales~~Net Sales was 1.2% in 2008, 1.2% in 2007 and 1.4% in ~~2006 and 1.3% in 2005.~~2006. As of December 31, ~~2007,~~2008, we had ~~$7.0~~$6.0 million reserved for future estimated warranty costs.

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

Tax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation expense on property, plant and equipment. These temporary differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years but have already been recorded as an expense in our Consolidated Statements of Earnings. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, based on management’s judgment, to the extent we believe that recovery is less likely than not, we establish a valuation reserve against those deferred tax assets. The deferred tax asset valuation allowance could be materially different from actual results because of changes in the mix of future taxable income, the relationship between book and taxable income and our tax planning strategies. As of December 31, ~~2007,~~2008, a valuation allowance of ~~$8.2~~$9.3 million was recorded against foreign tax loss carryforwards.

Cautionary Factors Relevant to Forward-Looking Information

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

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

·	Availability of credit in the open markets.

·	Effects of potential impairment write down of our intangible assets values.
·
•	~~Inflationary pressures.~~

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

•	~~Ability to achieve anticipated global sourcing cost reductions.~~

•	Successful integration of acquisitions, including ability to carry acquired goodwill at current values.

·
•	Ability to achieve growth plans.

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

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

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

• ·	Ability to ~~benefit from production reallocation plans, including benefits from our expansion into China.~~ achieve anticipated global sourcing cost reductions.

·
•	Success and timing of new technologies and products.

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

·	Unforeseen product quality problems.

• ·	~~Potential for increased competition in our business.~~ Effects of litigation, including threatened or pending litigation.

·
•	~~Ability to attract and retain key personnel.~~

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

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

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

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

·	Potential for increased competition in our business.

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

•	~~Unforeseen product quality problems.~~

•	~~Effects of litigation, including threatened or pending litigation.~~

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

��

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

ITEM 7A – Quantitative and Qualitative Disclosures About Market Risk

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

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

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

During ~~2007,~~2008, our raw materials and other purchased component costs ~~such as batteries,~~ were unfavorably impacted by commodity prices ~~and~~although we were ~~not~~ able to ~~fully~~ mitigate these higher costs with ~~selling price increases~~pricing actions and cost reduction actions. We will continue to focus on mitigating the risk of continued future raw material or other product component cost increases through product pricing, negotiations with our vendors and cost reduction actions. The success of these efforts will depend upon our ability to increase our selling prices in a competitive market and our ability to achieve cost savings. If the commodity prices ~~remain at their current levels or continue to~~ increase, our results may be unfavorably impacted in ~~2008.~~

2009.

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

Because a substantial portion of our products are ~~currently~~ manufactured or sourced primarily from the United States, a stronger U.S. dollar generally has a negative impact on results from operations outside the United States while a weaker dollar generally has a positive effect. Our objective in managing the exposure to foreign currency fluctuations is to minimize the earnings effects associated with foreign exchange rate changes on certain of our foreign currency-denominated assets and liabilities. We periodically enter into various contracts, principally forward exchange contracts, to protect the value of certain of our foreign currency-denominated assets and liabilities. The gains and losses on these contracts generally approximate changes in the value of the related assets and liabilities. We had forward exchange contracts outstanding in the notional amounts of approximately ~~$62~~$63 million and ~~$54~~$62 million at the end of ~~2007~~2008 and ~~2006,~~2007, respectively. The potential for material loss in fair value of foreign currency contracts outstanding and the related underlying exposures as of December 31, ~~2007,~~2008, from a 10% adverse change is unlikely due to the short-term nature of our forward contracts. Our policy prohibits us from entering into transactions for speculative purposes.

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

table of contents

ITEM 8 – Financial Statements and Supplementary Data

~~MANAGEMENT’S REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING~~

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal accounting and financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in~~Internal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under the framework in~~~~Internal Control – Integrated Framework~~~~(COSO), our management concluded that our internal control over financial reporting was effective as of December 31, 2007.~~


		~~/s/ H. Chris Killingstad~~

	~~H. Chris Killingstad~~
	~~President and Chief Executive Officer~~

		~~/s/ Thomas Paulson~~

	~~Thomas Paulson~~
	~~Chief Financial Officer (Principal~~
	~~Financial and Accounting Officer)~~

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Tennant Company:

We have audited the accompanying consolidated balance sheets of Tennant Company and subsidiaries as of December 31, ~~2007~~2008 and ~~2006,~~2007, and the related consolidated statements of earnings, ~~cash flows, and shareholders’~~stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, ~~2007.~~2008. We also have audited Tennant Company’s internal control over financial reporting as of December 31, ~~2007,~~2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Tennant Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

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

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

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tennant Company and subsidiaries as of December 31, ~~2007~~2008 and ~~2006,~~2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2007,~~2008, in conformity with ~~accounting principles~~U.S. generally accepted ~~in the United States of America.~~accounting principles. Also in our opinion, Tennant Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2007,~~2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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

As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, as of January 1, 2007 and Statement of Financial Accounting Standards No. ~~123R,~~~~Share-Based Payment~~157, Fair Value Measurements, ~~as of~~on January 1, ~~2006, Statement~~2008.

/s/ KPMG LLP

Minneapolis, MN

March 13, 2009

table of ~~Financial Accounting Standards No. 158,~~~~Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans~~~~, as of December 31, 2006, and FASB Interpretation No. 48,~~~~Accounting for Uncertainty in Income Taxes~~~~, as of January 1, 2007.~~contents


	~~/s/ KPMG LLP~~
	~~Minneapolis, MN~~
	~~February 29, 2008~~

Consolidated Statements of Earnings

TENNANT COMPANY AND SUBSIDIARIES

(In thousands, except shares and per share data)

Years ended December 31

2007

2006

2005

Net sales

$
664,218

$
598,981

$
552,908

Cost of sales

385,234

347,402

318,044

Gross profit

278,984

251,579

234,864

Operating expense:

Research and development expenses

23,869

21,939

19,351

Selling and administrative expenses

206,242

189,676

180,676

Gain on sale of facility

(5,972
)

—

—

Total operating expenses

224,139

211,615

200,027

Profit from operations

54,845

39,964

34,837

Other income (expense):

Interest income

1,854

2,698

1,691

Interest expense

(898
)

(737
)

(564
)
Net foreign currency transaction gains

39

516

8

ESOP income

2,568

1,205

387

Other income (expense), net

(696
)

(344
)

(1,365
)
Total other income

2,867

3,338

157

Profit before income taxes

57,712

43,302

34,994

Income tax expense

17,845

13,493

12,058

Net earnings

$
39,867

$
29,809

$
22,936

Earnings per share:

Basic

$
2.14

$
1.61

$
1.27

Diluted

$
2.08

$
1.57

$
1.26

Weighted average shares outstanding:

Basic

18,641,000

18,561,000

18,024,000

Diluted

19,146,000

18,989,000

18,210,000

~~See accompanying Notes to~~

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

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

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

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

See accompanying Notes to Consolidated Financial Statements.

Consolidated ~~Financial Statements.~~

(In thousands, except shares and per share data)

~~Consolidated~~ Balance Sheets

TENNANT COMPANY AND SUBSIDIARIES

December 31

2007

2006

Assets

CURRENT ASSETS

Cash and cash equivalents

$
33,092

$
31,021

Short-term investments

—

14,250

Receivables:

Trade, less allowances for doubtful accounts and returns ($3,264 in 2007 and $3,347 in 2006)

126,520

115,146

Other, net

971

1,180

Net receivables

127,491

116,326

Inventories

64,027

60,978

Prepaid expenses

7,549

4,531

Deferred income taxes, current portion

8,076

8,298

Other current assets

489

—

Total current assets

240,724

235,404

Property, plant and equipment

263,643

244,283

Accumulated depreciation

(167,092
)

(161,448
)
Property, plant and equipment, net

96,551

82,835

Deferred income taxes, long-term portion

2,670

1,574

Goodwill

29,053

26,298

Intangible assets, net

5,500

4,581

Other assets

7,572

3,558

Total assets

$
382,070

$
354,250

Liabilities and Shareholders’ Equity

CURRENT LIABILITIES

Current debt

$
2,127

$
1,812

Accounts payable

31,146

31,326

Employee compensation and benefits

29,699

32,374

Income taxes payable

2,391

710

Other current liabilities

31,310

28,582

Total current liabilities

96,673

94,804

LONG-TERM LIABILITIES

Long-term debt

2,470

1,907

Employee-related benefits

23,615

27,081

Deferred income taxes, long-term portion

752

794

Other liabilities

6,129

—

Total long-term liabilities

32,966

29,782

Total liabilities

129,639

124,586

COMMITMENTS AND CONTINGENCIES (Note 12)

SHAREHOLDERS’ EQUITY

Preferred stock of $0.02 par value per share, authorized 1,000,000; none issued

—

—

Common stock of $0.375 par value per share, authorized 60,000,000; issued and

outstanding 18,499,458 shares in 2007 and 18,753,648 in 2006

6,937

7,045

Additional paid-in capital

8,265

14,223

Retained earnings

233,527

210,457

Accumulated other comprehensive income

5,507

647

Receivable from ESOP

(1,805
)

(2,708
)
Total shareholders’ equity

252,431

229,664

Total liabilities and shareholders’ equity

$
382,070

$
354,250

~~See accompanying Notes to Consolidated Financial Statements.~~

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

See accompanying Notes to Consolidated Financial Statements.

TENNANT COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

Years ended December 31

2007

2006

2005

CASH FLOWS RELATED TO OPERATING ACTIVITIES

Net earnings

$
39,867

$
29,809

$
22,936

Adjustments to net earnings to arrive at operating cash flow:

Depreciation

16,901

13,711

12,950

Amortization

1,153

610

89

Deferred tax (benefit) expense

(1,510
)

(70
)

(465
)
Stock-based compensation expense

2,886

3,521

2,015

ESOP expense

(659
)

112

580

Tax benefit on ESOP and stock plans

46

58

1,495

Provision for bad debts and returns

1,690

532

1,021

Gain on sale of facility

(5,972
)

—

—

Changes in operating assets and liabilities excluding the impact of acquisitions:

Accounts receivable

(11,258
)

(9,790
)

(8,620
)
Inventories

(82
)

(3,104
)

(59
)
Accounts payable

(2,337
)

3,308

3,397

Employee compensation and benefits and other accrued expenses

(4,069
)

2,697

8,507

Income taxes payable/prepaid

2,056

(2,608
)

221

Other current/noncurrent assets and liabilities

(2,131
)

(1,197
)

(1,883
)
Other, net

3,059

2,730

2,053

Net cash flows related to operating activities

39,640

40,319

44,237

CASH FLOWS RELATED TO INVESTING ACTIVITIES

Acquisition of property, plant and equipment

(28,720
)

(23,872
)

(20,880
)
Proceeds from disposals of property, plant and equipment

7,254

632

3,049

Acquisition of businesses, net of cash acquired, and intangible assets

(3,141
)

(8,469
)

—

Purchases of short-term investments

(7,925
)

(14,250
)

—

Sales of short-term investments

22,175

—

6,050

Net cash flows related to investing activities

(10,357
)

(45,959
)

(11,781
)
CASH FLOWS RELATED TO FINANCING ACTIVITIES

Payments on capital leases

(2,505
)

(2,257
)

(885
)
Payment of long-term debt

—

—

(5,000
)
Proceeds from issuance of short-term debt

205

—

—

Proceeds from issuance of common stock

8,734

8,477

7,874

Tax benefit on stock plans

3,255

1,334

—

Purchase of common stock

(28,951
)

(5,275
)

(3,471
)
Dividends paid

(8,979
)

(8,574
)

(7,919
)
Principal payment from ESOP

1,562

1,419

1,290

Net cash flows related to financing activities

(26,679
)

(4,876
)

(8,111
)
Effect of exchange rate changes on cash and cash equivalents

(533
)

250

105

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

2,071

(10,266
)

24,450

Cash and cash equivalents at beginning of year

31,021

41,287

16,837

CASH AND CASH EQUIVALENTS AT END OF YEAR

$
33,092

$
31,021

$
41,287

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the year for:

Income taxes

$
14,543

$
15,207

$
9,076

Interest

$
479

$
322

$
638

Supplemental non-cash investing and financing activities:

Capital expenditures funded through capital leases

$
2,441

$
2,872

$
2,553

Collateralized borrowings incurred for operating lease equipment

$
695

$
427

$
178

~~See accompanying Notes to~~

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

See accompanying Notes to Consolidated Financial Statements.

Consolidated ~~Financial Statements.~~

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

TENNANT COMPANY AND SUBSIDIARIES

(In thousands, except shares and per share data)

Years ended December 31

2007

2006

2005

Shares

Amount

Shares⁽¹⁾

Amount

Shares

Amount

COMMON STOCK

Beginning balance

18,753,648

$
7,045

9,191,205

$
3,459

9,003,209

$
3,388

Stock split

—

—

9,305,523

3,490

—

—

Issue stock for directors, employee benefit and stock plans

481,710

168

410,541

154

280,185

105

Purchase of common stock

(735,900
)

(276
)

(153,621
)

(58
)⁽¹⁾

(92,189
)

(34
)
Ending balance

18,499,458

$
6,937

18,753,648

$
7,045

9,191,205

$
3,459

ADDITIONAL PAID-IN CAPITAL

Beginning balance

$
14,223

$
6,963

$
163

Stock split

—

(3,490
)

—

Issue stock for directors, employee benefit plans
and stock plans

8,661

9,939

6,633

Share-based compensation

2,753

4,694

—

Tax benefit on stock plans

3,255

1,334

1,423

Purchase of common stock

(28,675
)

(5,217
)⁽¹⁾

(1,256
)
Reclassification to Retained Earnings

8,048

—

—

Ending balance

$
8,265

$
14,223

$
6,963

RETAINED EARNINGS

Beginning balance

$
210,457

$
189,221

$
174,132

Net earnings

39,867

29,809

22,936

Dividends paid, $0.48, $0.46 and $0.44,
respectively, per common share

(8,979
)

(8,574
)

(7,919
)
Issue stock for employee benefit plans and directors

—

—

2,181

Purchase of common stock

—

—

(2,181
)
Tax benefit on ESOP

46

58

72

Adjustment related to SFAS No. 158 adoption

—

(57
)

—

Adjustment related to FIN No. 48 adoption

184

—

—

Reclassification from Additional Paid-in Capital

(8,048
)

—

—

Ending balance

$
233,527

$
210,457

$
189,221

ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)⁽²⁾

Beginning balance

$
647

$
(2,931
)

$
864

Foreign currency translation adjustments

2,630

2,763

(2,813
)
Prior service costs

(13
)

—

—

Transition (asset) obligation

(14
)

—

—

Net actuarial (gain) loss

2,257

815

—

Minimum pension liability

—

—

(982
)
Ending balance

$
5,507

$
647

$
(2,931
)
RECEIVABLE FROM ESOP

Beginning balance

$
(2,708
)

$
(3,610
)

$
(4,513
)
Principal payments

1,562

1,419

1,290

Shares allocated

(659
)

(517
)

(387
)
Ending balance

$
(1,805
)

$
(2,708
)

$
(3,610
)
Total shareholders’ equity

$
252,431

$
229,664

$
193,102

⁽²⁾ Reconciliations of net earnings
to comprehensive income are as follows:

Net earnings

$
39,867

$
29,809

$
22,936

Foreign currency translation adjustments

2,630

2,763

(2,813
)
Defined benefit pension plans, net of tax:

Prior service costs

(13
)

274

—

Transition (asset) obligation

(14
)

40

—

Net actuarial (gain) loss

2,257

501

—

Minimum pension liability

—

—

(982
)
Comprehensive income

$
44,727

$
33,387

$
19,141

	Common Shares			Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Receivable from ESOP			Total Shareholders' Equity
Balance, December 31, 2005		9,191,205		$	3,459		$	6,963		$	189,221		$	(2,931	)	$	(3,610	)	$	193,102
Net Earnings		-			-			-			29,809			-			-			29,809
Foreign Currency Translation Adjustments		-			-			-			-			2,763			-			2,763
Pension Adjustments		-			-			-			-			815			-			815
Comprehensive Income (Loss)																				33,387

Stock Split		9,305,523			3,490			(3,490	)		-			-			-			-
Issue Stock for Directors, Employee Benefit and Stock Plans		410,541			154			9,939			-			-			-			10,093
Share-Based Compensation		-			-			4,694			-			-			-			4,694
Dividends Paid, $0.46 per Common Share		-			-			-			(8,574	)		-			-			(8,574	)
Tax Benefit on Stock Plans		-			-			1,334			-			-			-			1,334
Tax Benefit on ESOP		-			-			-			58			-			-			58
Adjustment Related to SFAS No. 158 Adoption		-			-			-			(57	)		-			-			(57	)
Purchases of Common Stock		(153,621	)		(58	)(1)		(5,217	)(1)		-			-			-			(5,275	)
Principal Payments from ESOP		-			-			-			-			-			1,419			1,419
Shares Allocated		-			-			-			-			-			(517	)		(517	)
Balance, December 31, 2006		18,753,648		$	7,045		$	14,223		$	210,457		$	647		$	(2,708	)	$	229,664
Net Earnings		-			-			-			39,867			-			-			39,867
Foreign Currency Translation Adjustments		-			-			-			-			2,630			-			2,630
Pension Adjustments		-			-			-			-			2,230			-			2,230
Comprehensive Income (Loss)																				44,727

Issue Stock for Directors, Employee Benefit and Stock Plans		481,710			168			8,661			-			-			-			8,829
Share-Based Compensation		-			-			2,753			-			-			-			2,753
Dividends paid, $0.48 per Common Share		-			-			-			(8,979	)		-			-			(8,979	)
Tax Benefit on Stock Plans		-			-			3,255			-			-			-			3,255
Tax Benefit on ESOP		-			-			-			46			-			-			46
Adjustment Related to FIN 48 Adoption		-			-			-			184			-			-			184
Purchases of Common Stock		(735,900	)		(276	)		(28,675	)		-			-			-			(28,951	)
Principal Payments from ESOP		-			-			-			-			-			1,562			1,562
Shares Allocated		-			-			-			-			-			(659	)		(659	)
Reclassification		-			-			8,048			(8,048	)		-			-			-
Balance, December 31, 2007		18,499,458		$	6,937		$	8,265		$	233,527		$	5,507		$	(1,805	)	$	252,431
Net Earnings		-			-			-			10,624			-			-			10,624
Foreign Currency Translation Adjustments		-			-			-			-			(26,455	)		-			(26,455	)
Pension Adjustments		-			-			-			-			(5,443	)		-			(5,443	)
Comprehensive Income (Loss)																				(21,274	)

Issue Stock for Directors, Employee Benefit and Stock Plans		235,388			89			1,498			-			-			-			1,587
Share-Based Compensation		-			-			(763	)		-			-			-			(763	)
Dividends paid, $0.52 per Common Share		-			-			-			(9,551	)		-			-			(9,551	)
Tax Benefit on Stock Plans		-			-			892			-			-			-			892
Tax Benefit on ESOP		-			-			-			29			-			-			29
Purchases of Common Stock		(450,100	)		(169	)		(14,180	)		-			-			-			(14,349	)
Principal Payments from ESOP		-			-			-			-			-			1,719			1,719
Shares Allocated		-			-			-			-			-			(817	)		(817	)
Reclassification		-			-			10,937			(10,937	)		-			-			-
Balance, December 31, 2008		18,284,746		$	6,857		$	6,649		$	223,692		$	(26,391	)	$	(903	)	$	209,904

The company had 60,000,000 authorized shares of ~~common stock~~Common Stock as of December 31, 2008, 2007 and 2006.

