UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



[ü]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended ~~September~~June 30, ~~2017~~2018
OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________ to __________

Commission File Number 1-16191

TENNANT COMPANY

(Exact name of registrant as specified in its charter)



Minnesota	41-0572550
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

701 North Lilac Drive

P.O. Box 1452

Minneapolis, Minnesota 55440

(Address of principal executive offices)

(Zip Code)

(763) 540-1200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes	ü	No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



Yes	ü	No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ü		Accelerated filer
Non-accelerated filer		(Do not check if a smaller reporting company)	Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes	No	ü

As of ~~October 30, 2017,~~July 25, 2018, there were ~~17,851,541~~18,073,980 shares of Common Stock outstanding.

TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION		Page
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive (Loss) Income	5
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to the Condensed Consolidated Financial Statements	9
	1. Summary of Significant Accounting Policies	9
	2. Newly Adopted Accounting Pronouncements	9
	3. ~~Investment in Joint Venture~~Revenue from Contracts with Customers		1011
	4. Management ~~Action~~Actions	1014
	5. ~~Acquisitions~~Acquisition	1014
	6. Inventories	1416
	7. Goodwill and Intangible Assets	1417
	8. Debt	1517
	9. Warranty	1719
	10. Derivatives	1819
	11. Fair Value Measurements	2021
	12. Retirement Benefit Plans	2122
	13. Commitments and Contingencies	2223
	14. Accumulated Other Comprehensive Loss	2224
	15. Income Taxes	2324
	16. Share-Based Compensation	2325
	17. Earnings (Loss) Attributable to Tennant Company Per Share	2425
	18. Segment Reporting	2425
	19. ~~Related Party Transactions~~Separate Financial Information of Guarantor Subsidiaries	26
	2420. Subsequent Event	37
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2537
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3544
Item 4.	Controls and Procedures	3545
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	3545
Item 1A.	Risk Factors	3545
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3645
Item 6.	Exhibits	3746
Signatures		3847

PART I – FINANCIAL INFORMATION


Item 1.	Financial Statements

TENNANT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)	TENNANT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)													TENNANT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

		Three Months Ended						Nine Months Ended							Three Months Ended						Six Months Ended
(In thousands, except shares and per share data)		September 30						September 30							June 30						June 30
		2017			2016			2017			2016				2018			2017			2018			2017
Net Sales		$	261,921		$	200,134		$	723,771		$	596,826			$	292,197		$	270,791		$	565,044		$	461,850
Cost of Sales		157,317			114,839			434,877			338,740				173,398			166,237			335,608			277,560
Gross Profit		104,604			85,295			288,894			258,086				118,799			104,554			229,436			184,290

Operating Expense:
Research and Development Expense		7,907			8,418			24,239			24,712				7,906			7,886			15,902			16,332
Selling and Administrative Expense		85,651			60,623			247,067			187,315				91,864			87,326			184,133			161,282
Loss on Sale of Business		—			—			—			149
Total Operating Expense		93,558			69,041			271,306			212,176				99,770			95,212			200,035			177,614
Profit from Operations		11,046			16,254			17,588			45,910				19,029			9,342			29,401			6,676

Other Income (Expense):
Interest Income		698			107			1,575			188				952			793			1,701			877
Interest Expense		(6,093		)	(329		)	(18,720		)	(919		)		(6,005		)	(11,833		)	(11,750		)	(12,627		)
Net Foreign Currency Transaction (Losses) Gains		(842		)	(149		)	(2,375		)	175
Net Foreign Currency Transaction Losses															(337		)	(336		)	(1,086		)	(1,533		)
Other Expense, Net		(482		)	(10		)	(700		)	(360		)		(510		)	(384		)	(760		)	(352		)
Total Other Expense, Net		(6,719		)	(381		)	(20,220		)	(916		)		(5,900		)	(11,760		)	(11,895		)	(13,635		)

Profit (Loss) Before Income Taxes		4,327			15,873			(2,632		)	44,994				13,129			(2,418		)	17,506			(6,959		)
Income Tax Expense		731			4,396			385			13,750
Income Tax Expense (Benefit)															363			238			1,440			(346		)
Net Earnings (Loss) Including Noncontrolling Interest		3,596			11,477			(3,017		)	31,244				12,766			(2,656		)	16,066			(6,613		)
Net Earnings (Loss) Attributable to Noncontrolling Interest		37			—			(28		)	—				22			(65		)	48			(65		)
Net Earnings (Loss) Attributable to Tennant Company		$	3,559		$	11,477		$	(2,989	)	$	31,244			$	12,744		$	(2,591	)	$	16,018		$	(6,548	)

Net Earnings (Loss) Attributable to Tennant Company per Share:
Basic		$	0.20		$	0.66		$	(0.17	)	$	1.78			$	0.71		$	(0.15	)	$	0.90		$	(0.37	)
Diluted		$	0.20		$	0.64		$	(0.17	)	$	1.74			$	0.69		$	(0.15	)	$	0.88		$	(0.37	)

Weighted Average Shares Outstanding:
Basic		17,729,857			17,498,808			17,673,656			17,516,941				17,943,450			17,693,102			17,867,641			17,645,090
Diluted		18,171,444			17,973,206			17,673,656			17,955,499				18,371,538			17,693,102			18,303,960			17,645,090

Cash Dividend Declared per Common Share		$	0.21		$	0.20		$	0.63		$	0.60			$	0.21		$	0.21		$	0.42		$	0.42

See accompanying Notes to the Condensed Consolidated Financial Statements.