~~The company had 30,000,000 authorized shares of common stock as of December 31, 2005.~~

(1)Adjusted for the two-for-one stock split effective July 26, 2006.

See accompanying Notes to Consolidated Financial Statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

1.
1.	Summary of Significant Accounting Policies and Other Related Data

~~NATURE OF OPERATIONS~~Nature of Operations – Our primary business is the design, manufacture and sale of products used primarily in the maintenance of nonresidential surfaces. We provide equipment, parts and consumables and specialty surface coatings to contract cleaners, corporations, healthcare facilities, schools and local, state and federal governments. We sell our products through our direct sales and service organization and a network of authorized distributors worldwide. Our products are sold in North America, Europe and Other International markets including the Middle East, Latin America and Asia Pacific.

~~CONSOLIDATION~~Consolidation– The Consolidated Financial Statements include the accounts of Tennant Company and its subsidiaries. All material intercompany transactions and balances have been eliminated. In these Notes to the Consolidated Financial Statements, Tennant Company is referred to as “Tennant,” “we,” “us,” or “our.”

~~TRANSLATION OF NON-U.S. CURRENCY~~Translation of Non-U.S. Currency– Foreign currency-denominated assets and liabilities have been translated to U.S. dollars at year-end exchange rates, while income and expense items are translated at exchange rates prevailing during the year. Gains or losses resulting from translation are included as a separate component of ~~shareholders’ equity.~~Shareholders’ Equity. Foreign currency transaction gains or losses are included in ~~other income (expense).~~Other Income (Expense), Net.

~~USE OF ESTIMATES~~Use of Estimates– ~~The preparation of Consolidated Financial Statements~~In preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles, ~~generally accepted~~management must make decisions that impact the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures, including disclosures of contingent assets and liabilities. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. Estimates are used in ~~the United States of America requires management to make~~determining, among other items, sales promotions and incentives accruals, inventory valuation, warranty reserves, allowance for doubtful accounts, pension and postretirement accruals, useful lives for intangible assets, and future cash flows associated with impairment testing for goodwill and other long-lived assets. These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that ~~affect~~management believes to be reasonable under the circumstances, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. A number of these factors include, among others, the continued recessionary economic conditions, tight credit markets, foreign currency, higher commodity costs, and a decline in consumer spending and confidence, all of which have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual amounts ~~reported~~could differ significantly from those estimated at the time the consolidated financial statements are prepared. Changes in those estimates resulting from continuing changes in the ~~Consolidated Financial Statements~~economic environment will be reflected in the financial statements in future periods.

Cash and ~~accompanying notes. Actual results could differ from those estimates.~~Cash Equivalents

~~CASH AND CASH EQUIVALENTS~~– We consider all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents.

~~SHORT-TERM INVESTMENTS~~Short-term Investments– Short-term investments with maturities of less than one year are classified and accounted for as available-for-sale and carried at fair value. Changes in fair value are reported as ~~accumulated other comprehensive income (loss)~~Accumulated Other Comprehensive Income (Loss). There were no short term investments at December 31, ~~2007~~2008 and 2007. There were no unrealized gains or losses during the ~~year~~years ended December 31, 2008 and 2007. ~~At December 31, 2006, the estimated fair value of these securities approximated their cost due to their short maturities.~~

~~RECEIVABLES~~Receivables– Credit is granted to our customers in the normal course of business. Receivables are recorded at original carrying value less reserves for estimated uncollectible accounts and sales returns. Management performs ongoing credit evaluations of customers and maintains allowances for potential credit losses and product returns based on historical write-off experience, current economic environment, evaluation of specific customer accounts and anticipated sales returns. Past-due balances are reviewed for collectibility based on agreed-upon contractual terms. Uncollectible accounts are ~~written-off~~written off against the allowance when it is deemed that a customer account is uncollectible.

~~INVENTORIES~~Inventories– Inventories are valued at the lower of cost or market. For ~~inventories~~Inventories in Europe and China, cost is determined on a first-in, first-out basis. Cost is determined on a last-in, first-out basis for substantially all other locations.

~~PROPERTY, PLANT AND EQUIPMENT~~Property, Plant and Equipment– Property, plant and equipment is carried at cost. Additions and improvements that extend the lives of the assets are capitalized while expenditures for repairs and maintenance are expensed as incurred. We generally depreciate buildings and improvements by the straight-line method over a ~~30-year life.~~life of 30 years. Other property, plant and equipment isare generally depreciated using the straight-line method based on lives of ~~three~~3 years to 15 years.

~~GOODWILL~~Goodwill– Goodwill represents the excess of cost over the fair value of net assets of businesses acquired. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142”), we test Goodwill ~~is reviewed annually~~on an annual basis and when an event occurs or atcircumstances change that may reduce the ~~time~~fair value of one of our reporting units below its carrying amount. A Goodwill impairment loss occurs if the carrying amount of a ~~triggering event for impairment.~~reporting unit’s Goodwill exceeds its fair value. In assessing the recoverability of ~~goodwill,~~Goodwill, we ~~compare~~use a discounted cash flow model to estimate the reporting unit’s ~~carrying~~fair value ~~of goodwill~~to compare to its ~~fair value. During~~carrying amount. Management uses judgment to develop assumptions for the ~~fourth quarter~~discounted cash flow model including forecasting revenues and margins, estimating capital expenditures, depreciation, amortization and discount rates. As of ~~2007,~~year end 2008, we completed our annual impairment test and concluded that ~~goodwill is~~Goodwill was not impaired.

~~INTANGIBLE ASSETS~~Intangible Assets– Intangible ~~assets~~Assets consist of definite lived customer lists, an acquired trade name, technology and an order book. Intangible ~~assets~~Assets with a definite life are amortized on a straight-line ~~basis, with estimated useful lives ranging from two to 22 years.~~basis.

~~IMPAIRMENT OF LONG-LIVED ASSETS~~Impairment of Long-lived Assets– We periodically review our intangible and long-lived assets for impairment and assess whether events or circumstances indicate that the carrying amount of the assets may not be recoverable. We generally deem an asset group to be impaired if an estimate of undiscounted future operating cash flows is less than its carrying amount. If impaired, an impairment loss is recognized based on the excess of the carrying amount of the asset group over its fair value.

~~WARRANTY~~Purchases of Common Stock – We repurchase our Common Stock under a 2007 repurchase program authorized by our Board of Directors. This program allows us to repurchase up to 1,000,000 shares of our Common Stock. Upon repurchase, par value is charged to Common Stock and the remaining purchase price is charged to Additional Paid-in Capital. If the amount of the remaining purchase price causes the Additional Paid-in Capital account to be in a debit position, this amount is then reclassified to Retained Earnings. Common Stock repurchased is included in shares authorized but is not included in shares outstanding.

Warranty– We record a liability for estimated warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. 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 terms on machines range from one to four years.

~~PENSION AND PROFIT SHARING PLANS~~Environmental – We record a liability for environmental clean-up on an undiscounted basis when a loss is probable and can be reasonably estimated.

Pension and Profit Sharing Plans– We have pension and/or profit sharing plans covering substantially all of our employees. Pension plan costs are accrued based on actuarial estimates with the required pension cost funded ~~annually.~~annually, as needed.

~~POSTRETIREMENT BENEFITS~~table of contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

Postretirement Benefits– We recognize the cost of retiree health benefits over the employees’ period of service.

~~DERIVATIVE FINANCIAL INSTRUMENTS~~Derivative Financial Instruments– We use derivative instruments to manage exposures to foreign currency only in an attempt to limit underlying exposures from currency fluctuations and not for trading purposes. We periodically enter into various contracts, principally forward exchange contracts, to protect the value of certain of our foreign currency-denominated assets and liabilities (principally the Euro, Australian and Canadian dollars, British pound, Japanese yen, Chinese yuan and ~~Chinese yuan)~~Brazilian real). We have elected not to apply hedge accounting treatment to these contracts as our contracts are for a short duration. These contracts are marked-to-market with the related asset or liability recorded in ~~other current assets~~Other Current Assets or ~~other current liabilities,~~Other Current Liabilities, as applicable. The gains and losses on these contracts generally approximate changes in the value of the related assets and liabilities. Gains or losses on forward foreign exchange contracts to economically hedge foreign currency-denominated net assets and liabilities are recognized in ~~other income~~Other Income (Expense) under ~~net foreign currency transaction gains (losses)~~Net Foreign Currency Transaction Gains (Losses) within the Consolidated Statements of ~~Earnings on a current basis over the term of the contracts.~~Earnings.

~~REVENUE RECOGNITION~~Revenue Recognition– We recognize revenue when persuasive evidence of an arrangement exists, title and risk of ownership have passed, the sales price is fixed or determinable and collectibility is probable. Generally, these criteria are met at the time the product is shipped. Provisions for estimated returns, rebates and discounts are provided for at the time the related revenue is recognized. Freight revenue billed to customers is included in ~~net sales~~Net Sales and the related shipping expense is included in ~~cost~~Cost of ~~sales.~~Sales. Service revenue is recognized in the period the service is performed, or ratably over the period of the related service contract.

table of ~~January 1, 2007, as further discussed in Note 13.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except shares and per share data)~~

Customers may obtain financing through third-party leasing companies to assist in their acquisition of our equipment products. Certain lease transactions classified as operating leases contain retained ownership provisions or guarantees, which results in recognition of revenue over the lease term. As a result, we defer the sale of these transactions and record the sales proceeds as collateralized borrowings or deferred revenue. The underlying equipment relating to operating leases is depreciated on a straight-line basis, not to exceed the equipment’s estimated useful life.

We apply the provisions of Emerging Issues Task Force (“EITF”) Issue No. 00-21 ~~(“EITF 00-21”),~~ “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”) to arrangements with multiple deliverables. EITF 00-21 addresses certain aspects of accounting by a vendor for arrangements under which multiple revenue-generating activities are performed as well as how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. Under EITF 00-21, revenues from contracts with multiple element arrangements are recognized as each element is earned. We offer service contracts in conjunction with equipment sales in addition to selling equipment and service contracts separately. When equipment and service contracts are sold at the same time, we ~~first apply FASB~~account for them in accordance with Financial Accounting Standards Board (“FASB”) Technical Bulletin 90–1, “Accounting for Separately Priced Extended Warranty and Product Maintenance ~~Contracts” and deduct from the sales proceeds the separately priced service contract. The balance of the consideration is allocated to the equipment and recognized when the equipment is shipped.~~Contracts.” Sales proceeds ~~allocated~~related to service contracts are deferred if the proceeds are received in advance of the service and recognized ratably over the contract period.

~~STOCK-BASED COMPENSATION~~-Stock-based Compensation – We account for employee stock-based compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123(R)”) using the fair value based method. Our stock-based compensation plans are more fully described in Note ~~14.~~15.

Prior to the adoption of SFAS No. 123(R) on January 1, 2006, we accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” As we adopted SFAS No. 123(R) using the modified prospective approach, prior period net earnings

Research and ~~basic and diluted earnings per share have not been restated.~~

~~The pro forma effects of recognizing the estimated fair value of stock-based compensation as previously calculated under SFAS No. 123 for the year ended December 31, 2005 is summarized below:~~Development

2005

Net earnings – as reported

$
22,936

Add:

Share-based compensation expense determined under

intrinsic value method included in net earnings, net of

related tax effects

913

Deduct:

Share-based employee compensation expense

determined under fair value-based method, net of related

tax effects

(2,130
)
Pro forma net earnings

$
21,719

Basic earnings per share:

As reported

$
1.27

Pro forma

$
1.21

Diluted earnings per share:

As reported

$
1.26

Pro forma

$
1.19

~~RESEARCH AND DEVELOPMENT~~– Research and development costs are expensed as incurred.

~~INCOME TAXES~~Advertising Costs – We advertise products, technologies, and solutions to customers and prospective customers through a variety of marketing campaign and promotional efforts. These efforts include tradeshows, online advertising, email marketing, mailings, sponsorships, and telemarketing. Advertising costs are expensed as incurred. In 2008, 2007 and 2006 such activities amounted to $3,057, $3,237 and $3,947, respectively.

Income Taxes – Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the book and tax bases of existing assets and liabilities. A valuation allowance is provided when, in management’s judgment, it is more likely than not that some portion or all of the deferred tax asset will not be realized. We have established contingent tax liabilities using management’s best judgment. We adjust these liabilities as facts and circumstances change. Interest ~~expense~~Expense is recognized in the first period the interest would begin accruing. Penalties are recognized in the period we claim or expect to claim the position in our tax return. Interest and penalties expenses are classified as an income tax expense.

In June 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the Consolidated Financial Statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosures and transition. We adopted FIN 48 as of January 1, 2007, as further discussed in Note 14.

~~EARNINGS PER SHARE~~Sales Tax – In accordance with EITF Issue No. 06-3, “How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement,” we present these taxes on a net basis.

Earnings per Share– Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share ~~assumes~~assume conversion of potentially dilutive stock options and restricted share awards. Performance-based shares are included in the calculation of diluted earnings per share in the quarter in which the performance targets have been achieved.

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

~~NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS –~~

2.	Newly Adopted Accounting Pronouncements

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

In November 2006, the FASB released EITF Issue No. 06-3, “How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement” (“EITF Issue No. 06-3”). EITF Issue No. 06-3 concluded that the presentation of sales, use, value-added and certain excise taxes on either a gross (included in revenues and costs) or a net (excluded from revenues) basis is an accounting policy decision that should be disclosed in the Consolidated Financial Statements. In addition, for any such taxes that are reported on a gross basis, a company should disclose the amounts of those taxes in interim and annual Consolidated Financial Statements for each period for which an income statement is presented if those amounts are significant. We adopted EITF Issue No. 06-3 as of January 1, 2007. Our accounting policy is to present these taxes on a net basis.

~~In June 2006, the FASB issued Interpretation No. 48,~~06-11, “Accounting for ~~Uncertainty in~~ Income ~~Taxes”~~Tax Benefits of Dividends on Share-Based Payment Awards” (“FIN No. 48”). FIN No. 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the Consolidated Financial Statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted FIN No. 48 asEITF

~~Table of Contents~~contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

06-11”). EITF 06-11 defines how an entity should recognize the income tax benefit received on dividends that are (a) paid to employees holding equity-classified nonvested shares, equity-classified nonvested share units, or equity-classified outstanding share options and (b) charged to Retained Earnings under SFAS No. 123(R). We adopted EITF 06-11 as of January 1, 2008. The adoption did not have a material impact on our financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings without having to apply complex hedge accounting. We adopted SFAS No. 159 as of January 1, 2008. The adoption did not have an impact on our financial position or results of operations.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSP EITF 03-6-1). FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Upon adoption, a company is required to retrospectively adjust its earnings per share data presentation to conform to the FSP EITF 03-6-1 provisions. FSP EITF 03-6-1 is effective for financial statements issued after December 15, 2008. The adoption of FSP EITF 03-6-1 did not have an impact on our Consolidated Financial Statements.

3.
2.	Management Actions

2008 Actions – During the fourth quarter of 2008, we announced a workforce reduction program to resize our worldwide employee base by approximately 8%, or about 240 people. A pretax charge of $14,551, including other associated costs of $290, was recognized in the fourth quarter of 2008 as a result of this program. The workforce reduction was accomplished primarily through the elimination of salaried positions across the organization. The pretax charge consisted primarily of severance and outplacement service expenses and was included within Selling and Administrative Expense in the Consolidated Statements of Earnings.

The components of the 2008 restructuring action were as follows:

Severance, Early Retirement and Related Costs
2008 workforce reduction action $ 14,261
Cash payments (355 )
Foreign currency adjustments 5
December 31, 2008 balance $ 13,911

2007 ~~ACTIONS~~Actions– During the third quarter of 2007, management approved a restructuring action in an effort to better match skill sets and talent in evolving functional areas that are critical to successful execution of our strategic priorities. These actions impacted approximately 60 positions within a workforce of 2,700, or about two percent of the employee base.

The restructuring action resulted in the recognition of pretax charges of $2,194 during 2007, as well as other associated costs of $313. Of the $2,194, $1,647 was recognized in the third quarter and the remaining $547 was recognized in the fourth quarter. These charges consist primarily of severance and outplacement benefits and are included within ~~selling~~Selling and ~~administrative expenses~~Administrative Expense in the Consolidated Statements of Earnings.

The components of the 2007 restructuring action were as follows:

Severance, Early
Retirement and
Related Costs

2007 restructuring action

$
2,194

Cash payments

(836
)
Foreign currency adjustments

31

December 31, 2007 balance

$
1,389

	Severance, Early Retirement and Related Costs
2007 restructuring action	$	2,194
Cash payments		(836	)
Foreign currency adjustments		31
December 31, 2007 balance	$	1,389
2008 utilization:
Cash payments		(1,303	)
Foreign currency adjustments		5
Change in estimate		(91	)
December 31, 2008 balance	$	-

4.
3.	~~Acquisition of Businesses~~ Acquisitions and Divestitures

~~In February 2007,~~

Acquisitions

On December 1, 2008, we entered into an asset purchase agreement with Hewlett Equipment (“Hewlett”) for a purchase price of $625 in cash. The assets purchased consist of industrial equipment. Hewlett has been a distributor and service agent for Tennant Industrial and Commercial Equipment in Queensland, Australia since 1980. The purchase of Hewlett’s existing rental fleet of industrial equipment will accelerate Tennant’s strategy to grow its direct sales and service business in the key economic area of Australia. Hewlett will continue as a distributor and service agent of Tennant’s commercial Equipment.

On August 15, 2008, we acquired ~~Floorep Limited~~Shanghai ShenTan Mechanical and Electrical Equipment Co. Ltd. (“~~Floorep”~~Shanghai ShenTan”) for a purchase price of $598 in cash. The acquisition of Shanghai ShenTan, a 12 year exclusive distributor of Tennant Products in Shanghai, China, will accelerate Tennant’s strategy to grow its direct sales and service business in the key economic area of Shanghai. The purchase agreement also provides for additional contingent consideration to be paid in each of the three one-year periods following the acquisition date if certain future revenue targets are met and if other future events occur. We anticipate that any amount paid under this earn-out would be considered additional purchase price. The earn-out is denominated in foreign currency which approximates $600 in the aggregate and is to be calculated based on 1) growth in revenues and 2) visits to specified customer locations during each of the three one-year periods following the acquisition date.

On March 28, 2008, we acquired Sociedade Alfa Ltda. (“Alfa”) for a purchase price of $11,805 in cash and $1,447 in debt assumed, subject to certain post-closing adjustments. Alfa manufactures the Alfa brand of commercial cleaning machines, is based in Sao Paulo, Brazil, and is recognized as the market leader in the Brazilian cleaning equipment industry. The purchase agreement with Alfa also provides for additional contingent consideration to be paid if certain future revenue targets are met. We anticipate that any amount paid under this earn-out would be considered additional purchase price. The earn-out is denominated in foreign currency which approximates $5,200 and is to be calculated based on growth in revenues during the 2009 calendar year, with an interim calculation based on growth in 2008 revenues. There is no maximum earn-out that can be earned during the interim period; however, the maximum earn-out that can be paid for the interim period approximates $1,200. Any amount earned as of the interim date in excess of the maximum payment will be held in escrow and will not be paid until the final earn-out calculation is completed.

On February 29, 2008, we acquired Applied Sweepers, Ltd. (“Applied Sweepers”), a ~~distributor of cleaning equipment~~privately-held company based in Falkirk, Scotland, for a purchase price of ~~$3,565~~$75,199 in ~~cash, subject to certain post-closing adjustments.~~ cash. Applied Sweepers is the manufacturer of Green Machines™ and is recognized as the leading manufacturer of sub-compact

~~Table of Contents~~contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

outdoor sweeping machines in the United Kingdom. Applied Sweepers also has locations in the United States, France and Germany and sells through a broad distribution network around the world.

The results of ~~Floorep’s~~our acquisitions accounted for as business combinations of Applied Sweeper’s, Alfa’s and Shanghai ShenTan’s operations have been included in the Consolidated Financial Statements since ~~February 2, 2007, the date~~their respective dates of acquisition. The purchase price allocations are preliminary and will be adjusted based upon the final determination of fair value of assets acquired and liabilities assumed.

The components of the total purchase prices for all three acquisitions have been allocated as follows:

Net tangible assets acquired	$	3,314
Identified intangible assets		34,654
Goodwill		43,877
Total purchase price, net of cash acquired	$	81,845

The following unaudited pro forma consolidated condensed financial results of operations for the twelve months ended December 31, 2008 and 2007 are presented as if the Applied Sweepers, Alfa and Shanghai ShenTan acquisitions had been completed at the beginning of each period presented:

	2008		2007
Pro forma net sales	$	708,231	$	711,451
Pro forma net earnings		10,685		43,523

Pro forma earnings per share:
Basic		0.58		2.38
Diluted		0.58		2.32

Weighted average common shares outstanding:
Basic		18,303,137		18,640,882
Diluted		18,581,840		19,146,025

These unaudited pro forma consolidated condensed financial results have been prepared for comparative purposes only and include certain adjustments, such as increased Interest Expense on acquisition debt. The adjustments do not reflect the effect of synergies that would have been expected to result from the integration of these acquisitions. The unaudited pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred on January 1 of each year presented, or of future results of the consolidated entities.

Divestitures

On June 20, 2008, we completed the sale of certain assets related to our Centurion product to Wayne Sweepers LLC (“Wayne Sweepers”) and agreed not to compete with this specific type of product in North America for a period of two years from the date of sale. In exchange for these assets, we received $100 in cash and financed the remaining purchase price ~~were allocated~~of $525 to Wayne Sweepers over a period of three and a half years and will receive equal quarterly payments of approximately $38 beginning in the fourth quarter of 2008. As a result of this divestiture, we recorded a pre-tax gain of $229 in our Profit from Operations in the Consolidated Statements of Earnings and a reduction primarily to ~~goodwill~~property, plant and ~~identified intangible assets.~~

equipment. We will also receive approximately an additional $900 in royalty payments on the first approximately 250 units manufactured and sold by Wayne Sweepers. These royalty payments will be received and recognized quarterly as the units are sold.

5.
4.	Inventories

The composition of ~~inventories~~Inventories at December 31, were as follows:

2007

2006

Inventories carried at LIFO:

Finished goods

$
41,921

$
36,513

Raw materials, production parts and work-in-process

18,045

20,110

LIFO reserve

(27,858
)

(25,731
)
Total LIFO inventories

32,108

30,892

Inventories carried at FIFO:

Finished goods

22,369

21,387

Raw materials, production parts and work-in-process

9,550

8,699

Total FIFO inventories

31,919

30,086

Total inventories

$
64,027

$
60,978

	2008			2007
Inventories carried at LIFO:
Finished goods	$	52,289		$	41,921
Raw materials, production parts and work-in-process		17,468			18045
LIFO reserve		(32,481	)		(27,858	)
Total LIFO inventories		37,276			32,108

Inventories carried at FIFO:
Finished goods		17,200			22,369
Raw materials, production parts and work-in-process		12,352			9,550
Total FIFO inventories		29,552			31,919
Total Inventories	$	66,828		$	64,027

The LIFO reserve approximates the difference between LIFO carrying cost and ~~replacement cost.~~

FIFO.

6.
5.	Property, Plant and Equipment

Property, ~~plant~~Plant and ~~equipment~~Equipment and related ~~accumulated depreciation,~~Accumulated Depreciation, including equipment under capital leases, at December 31, consisted of the following:

2007

2006

Land

$
4,432

$
3,177

Buildings and improvements

43,143

36,600

Machinery and equipment

206,867

188,103

Work in progress

9,201

16,403

Total property, plant and equipment

263,643

244,283

Less accumulated depreciation

(167,092
)

(161,448
)
Net property, plant and equipment

96,551

82,835

	2008			2007
Land	$	4,416		$	4,432
Buildings and improvements		47,179			43,143
Machinery and equipment		221,814			206,867
Work in progress		5,403			9,201
Total Property, Plant and Equipment		278,812			263,643
Less: Accumulated Depreciation		(175,082	)		(167,092	)
Net Property, Plant and Equipment	$	103,730		$	96,551

In December 2007, we sold our Maple Grove, ~~Facility~~Minnesota facility for a pretax gain of ~~approximately $6,000.~~


6.	~~Goodwill and Intangible Assets~~

$5,972.

~~The changes in the carrying amount~~table of ~~goodwill as of December 31, are as follows:~~

2007

2006

Beginning balance

$
26,298

$
22,253

Additions

1,721

2,787

Foreign currency fluctuations

1,034

1,258

Ending balance

$
29,053

$
26,298

~~The balances of acquired intangible assets, excluding goodwill, as of December 31, are as follows:~~

Customer
List and
Order Book

Trade
Name

Technology

Total

Balance as of

December 31, 2006

Original cost

$
3,147

$
295

$
1,900

$
5,342

Accumulated

amortization

(608
)

(233
)

(147
)

(988
)
Foreign currency

fluctuations

235

(15
)

7

227

Carrying value

$
2,774

$
47

$
1,760

$
4,581

Weighted-average

original life (in years)

14

4

10

Balance as of

December 31, 2007

Original cost

$
3,961

$
295

$
1,900

$
6,156

Accumulated

amortization

(593
)

(295
)

(452
)
$
(1,340
)
Foreign currency

fluctuations

510

—

174

$
684

Carrying value

$
3,878

$
—

$
1,622

$
5,500

Weighted-average

original life (in years)

14

4

10

~~Amortization expense on intangible assets was $821, $675 and $165 for the years ended December 31, 2007, 2006, and 2005, respectively.~~

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

7.	Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair value of net assets of businesses acquired. In accordance with SFAS No. 142, we test Goodwill on an annual basis and when an event occurs or circumstances change that may reduce the fair value of one of our reporting units below its carrying amount. A Goodwill impairment loss occurs if the carrying amount of a reporting unit's Goodwill exceeds its fair value.

For purposes of performing our annual Goodwill impairment analysis, we have identified our reporting units as North America; Europe, Middle East, Africa (“EMEA”); Asia Pacific and Latin America. As quoted market prices are not available for our reporting units, estimated fair value is determined using projected discounted future cash flows based on historical performance and our estimates of future performance, including existing and anticipated competitive and economic conditions. Cash flow multiple models and our overall market capitalization are also considered when we evaluate the fair value of our reporting units. As of December 31, 2008, based upon our analysis, the estimated fair values of each of our reporting units exceeded their carrying amounts and therefore we have not recorded an impairment loss as of December 31, 2008. However, as of December 31, 2008, our EMEA reporting unit had excess of fair value over its carrying amount of approximately 15%. Goodwill for EMEA was $45,083 as of December 31, 2008.

Our market capitalization exceeds our carrying amount as of December 31, 2008. However, in late February 2009, the price of our stock decreased to the point that our carrying amount exceeds our market capitalization. If the price of our stock remains depressed or does not increase to the point that our market capitalization exceeds our carrying amount, we may be required to perform interim impairment tests on our Goodwill or other intangible assets. There may be other triggering events that also indicate that the carrying amount may not be recoverable from future cash flows. If we determine that any Goodwill or other intangible asset amounts need to be written down to their fair values this could result in a charge that may be material to our operating results and financial condition.

The changes in the carrying amount of Goodwill as of December 31, are as follows:

	2008			2007
Beginning balance	$	29,053		$	26,298
Additions		43,877			1,721
Foreign currency fluctuations		(10,835	)		1,034
Ending balance	$	62,095		$	29,053

We assess the impairment of amortizing intangible assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” at the asset grouping level. An impairment loss occurs if the carrying amount of the asset group exceeds its fair value. If an impairment loss occurs, the asset group is written down to its fair value. For the year ended December 31, 2008, based upon our analysis, there were no impairment losses for our held in use asset groups.

The balances of acquired Intangible Assets, excluding Goodwill, as of December 31, are as follows:

	Customer
	Lists, Service
	Contracts and			Trade
	Order Book			Name			Technology			Total
Balance as of December 31, 2008
Original cost	$	29,866		$	6,659		$	4,285		$	40,810
Accumulated amortization		(2,463	)		(573	)		(847	)		(3,883	)
Foreign currency fluctuations		(6,067	)		(1,633	)		(486	)		(8,186	)
Carrying amount	$	21,336		$	4,453		$	2,952		$	28,741
Weighted-average original life (in years)		14			3			12
Balance as of December 31, 2007
Original cost	$	3,961		$	295		$	1,900		$	6,156
Accumulated amortization		(593	)		(295	)		(452	)		(1,340	)
Foreign currency fluctuations		510			-			174			684
Carrying amount	$	3,878		$	-		$	1,622		$	5,500
Weighted-average original life (in years)		14			4			10

The additions to ~~goodwill~~Goodwill and Intangible Assets during 2008 were based on the preliminary purchase price allocations of Applied Sweepers, Alfa and Shanghai ShenTan as described in Note 4, plus adjustments to Goodwill related to the Floorep acquisition in February 2007. The Applied Sweepers Intangible Assets consisted of customer lists and service contracts, a trade name and technology with weighted average amortization periods of 15 years, 14 years and 11 years, respectively. The Alfa intangible ~~assets~~asset consisted of a customer list and is amortized over a useful life of 9 years. The total weighted average amortization period for acquired Intangible Assets during the period is 14 years.

The additions to Goodwill and Intangible Assets during 2007 were based on the purchase price allocation of the Floorep acquisition in February 2007 ~~as described in Note 3,~~ plus any adjustments to ~~goodwill~~Goodwill related to the Hofmans Machinefabriek acquisition in July 2006. The Floorep intangible asset consisted of a customer list and is amortized over a useful life of 12 years. Additions to ~~intangible assets~~Intangible Assets during 2007 also included an acquired customer list, which is amortized over a useful life of ~~seven~~9 years.

~~The additions to goodwill~~

Amortization expense on Intangible Assets was $2,543, $821 and ~~intangible assets during~~$675 for the years ended December 31, 2008, 2007, and 2006, ~~consisted~~respectively.

table of ~~goodwill from the purchase price of Hofmans acquisition~~contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and ~~intangible assets consisting of technology, a customer list and an order book and are amortized over useful lives of two to 22 years, 15 years and eight months, respectively.~~

per share data)

Estimated aggregate amortization expense based on the current carrying ~~value~~amount of amortizable ~~intangible assets~~Intangible Assets for each of the five succeeding years is as follows:

2008

$
617

2009

552

2010

550

2011

548

2012

524

Thereafter

2,709

Total

$
5,500

2009	$	2,766
2010		2,766
2011		2,760
2012		2,762
2013		1,695
Thereafter		15,992
Total	$	28,741

8.
7.	~~Short-~~Short-term Borrowings and Long-Term Debt

~~The components of our outstanding~~Short-term borrowings and long-term debt as of December 31:

	2008		2007
Short-term borrowings
Bank borrowings	$	-	$	205
Long-Term Debt
Bank borrowings		87,563		-
Collateralized borrowings		1,758		696
Capital lease obligations		6,018		3,696
Total Long-Term Debt		95,339		4,597
Less: current portion		3,946		2,127
Long-term portion	$	91,393	$	2,470

We had no short-term borrowings at December 31, ~~consisted of the following:~~

Maturity

Interest Rates

Outstanding
Balance

Dates

2007

2006

2007

2006

Short term debt

2008

6.21%

—

$
205

$
—

Collateralized borrowings

2008 - 2011

2.94%

2.94 - 4.50%

696

371

Capital lease obligations

2008 - 2011

4.50 - 7.00%

4.50 - 7.00%

3,696

3,348

Total outstanding debt

4,597

3,719

Less: current portion

2,127

1,812

Long-term portion

$
2,470

$
1,907

2008 and $205 in short-term borrowings at December 31, 2007. The ~~aggregate maturities of our outstanding debt including capital lease obligations as of~~weighted average interest rate on short-term borrowings at December 31, 2007 ~~are as follows:~~

2008

$
2,127

2009

1,747

2010

708

2011

15

2012

—

Thereafter

—

Total

$
4,597

Collateralized borrowings represent deferred sales proceeds on certain leasing transactions with third-party leasing companies. These transactions are accounted for as borrowings in accordance with SFAS No. 13, with the related assets capitalized as property, plant and equipment and depreciated straight-line over the lease term.