TENNANT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
TENNANT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)													TENNANT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
(In thousands)	September 30						September 30						June 30						June 30
	2017			2016			2017			2016			2018			2017			2018			2017
Net Earnings (Loss) Including Noncontrolling Interest	$	3,596		$	11,477		$	(3,017	)	$	31,244		$	12,766		$	(2,656	)	$	16,066		$	(6,613	)
Other Comprehensive Income:
Other Comprehensive (Loss) Income:
Foreign currency translation adjustments	9,033			381			25,073			4,380			(19,473		)	13,640			(11,092		)	16,040
Pension and retiree medical benefits	379			23			541			61			11			152			93			162
Cash flow hedge	(1,732		)	35			(6,311		)	(394		)	1,376			(4,506		)	(1,339		)	(4,579		)
Income Taxes:
Foreign currency translation adjustments	—			10			—			15			261			—			244			—
Pension and retiree medical benefits	(138		)	(9		)	(160		)	(23		)	(3		)	(4		)	(154		)	(22		)
Cash flow hedge	646			(13		)	2,354			147			(319		)	1,681			(820		)	1,708
Total Other Comprehensive Income, Net of Tax	8,188			427			21,497			4,186
Total Other Comprehensive (Loss) Income, net of tax													(18,147		)	10,963			(13,068		)	13,309

Total Comprehensive Income Including Noncontrolling Interest	11,784			11,904			18,480			35,430
Total Comprehensive (Loss) Income Including Noncontrolling Interest													(5,381		)	8,307			2,998			6,696
Comprehensive Income (Loss) Attributable to Noncontrolling Interest	37			—			(28		)	—			22			(65		)	48			(65		)
Comprehensive Income Attributable to Tennant Company	$	11,747		$	11,904		$	18,508		$	35,430
Comprehensive (Loss) Income Attributable to Tennant Company													$	(5,403	)	$	8,372		$	2,950		$	6,761

See accompanying Notes to the Condensed Consolidated Financial Statements.

TENNANT COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)	TENNANT COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)						TENNANT COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

	September 30,			December 31,			June 30,			December 31,
(In thousands, except shares and per share data)	2017			2016			2018			2017
ASSETS
Current Assets:
Cash and Cash Equivalents	$	55,947		$	58,033		$	53,901		$	58,398
Restricted Cash	1,292			517			543			653
Accounts Receivable, less Allowances of $2,972 and $3,108, respectively	193,725			149,134
Accounts Receivable, less Allowances of $2,655 and $3,241, respectively							215,323			209,516
Inventories	141,519			78,622			139,406			127,694
Prepaid Expenses	26,281			9,204			27,382			19,351
Other Current Assets	4,909			2,412			8,707			7,503
Total Current Assets	423,673			297,922			445,262			423,115
Property, Plant and Equipment	389,391			298,500			381,607			382,768
Accumulated Depreciation	(207,882		)	(186,403		)	(212,625		)	(202,750		)
Property, Plant and Equipment, Net	181,509			112,097			168,982			180,018
Deferred Income Taxes	19,857			13,439			13,721			11,134
Goodwill	179,048			21,065			185,715			186,044
Intangible Assets, Net	175,752			6,460			157,674			172,347
Other Assets	22,959			19,054			14,730			21,319
Total Assets	$	1,002,798		$	470,037		$	986,084		$	993,977
LIABILITIES AND TOTAL EQUITY
Current Liabilities:
Short-Term Borrowings and Current Portion of Long-Term Debt	$	5,281		$	3,459
Current Portion of Long-Term Debt							$	30,969		$	30,883
Accounts Payable	88,618			47,408			103,602			96,082
Employee Compensation and Benefits	35,085			35,997			41,289			37,257
Income Taxes Payable	10,599			2,348			2,809			2,838
Other Current Liabilities	63,327			43,617			66,753			69,447
Total Current Liabilities	202,910			132,829			245,422			236,507
Long-Term Liabilities:
Long-Term Debt	383,252			32,735			328,699			345,956
Employee-Related Benefits	25,247			21,134			22,583			23,867
Deferred Income Taxes	62,167			171			50,444			53,225
Other Liabilities	32,686			4,625			36,739			35,948
Total Long-Term Liabilities	503,352			58,665			438,465			458,996
Total Liabilities	706,262			191,494			683,887			695,503
Commitments and Contingencies (Note 13)
Equity:
Preferred Stock, $0.02 par value; 1,000,000 shares authorized; no shares issued or outstanding	—			—
Common Stock, $0.375 par value; 60,000,000 shares authorized; 17,840,854 and 17,688,350 shares issued and outstanding, respectively	6,690			6,633
Common Stock, $0.375 par value; 60,000,000 shares authorized; 18,073,713 and 17,881,177 shares issued and outstanding, respectively							6,778			6,705
Additional Paid-In Capital	12,062			3,653			22,273			15,089
Retained Earnings	303,987			318,180			306,667			297,032
Accumulated Other Comprehensive Loss	(28,426		)	(49,923		)	(35,391		)	(22,323		)
Total Tennant Company Shareholders' Equity	294,313			278,543			300,327			296,503
Noncontrolling Interest	2,223			—			1,870			1,971
Total Equity	296,536			278,543			302,197			298,474
Total Liabilities and Total Equity	$	1,002,798		$	470,037		$	986,084		$	993,977

See accompanying Notes to the Condensed Consolidated Financial Statements.