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.

was 6.21%.

As of December 31, ~~2007,~~2008, we had an available ~~committed line~~lines of credit totaling approximately ~~$125,000. We also have~~$136,346 and stand alone letters of credit of approximately ~~$3,000~~$2,655 outstanding as of December 31, ~~2007.~~2008. There were no$87,500 in outstanding borrowings under these facilities and we were in compliance with all debt covenants as of December 31, ~~2007.~~

2008. The weighted average interest rate on outstanding borrowings at December 31, 2008 was 0.88%. Commitment fees on unused lines of credit for the year ended December 31, 2008 were $118.

On March 28, 2008, as part of our acquisition of Alfa, we assumed debt totaling $1,447. We repaid the full notes payable balance of $455 upon acquisition and repaid an additional $664 of short-term debt during the quarter ended June 30, 2008.

Credit Facilities

JPMorgan Chase Bank

On June 19, 2007, we entered into a ~~credit agreement~~Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, BMO Capital Markets Financing, Inc. and U.S. Bank National Association, as Co-Documentation Agents and the Lenders from time to time party thereto. The Credit Agreement provides us and certain of our foreign subsidiaries access to a $125,000 ~~senior unsecured~~ revolving credit facility until June 19, 2012. Borrowings may be denominated in U.S. ~~Dollars~~dollars or certain other currencies. The Credit Agreement contained a $75,000 sublimit on foreign currency borrowings and a $50,000 sublimit on borrowings by the foreign subsidiaries. The agreement also contains an option that allows us to increase the commitment, in increments of $20,000, to a total of $225,000. Approval from the Board of Directors is required if the aggregate amount of the commitment exceeds $150,000. The facility is available for general corporate purposes, working capital needs, share repurchases and acquisitions.

The fee for committed funds under the Credit Agreement ranges from an annual rate of 0.08% to 0.225%, depending on our leverage ratio. Borrowings under the Credit Agreement generally bear interest at an annual rate of, at our option, either (i) between LIBOR plus 0.32% to LIBOR plus 1.025%, depending on our leverage ratio, or (ii) the higher of (A) the prime rate or (B) the federal funds rate plus 0.50%.

The Credit Agreement contains customary representations, warranties and covenants, including but not limited to covenants restricting our ability to incur indebtedness and liens and to merge or consolidate with another entity. Further, the Credit Agreement contains a covenant requiring us to maintain an indebtedness to EBITDA ratio as of the end of each quarter of not greater than 3.5 to 1, and to maintain an EBITDA to interest expense ratio of no less than 3.5 to 1. The Credit Agreement also restricts us from paying dividends or repurchasing stock in an amount that exceeds $50,000 during any fiscal year if, after giving effect to such payments, our leverage ratio would exceed 2.5 to 1. We were in compliance with all such covenants atas of December 31, ~~2007.~~

2008.

On February 21, 2008, we amended the Credit Agreement to increase the sublimit on foreign currency borrowings from $75,000 to ~~the aggregate amount of the commitment~~$125,000 and to increase the sublimit on borrowings by the foreign subsidiaries from $50,000 to $100,000.

To allow for flexibility during this volatile economic environment, on March 4, 2009, we entered into a second amendment to the Credit Agreement. This amendment principally provides: (i) an exclusion from our EBITDA calculation for: all non-cash losses and charges, up to $15,000 cash restructuring charges during the 2008 fiscal year and up to $3,000 cash restructuring charges during the 2009 fiscal year, (ii) an amendment of the indebtedness to EBITDA financial ratio required for the second and third quarters of 2009 to not greater than 4.0 to 1 and 5.5 to 1, respectively, (iii) an amendment to the EBITDA to interest expense financial ratio for the third quarter of 2009 to not less than 3.25 to 1, and (iv) gives us the ability to incur up to an additional $80,000 of indebtedness pari passu with the lenders under the Credit Agreement. The revolving credit facility available under the Credit Facility remains at $125,000, but the amendment reduced the expansion feature under the Credit Agreement from $100,000 to $50,000. The amendment put a cap on permitted acquisitions of $2,000 for the 2009 fiscal year and the amount of permitted acquisitions in fiscal years after 2009 will be limited according to our then current leverage ratio. The amendment prohibits us from conducting share repurchases during the 2009 fiscal year and limits the payment of dividends or repurchases of stock in fiscal years after 2009 to an amount ranging from $12,000 to $40,000 based on our leverage ratio after giving effect to such payments. Finally, if we obtain additional indebtedness as permitted under the amendment, to the extent that any revolving loans under the credit agreement are then outstanding we are required to prepay the revolving loans in an amount equal to 100% of the proceeds from the additional indebtedness. Additionally, proceeds over $25,000 and under $35,000 will reduce the revolver commitment on a 50% dollar for dollar basis and proceeds over $35,000 will reduce the revolver commitment on a 100% dollar for dollar basis.

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

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

There was $87,500 in outstanding borrowings under this facility at December 31, 2008, with a weighted average interest rate of 0.88%.

ABN AMRO Bank

We have a revolving credit facility with ABN AMRO Bank N.V. (“ABN AMRO”) of 5,000 Euros, or approximately $6,985, for general working capital purposes. Borrowings under the Facility incur interest generally at a rate of 1.25% over the ABN AMRO base rate as calculated daily on the cleared account balance. This facility may also be used for short-term loans up to 3,000 Euros, or $4,191. The terms and conditions of these loans would be incorporated in a separate short-term loan agreement at the time of the

~~Table~~1.75% over the BoS base rate as calculated daily on the cleared account balance. The Facility contains a covenant requiring us to maintain a total assets (excluding certain amounts) to borrowings ratio of ~~Contents~~

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

transaction. There was no balance outstanding on this facility at December 31, 2008.

Bank of America

On August 23, 2007, we entered into an unsecured revolving credit facility (the “Credit Facility”) with Bank of America, National Association, ~~which expires in~~Shanghai Branch. During 2008 we extended the term of this facility for an additional year and the agreement will expire on August ~~2008.~~28, 2009. This Credit Facility is denominated in ~~Renminbi~~renminbi (“RMB”) in the amount of ~~14,600~~20,100 RMB, or ~~approximately $1,900 U.S. Dollars,~~$2,947, and is available for general corporate purposes, including working capital needs of our China location. As part of the March 4, 2009 amendment to the Credit Agreement with JPMorgan Chase Bank, this Credit Facility with Bank of America was reduced to an RMB amount equivalent to $2,000. The interest rate on borrowed funds is equal to the People’s Bank of China’s base rate. This facility also allows for the issuance of standby letters of credit, performance bonds and other similar instruments over the term of the facility for a fee of 0.95% of the amount issued. ~~The~~There was no balance outstanding on this facility ~~was $205 U.S. Dollars~~ at December 31, ~~2007~~2008.

Bank of Scotland

On April 30, 2008, we entered into a committed credit facility with Bank of Scotland (“BoS”). This credit facility provides us with 500 British pounds, or $730, and is available for general working capital purposes. Borrowings under the credit facility generally bear interest at a rate of ~~6.21%.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except shares~~2.5 to 1 as of the end of each month and ~~per share data)~~an EBIT to total interest ratio of 2 to 1 as of the end of each quarter. We were in compliance with all such covenants at December 31, 2008. There was no balance outstanding on this facility at December 31, 2008.

Unibanco

During 2008 we entered in a revolving credit facility with Unibanco Bank (“Unibanco”) in Brazil for 1,000 real, or approximately $432. Borrowings under this credit facility generally bear interest at a rate of 0.32% over Future Contracts on Interbank Deposit Certificates (“CDI”). This facility is collateralized by a letter of credit of $625. There was no balance outstanding on this facility at December 31, 2008.

Collateralized Borrowings

Capital Lease Obligations

The aggregate maturities of our outstanding debt including capital lease obligations as of December 31, 2008, are as follows:

2009	$	4,252
2010		2,553
2011		1,290
2012		87,711
2013		10
Thereafter		-
Total minimum obligations	$	95,816
Less: amount representing interest		(477	)
Total	$	95,339

9.	Other Current Liabilities
8.

Other Current Liabilities

~~Other current liabilities~~ at December 31, consisted of the following:

2007

2006

Taxes, other than income taxes

$
3,390

$
3,224

Warranty

6,950

6,868

Deferred revenue

2,560

2,664

Rebates

5,173

4,681

Other

13,237

11,145

Total

$
31,310

$
28,582

	2008		2007
Taxes, other than income taxes	$	2,936	$	3,390
Warranty		6,018		6,950
Deferred revenue		3,662		2,560
Rebates		5,014		5,173
Restructuring		13,911		1,389
Miscellaneous accrued expenses		10,465		7,467
Other		8,183		4,381
Total	$	50,189	$	31,310

The changes in warranty reserves for the three years ended December 31 were as follows:

2007

2006

2005

Beginning balance

$
6,868

$
6,146

$
6,180

Additions charged to expense

7,740

8,258

7,668

Changes in estimates

(45
)

153

(398
)
Acquired reserves

—

89

—

Foreign currency

193

135

(122
)
Claims paid

(7,806
)

(7,913
)

(7,182
)
Ending balance

$
6,950

$
6,868

$
6,146

	2008			2007			2006
Beginning balance	$	6,950		$	6,868		$	6,146
Product warranty provision		8,157			7,695			8,411
Acquired reserves		192			-			89
Foreign currency		(88	)		193			135
Claims paid		(9,193	)		(7,806	)		(7,913	)
Ending balance	$	6,018		$	6,950		$	6,868

10.
9.	Fair Value of Financial Instruments

On January 1, 2008, we adopted SFAS No. 157, (as impacted by FSP FAS 157-1 and FSP FAS 157-2) for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This standard does not apply measurements related to share-based payments, nor does it apply to measurements related to inventory.

SFAS No. 157 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

§	Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

§	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

§	Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

Our ~~short-term~~population of financial ~~instruments including cash equivalents~~assets and ~~short-term investments~~liabilities subject to fair value measurements at December 31, 2008 are as follows:

	Fair value		Level 1		Level 2		Level 3
Assets:
Cash and Cash Equivalents	$	29,285	$	29,285	$	-	$	-
Foreign currency forward exchange contracts		346		-		346		-
Total Assets	$	29,631	$	29,285	$	346	$	-
Liabilities:
Long-Term Debt		91,393		-		91,393		-
Total Liabilities	$	91,393	$	-	$	91,393	$	-

Cash and Cash Equivalents are valued at their carrying amounts in the Consolidated Balance Sheets, which are reasonable estimates of their fair value due to their short maturities. Our foreign currency forward exchange contracts are valued at fair market value, which is the amount we would receive or pay to terminate the contracts at the reporting date. The fair market value of our ~~long-term debt~~Long-Term Debt approximates cost, based on the borrowing rates currently available to us for bank loans with similar terms and remaining maturities.

We use derivative instruments to manage exposures to foreign currency only in an attempt to limit underlying exposures from currency fluctuations and not for trading purposes. As of December 31, ~~2007~~2008 and ~~2006,~~2007, the fair value of such contracts outstanding was a net gain of ~~$490~~$346 and a ~~net loss~~net gain of ~~$117,~~$490, respectively. At December 31, ~~2007~~2008 and ~~2006,~~2007, the notional amounts of foreign currency forward exchange contracts outstanding were $62,825 and $61,756, ~~and $54,451,~~ respectively.

11.
~~10.~~	Retirement Benefit Plans

Substantially all U.S. employees are covered by various retirement benefit plans maintained by Tennant. Retirement benefits for eligible employees in foreign locations are funded principally through defined benefit plans, annuity or government programs. The total cost of benefits for our U.S. and foreign plans was $9,329, $9,604 and $10,188 in 2008, 2007 and ~~$9,898 in 2007,~~ 2006, ~~and 2005,~~ respectively.

We have a 401(k) plan that covers substantially all U.S. employees. Under this plan, the employer contribution matches up to 3% of the employee’s compensation in the form of Tennant stock. We also make a profit sharing contribution to the 401(k) plan for employees with more than one year of service in accordance with our Profit Sharing Plan. This contribution can be in the form of Tennant stock or cash and is based upon our financial performance. Matching contributions are primarily funded by our ESOP Plan, while profit sharing contributions are generally paid in ~~cash.~~cash or stock, or a combination of both. Expenses ~~under these plans~~for the 401(k) plan were $5,906, $6,184 and $7,344 during 2008, 2007 and ~~$7,129 during 2007,~~ 2006, ~~and 2005,~~ respectively.

We have a U.S. nonqualified supplemental benefit plan ~~(“the U.S.~~(the “U.S. Nonqualified Plan”) to provide additional retirement benefits for certain employees whose benefits under our 401(k) plan or U.S. Pension Plan are limited by either the Employee Retirement Income Security Act or the Internal Revenue Code.

We have a U.S. postretirement medical benefit plan ~~(“the U.S.~~(the “U.S. Retiree Plan”) to provide certain healthcare benefits for U.S. employees hired before January 1, 1999. Eligibility for those benefits is based upon a combination of years of service with Tennant and age upon retirement.

We have a qualified, funded defined benefit retirement plan ~~(“the U.S.~~(the “U.S. Pension Plan”) in the U.S. covering certain current and retired employees. Plan benefits are based on the years of service and compensation during the highest five consecutive years of service in the final ten years of employment. No new participants have entered the plan since 2000. The plan has approximately 500 participants including approximately ~~200~~150 active employees as of December 31, ~~2007.~~

2008.

We also have defined pension benefit plans in the United Kingdom and Germany ~~(“the U.K.~~(the “U.K. Pension Plan” and ~~“the German~~the “German Pension Plan”). The U.K. Pension Plan and German ~~pension~~Pension Plan both cover certain current and retired employees and neither plan is accepting new participants.

We expect to contribute approximately ~~$125~~$126 to our U.S. Nonqualified Plan, approximately ~~$816~~$927 to our U.S. Retiree Plan, approximately ~~$159~~$219 to our U.K. Pension Plan, and approximately ~~$44~~$40 to our German Pension Plan in ~~2008.~~2009. No contributions to the U.S. Pension Plan are expected to be required during ~~2008.~~

2009.

Weighted-average asset allocations by asset category of the U.S. and U.K. Pension Plans as of December 31, are as follows:

2007

2006

Equity securities

57
%

56
%
Debt securities

39
%

40
%
Other

4
%

4
%
Total

100
%

100
%

	2008			2007
Equity securities		49	%		57	%
Debt securities		47	%		39	%
Other		4	%		4	%
Total		100	%		100	%

The primary objective of our U.S. and U.K. Pension Plans is to meet retirement income commitments to plan participants at a reasonable cost to Tennant and to maintain a sound actuarially funded status. This objective is accomplished through growth of capital and safety of funds invested. The pension plan assets are invested in securities to achieve growth of capital over inflation through appreciation and accumulation and reinvestment of dividend and interest income. Investments are diversified to control risk. The overall return objective is to achieve an annualized return equal to or greater than the return expectations in the actuarial valuation. The target allocation for the U.S. Pension Plan is 60% equity and 40% debt securities. Equity securities within the U.S. Pension Plan do not include any investments in Tennant Company ~~common stock.~~Common Stock. The U.K. Pension Plan is invested in an insurance contract with underlying investments primarily in equity and fixed income securities. Our German Pension Plan is unfunded, which is customary in that country.

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except shares and per share data)~~

Weighted-average assumptions used to determine benefit obligations as of December 31 are as follows:

Pension Benefits

Postretirement
Medical Benefits

2007

2006

2007

2006

Discount rate

6.42%

5.77%

6.60%

6.00%

Rate of compensation increase

4.16%

4.11%

—

—

							Postretirement
	Pension Benefits						Medical Benefits
	2008			2007			2008			2007
Discount rate		6.78	%		6.42	%		6.90	%		6.60	%
Rate of compensation increase		4.07	%		4.16	%		-			-

Weighted-average assumptions used to determine net periodic benefit costs ~~for the years ended~~as of December 31 are as follows:

Pension Benefits

Postretirement
Medical Benefits

2007

2006

2007

2006

Discount rate

5.77%

5.62%

6.00%

5.80%

Expected long-term rate of

return on plan assets

8.19%

8.24%

—

—

Rate of compensation increase

4.11%

4.05%

—

—

							Postretirement
	Pension Benefits						Medical Benefits
	2008			2007			2008			2007
Discount rate		6.42	%		5.77	%		6.60	%		6.00	%
Expected long-term rate of return on plan assets		8.16	%		8.19	%		-			-
Rate of compensation increase		4.16	%		4.11	%		-			-

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

The discount rate is used to discount future benefit obligations back to today’s dollars. Our discount rates were determined based on high-quality fixed income investments. The resulting discount rates are consistent with the duration of plan liabilities. The Citigroup Above Median Yield Curve is used in determining the discount rate for the U.S. Plans.