TENNANT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	TENNANT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)						TENNANT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended						Six Months Ended
(In thousands)	September 30						June 30
	2017			2016			2018			2017
OPERATING ACTIVITIES
Net (Loss) Earnings Including Noncontrolling Interest	$	(3,017	)	$	31,244
Adjustments to Reconcile Net (Loss) Earnings to Net Cash Provided by Operating Activities:
Net Earnings (Loss) Including Noncontrolling Interest							$	16,066		$	(6,613	)
Adjustments to Reconcile Net Earnings (Loss) to Net Cash Provided by (Used in) Operating Activities:
Depreciation	18,515			13,150			16,340			11,043
Amortization of Intangible Assets	11,430			323			11,657			3,780
Amortization of Debt Issuance Costs	896			—			1,307			466
Debt Issuance Cost Charges Related to Short-Term Financing	6,200			—			—			6,200
Fair Value Step-Up Adjustment to Acquired Inventory	8,445			—			—			6,199
Deferred Income Taxes	(4,848		)	(676		)	(7,857		)	(6,032		)
Share-Based Compensation Expense	4,915			5,747			4,115			3,622
Allowance for Doubtful Accounts and Returns	983			779			940			697
Loss on Sale of Business	—			149
Other, Net	175			(418		)	280			64
Changes in Operating Assets and Liabilities:
Receivables	(524		)	5,752
Changes in Operating Assets and Liabilities, Net of Assets Acquired:
Receivables, Net							(6,832		)	(6,016		)
Inventories	(9,866		)	(4,873		)	(17,039		)	(9,854		)
Accounts Payable	5,747			(6,415		)	9,827			6,190
Employee Compensation and Benefits	(9,462		)	(5,448		)	4,075			(8,262		)
Other Current Liabilities	10,019			(3,097		)	(3,772		)	5,252
Income Taxes	4,149			2,248			(973		)	(1,617		)
Other Assets and Liabilities	(11,634		)	(5,183		)	(2,170		)	(7,614		)
Net Cash Provided by Operating Activities	32,123			33,282
Net Cash Provided by (Used in) Operating Activities							25,964			(2,495		)
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment	(16,239		)	(22,499		)	(7,726		)	(9,145		)
Proceeds from Disposals of Property, Plant and Equipment	2,456			559			102			2,428
Proceeds from Principal Payments Received on Long-Term Note Receivable	500			—			706			—
Issuance of Long-Term Note Receivable	(1,500		)	—			—			(1,500		)
Acquisition of Businesses, Net of Cash Acquired	(354,073		)	(12,358		)
Purchase of Intangible Asset	(2,500		)	—
Proceeds from Sale of Business	—			285
(Increase) Decrease in Restricted Cash	(133		)	116
Acquisition of Businesses, Net of Cash, Cash Equivalents and Restricted Cash Acquired							—			(353,535		)
Purchase of Intangible Assets							(1,195		)	(2,500		)
Net Cash Used in Investing Activities	(371,489		)	(33,897		)	(8,113		)	(364,252		)
FINANCING ACTIVITIES
Proceeds from Short-Term Debt	300,000			—			—			300,000
Repayments of Short-Term Debt	(300,000		)	—			—			(300,000		)
Proceeds from Issuance of Long-Term Debt	440,000			15,000			—			440,000
Payments of Long-Term Debt	(81,262		)	(3,452		)	(18,133		)	(58,471		)
Payments of Debt Issuance Costs	(16,465		)	—			—			(16,039		)
Purchases of Common Stock	—			(12,762		)
Proceeds from Issuances of Common Stock	4,728			2,893
Excess Tax Benefit on Stock Plans	—			447
Change in Capital Lease Obligations							59			—
Proceeds from Issuance of Common Stock							3,724			3,843
Dividends Paid	(11,204		)	(10,583		)	(7,553		)	(7,463		)
Net Cash Provided by (Used in) Financing Activities	335,797			(8,457		)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	1,483			55
Net Decrease in Cash and Cash Equivalents	(2,086		)	(9,017		)
Cash and Cash Equivalents at Beginning of Period	58,033			51,300
Cash and Cash Equivalents at End of Period	$	55,947		$	42,283
Net Cash (Used in) Provided by Financing Activities							(21,903		)	361,870
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash							(555		)	875
Net Decrease in Cash, Cash Equivalents and Restricted Cash							(4,607		)	(4,002		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period							59,051			58,550
Cash, Cash Equivalents and Restricted Cash at End of Period							$	54,444		$	54,548


Supplemental Disclosure of Cash Flow Information:
Cash Paid for Income Taxes	$	8,127	$	11,329	$	5,725	$	4,851
Cash Paid for Interest	$	3,741	$	796	$	10,230	$	2,463
Supplemental Non-cash Investing and Financing Activities:
Long-Term Note Receivable from Sale of Business	$	—	$	5,489
Capital Expenditures in Accounts Payable	$	1,265	$	1,322	$	1,393	$	1,440
Debt Issuance Costs Not Yet Paid, Recorded in Accounts Payable					$	—	$	417

See accompanying Notes to the Condensed Consolidated Financial Statements.

TENNANT COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except shares and per share data)


1.	Summary of Significant Accounting Policies

Basis of Presentation – – The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the Securities and Exchange Commission (“SEC”) requirements for interim reporting, which allows certain footnotes and other financial information normally required by accounting principles generally accepted in the United States of America to be condensed or omitted. In our opinion, the Condensed Consolidated Financial Statements contain all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of our financial position and results of operations.

These statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our annual report on Form 10-K for the year ended December 31, ~~2016~~.2017. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Revenue Recognition – Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products and services. Generally, these criteria are met at the time the product is shipped.

~~Equity Method Investment~~ ~~– Investments in~~We also enter into contracts that can include combinations of products and services, which ~~we have the ability to exercise significant influence, but do not control,~~are generally capable of being distinct and are accounted for ~~under the equity method~~as separate performance obligations. Revenue is recognized net of ~~accounting~~allowances for returns and any taxes collected from customers, which are included in Other Assets on the Condensed Consolidated Balance Sheets. Under this method of accounting, our share of the net earnings or losses of the investee are presented as a component of Other Expense, Net on the Condensed Consolidated Statements of Operations. Thesubsequently remitted to governmental authorities.

Further details regarding ~~our equity method investment~~revenue recognition are discussed in ~~i-team North America B.V., a joint venture that operates as the distributor of the i-mop in North America, are further described in Note~~Notes 2 and 3.

New Accounting Pronouncements – ~~– In accordance with Accounting Standards Update ("ASU") No. 2016-09, Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~, all excess tax benefits and tax deficiencies are recorded as a component of the provision for income taxes in the reporting period in which they occur. Additionally, we present excess tax benefits along with other income tax cash flows on the Condensed Consolidated Statements of Cash Flows as an operating activity rather than, as previously required, a financing activity. For furtherFurther details regarding the ~~implementation~~adoption of ~~this ASU and the impact on our financial statements, see~~new accounting standards are discussed in Note 2.

We documented the summary of significant accounting policies in the Notes to the Consolidated Financial Statements of our annual report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2017. Other than the accounting policies noted above, there have been no material changes to our accounting policies since the filing of that report.


2.	Newly Adopted Accounting Pronouncements

Revenue from Contracts with Customers

On ~~March 30, 2016, the Financial~~January 1, 2018, we adopted Accounting Standards ~~Board ("FASB"~~Update (“ASU”) ~~issued ASU 2016-09, C~~No. 2014-09,~~ompensation–Stock Compensation~~ Revenue from Contracts with Customers (Topic ~~718): Improvements~~606) and all the related amendments (“new revenue standard”) to ~~Employee Share-Based Payment Accounting~~all contracts not completed at the date of initial application using the modified retrospective method. The cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings was not material to the company. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods, and there are no material differences between the reported results under the new revenue standard and those that would have been reported under legacy US GAAP.~~, which amends Accounting Standards Codification ("ASC")~~ ~~Topic 718, Compensation – Stock Compensation.~~ ~~ASU 2016-09 simplifies several aspects~~

The new revenue standard also required us to record a refund liability and a corresponding asset for our right to recover products from customers upon settling the refund liability to account for the transfer of products with a right of return. The impact of this provision of the ~~accounting~~new revenue standard is immaterial to our financial statements. The new revenue standard also provided additional clarity that resulted in a reclassification from Accounts Receivable to Other Current Liabilities to reflect a change in the presentation of our sales return reserves on the balance sheet, which were previously recorded net of Accounts Receivable. Provisions for ~~share-based payment transactions, including~~estimated sales returns will continue to be recorded at the ~~income~~time the related revenue is recognized.

The reclassification from Accounts Receivable to Other Current Liabilities in accordance with the detail described above impacted the Condensed Consolidated Balance Sheet as of June 30, 2018, as follows (in thousands):



	As Reported		Balances Without Adoption of ASC 606		Effect of Change Higher/(Lower)
ASSETS
Accounts Receivable	$	215,323	$	214,175	$	1,148
Total Current Assets	445,262		444,114		1,148
Total Assets	$	986,084	$	984,936	$	1,148
LIABILITIES
Other Current Liabilities	$	66,753	$	65,605	$	1,148
Total Current Liabilities	245,422		244,274		1,148
Total Liabilities	$	683,887	$	682,739	$	1,148

For additional disclosures regarding the new revenue standard, see Note 3.

Intra-Entity Transfers of Assets Other than Inventory

On January 1, 2018, we adopted ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. The ASU requires the tax ~~consequences, classification~~effects of ~~awards~~all intra-entity sales of assets other than inventory to be recognized in the period in which the transaction occurs. The adoption of this ASU resulted in a $94 cumulative effect adjustment recorded in Retained Earnings as ~~either equity~~of the beginning of 2018 that reflects a $1,281 reduction in a long-term deferred charge, mostly offset by the establishment of a deferred tax asset of $1,187. The reduction in the long-term asset and establishment of the deferred tax asset impacted Other Assets and Deferred Income Taxes, respectively, on our Condensed Consolidated Balance Sheets.

Statement of Cash Flows – Restricted Cash

On January 1, 2018, we adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The ASU requires companies to explain the changes in the combined total of restricted and unrestricted balances in the Condensed Consolidated Statements of cash flows. Therefore, amounts generally described as restricted cash or ~~liabilities~~restricted cash equivalents should be combined with unrestricted cash and ~~classification~~cash equivalents when reconciling the beginning and end of period balances on the Condensed Consolidated Statements of Cash Flows. ~~Under~~In accordance with the ~~new~~ASU, we adopted the standard on a retrospective basis to all ~~excess tax benefits~~periods presented.

The following table provides a reconciliation of Cash and ~~tax deficiencies are recorded as a component~~Cash Equivalents and Restricted Cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the ~~provision for income taxes~~same amounts shown in ~~the reporting period in which they occur. Additionally, ASU 2016-09 requires that the company present excess tax benefits along with other income tax cash flows on~~ the Condensed Consolidated Statements of Cash Flows ~~as an operating activity rather than, as previously required, a financing activity. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016.~~(in thousands):

~~We have adopted ASU 2016-09 effective~~



	June 30,
	2018
Cash and Cash Equivalents	$	53,901
Restricted Cash	543
Total Cash, Cash Equivalents and Restricted Cash at end of period shown in the Condensed Consolidated Statements of Cash Flows	$	54,444

Compensation – Retirement Benefits

On January 1, ~~2017 on a prospective basis where permitted~~2018, we adopted ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires employers to report the service cost component of net pension and postretirement benefit costs in the same line item or items as other compensation costs arising from services rendered by the ~~new standard. As a result~~pertinent employees during the period. The other components of ~~this adoption:~~

~~For the three~~net pension and ~~nine months ended September 30, 2017, we recognized discrete tax benefits of $5 and $1,149, respectively,~~postretirement benefit costs are required to be presented in the ~~Income Tax Expense line item of our~~ Condensed Consolidated Statements of Operations ~~related to excess tax benefits upon vesting or settlement in that period.~~

We elected to adopt the cash flow presentation of the excess tax benefits prospectively where the tax benefits are classified along with other income tax cash flows as operating cash flows in 2017. Our prior year's excess tax benefits are recognized as financing cash flows. However, other income tax cash flows are classified as operating cash flows.

We have elected to account for forfeitures as they occur, rather than electing to estimate the number of share-based awards expected to vest to determine the amount of compensation cost to be recognized in each period. The difference of such change is immaterial.