The accumulated benefit obligations as of December 31, for all defined benefit plans are as follows:

2007

2006

U.S. defined benefit plans

$
29,758

$
28,539

U.K. Pension Plan

7,801

8,615

German Pension Plan

731

786

	2008		2007
U.S. defined benefit plans	$	30,154	$	29,758
U.K. Pension Plan		5,313		7,801
German Pension Plan		662		731

Information for our plans with an accumulated benefit obligation in excess of plan assets is as follows:

2007

2006

Projected benefit obligation

$
10,527

$
11,475

Accumulated benefit obligation

10,029

10,796

Fair value of plan assets

7,356

6,755

	2008		2007
Projected benefit obligation	$	38,665	$	10,527
Accumulated benefit obligation		36,129		10,029
Fair value of plan assets		29,321		7,356

As of December 31, ~~2007~~2008 and ~~2006,~~2007, the U.S. Nonqualified, U.K. Pension and German Pension Plans had an accumulated benefit obligation in excess of plan assets.

Assumed healthcare cost trend rates at December 31, ~~2007~~2008 and ~~2006~~2007 are as follows:

2007

2006

Healthcare cost trend rate assumption

for the next year

10.1
%

9.0
%
Rate to which the cost trend rate is

assumed to decline (the ultimate trend rate)

5.1
%

4.5
%
Year that the rate reaches the ultimate

trend rate

2028

2027

	2008			2007
Healthcare cost trend rate assumption for the next year		11.3	%		10.1	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		5.0	%		5.1	%
Year that the rate reaches the ultimate trend rate	2029			2028

Assumed healthcare cost trend rates have a significant effect on the amounts reported for healthcare plans. To illustrate, a one-percentage-point change in assumed healthcare cost trends would have the following effects:

1-Percentage-
Point
Decrease

1-Percentage-
Point
Increase

Effect on total of service

and interest cost components

$
(74
)
$
86

Effect on postretirement

benefit obligation

$
(1,034
)
$
1,200

	1-Percentage-			1-Percentage-
	Point			Point
	Decrease			Increase
Effect on total of service and interest cost components	$	(79	)	$	90
Effect on postretirement benefit obligation	$	(972	)	$	1,116

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

Summaries related to changes in benefit obligations and plan assets and to the funded status of our defined benefit and postretirement medical benefit plans are as follows:

Pension Benefits

Postretirement Medical Benefits

2007

2006

2007

2006

Change in benefit obligation:

Benefit obligation at beginning of year

$
41,391

$
40,628

$
14,242

$
15,027

Service cost

1,014

1,039

142

152

Interest cost

2,377

2,316

734

766

Plan participants’ contributions

52

53

—

—

Plan amendments

—

—

—

(426
)
Actuarial (gain) loss

(2,007
)

(551
)

(1,800
)

(305
)
Foreign exchange

220

938

—

—

Benefits paid

(1,675
)

(3,168
)

(555
)

(972
)
Settlement loss

—

136

—

—

Benefit obligation at end of year

41,372

$
41,391

$
12,763

$
14,242

Change in fair value of plan assets and net accrued liabilities:

Fair value of plan assets at beginning of year

$
39,065

$
35,730

$
—

$
—

Actual return on plan assets

2,545

4,640

—

—

Employer contributions

373

1,179

555

972

Plan participants’ contributions

52

53

—

—

Foreign exchange

96

631

—

—

Benefits paid

(1,675
)

(3,168
)

(555
)

(972
)
Fair value of plan assets at end of year

40,456

39,065

—

—

Funded status at end of year

$
(916
)
$
(2,326
)
$
(12,763
)
$
(14,242
)
Amounts recognized in the consolidated balance sheets consisted of:

Noncurrent assets

$
2,255

$
2,394

$
—

$
—

Current liabilities

(169
)

(157
)

(816
)

(1,024
)
Noncurrent liabilities

(3,002
)

(4,563
)

(11,947
)

(13,218
)
Net accrued liability

$
(916
)
$
(2,326
)
$
(12,763
)
$
(14,242
)
Amounts recognized in accumulated other comprehensive income consist of:

Prior service cost

$
2,588

$
3,150

$
(3,008
)
$
(3,587
)
Transition asset

(43
)

(65
)

—

—

Net (gain) loss

(4,114
)

(2,499
)

1,261

3,095

Accumulated other comprehensive income (loss)

$
(1,569
)
$
586

$
(1,747
)
$
(492
)

	Pension Benefits						Postretirement Medical Benefits
	2008			2007			2008			2007
Change in benefit obligation:
Benefit obligation at beginning of year	$	41,372		$	41,391		$	12,763		$	14,242
Service cost		895			1,014			128			142
Interest cost		2,546			2,377			791			734
Plan participants' contributions		35			52			-			-
Plan amendments		-			-			-			-
Actuarial (gain) loss		(2,239	)		(2,007	)		(344	)		(1,800	)
Foreign exchange		(2,073	)		220			-			-
Benefits paid		(1,871	)		(1,675	)		(858	)		(555	)
Benefit obligation at end of year	$	38,665		$	41,372		$	12,480		$	12,763
Change in fair value of plan assets and net accrued liabilities:
Fair value of plan assets at beginning of year	$	40,456		$	39,065		$	-		$	-
Actual return on plan assets		(7,835	)		2,545			-			-
Employer contributions		432			373			858			555
Plan participants' contributions		35			52			-			-
Foreign exchange		(1,896	)		96			-			-
Benefits paid		(1,871	)		(1,675	)		(858	)		(555	)
Fair value of plan assets at end of year		29,321			40,456			-			-
Funded status at end of year	$	(9,344	)	$	(916	)	$	(12,480	)	$	(12,763	)
Amounts recognized in the consolidated balance sheets consisted of:
Noncurrent assets	$	-		$	2,255		$	-		$	-
Current liabilities		(166	)		(169	)		(927	)		(816	)
Noncurrent liabilities		(9,178	)		(3,002	)		(11,553	)		(11,947	)
Net accrued liability	$	(9,344	)	$	(916	)	$	(12,480	)	$	(12,763	)
Amounts recognized in accumulated other comprehensive income consist of:
Prior service cost	$	2,032		$	2,588		$	(2,428	)	$	(3,008	)
Transition asset		(20	)		(43	)		-			-
Net (gain) loss		4,900			(4,114	)		919			1,261
Accumulated other comprehensive income (loss)	$	6,912		$	(1,569	)	$	(1,509	)	$	(1,747	)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

Components of net periodic benefit cost for the three years ended December 31, were as follows:

Pension Benefits

Postretirement Medical Benefits

2007

2006

2005

2007

2006

2005

Service cost

$
1,014

$
1,008

$
1,129

$
142

$
152

$
213

Interest cost

2,377

2,252

2,113

734

766

839

Expected return on plan assets

(3,025
)

(2,943
)

(2,921
)

—

—

—

Amortization actuarial (gain) loss

88

71

(155
)

34

75

169

Amortization of transition obligation

(22
)

(22
)

(22
)

—

—

—

Amortization of prior service cost

562

567

570

(580
)

(520
)

(520
)
Settlement loss

—

179

—

—

—

—

Foreign currency

76

98

(95
)

—

—

—

Net periodic cost

$
1,070

$
1,210

$
619

$
330

$
473

$
701

Changes in accumulated other comprehensive income:

Incremental effect of adopting SFAS No. 158

N/A

$
(1,055
)

N/A

N/A

$
(492
)

N/A

Net (gain) loss

(1,527
)

197

N/A

(1,800
)

—

N/A

Amortization of unrecognized prior service cost

(562
)

N/A

N/A

580

N/A

N/A

Amortization of unrecognized prior transition (asset) obligation

22

N/A

N/A

—

N/A

N/A

Amortization of unrecognized actuarial (gain) loss

(88
)

N/A

N/A

(34
)

N/A

N/A

Total recognized in other comprehensive income

$
(2,155
)
$
(858
)

N/A

$
(1,254
)
$
(492
)

N/A

Total recognized in net periodic benefit cost and other comprehensive income

$
(1,085
)
$
352

N/A

$
(924
)
$
(19
)

N/A

	Pension Benefits									Postretirement Medical Benefits
	2008			2007			2006			2008			2007			2006
Service cost	$	895		$	1,014		$	1,008		$	128		$	142		$	152
Interest cost		2,546			2,377			2,252			791			734			766
Expected return on plan assets		(3,203	)		(3,025	)		(2,943	)		-			-			-
Amortization actuarial (gain) loss		(216	)		88			71			-			34			75
Amortization of transition asset		(22	)		(22	)		(22	)		-			-			-
Amortization of prior service cost		556			562			567			(580	)		(580	)		(520	)
Settlement loss		-			-			179			-			-			-
Foreign currency		(183	)		76			98			-			-			-
Net periodic cost	$	373		$	1,070		$	1,210		$	339		$	330		$	473

Changes in accumulated other comprehensive income:
Incremental effect of adopting SFAS No. 158		N/A			N/A		$	(1,055	)		N/A			N/A		$	(492	)
Net (gain) loss	$	8,799		$	(1,527	)		197		$	(343	)	$	(1,800	)		-
Amortization of unrecognized prior service cost		(556	)		(562	)		N/A			580			580			N/A
Amortization of unrecognized prior transition asset		22			22			N/A			-			-			N/A
Amortization of unrecognized actuarial (gain) loss		216			(88	)		N/A			-			(34	)		N/A
Total recognized in other comprehensive income	$	8,481		$	(2,155	)	$	(858	)	$	237		$	(1,254	)	$	(492	)
Total recognized in net periodic benefit cost and other comprehensive income	$	8,854		$	(1,085	)	$	352		$	576		$	(924	)	$	(19	)

The following benefit payments, which reflect expected future service, are expected to be paid for our U.S. and foreign plans:

Pension
Benefits

Postretirement
Medical
Benefits

2008

$
1,995

$
816

2009

2,876

930

2010

2,194

956

2011

2,103

1,053

2012

2,686

1,136

2013 to 2017

18,285

6,163

Total

30,139

11,054

			Postretirement
	Pension		Medical
	Benefits		Benefits
2009	$	2,652	$	927
2010		2,140		1,061
2011		2,141		1,055
2012		2,460		1,149
2013		3,907		1,174
2014 to 2018		16,039		6,428
Total	$	29,339	$	11,794

The following amounts are included in accumulated other comprehensive income as of December 31, ~~2007~~2008 and are expected to be recognized as components of net periodic benefit cost during ~~2008:~~2009:

Pension
Benefits

Postretirement
Medical
Benefits

Net (gain) loss

$
(220
)
$
—

Net transition obligation

(22
)

—

Net prior service cost (credit)

556

(580
)

				Postretirement
	Pension			Medical
	Benefits			Benefits
Net (gain) loss	$	(50	)	$	-
Net transition obligation		(20	)		-
Net prior service cost (credit)		555			(580	)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

~~11. Common and Preferred Stock and Additional Paid-in Capital~~

12.	Common and Preferred Stock and Additional Paid-in Capital

We are authorized to issue an aggregate of 61,000,000 shares; 60,000,000 are designated as ~~common stock,~~Common Stock, having a par value of $0.375 per share, and 1,000,000 are designated as preferred stock, having a par value of $0.02 per share. The Board of Directors is authorized to establish one or more series of preferred stock, setting forth the designation of each such series, and fixing the relative rights and preferences of each such series. On November 10, 2006, the Board of Directors approved a Rights Agreement and declared a dividend of one preferred share purchase right for each outstanding share of ~~common stock.~~Common Stock. Each right entitles the registered holder to purchase from us one one-hundredth of a Series A Junior Participating Preferred Share of the par value of $0.02 per share at a price of $100 per one one-hundredth of a Preferred Share, subject to adjustment. The rights are not exercisable or transferable apart from the ~~common stock~~Common Stock until the earlier of: (i) the close of business on the fifteenth day following a public announcement that a person or group of affiliated or associated persons has become an “Acquiring Person” (i.e., has become, subject to certain exceptions, including for stock ownership by employee benefit plans, the beneficial owner of 20% or more of the outstanding ~~common stock)~~Common Stock), or (ii) the close of business on the fifteenth day following the first public announcement of a tender offer or exchange offer the consummation of which would result in a person or group of affiliated or associated persons becoming, subject to certain exceptions, the beneficial owner of 20% or more of the outstanding ~~common stock~~Common Stock (or such later date as may be determined by our Board of Directors prior to a person or group of affiliated or associated persons becoming an Acquiring Person). After a person or group becomes an Acquiring Person, each holder of a Right (other than an Acquiring Person) will be able to exercise the right at the current exercise price of the Right and receive the number of shares of ~~common stock~~Common Stock having a market value of two times the exercise price of the right, or, depending upon the circumstances in which the rights became exercisable, the number of common shares of the acquiring company having a market value of two times the exercise price of the right. At no time do the rights have any voting power. We may redeem the rights for $0.001 per right at any time prior to a person or group acquiring 20% or more of the ~~common stock.~~Common Stock. Under certain circumstances, the Board of Directors may exchange the rights for our ~~common stock~~Common Stock or reduce the 20% thresholds to not less than 10%. The rights will expire on December 26, 2016, unless extended or earlier redeemed or exchanged by us.

~~12. Commitment and Contingencies~~

13.	Commitment and Contingencies

We lease office and warehouse facilities, vehicles and office equipment under operating lease agreements, which include both monthly and longer-term arrangements. Leases with initial terms of one year or more expire at various dates through ~~2013~~2014 and generally provide for extension options. Rent expense under the leasing agreements (exclusive of real estate taxes, insurance and other expenses payable under the leases) amounted to $14,940, $13,647 and $11,911 in 2008, 2007 and ~~$8,977 in 2007,~~ 2006, ~~and 2005,~~ respectively.

The minimum rentals for aggregate lease commitments with an initial term of one year or more at December 31, ~~2007,~~2008, were as follows:

2008

$
8,900

2009

5,467

2010

3,673

2011

2,153

2012

1,316

Thereafter

236

Total

$
21,745

2009	$	7,919
2010		5,556
2011		3,342
2012		2,088
2013		427
Thereafter		362
Total	$	19,694

Certain operating leases for vehicles contain residual value guarantee provisions, which would become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. Of those leases that contain residual value guarantees, the aggregate residual value at lease expiration is ~~$11,862,~~$11,413, of which we have guaranteed ~~$9,270.~~$9,094. As of December 31, ~~2007,~~2008, we have recorded a liability for the estimated end-of-term loss related to this residual value guarantee of ~~$797~~$900 for certain vehicles within our fleet. Our fleet also contains vehicles we estimate will settle at a gain. Gains on these vehicles will be recognized at the end of the lease term.

We have applied the provisions of EITF 01-8, “Determining Whether an Arrangement Contains a Lease,” and have determined that our agreement with our third-party logistics provider contains an operating lease under SFAS No. 13. As a result, we have included the future minimum lease payments related to the underlying building lease in our operating lease commitments above. In the event that we elect to cancel the agreement with our third party logistics provider, Tennant would be required to assume the underlying building lease for the remainder of its term.

During ~~July 2005,~~2008, we amended our 2003 purchase commitment with a third-party manufacturer to extend the terms of the agreement to ~~September 2008.~~2009. The remaining commitment under this agreement totaled ~~$2,323~~$621 as of December 31, ~~2007.~~

2008.

In the ordinary course of business, we may become liable with respect to pending and threatened litigation, tax, environmental and other matters. While the ultimate results of current claims, investigations and lawsuits involving us are unknown at this time, we do not expect that these matters will have a material adverse effect on our consolidated financial position or results of operations.

~~13. Income Taxes~~

Legal costs associated with such matters are expensed as incurred.

14.	Income Taxes

Income from continuing operations for the three years ended December 31, was as follows:

2007

2006

2005

U.S. operations

$
50,561

$
37,325

$
28,660

Foreign operations

7,151

5,977

6,334

Total

$
57,712

$
43,302

$
34,994

	2008		2007		2006
U.S. operations	$	14,858	$	50,561	$	37,325
Foreign operations		2,717		7,151		5,977
Total	$	17,575	$	57,712	$	43,302

Income tax expense (benefit) for the three years ended December 31, was as follows:

2007

2006

2005

Current

Federal

$
14,927

$
11,345

$
8,243

Foreign

3,135

2,423

3,117

State

1,305

436

1,129

$
19,367

$
14,204

$
12,489

Deferred

Federal

$
1,978

$
(458
)
$
(108
)
Foreign

(3,605
)

(200
)

(354
)
State

105

(53
)

31

$
(1,522
)
$
(711
)
$
(431
)
Total

Federal

$
16,905

$
10,887

$
8,135

Foreign

(470
)

2,223

2,763

State

1,410

383

1,160

$
17,845

$
13,493

$
12,058

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except shares and per share data)~~

	2008			2007			2006
Current:
Federal	$	1,771		$	14,927		$	11,345
Foreign		4,155			3,135			2,423
State		595			1,305			436
	$	6,521		$	19,367		$	14,204
Deferred:
Federal	$	1,384		$	1,978		$	(458	)
Foreign		(1,201	)		(3,605	)		(200	)
State		247			105			(53	)
	$	430		$	(1,522	)	$	(711	)
Total:
Federal	$	3,155		$	16,905		$	10,887
Foreign		2,954			(470	)		2,223
State		842			1,410			383
	$	6,951		$	17,845		$	13,493

U.S. income taxes have not been provided on approximately ~~$58,125~~$25,281 of undistributed earnings of non-U.S. subsidiaries. We plan to permanently reinvest these undistributed earnings. ~~If any portion were~~Because of the availability of U.S. foreign

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

tax credits, it is not practicable to ~~be distributed,~~determine the ~~related U.S.~~income tax liability ~~may~~that would be ~~reduced by foreign income taxes paid on those earnings. Determination of the unrecognized deferred tax liability related to these undistributed~~payable if such earnings iswere not ~~practicable.~~

permanently reinvested.