~~We excluded the excess tax benefits~~separately from the ~~assumed proceeds available~~service cost component in nonoperating expenses. In accordance with the ASU, we adopted the standard on a retrospective basis to ~~repurchase shares in the computation~~all periods presented. As a result, we reclassified $187 and $134 of ~~our diluted earnings per share for the three~~net benefit costs from Selling and ~~nine months ended September 30, 2017.~~


3.	~~Investment in Joint Venture~~

On February 13, 2017, the company, through a Dutch subsidiary, and i-team Global, a Future Cleaning Technologies, B.V. company headquartered in The Netherlands, announced the January 1, 2017 formation of i-team North America B.V., a joint venture that will operate as the distributor of the i-mop in North America. We began selling and servicing the i-mop in the second quarter of 2017. We own a 50% ownership interest in the joint venture, which is accounted for under the equity method of accounting, with our proportionate share of income or loss presented as a component ofAdministrative Expense to Other Expense, Net on the Condensed Consolidated Statements of ~~Operations.~~

~~As of September~~Operations for the three and six months ended June 30, 2017, respectively. The reclassification represents the ~~carrying value~~other components of net pension and postretirement benefit costs that are now presented in the Condensed Consolidated Statements of Operations separately from the service cost in Total Other Expense, Net. As a basis for the retrospective application of the ~~company's investment~~ASU, we used the practical expedient that permits us to use the amounts disclosed for the various components of net benefit cost in Note 12.

Income Statement—Reporting Comprehensive Income

On January 1, 2018, we elected to adopt early ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). The ASU gives companies the option to reclassify stranded tax effects caused by the newly enacted legislation referred to as the Tax Cuts and Jobs Act (the "Tax Act") from Accumulated Other Comprehensive Loss to Retained Earnings. The adoption resulted in a $1,263 cumulative effect adjustment which increased Retained Earnings as of the beginning of 2018 and reduced the deferred income tax benefits in Accumulated Other Comprehensive Loss relating to cash flow hedges and pension and retiree medical benefits.

Income Taxes

In March 2018, we adopted ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The ASUupdates the income tax accounting in U.S. GAAP to reflect the SEC interpretive guidance released on December 22, 2017, when the Tax Act was signed into law. Additional information regarding the adoption of this standard is contained in Note 15.


3.	Revenue from Contracts with Customers

Under the new revenue standard, revenue is recognized when control transfers under the terms of the contract with our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We do not account for shipping and handling as a distinct performance obligation as we generally perform shipping and handling activities after we transfer control of goods to the customer. We have elected to account for shipping and handling costs associated with outbound freight after control of goods has transferred to a customer as a fulfillment cost. Incidental items that are immaterial in the ~~joint venture was $66.~~ context of the contract are not recognized as a separate performance obligation. We do not have any significantly extended payment terms as payment is generally received within one year of the point of sale.

In ~~March 2017,~~general, we ~~issued~~transfer control and recognize a ~~$1,500 loan~~sale at the point in time when products are shipped from our manufacturing facilities both direct to consumers and to distributors. Service revenue is recognized in the period the service is performed or ratably over the period of the related service contract. Consideration related to service contracts is deferred if the proceeds are received in advance of the satisfaction of the performance obligations and recognized over the contract period as the performance obligation is met. We use an output method to measure progress towards completion for certain prepaid service contracts, as this method appropriately depicts performance towards satisfaction of the performance obligations.

For contracts with multiple performance obligations (i.e., a product and service component), we allocate the transaction price to the ~~joint venture~~performance obligations in proportion to their stand-alone selling prices. We use an observable price to determine the stand-alone selling price for separate performance obligations. When allocating on a relative stand-alone selling price basis, any discounts contained within the contract are allocated proportionately to all of the performance obligations in the contract.

Disaggregation of Revenue

The following tables illustrate the disaggregation of revenue by geographic area, groups of similar products and services and sales channels for the three and six months ended June 30, 2018 and 2017 (in thousands):

Net Sales by geographic area



	Three Months Ended				Six Months Ended
	June 30				June 30
	2018		2017		2018		2017
Americas	$	178,752	$	169,146	$	341,390	$	311,916
Europe, Middle East and Africa	87,410		77,356		176,226		110,632
Asia Pacific	26,035		24,289		47,428		39,302
Total	$	292,197	$	270,791	$	565,044	$	461,850

Net Sales are attributed to each geographic area based on the end user country and are net of intercompany sales.

Net Sales by groups of similar products and services



	Three Months Ended				Six Months Ended
	June 30				June 30
	2018		2017		2018		2017
Equipment	$	192,078	$	176,767	$	364,152	$	290,108
Parts and Consumables	57,411		52,922		114,852		95,725
Specialty Surface Coatings	7,840		7,803		14,295		14,484
Service and Other	34,868		33,299		71,745		61,533
Total	$	292,197	$	270,791	$	565,044	$	461,850

Net Sales by sales channel



	Three Months Ended				Six Months Ended
	June 30				June 30
	2018		2017		2018		2017
Sales Direct to Consumer	$	187,468	$	174,426	$	366,178	$	318,049
Sales to Distributors	104,729		96,365		198,866		143,801
Total	$	292,197	$	270,791	$	565,044	$	461,850

Contract Liabilities

Sales Returns

The right of return may exist explicitly or implicitly with our customers. When the right of return exists, we adjust the transaction price for the estimated effect of returns. We estimate the expected returns using the expected value method by assessing historical sales levels and the timing and magnitude of historical sales return levels as a ~~result,~~percent of sales and projecting this experience into the future.

Sales Incentives

Our sales contracts may contain various customer incentives, such as volume-based rebates or other promotions. We reduce the transaction price for certain customer programs and incentive offerings that represent variable consideration. Sales incentives given to our customers are recorded ~~a long-term note receivable~~using the most likely amount approach for estimating the amount of consideration to which the company will be entitled. We forecast the most likely amount of the incentive to be paid at the time of sale, update this forecast quarterly, and adjust the transaction price accordingly to reflect the new amount of incentives expected to be earned by the customer. A majority of our customer incentives are settled within one year. We record our accruals for volume-based rebates and other promotions in Other ~~Assets~~Current Liabilities on ~~the~~our Condensed Consolidated Balance Sheets.

The change in our sales incentive accrual balance for the six months ended June 30, 2018 was as follows:



	Six Months Ended
	June 30
	2018
Beginning balance	$	13,466
Additions to sales incentive accrual	14,904
Contract payments	(16,785		)
Foreign currency fluctuations	(195		)
Ending balance	$	11,390

Deferred Revenue

We sell separately priced prepaid contracts to our customers where we receive payment at the inception of the contract and defer recognition of the consideration received because we have to satisfy future performance obligations. Our deferred revenue balance is primarily attributed to prepaid maintenance contracts on our machines ranging from 12 months to 60 months. In circumstances where prepaid contracts are bundled with machines, we use an observable price to determine stand-alone selling price for separate performance obligations. At December 31, 2017, $5,304 and $2,483 of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Condensed Consolidated Balance Sheets.