We have Dutch ~~German~~ and ~~Chinese~~German tax loss carryforwards of approximately ~~$30,800, $18,066~~$35,990 and ~~$3,574,~~$16,990, respectively. If unutilized, the Dutch ~~and Chinese~~ tax loss ~~carryforwards~~carryforward will begin expiring in 2012. The German tax loss carryforward has no expiration date. Because of the uncertainty regarding realization of the Dutch ~~and Chinese~~ tax loss ~~carryforwards,~~carryforward, a valuation allowance was established. This valuation allowance increased in ~~2007~~2008 due to continued operating losses ~~in these countries,~~and the strength of the Euro ~~and RMB~~ against the U.S. dollar and changes in Chinese tax laws. During 2007 we determined that it is now more likely than not that the German tax loss carryforward will be utilized in the future and accordingly the valuation allowance for the related deferred tax asset was reduced to zero. The one-time tax benefit related to the reversal of this valuation allowance, net of the impact of tax rate changes in Germany and the U.K., was $3,605.

dollar.

A valuation allowance for the remaining deferred tax assets is not required since it is more likely than not that they will be realized through carryback to taxable income in prior years, future reversals of existing taxable temporary differences and future taxable income.

Our effective income tax rate varied from the U.S. federal statutory tax rate for the three years ended December 31, as follows:

2007

2006

2005

Tax at statutory rate

35.0
%

35.0
%

35.0
%
Increases (decreases) in the tax rate from:

State and local taxes,

net of federal benefit

1.8

(0.2
)

2.2

Effect of foreign operations

0.5

0.6

4.0

Effect of changes in valuation allowances

(4.9
)

0.4

(2.7
)
Effect of ETI and

manufacturing deduction

(1.2
)

(2.5
)

(2.6
)
Other, net

(0.3
)

(2.1
)

(1.4
)
Effective income tax rate

30.9
%

31.2
%

34.5
%

2008 2007 2006
Tax at statutory rate 35.0 % 35.0 % 35.0 %
Increases (decreases) in the tax rate from:
State and local taxes, net of federal benefit
4.6 1.8 (0.2 )
Effect of foreign operations (0.7 ) 0.5 0.6
Effect of changes in valuation allowances 6.3 (4.9 ) 0.4
Effect of ETI and manufacturing deduction
(3.3 ) (1.2 ) (2.5 )
Other, net (2.3 ) (0.3 ) (2.1 )
Effective income tax rate 39.6 % 30.9 % 31.2 %

Deferred tax assets and liabilities were comprised of the following as of December 31:

2007

2006

Deferred tax assets:

Inventories, principally due to

additional costs inventoried for tax

purposes and changes in inventory

reserves

$
848

$
854

Employee wages and benefits,

principally due to accruals for

financial reporting purposes

13,062

14,366

Warranty reserves accrued for

financial reporting purposes

1,856

1,862

Accounts receivable, principally due

and tax accounting method for

equipment rentals

658

643

Tax loss carryforwards

13,106

11,034

Valuation allowance

(8,197
)

(11,034
)
Other

562

863

Total deferred tax assets

$
21,895

$
18,588

Deferred tax liabilities:

Property, plant and equipment,

principally due to differences in

depreciation and related gains

$
5,895

$
3,621

Goodwill

6,006

5,889

Total deferred tax liabilities

$
11,901

$
9,510

Net deferred tax assets

$
9,994

$
9,078

31:

	2008			2007			2006
Deferred tax assets:
Inventories, principally due to additional costs inventoried for tax purposes and changes in inventory reserves	$	1,509		$	848		$	854
Employee wages and benefits, principally due to accruals for financial reporting purposes		16,557			13,062			14,366
Warranty reserves accrued for financial reporting purposes		1,947			1,856			1,862
Accounts receivable, principally due to allowance for doubtful accounts and tax accounting method for equipment rentals		1,151			658			643
Tax loss carryforwards		13,860			13,106			11,034
Other		836			562			863
Valuation allowance		(9,303	)		(8,197	)		(11,034	)
Total deferred tax assets	$	26,557		$	21,895		$	18,588
Deferred tax liabilities:
Property, Plant and Equipment, principally due to differences in depreciation and related gains	$	7,714		$	5,895		$	3,621
Goodwill and Intangible Assets		12,078			6,006			5,889
Total deferred tax liabilities	$	19,792		$	11,901		$	9,510
Net deferred tax assets	$	6,765		$	9,994		$	9,078

The valuation allowance at December 31, ~~2007,~~2008, principally applies to certain foreign loss carryforwards that, in the opinion of management, are more likely than not to expire unutilized. However, to the extent that tax benefits related to these carryforwards are realized in the future, the reduction in the valuation allowance will reduce income tax expense.

In 2008, 2007 ~~2006~~ and ~~2005,~~2006, we recorded tax benefits directly to ~~shareholders’ equity~~Shareholders’ Equity of ~~$3,300,~~$921, $3,301 and $1,392, ~~and $1,495,~~ respectively, relating to our ESOP and stock plans.

We adopted the provisions of ~~FASB Interpretation No.~~FIN 48 ~~“Accounting for Uncertainty in Income Taxes” (“FIN No. 48”),~~ on January 1, 2007. The cumulative effect of adopting FIN ~~No.~~ 48 was a decrease in reserves for uncertain tax positions and an increase to the January 1, 2007 balance of ~~retained earnings~~Retained Earnings of $184. Consistent with ~~the~~ provisions of FIN ~~No.~~ 48, we reclassified the reserves for uncertain tax positions from other current liabilities to non-current liabilities unless the liability is expected to be paid within one year.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at 1/1/07

$
5,779

Increases/(decreases) as a result of

tax positions taken during a prior period

—

Increases/(decreases) as a result of

tax positions taken during the current period

548

Decreases for tax positions related to

acquired entities during a prior period

—

Decreases relating to settlements with taxing authorities

—

Reductions as a result of a lapse

of the applicable statute of limitations

(561
)
Increases/(decreases) as a result of

foreign currency fluctuations

363

Balance at 12/31/07

$
6,129

Balance at 1/1/08	$	6,129
Increases as a result of tax positions taken during a prior period		536
Increases as a result of tax positions taken during the current period		1,048
Increases for tax positions related to acquired entities during a prior period		945
Decreases relating to settlements with taxing authorities		(185	)
Reductions as a result of a lapse of the applicable statute of limitations		(749	)
Decreases as a result of foreign currency fluctuations		(400	)
Balance at 12/31/08	$	7,324

Included in the balance of unrecognized tax benefits at December 31, ~~2007~~2008 are potential benefits of ~~$1,865~~$2,947 that, if recognized, would affect the effective tax rate from continuing operations.

We recognize potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Included in the liability of ~~$6,129~~$7,324 for unrecognized tax benefits as of December 31, ~~2007~~2008 was ~~a benefit of~~ approximately ~~$368~~$449 for accrued interest and penalties. To the extent interest and penalties are not assessed with respect to uncertain tax positions, the amounts accrued will be revised and reflected as an adjustment to income tax expense.

~~We do not anticipate that total unrecognized tax benefits will change significantly within the next 12 months.~~

We are subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. We are generally no longer subject to U.S. federal tax examinations for taxable years before ~~2004~~2007 and with limited exceptions, state and foreign income tax examinations for taxable years before 2003. The Internal Revenue Service ~~has just begun an~~completed its examination of ~~our~~the U.S. income tax ~~return~~returns for the years 2005 and 2006 during the third quarter. The IRS’s adjustments to certain tax ~~year. It is possible that~~positions were fully reserved. As a result of the additional tax payment made at the completion of the examination, ~~phase of the audit may conclude in the next 12 months, and that the related~~ unrecognized tax benefits were reduced by $178.

We are currently undergoing income examinations in various state and foreign jurisdictions covering 2004 to 2007. Although the final outcome of these examinations cannot be currently determined, we believe that we have adequate reserves with respect to these examinations.

In the second quarter of 2008, we identified an immaterial error in our reserves for uncertain tax ~~positions taken may change from those recorded as liabilities~~positions. The reserves were understated by $619 ($546 after tax) due to an inadvertent omission of reserves for uncertain tax positions related to tax years 2004 to 2006. We recorded the correction of this error in the second quarter ended June 30, 2008 as an increase to long-term FIN 48 liability and an increase to long-term deferred tax asset for the federal benefit of the increased liability. Income tax expense increased by $546, which resulted in an increase in the year-to-date effective tax rate of 3.1%. Neither the origination nor the correction of the error was material to our consolidated financial statements ~~at December 31, 2007. Although~~in the ~~outcome of this matter cannot currently be determined, we believe adequate provision has been made for any potential unfavorable financial statement impact.~~

~~14. Stock-Based Compensation~~

current or prior periods.

We do not anticipate that total unrecognized tax benefits will change significantly within the next 12 months.

15.	Stock-Based Compensation

We have seven plans under which we have awarded share-based compensation grants. The 1992 Stock Incentive Plan (“1992 Plan”), 1995 Stock Incentive Plan (“1995 Plan”), 1998 Management Incentive Plan (“1998 Plan”) and 1999 Amended and Restated Stock Incentive Plan (“1999 Plan”) provided for stock-based compensation grants to our executives and key employees. The 1993 Restricted Stock Plan for Non-Employee Directors (“1993 Plan”) provided for restricted shares to our non-employee Directors. The 1997 Non-Employee Directors Option Plan (“1997 Plan”) provided for stock option grants to our non-employee Directors. In 2007, our shareholders approved the 2007 Stock Incentive Plan (the “2007 Plan”), which was adopted as a continuing step toward aggregating our then existing equity compensation programs into one plan to reduce the complexity of our equity compensation programs.

The 1992 Plan expired in 1999 and consequently, no new awards have been granted under this Plan since 1999, although awards previously granted under it remain outstanding and continue to be governed by its terms.

The 1995 and 1998 Plans were terminated in 2006 and all remaining shares were transferred to the Amended and Restated 1999 Stock Incentive Plan as approved by the shareholders in 2006. Awards granted under the 1995 and 1998 Plans prior to 2006 that remain outstanding continue to be governed by the respective plan under which the grant was made. Upon approval of the Amended and Restated Stock Incentive Plan in 2006, we ceased making grants of future awards under the 1995 and 1998 Plans and subsequent grants of future awards were made from the 1999 Plan and governed by its terms.

The 2007 Plan terminated our rights to grant awards under the 1999 Plan except that the 1999 Plan will remain available for grants of reload options upon exercise of previously granted options with one-time reload features. We have not granted options with reload features since March 1, 2004. Awards previously granted under the 1999 Plan remain outstanding and continue to be governed by the terms of that plan. A total of 1,500,000 shares were authorized for future awards under the 2007 Plan.

On January 1, 2006, we adopted ~~Statement of Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment” (“~~SFAS No. 123(R)”), using the modified prospective transition method. Under this method, stock-based employee compensation cost is recognized using the fair value based method for all new awards granted after January 1, 2006. Compensation costs for unvested stock options and awards that were outstanding as of the adoption date are being recognized, beginning January 1, 2006, over the requisite service period based on the grant date fair value of those options and awards as previously calculated under the pro-forma disclosures pursuant to ~~Statement of Financial Accounting Standards~~SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”).

A maximum of 6,200,000 shares have been available under these plans. As of December 31, ~~2007,~~2008, there were ~~158,230~~461,418 shares reserved for issuance under the ~~1993~~1995 Plan, the 1997 Plan and the 1999 Plan for outstanding compensation awards and ~~1,463,673~~1,336,749 shares were available for issuance under the 2007 Plan for current and future equity awards. The Compensation Committee of the Board of Directors determines the ~~grant date and~~ number of shares awarded ~~under all plans.~~

and the grant date, subject to the terms of our equity award policy.

The following table presents the components of stock-based compensation expense (benefit) for the above described plans for the years ended December 31, 2008, 2007 and 2006:

	2008			2007		2006
Stock options and stock appreciation rights	$	218		$	778	$	1,066
Restricted share awards		878			1,144		772
Performance share awards		(2,086	)		1,084		1,536
Share-based liabilities		(237	)		134		194
Total Stock-Based Compensation Expense (Benefit)	$	(1,227	)	$	3,140	$	3,568

The total income tax benefit recognized in the income statement for share-based compensation arrangements during the years ended 2008, 2007 and 2006 was $892, $3,255 and $923, respectively.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

Stock Option and Stock Appreciation Right Awards

We determined the fair value of our stock option awards using the Black-Scholes option pricing model.

The following assumptions were used for the 2008, 2007 and 2006 ~~and 2005~~ grants:

2007

2006

2005

Expected dividend yield

1.3 - 1.8
%

1.8 - 2.1
%

2.2 - 2.3
%
Expected volatility

26 - 35
%

22 - 75
%

24 - 30
%
Risk-free interest rate

3.7 - 5.1
%

4.6 - 5.1
%

3.9 - 4.5
%
Expected life, in years

1 - 9

2 - 9

6 - 7

Weighted-average

expected volatility

30
%

43
%

25
%
Weighted-average fair value

$
10.26

$
10.01

$
5.78

	2008			2007			2006
Expected volatility		29 - 37	%		26 - 35	%		22 - 75	%
Weighted-average expected volatility		30	%		30	%		43	%
Expected dividend yield		1.2 - 1.5	%		1.3 - 1.8	%		1.8 - 2.1	%
Expected term, in years		2 - 8			1 - 9			2 - 9
Risk-free interest rate		1.8 - 3.5	%		3.7 - 5.1	%		4.6 - 5.1	%

The expected life selected for stock options granted during the year represents the period of time that the stock options are expected to be outstanding based on historical data of stock option holder exercise and termination behavior of similar grants. The risk-free interest rate for periods within the contractual life of the stock option is based on the U.S. Treasury rate over the expected life at the time of grant. Expected volatilities are based upon historical volatility of our stock over a period equal to the expected life of each stock option grant. Dividend yield is estimated over the expected life based on our dividend policy and historical dividends paid. We use historical data to estimate pre-vesting forfeiture rates and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except shares and per share data)~~

~~The total grant date fair value of stock options vested during the years ended December 31, 2007, 2006 and 2005 was $876, $1,418 and $3,133, respectively.~~

The weighted-average remaining contractual life for options outstanding and exercisable as of December 31, 2007, was four years. The aggregate intrinsic value of options outstanding and exercisable was $26,779 and $25,415, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2007, 2006 and 2005 was $8,370, $3,629 and $4,043, respectively.

Employee stock option awards prior to 2005 include a reload feature for options granted to key employees. This feature allows employees to exercise options through a stock-for-stock exercise using mature shares, and employees are granted a new stock option (reload option) equal to the number of shares of ~~common stock~~Common Stock used to satisfy both the exercise price of the option and the minimum tax withholding requirements. The reload options granted have an exercise price equal to the fair market value of the ~~common stock~~Common Stock on the grant date. Stock options granted in conjunction with reloads vest immediately and have a term equal to the remaining life of the initial grant.

Beginning in ~~2005,~~2004, new stock option awards granted vest one-third each year over a three-year period and have a ten-year contractual term. These grants do not contain a reload feature. Compensation expense equal to the grant date fair value is recognized for these awards over the vesting period. Compensation expense is fully recognized for reload stock options as of the reload date.

In addition to stock options, we also occasionally grant cash-settled stock appreciation rights (“SARs”) to employees in certain foreign locations. Total outstanding SARs were ~~11,400~~9,200 as of December 31, ~~2007.~~2008. No new SARs were granted during 2008, 2007 or 2006.

Compensation expense related to stock options and SARs was $778 and $1,054, for the years ended December 31, 2007 and 2006, respectively. As of December 31, 2007, there was unrecognized compensation cost for unvested options and rights of $525 which is expected to be recognized during 2008, 2009 and 2010.

The following table summarizes the activity during the year ended December 31, ~~2007,~~2008, for stock option and SARs awards:

Shares

Weighted-
Average
Exercise
Price

Outstanding at beginning of year

1,543,000

$
19.54

Granted

29,000

32.30

Exercised

(465,300
)

19.63

Forfeited

(1,000
)

20.82

Expired

(23,200
)

18.13

Outstanding at end of year

1,082,500

$
19.87

Exercisable at end of year

1,007,200

$
19.37

~~Restricted Share Awards~~

	Shares			Weighted-Average Exercise Price
Outstanding at beginning of year		1,082,468		$	19.87
Granted		27,850			35.04
Exercised		(116,823	)		19.12
Forfeited		(8,999	)		25.59
Expired		(33,305	)		20.33
Outstanding at end of year		951,191		$	20.33
Exercisable at end of year		913,837		$	19.87

The ~~following table summarizes the activity~~weighted-average grant date fair value of stock options granted during the ~~year~~years ended December 31, 2008, 2007 and 2006 was $10.57, $10.26 and $10.01, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2008, 2007 and 2006 was $1,910, $8,370 and $3,629, respectively.