The change in the deferred revenue balance for the six months ended June 30, 2018 was as follows:



	Six Months Ended
	June 30
	2018
Beginning balance	$	7,787
Increase in deferred revenue representing our obligation to satisfy future performance obligations	7,475
Decrease in deferred revenue for amounts recognized in Net Sales for satisfied performance obligations	(6,951		)
Foreign currency fluctuations	(86		)
Ending balance	$	8,225

At June 30, 2018, $4,896 and $3,329 of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Condensed Consolidated Balance Sheet. Of this, we expect to recognize the following approximate amounts in Net Sales in the following periods:



Remaining 2018	$	2,984
2019	3,092
2020	1,280
2021	562
2022	277
Thereafter	30
Total	$	8,225

Practical Expedients and Exemptions

We generally expense the incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. These costs relate primarily to sales commissions and are recorded in Selling and Administrative Expense in the Condensed Consolidated Statements of Operations.

We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. In addition, we do not adjust the promised amount of consideration for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less.


4.	Management ~~Action~~Actions

During the first quarter of 2017, we implemented a restructuring action to better align our global resources and expense structure with a lower growth global economic environment. The pre-tax charge of $8,018, including other associated costs of $961, consisted primarily of severance and was included within Selling and Administrative Expense in the Condensed Consolidated Statements of Operations. The charge impacted our Americas, Europe, Middle East and Africa ~~("EMEA")~~(EMEA) and Asia Pacific ~~("APAC")~~(APAC) operating segments. The savings offset the pre-tax charge approximately one year from the date of the action. Additional costs will not be incurred related to this restructuring action.

During the fourth quarter of 2017, we implemented a restructuring action primarily driven by integration actions related to our acquisition of the IPC Group. The restructuring action consisted primarily of severance and included reductions in overall staffing to streamline and right-size the organization to support anticipated business requirements. The pre-tax charge of $2,501 was included within Selling and Administrative Expense in the Condensed Consolidated Statements of Operations. The charge impacted our Americas, EMEA and APAC operating segments. We believe the anticipated savings will offset the pre-tax charge in approximately one year from the date of the action. ~~We do not expect additional~~Additional costs will not be incurred related to this restructuring action.

A reconciliation toof the beginning and ending liability ~~balance of severance and related costs as of September 30, 2017~~balances is as follows:


	Severance and Related Costs			Severance and Related Costs
Q1 2017 restructuring action	$	7,057
2017 restructuring actions				$	9,558
Cash payments	(5,792		)	(6,312		)
Foreign currency adjustments	164			190
September 30, 2017 balance	$	1,429
December 31, 2017 balance				$	3,436
2018 utilization:
Cash payments				(1,119		)
Foreign currency adjustments				(53		)
June 30, 2018 balance				$	2,264


5.	~~Acquisitions~~Acquisition

~~IP Cleaning S.p.A.~~

On April 6, 2017,, we acquired~~100 percent~~ of the outstanding capital stock of IP Cleaning S.p.A. and its subsidiaries ("IPC Group") for a purchase price of ~~$353,769~~,$353,769, net of cash acquired of ~~$8,804~~.$8,804. The primary seller was Ambienta SGR S.p.A., a European private equity fund. IPC Group, based in Italy, is a designer and manufacturer of innovative professional cleaning equipment, cleaning tools and supplies. The acquisition strengthens our presence and market share in Europe and ~~will allow~~allows us to better leverage our EMEA cost structure. We funded the acquisition of IPC Group, along with related fees, including refinancing of existing debt, with funds raised through borrowings under a senior secured credit facility in an aggregate principal amount of ~~$420,000~~.$420,000. Further details regarding our acquisition financing arrangements are discussed in Note 8.

The following table summarizes the ~~preliminary~~final fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:


ASSETS
Restricted Cash	$	538
Receivables	40,067			$	39,984
Inventories	54,256			46,442
Other Current Assets	4,362			7,456
Assets Held for Sale	2,247			2,247
Property, Plant and Equipment	63,256			63,890
Intangible Assets Subject to Amortization:
Trade Name	26,753			26,753
Customer Lists	123,061			123,061
Technology	9,631			9,631
Other Assets	4,168			2,000
Total Identifiable Assets Acquired	328,339			321,464
LIABILITIES
Accounts Payable	31,529			32,227
Accrued Expenses	15,756			18,130
Deferred Income Taxes	61,694			56,950
Other Liabilities	6,967			10,964
Total Identifiable Liabilities Assumed	115,946			118,271
Net Identifiable Assets Acquired	212,393			203,193
Noncontrolling Interest	(2,266		)	(1,896		)
Goodwill	143,642			152,472
Total Estimated Purchase Price, net of Cash Acquired	$	353,769
Total Purchase Price, net of Cash Acquired				$	353,769

~~The acquired assets, liabilities and operating results have been included in our Condensed Consolidated Financial Statements from the date of acquisition. During the~~ ~~three months ended~~ ~~September 30, 2017, we~~ ~~included net sales of $56,110 and a net loss of $6,850~~ ~~from IPC Group in our Condensed Consolidated Statements of Operations. During the nine~~ ~~months endedSeptember 30, 2017, we included net sales of~~ ~~$115,184and a net loss of$12,037~~ ~~from IPC Group in our Condensed Consolidated Statements of Operations. For the three and nine months ended~~ ~~September 30, 2017, the net loss includes a fair value adjustment, net of tax, of $1,619~~ ~~and$6,089, respectively, to the acquired inventory of IPC Group. In addition, costs of~~ ~~$622~~ ~~and $8,180, net of tax, associated with the acquisition of the IPC Group were expensed as incurred in the Condensed Consolidated Statements of Operations for the three and nine months ended~~ ~~September 30, 2017, respectively. The preliminary gross amount of the accounts receivable acquired~~ ~~is $43,785, of which $3,718 is expected to be uncollectible.~~