The aggregate intrinsic value of options outstanding and exercisable at December 31, 2008 was $8 and $8, respectively. The weighted-average remaining contractual life for ~~unvested restricted share awards:~~

Unvested
Shares

Weighted-
Average
Grant Date
Fair Value

Unvested at beginning of year

83,100

$
25.56

Granted

32,800

33.15

Vested

(17,600
)

24.92

Forfeited

(7,200
)

26.38

Unvested at end of year

91,100

$
28.35

options outstanding and exercisable as of December 31, 2008, was four years.

As of December 31, 2008, there was unrecognized compensation cost for nonvested options and rights of $365 which is expected to be recognized over a weighted-average period of three years.

Restricted Share Awards

Restricted share awards typically have a two or three year vesting period from the effective date of the grant. Restricted share awards to non-employee directors vest upon a change of control or upon termination of service as a director occurring at least six months after grant date of award so long as termination is for one of the following reasons: death; disability; retirement in accordance with company policy (i.e., age 68 etc.); resignation at request of Board (other than for gross misconduct); resignation following at least ~~one year~~six months advance notice; failure to be re-nominated (unless due to unwillingness to serve) or re-elected by shareholders; or removal by shareholders.

The following table summarizes the activity during the year ended December 31, 2008, for nonvested restricted share awards:

	Shares			Weighted-Average Grant Date Fair Value
Nonvested at beginning of year		101,894		$	26.54
Granted		36,986			35.30
Vested		(39,913	)		27.43
Forfeited		(2,424	)		34.30
Nonvested at end of year		96,543		$	29.33

The total fair value of shares vested during the year ended December 31, ~~2007, 2006 and 2005 was $438, $256 and $955, respectively. Compensation expense related to restricted stock was $1,105 and $772 for the years ended December 31,~~2008, 2007 and 2006 was $1,095, $877 and $256, respectively. As of December 31, ~~2007,~~2008, there was ~~$877~~$1,259 of total unrecognized compensation cost related to ~~unvested~~nonvested shares which is expected to be recognized ~~during 2008, 2009 and 2010.~~

over a weighted-average period of three years.

Performance Share Awards

We grant performance share awards to key employees as a part of our management compensation program. These awards are earned based upon achievement of certain financial performance targets. We determine the fair value of these awards as of the date of grant and recognize the expense over a three year performance period.

The ~~compensation~~2006 performance share award covers the three year performance period from the beginning of fiscal year 2006 to the end of fiscal year 2008. Performance shares granted in 2006 vest solely upon achievement of certain financial performance targets during this three year period. During 2006 and 2007, we expensed amounts related to the 2006 performance share award as we deemed payment of the award to be probable during those prior years. During 2008, the amounts expensed in 2006 and 2007 related to the 2006 performance share award were subsequently reversed due to the lack of achievement of the predetermined financial performance targets. The 2007 performance share award covers the three year performance period from the beginning of fiscal year 2007 to the end of fiscal year 2009. Performance shares granted in 2007 vest solely upon achievement of certain financial performance targets during this three year period. During 2007, we expensed

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

an amount related to the 2007 performance share award as we deemed payment of the award to be probable during the prior year. During 2008, the amount expensed in 2007 related to the 2007 performance share award was subsequently reversed as we no longer deemed the achievement of the predetermined financial performance targets to be probable. The 2008 performance share award covers the three year performance period from the beginning of fiscal year 2008 to the end of fiscal year 2010. Performance shares granted in 2008 vest solely upon achievement of certain financial performance targets during this three year period. For the year ended 2008, we did not recognize any expense for the 2008 or 2007 performance share awards as we do not deem the achievement of these ~~awards was $807 and $1,361 for the years ended December 31, 2007 and 2006, respectively.~~

predetermined financial performance targets to be probable.

During November 2005, we also granted a performance share award, which ~~vests~~vested and iswas earned upon achieving certain total shareholder return targets over a ~~five-year~~three to five year performance period. The maximum number of shares of ~~common stock issuable~~Common Stock issued upon payout of the award iswas 40,000. Compensation cost iswas based on the fair value of this award as of the date of grant and was recognized over the derived requisite service period of three ~~years. Compensation expense related to this award~~years as the end of the third year of the performance period was ~~$142~~the first opportunity for achievement of the ~~years ended December 31, 2007 and 2006.~~total shareholder return targets. As of December 31, ~~2007,~~2008, there was ~~$130 of total~~no unrecognized compensation cost related to this award ~~which is expected to be recognized~~as the total shareholder return targets were acheived and the maximum award was paid during 2008.

Share-Based Liabilities

As of December 31, ~~2007,~~2008, we had ~~$1,386~~$208 in total share-based liabilities recorded on our balance sheet. During the ~~year~~years ended December 31, 2008 and 2007 we paid out $738 and $655 related to 2007 and 2006 share-based liability ~~awards.~~awards, respectively. $1,739 related to 2005 share-based liability awards was paid during the year ended December 31, 2006.

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except shares and per share data)~~

~~15. Employee Stock Ownership Plan~~

16.	Employee Stock Ownership Plan

We established a leveraged Employee Stock Ownership Plan (“ESOP”) in 1990. The ESOP covers substantially all domestic employees. The shares required for our 401(k) matching contribution program are provided principally by our ESOP, supplemented as needed by newly issued shares. We make annual contributions to the ESOP equal to the ESOP’s debt service less dividends and Company match contributions received by the ESOP. All dividends received by the ESOP are used to pay debt service. The ESOP shares initially were pledged as collateral for its debt. As the debt is repaid, shares are released from collateral and allocated to employees who made 401(k) contributions that year, in the form of a matching contribution, based on the proportion of debt service paid in the year. We account for the ESOP in accordance with EITF 89-8, “Expense Recognition for Employee Stock Ownership Plans.” Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Balance Sheets. As shares are released from collateral, we report compensation expense equal to the cost of the shares to the ESOP. All ESOP shares are considered outstanding in earnings-per-share computations, and dividends on allocated and unallocated shares are recorded as a reduction of ~~retained earnings.~~

Retained Earnings.

The following table summarizes ESOP activity during the years ended December 31:

2007

2006

2005

Cash contributions

$
1,530

$
1,513

$
1,498

Net benefit provided by ESOP

2,568

1,205

387

Interest earned

and received on loan

520

663

792

Dividends

486

523

559

	2008		2007		2006
Cash contributions	$	1,621	$	1,530	$	1,513
Net benefit provided by ESOP		2,219		2,568		1,205
Interest earned and received on loan		363		520		663
Dividends		427		486		523

The benefit provided through the ESOP is net of expenses and is recorded in ~~other income.~~Other Income. At December 31, ~~2007,~~2008, the ESOP indebtedness to us, which bears an interest rate of 10.05% and is due December 31, 2009, was ~~$3,611.~~

$1,892.

The ESOP shares as of December 31, were as follows:

2007

2006

2005

Allocated shares

1,738,210

1,638,248

1,538,286

Unreleased shares

199,922

299,884

399,846

Total ESOP shares

1,938,132

1,938,132

1,938,132

~~16. Earnings Per Share Computations~~

	2008		2007		2006
Allocated shares		1,838,171		1,738,210		1,638,248
Unreleased shares		99,961		199,922		299,884
Total ESOP shares		1,938,132		1,938,132		1,938,132

17.	Earnings Per Share Computations

The computations of basic and diluted earnings per share for the years ended December 31, were as follows:

2007

2006

2005

Numerator:

Net Earnings

$
39,867

$
29,809

$
22,936

Denominator:

Basic - weighted average

outstanding shares

18,641,000

18,561,000

18,024,000

Effect of dilutive securities:

Employee stock options

505,000

428,000

186,000

Diluted - weighted average

outstanding shares

19,146,000

18,989,000

18,210,000

Basic earnings per share

$
2.14

$
1.61

$
1.27

Diluted earnings per share

$
2.08

$
1.57

$
1.26

	2008		2007		2006
Numerator:
Net Earnings	$	10,624	$	39,867	$	29,809
Denominator:
Basic - Weighted Average Shares Outstanding		18,303,137		18,640,882		18,561,533
Effect of dilutive securities:
Employee stock options		278,703		505,143		427,715
Diluted - Weighted Average Shares Outstanding		18,581,840		19,146,025		18,989,248
Basic Earnings per Share	$	0.58	$	2.14	$	1.61
Diluted Earnings per Share	$	0.57	$	2.08	$	1.57

Options to purchase 46,000, 20,700 ~~107,000~~ and ~~892,000~~107,000 shares of ~~common stock~~Common Stock were outstanding during 2008, 2007, ~~2006,~~ and ~~2005,~~2006, respectively, but were not included in the computation of diluted earnings per share as the effect would have been ~~antidilutive.~~

~~17. Segment Reporting~~

anti-dilutive.

18.	Segment Reporting

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes disclosure standards for segments of a company based on management’s approach to defining operating segments. In accordance with the objective and basic principles of the standard we aggregate our operating segments into one reportable segment.

The following sets forth ~~net sales~~Net Sales and long-lived assets by geographic area:

2007

2006

2005

Net sales:

North America

$
417,757

$
391,309

$
370,142

Europe

172,708

147,657

126,913

Other International

73,753

60,015

55,853

Total

$
664,218

$
598,981

$
552,908

2007

2006

Long-lived assets:

North America

$
93,222

$
85,829

Europe

37,395

29,529

Other International

4,062

1,914

Total

$
134,679

$
117,272

	2008		2007		2006
Net Sales:
North America	$	402,174	$	417,757	$	391,309
Europe, Middle East and Africa		217,594		183,188		155,710
Other International		81,637		63,273		51,962
Total	$	701,405	$	664,218	$	598,981

	2008		2007
Long-lived assets:
North America	$	99,022	$	93,222
Europe, Middle East and Africa		87,815		37,395
Other International		15,114		4,062
Total	$	201,951	$	134,679

Accounting policies of the operations in the various geographic areas are the same as those described in Note 1. Net ~~sales~~Sales are attributed to each geographic area based on the country to which the product is shipped and are net of intercompany sales. North America sales include sales in the United States and Canada. Sales in Canada comprise less than 10% of consolidated

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

sales and are interrelated with our U.S. operations. No single customer represents more than 10% of our consolidated sales. Long-lived assets consist of property and equipment, ~~goodwill, intangible assets~~Goodwill, Intangible Assets and certain other assets.

The following table presents revenues for groups of similar products and services:

2007

2006

2005

Net sales:

Equipment

$
393,270

$
358,344

$
332,421

Parts and consumables

161,334

145,218

133,108

Service and other

84,429

74,235

67,482

Specialty surface coatings

25,185

21,184

19,897

Total

$
664,218

$
598,981

$
552,908

	2008		2007		2006
Net Sales:
Equipment	$	411,765	$	393,270	$	358,344
Parts and consumables		168,699		161,334		145,218
Service and other		97,292		84,429		74,235
Specialty surface coatings		23,649		25,185		21,184
Total	$	701,405	$	664,218	$	598,981

19.	Consolidated Quarterly Data (Unaudited)

	Net Sales				Gross Profit
Quarter	2008		2007		2008		2007
First	$	168,600	$	155,078	$	69,640	$	63,758
Second		193,584		165,203		82,203		70,853
Third		185,935		161,329		78,552		66,864
Fourth		153,286		182,608		55,855		77,509
Year	$	701,405	$	664,218	$	286,250	$	278,984

						Basic						Diluted
						Earnings (Loss)						Earnings (Loss)
	Net Earnings (Loss)					per Share						per Share
Quarter	2008			2007		2008			2007			2008			2007
First	$	5,235		$	5,851	$	0.28		$	0.31		$	0.28		$	0.31
Second		8,292			10,454		0.45			0.56			0.44			0.55
Third		13,985			10,967		0.77			0.59			0.76			0.57
Fourth		(16,888	)		12,595		(0.93	)		0.68			(0.92	)		0.66
Year	$	10,624		$	39,867	$	0.58	(1)	$	2.14	(1)	$	0.57		$	2.08	(1)

~~Table of Contents~~(1)

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except shares and per share data)~~

~~18. Consolidated Quarterly Data~~

Net Sales

Gross Profit

Quarter

2007

2006

2007

2006

First

$
155,078

$
135,462

$
63,758

$
56,800

Second

165,203

150,965

70,853

65,798

Third

161,329

145,690

66,864

60,617

Fourth

182,608

166,863

77,509

68,364

Year

$
664,218

$
598,981
⁽¹⁾
$
278,984

$
251,579

Net Earnings

Basic Earnings
per Share

Diluted Earnings
per Share

Quarter

2007

2006

2007

2006

2007

2006

First

$
5,851

$
4,437

$
0.31

$
0.24

$
0.31

$
0.24

Second

10,454

9,153

0.56

0.49

0.55

0.48

Third

10,967

7,922

0.59

0.43

0.57

0.42

Fourth

12,595

8,297

0.68

0.44

0.66

0.43

Year

$
39,867

$
29,809

$
2.14

$
1.61
⁽¹⁾
$
2.08
⁽¹⁾
$
1.57

⁽¹⁾ The summation of quarterly data does not equate to the calculation for the full fiscal year as quarterly calculations are performed on a discrete basis.

Regular quarterly dividends aggregated $0.52 per share in 2008, or $0.13 per share each quarter, and $0.48 per share in 2007, or $0.12 per share each ~~quarter and $0.46 per share in 2006, or $0.11 per share for the first and second quarters and $0.12 per share for the third and fourth quarters.~~

~~19. Subsequent Events~~

~~On February 15,~~quarter.

20.	Related Party Transactions

In June 2008, ~~we announced that~~ we entered into a settlement agreement with a former member of the Board of Directors to pay $356 to resolve a disputed claim alleging that we failed to provide adequate notice of the expiration of stock options upon resignation from the Board. The payment represents a portion of the value of the vested stock options that expired upon resignation from the Board. This charge was included within Selling and Administrative Expense in the Consolidated Statements of Earnings for the quarter ended June 30, 2008.

During the first quarter of 2008, we acquired Applied Sweepers and Alfa and entered into lease agreements for certain properties owned by or partially owned by the former owners of these entities. These individuals are now current employees of Tennant. Lease payments made under these lease agreements totaled $260 during 2008.

21.	Subsequent Events

On February 27, 2009, we acquired certain assets of Applied Cleansing Solutions Pty Ltd ("Applied Cleansing"), a long-term importer and distributor for Green Machines™ products in Australia and New Zealand, in a business combination for an initial closing price of approximately $560 in cash. The purchase agreement also provides for additional contingent consideration to ~~acquire Applied Sweepers for~~be paid following the acquisition date if certain future revenue targets are met during the next twelve months. We currently estimate the additional contingent consideration will be approximately ~~$68,000. Applied Sweepers, a privately-held company based in Falkirk, Scotland, had 2007 revenues of approximately $40,000.~~

$110.

On February 21, 2008, we amended our Credit Agreement to increase the sublimit on foreign currency borrowings from $75,000 to the aggregate amount of the commitment and to increase the sublimit on borrowings by the foreign subsidiaries from $50,000 to $100,000.

~~On February 22, 2008, we announced that~~March 4, 2009 we entered into a ~~purchase agreement with Sociedade Alfa Ltda., based~~second amendment to the Credit Agreement as further discussed in ~~Sao Paulo, Brazil. Sociedade Alfa Ltda. reported approximately $9,000 in sales revenues for 2007. This acquisition is expected to close in March or April 2008.~~

~~On February 29, 2008, we announced that we completed the acquisition~~Note 8.

table of ~~Applied Sweepers.~~

contents

ITEM 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A – Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Principal Financial and Accounting Officer, have evaluated the effectiveness of our disclosure controls and procedures for the year ended December 31, ~~2007~~2008 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and our Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is communicated to our management, including our principal executive and our principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

~~Management’s Report on Internal Controls over Financial Reporting~~

~~The report of management required under this item is contained in Item 8 of this Annual Report on Form 10-K.~~

~~Attestation Report of Independent Registered Public Accounting Firm~~

~~The attestation report required under this item is contained in Item 8 of this Annual Report on Form 10-K.~~

Changes in Internal Control

There were no significant changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal accounting and financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under the framework in Internal Control – Integrated Framework (COSO), our management concluded that our internal control over financial reporting was effective as of December 31, 2008.

Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2008 excluded Applied Sweepers, which was acquired by us during the first quarter of 2008 in a purchase business combination. Applied Sweepers is a wholly-owned subsidiary of ours with combined assets and net sales that represented less than 16% of our consolidated total assets and less than 4% of our consolidated net sales, respectively, as of and for the year ended December 31, 2008. Companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company under guidelines established by the Securities and Exchange Commission.

KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10-K and, as a part of this audit, has issued their report, included in Item 8, on the effectiveness of our internal control over financial reporting.