~~Amortization expense recorded for acquired intangible assets for the three and nine months ended September 30, 2017~~ ~~was$7,331 and $10,438, respectively. For the~~ ~~three months ended~~ September 30, 2017, amortization expense includes a $1,999 measurement period adjustment resulting from updates to the provisional fair values of the acquired intangible assets recorded in the second quarter of 2017 as well as the use of an accelerated method of amortization for the acquired customer lists and technology. This charge affected s~~elling and administrative expense~~ ~~in the Condensed Consolidated Statements of Operations, along with an associated reduction to income tax expense of$553.~~

~~The fair value measurement was preliminary at~~ ~~September 30, 2017~~.~~During the measurement period, we expect to record adjustments relating to~~ ~~the finalization of intangible assets, inventories, restricted cash and property, plant and equipment valuations, and various income tax matters, among others. We expect~~ ~~the fair value measurement process to be completed not later than one year from the acquisition date.~~

Goodwill was calculated as the difference between the acquisition date fair value of the total purchase price consideration and the fair value of the net identifiable assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition. This resulted in an estimated purchase price in excess of the fair value of identifiable net assets acquired.

The estimated purchase price also included the fair value of other assets that were not identifiable and not separately recognizable under accounting rules (e.g., assembled workforce) or these assets were of immaterial value. In addition, there is a going concern element that represents our ability to earn a higher rate of returnBased on the ~~group of assets than would be expected on the separate assets as determined during the valuation process. Based on preliminary~~final fair value measurement of the assets acquired and liabilities assumed, we allocated ~~$143,642~~$152,472 to goodwill for the expected synergies from combining IPC Group with our existing business. None of the goodwill is expected to be deductible for income tax purposes. ~~The assignment of goodwill to reporting units is not complete, pending~~In connection with the finalization of the ~~valuation measurements.~~

The fair value of acquired identifiable intangible assets was primarily determined using discounted expected cash flows. The fair value of acquired identifiable tangible assets was primarily determined using the cost or market approach. The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by us. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements ~~of the assets acquired and liabilities assumed were based on valuations involving significant unobservable inputs, or Level 3~~ in the ~~fair value hierarchy.~~first quarter of 2018, we recorded a measurement period adjustment, which increased goodwill by $4,627 with offsetting adjustments to various income tax assets and liabilities.

The ~~preliminary~~final fair value of the acquired intangible assets is $159,445. The expected lives of the acquired amortizable intangible assets are approximately 15 years for customer lists, 10 years for trade names and 10 years for technology. Trade names are being amortized on a straight-line basis while the customer lists and technology are being amortized on an accelerated basis. We recorded amortization expense of $5,486 and $11,023 in Selling and Administrative Expense on our Condensed Consolidated Statements of Operations for these acquired intangible assets for the three and six months ended June 30, 2018, respectively.

The following unaudited pro forma financial information presents the combined results of operations of Tennant Company as if the 2017 acquisition of the IPC Group had occurred as of January 1, ~~2017 and~~ 2016. The unaudited pro forma financial information is presented for informational purposes only. It is not necessarily indicative of what our consolidated results of operations actually would have been had the acquisition occurred at the beginning of ~~each year, nor does it attempt to project~~fiscal 2016. No pro forma results are presented for the ~~future~~three or six months ended June 30, 2018 as the results of ~~operations of~~ the ~~combined company.~~acquired company are included in the actual results.

Pro Forma Financial Information (Unaudited)
Three Months Ended Nine Months Ended
(In thousands, except per share data) September 30 September 30
2017 2016 2017 2016
Net Sales
Pro forma $ 261,921
$ 250,050
$ 777,832
$ 747,943
As reported 261,921
200,134
723,771
596,826

Net Earnings (Loss) Attributable to Tennant Company
Pro forma $ 5,800
$ 7,696
$ 14,875
$ 20,659
As reported 3,559
11,477
(2,989 ) 31,244

Net Earnings (Loss) Attributable to Tennant Company per Share
Pro forma $ 0.32
$ 0.43
$ 0.84
$ 1.15
As reported 0.20
0.64
(0.17 ) 1.74

The unaudited pro forma financial information is based on certain assumptions which we believe are reasonable, directly attributable to the transaction, factually supportable and do not reflect any cost savings, operating synergies or revenue enhancements that we may achieve, nor the costs necessary to achieve those cost savings, operating synergies, revenue enhancements or integration efforts.

Pro Forma Financial Information (Unaudited)

	Three Months Ended			Six Months Ended
(In thousands, except per share data)	June 30			June 30
	2017			2017
Net Sales
Pro forma	$	270,791		$	517,163
As reported	270,791			461,850

Net Earnings (Loss) Attributable to Tennant Company
Pro forma	$	10,308		$	10,260
As reported	(2,591		)	(6,548		)

Net Earnings (Loss) Attributable to Tennant Company per Share
Pro forma	$	0.58		$	0.58
As reported	(0.15		)	(0.37		)

The unaudited pro forma financial information above gives effect to the following:

~~Incremental~~incremental depreciation and amortization ~~and depreciation~~ expense related to the ~~estimated~~ fair value of the ~~identifiable intangible assets and~~ property, plant and equipment ~~from the preliminary purchase price allocation~~.

and identified intangible assets;

~~Exclusion~~exclusion of the purchase accounting impact of the inventory step-up ~~reported in cost of sales for the three and nine months ended September 30, 2017~~ related to the sale of acquired ~~inventory of $2,246 and $8,445, respectively.~~inventory;

~~Incremental~~incremental interest expense related to additional debt used to finance the ~~acquisition.~~acquisition;

~~Exclusion~~exclusion of non-recurring acquisition-related transaction and financing ~~costs.~~costs; and

~~Pro~~pro forma adjustments tax affected based on the jurisdiction where the costs were incurred.