	/s/ H. Chris Killingstad
	H. Chris Killingstad President and Chief Executive Officer

	/s/ Thomas Paulson
	Thomas Paulson Chief Financial Officer (Principal Financial and Accounting Officer)

Attestation Report of Independent Registered Public Accounting Firm

The attestation report required under this item is contained in Item 8 of this Annual Report on Form 10-K.

ITEM 9B – Other Information

None.

PART III

ITEM 10 – Directors, Executive Officers and Corporate Governance

The sections entitled “Board of Directors Information” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our ~~2008~~2009 Proxy Statement are incorporated herein by reference.

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

H. Chris Killingstad, President and Chief Executive Officer

H. Chris Killingstad ~~(52)~~(53) joined the Company in April 2002 as Vice President, North America and was named President and CEO in 2005. From 1990 to 2000, he was employed by The Pillsbury Company, a consumer foods manufacturer. From 1999 to 2000 he served as Sr. Vice President and General Manager of Frozen Products for Pillsbury North America; from 1996 to 1999 he served as Regional Vice President and Managing Director of Pillsbury Europe, and from 1990 to 1996 was Regional Vice President of Haagen-Dazs Asia Pacific.

~~Steven M. Coopersmith, Vice President, Global Marketing~~

Steven M. Coopersmith (44) joined Tennant in April 2003. From 2000 to 2003, he was the President of Dairy Marketing Alliance LLC, a joint venture between Land O’Lakes, Inc. and Dean Foods Company. Previously, he was Vice President of Product Development with United Healthcare. Before that, he was the Business Team Leader for Pillsbury’s line of refrigerated sweet baked goods. Earlier in his career, he managed new products for Reckitt & Coleman Inc.’s household product group. He began his marketing career at Unilever’s Lever Brothers Company, where he held a variety of positions culminating in Senior Manager of their All detergent franchise.

Thomas J. Dybsky, Vice President, Administration

Thomas J. Dybsky ~~(58)~~(59) joined the Company in September 1998 as Vice President of Human Resources and was named Vice President of Administration in 2004. From June 1995 to September 1998, he was Vice President/Senior Consultant for MDA Consulting.

Andrew J. Eckert, Vice President, North America Sales

and Service

Andrew J. Eckert ~~(44)~~(45) joined Tennant in 2002 as General Manager, North America. He was promoted to Vice President, North America Sales in 2005. From 2000 to 2002, he was the Senior Vice President of Operations at Storecast Merchandising Company, a national retail merchandising service contractor for the grocery industry. Prior to that, he was Director of Strategic Planning at General Mills and led the automation and cost-reduction efforts for U.S. trade promotional spending. He began his sales career in 1985 at General Mills in Houston, TX, and held a variety of increasing responsibilities including Customer Sales Manager for Fleming Companies and American Stores.

Michael W. Schaefer, Vice President, Chief Technical Officer

~~Michael W.~~

Mike Schaefer ~~(47)~~(48) joined the Company in January 2008 as Vice President, Chief Technical Officer. From 2000 to January 2008, he was Vice President of Dispensing Systems, Lean Six Sigma and Quality at Ecolab, Inc., a provider of cleaning, sanitizing, food safety and ~~sanitizing~~infection prevention products and services, where he led R&D efforts for their equipment business, continuous improvement and standardization of R&D processes. Prior to that he held various management positions at Alticor Corporation and Kraft General Foods.

Heidi M. Hoard, Vice President, General Counsel and Secretary

Heidi M. Hoard ~~(57)~~(58) joined Tennant in 2003 as Assistant General Counsel and Assistant Secretary and was named General Counsel in 2005. She was a partner with General Counsel Ltd. during 2003. From 1995 to 2001, she was Vice President, General Counsel and Secretary at Musicland Group, Inc. From 1993 to 1995, she was Senior Legal Counsel at Medtronic, Inc. Prior to that, she was a partner at Faegre & Benson L.L.P., a Minneapolis law ~~firm.~~

firm, which she joined in 1976.

Karel Huijser, Vice President, International

Karel Huijser ~~(46)~~(48) joined the Company in 2006 as Vice President, International. Prior to joining Tennant, he was President and CEO of Asia Pacific for GE Infrastructure Shanghai, China, from 2005 to November 2006. From 2003 to 2005, he was General Manager of Asia Pacific, GE Water and Process Technologies (Asia). From 2001 to 2003, he was Global Marketing Director for GE Plastics Division based in The Netherlands. His career at GE began in 1992, following six years at Daf Trucks in The Netherlands.

Thomas Paulson, Vice President and Chief Financial Officer

Thomas Paulson ~~(51)~~(52) joined Tennant in March 2006. Prior to joining Tennant, Paulson was Chief Financial Officer and Senior Vice President of Innovex from 2001 to 2006. Prior to joining Innovex, a manufacturer of electronic interconnect solutions, Paulson worked for The Pillsbury Company for over 19 years. Paulson became a Vice President at Pillsbury in 1995 and was the Vice President of Finance for the $4 billion North American Foods Division for over two years before joining Innovex.

Don B. Westman, Vice President, Global Operations

Don B. Westman ~~(54)~~(55) joined the Company in November 2006 as Vice President, Global Operations. Prior to joining Tennant, he was Vice President of Operations – Pump Division for Pentair, Inc., a provider of products and services for the movement, treatment and storage of water, from 2005 to November 2006. From 2003 to 2005, he was Vice President of Operations – Pentair Water. From 1997 to 2003, Westman was Vice President of Operations for Hoffmans Enclosures, where he began in 1982 as a manufacturing engineering manager.

Business Ethics Guide

We have adopted the Tennant Company Business Ethics Guide, which applies to all of our employees, directors, consultants, agents and anyone else acting on our behalf. The Business Ethics Guide includes particular provisions applicable to our senior financial management, which includes our Chief Executive Officer, Chief Financial Officer, Controller and other employees performing similar functions. A copy of our Business Ethics Guide is available on the Investors page of our website, www.tennantco.com, and a copy will be mailed upon request to Investor Relations, Tennant Company, P.O. Box 1452, Minneapolis, MN 55440-1452. We intend to post on our website any amendment to, or waiver from, a provision of our Business Ethics Guide that applies to our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, Controller and other persons performing similar functions promptly following the date of such amendment or waiver. In addition, we have also posted copies of our Corporate Governance Principles and the Charters for our Audit, Compensation, Governance and Executive Committees on our website.

Section 302 Certifications

We have filed the required certifications under Section 302 of the Sarbanes-Oxley Act of 2002 regarding the quality of our public disclosures as Exhibits 31.1 and 31.2 to this report. We filed with the NYSE the CEO certification regarding our compliance with the NYSE’s corporate governance listing standards as required by NYSE Rule 303A.12(a) on May ~~29, 2007.~~

28, 2008.

~~Corporate Governance~~

ITEM 11 – Executive Compensation

The sections entitled “Director Compensation for 2008” and “Executive Compensation Information” ~~and “Director Compensation”~~ in our ~~2008~~2009 Proxy Statement are incorporated herein by reference.

ITEM 12 – Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The sections entitled “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” ~~and “Equity Compensation Plan Information”~~ in our ~~2008~~2009 Proxy Statement are incorporated herein by reference.

ITEM 13 – Certain Relationships and Related Transactions, and Director Independence

The sections entitled “Committee Member Appointment and Director Independence” and “Related Person Transaction Approval Policy” in our ~~2008~~2009 Proxy Statement are incorporated herein by reference.

ITEM 14 – Principal ~~Accounting~~Accountant Fees and Services

The section entitled “Fees Paid to Independent Registered Public Accounting Firm” in our ~~2008~~2009 Proxy Statement is incorporated herein by reference.

PART IV

ITEM 15 – Exhibits, Financial Statement Schedules

A.
A.	The following documents are filed as a part of this report:

1.
	1.	Financial Statements

Consolidated Financial Statements filed as part of this report are contained in Item 8 of this Annual Report on Form 10-K.

2.
	~~Consolidated Financial Statements filed as part of this report are listed under Part II, Item 8 on pages 18 to 21 of this Annual Report on Form 10-K.~~

	2.	Financial Statement Schedule


		Schedule II – Valuation and Qualifying Accounts

		~~(Dollars in thousands)~~

(In thousands)

The changes in Allowance for Doubtful Accounts and Returns for the three years ended December 31, were as follows:

Allowance for doubtful accounts and returns

Balance at
beginning of
year

Additions
charged to
costs and
expenses

Additions
charged to
other
accounts

Deductions
from
reserves⁽¹⁾

Balance at
end of year

Year ended December 31, 2007

$
3,347

$
1,690

$
—

$
1,773

$
3,264

Year ended December 31, 2006

$
4,756

$
532

$
—

$
1,941

$
3,347

Year ended December 31, 2005

$
5,143

$
1,021

$
—

$
1,408

$
4,756


	⁽¹⁾ Includes accounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves, as well as the effect of foreign currency on these reserves.

	~~All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto.~~

2008 2007 2006
Balance at beginning of year $ 3,264 $ 3,347 $ 4,756
Additions charged to costs and expenses 4,083 1,622 451
Additions charged to other accounts (76 ) 68 81
Deductions from reserves (1)
48 (1,772 ) (1,941 )
Balance at end of year $ 7,319 $ 3,265 $ 3,347

(1) Includes accounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves, as well as the effect of foreign currency on these reserves.

All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE

The Board of Directors and Shareholders

Tennant Company:

Under date of ~~February 29, 2008,~~March 13, 2009, we reported on the consolidated balance sheets of Tennant Company and subsidiaries as of December 31, ~~2007~~2008 and ~~2006,~~2007, and the related consolidated statements of earnings, cash flows, and shareholders’ equity and comprehensive income (loss) for each of the years in the three-year period ended December 31, ~~2007,~~2008, which are included in Item 15.A.1. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as included in Item 15.A.2. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

~~As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R,~~~~Share-Based Payment~~~~, as of January 1, 2006 and Statement of Financial Accounting Standards No. 158,~~~~Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans~~~~, as of December 31, 2006, and FASB Interpretation No. 48,~~~~Accounting for Uncertainty in Income Taxes~~~~, as of January 1, 2007.~~

/s/ KPMG LLP

Minneapolis, Minnesota
~~February 29, 2008~~

March 13, 2009

3.	Exhibits
3.	~~Exhibits~~

Item #	Description	Method of Filing
Rider A:
3i 2.1	Share Purchase Agreement dated February 15, 2008 among the Sellers identified therein and Tennant Scotland Limited (excluding schedules and exhibits, which the Company agrees to furnish supplementally to the Securities and Exchange Commission upon request)	Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K dated February 29, 2008.
3i	Restated Articles of Incorporation	Incorporated by reference to Exhibit 3i to the Company’s report on ~~Form10-Q~~Form 10-Q for the quarterly period ended June 30, 2006.
3.1
~~3.1~~	Certificate of Designation	Incorporated by reference to Exhibit 3.1 to the Company's Form 10-K for the year ended December 31, 2006.
3ii	Amended and Restated By-Laws	Incorporated by reference to Exhibit 3ii to the Company’s Form 10-K for the year ended December 31, ~~2006.~~ 1999.
4.1
~~3ii~~	~~Amended and Restated By-Laws~~	~~Incorporated by reference to Exhibit 3ii to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.~~

~~4.1~~	Rights Agreement, dated as of November 10, 2006, between the Company and Wells Fargo Bank, N.A., as Rights Agent	Incorporated by reference to Exhibit 1 to Form 8-A dated November 14, 2006.
10.1
~~10.1~~	Tennant Company Amended and Restated 1992 Stock Incentive Plan*	Incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement No. 33-59054, Form S-8 dated March 2, 1993.
10.2
~~10.2~~	Tennant Company 1995 Stock Incentive Plan*	Incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement No. 33-62003, Form S-8, dated August 22, 1995.
10.3
~~10.3~~	Tennant Company Restricted Stock Plan for Nonemployee Directors (as amended and restated effective May 6, 2004)*	Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-K for the year ended December 31, 2005.
10.4
~~10.4~~	Tennant Company Executive Nonqualified Deferred Compensation Plan, as restated effective January 1, 2005*	~~Filed herewith electronically.~~

~~10.5~~	Form of Management Agreement and Executive Employment Agreement*	Incorporated by reference to Exhibit ~~10.5~~10.4 to the Company’s Form 10-K for the year ended December 31, ~~2005.~~ 2007.
10.5	Form of Management Agreement and Executive Employment Agreement*		Filed herewith electronically.
~~10i.5~~ 10.6	Schedule of parties to Management and Executive Employment Agreement		~~Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended March 31, 2007.~~ Filed herewith electronically.
10.7
~~10.6~~	Tennant Company Non-Employee Director Stock Option Plan (as amended and restated effective May 6, 2004)*	Incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q for the quarterly period ended June 30, 2004.
10.8
~~10.7~~	Tennant Company 1998 Management Incentive Plan, as amended*	Incorporated by reference to Exhibit 99 to the Company’s Registration Statement No. 333-84372, Form S-8 dated March 15, 2002.
10.9
~~10.8~~	Tennant Company Amended and Restated 1999 Stock Incentive Plan*	Incorporated by reference to Appendix A to the Company’s proxy statement for the 2006 Annual Meeting of Shareholders filed on March 15, 2006.
10.10
~~10.9~~	Long-Term Incentive Plan 2006*	~~Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated January 19, 2006.~~

~~10.10~~	Long-Term Incentive Plan 2007*	Incorporated by reference to Exhibit 10.12 to the Company’s Form 10-K for the year ended December 31, 2006.
10.11
~~10.11~~	~~Short-Term~~Long-Term Incentive Plan 2007* 2008*	Incorporated by reference to Exhibit ~~10.13~~10.2 to the Company’s Form 10-Q for the quarterly period ended March 31, 2008.
10.12	Short-Term Incentive Plan 2008*	Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarterly period ended March 31, 2008.

10.13	Deferred Stock Unit Agreement (awards prior to 2008)*	Incorporated by reference to Exhibit 10.14 to the Company's Form 10-K for the year ended December 31, 2006.
10.14
~~10.12~~	Deferred Stock Unit Agreement (awards prior to 2008)*	~~Incorporated by reference to Exhibit 10.14 to the Company’s Form 10-K for the year ended December 31, 2006.~~

~~10.13~~	Performance share award agreement for H. Chris Killingstad*	Incorporated by reference to Exhibit 10.18 to the Company’s Form 10-K for the year ended December 31, 2005.
10.15
~~10.14~~	Services Agreement and Management Agreement between the Company and Karel Huijser*	Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarterly period ended September 30, 2006.
10.16	Amendment No. 1 dated as of December 17, 2008 to Services Agreement and Management Agreement between the Company and Karel Huijser*		Filed herewith electronically.
~~10.15~~ 10.17	Tennant Company 2007 Stock Incentive Plan*	Incorporated by reference to Appendix A to the Company’s proxy statement for the 2007 Annual Meeting of Shareholders filed on March 15, 2007.


~~Item #~~ 10.18	~~Description~~	~~Method of Filing~~

~~10.16~~	Credit Agreement dated as of June 19, ~~2007.~~ 2007	Incorporated by reference to Exhibit 10.1 to the ~~Company’s~~Company's Form 8-K dated June ~~19,~~21, 2007.
10.19
~~10.17~~	Deferred Stock Unit Agreement (awards in and after 2008)*	~~Filed herewith electronically.~~ Incorporated by reference to Exhibit 10.17 to the Company’s Form 10-K for the year ended December 31, 2007.
10.20	Amendment No. 1 dated as of February 21, 2008 to Credit Agreement dated as of June 19, 2007		Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended March 31, 2008.
~~21.1~~ 10.21	Tennant Company 2009 Short-Term Incentive Plan*	Incorporated by reference to Appendix A to the Company's Proxy statement for the 2008 Annual Meeting of Shareholder's filed on March 14, 2008.
10.22	Amendment No. 2 to the Credit Agreement dated as of March 4, 2009	Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K dated March 10, 2009.
21	Subsidiaries of the Registrant Tennant Company has the following significant subsidiaries: Tennant Holding B.V. is a wholly owned subsidiary organized under the laws of The Netherlands in 1991. A legal reorganization occurred in 1991 whereby Tennant N.V. became a participating interest of Tennant Holding B.V. Tennant N.V. had previously been a wholly owned subsidiary organized under the laws of The Netherlands in 1970. Tennant Maintenance Systems, Limited, was a wholly owned subsidiary, organized under the laws of the United Kingdom until October 29, 1992, at which time Tennant Holding B.V. acquired 100% of its stock from Tennant Company. The name was formally changed to Tennant UK Limited on or about October 16, 1996. Tennant Sales and Service Company is a wholly owned subsidiary organized under the laws of the state of Minnesota. The results of these operations have been consolidated into the financial statements, as indicated therein.	Filed herewith electronically.
23.1	Consent of KPMG, LLP Independent Registered Public Accounting Firm
~~23.1~~	~~Independent Auditor’s Consent~~	Filed herewith electronically.
31.1
~~31.1~~	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	Filed herewith electronically.
31.2
~~31.2~~	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer	Filed herewith electronically.
32.1
32	Section 1350 ~~Certifications~~ Certification of Chief Executive Officer	Filed herewith electronically.
32.2	Section 1350 Certification of Chief Financial Officer
*Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K. Filed herewith electronically.

*Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.