~~Other Acquisitions~~

~~On July 28, 2016, pursuant to an asset purchase agreement and real estate purchase agreement with~~ ~~Crawford Laboratories, Inc. and affiliates thereof ("Sellers"), we acquired selected assets and liabilities of the Sellers' commercial floor coatings business, including the Florock~~^®Polymer Flooring brand ("Florock"). Florock manufactures commercial floor coatings systems in Chicago, IL. The purchase price was $11,843, including working capital and other adjustments, and is comprised of $10,965 paid at closing, with the remaining $878 paid in two installments. We paid the first installment of $575 on October 14, 2016. The remaining amount was paid during ~~the 2017 first quarter.~~

~~On September 1, 2016, we acquired selected assets and liabilities of~~ ~~Dofesa Barrido Mecanizado ("Dofesa")~~ ~~which was our largest distributor in Mexico. The operations are based in Aguascalientes, Mexico, and their addition allows us to expand our sales and service network in an importa~~nt market. The purchase price was $4,650 less assumed liabilities of $3,448, subject to customary working capital adjustments. The net purchase price of $1,202 and a value added tax of $191 were paid at closing.

The acquisitions have been accounted for as business combinations and the results of their operations have been included in the Condensed Consolidated Financial Statements since their respective dates of acquisition. ~~The impact of the incremental revenue and earnings recorded as a result of the acquisitions are not material to our Condensed Consolidated Financial Statements.~~ ~~The purchase price allocations for both the Florock and Dofesa acquisitions are complete.~~

~~The components of the final purchase price of the business combinations described above have been allocated as follows:~~

Current Assets $ 5,949
Property, Plant and Equipment, net 4,112
Identified Intangible Assets 6,055
Goodwill 1,739
Other Assets 7
Total Assets Acquired 17,862
Current Liabilities 4,764
Other Liabilities 53
Total Liabilities Assumed 4,817
Net Assets Acquired $ 13,045


6.	Inventories

Inventories are valued at the lower of cost or market. Inventories at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 consisted of the following:


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Inventories carried at LIFO:
Finished goods	$	47,734		$	39,142		$	49,428		$	43,439
Raw materials, production parts and work-in-process	24,275			23,980			29,266			23,694
LIFO reserve	(28,190		)	(28,190		)	(28,609		)	(28,429		)
Total LIFO inventories	43,819			34,932			50,085			38,704
Inventories carried at FIFO:
Finished goods	56,477			31,044			51,226			54,161
Raw materials, production parts and work-in-process	41,223			12,646			38,095			34,829
Total FIFO inventories	97,700			43,690			89,321			88,990
Total inventories	$	141,519		$	78,622		$	139,406		$	127,694

The LIFO reserve approximates the difference between LIFO carrying cost and FIFO.


7.	Goodwill and Intangible Assets

The changes in the carrying value of ~~goodwill~~Goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 were as follows:

Goodwill
Accumulated
Impairment
Losses
Total
Balance as of December 31, 2016 $ 58,397
$ (37,332 ) $ 21,065
Additions 143,642
—
143,642
Purchase accounting adjustments (1,865 ) —
(1,865 )
Foreign currency fluctuations 19,632
(3,426 ) 16,206
Balance as of September 30, 2017 $ 219,806
$ (40,758 ) $ 179,048



	Goodwill			Accumulated Impairment Losses			Total
Balance as of December 31, 2017	$	227,224		$	(41,180	)	$	186,044
Purchase accounting adjustments	4,627			—			4,627
Foreign currency fluctuations	(6,089		)	1,133			(4,956		)
Balance as of June 30, 2018	$	225,762		$	(40,047	)	$	185,715

The balances of acquired ~~intangible assets,~~Intangible Assets, excluding ~~goodwill,~~Goodwill, as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017, were as follows:


	Customer Lists			Trade Names			Technology			Total			Customer Lists			Trade Names			Technology			Total
Balance as of September 30, 2017
Balance as of June 30, 2018
Original cost	$	147,582		$	31,515		$	14,425		$	193,522		$	145,455		$	31,105		$	15,554		$	192,114
Accumulated amortization	(13,492		)	(1,631		)	(2,647		)	(17,770		)	(25,990		)	(3,894		)	(4,556		)	(34,440		)
Carrying value	$	134,090		$	29,884		$	11,778		$	175,752		$	119,465		$	27,211		$	10,998		$	157,674
Weighted average original life (in years)	15			10			11						15			10			11

Balance as of December 31, 2016
Balance as of December 31, 2017
Original cost	$	8,016		$	2,000		$	5,136		$	15,152		$	149,355		$	31,968		$	14,589		$	195,912
Accumulated amortization	(5,948		)	—			(2,744		)	(8,692		)	(17,870		)	(2,436		)	(3,259		)	(23,565		)
Carrying value	$	2,068		$	2,000		$	2,392		$	6,460		$	131,485		$	29,532		$	11,330		$	172,347
Weighted average original life (in years)	15			15			13						15			10			11

The ~~additions to goodwill~~purchase accounting adjustments recorded during the first ~~nine months~~quarter of ~~2017~~2018 were based on the ~~preliminary purchase price allocation of~~fair value adjustments related to our acquisition of the IPC Group, as described further in Note 5.

~~As part~~During the first six months of our acquisition of the IPC Group, we acquired customer lists, trade names and technology for a preliminary fair value measurement of $159,445. Further details regarding the preliminary purchase price allocation of our acquisition of the IPC Group are described further in Note 5.

~~As part of the formation of the i-team North America B.V. joint venture,~~2018, we purchased ~~the distribution rights to sell the i-mop in North America~~a technology license for ~~$2,500.~~$1,000. The ~~distribution rights were~~license was recorded in ~~intangible assets, net~~Intangible Assets, Net as ~~a customer list~~technology on the Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017. The i-mop distribution rights have a useful life of five years. Further details regarding the joint venture are discussed in Note 3.~~2018.

Amortization expense on ~~intangible assets~~Intangible Assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was ~~$7,650~~$5,819 and ~~$11,430,~~$11,657, respectively. Amortization expense on ~~intangible assets~~Intangible Assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 was ~~$99~~$3,536 and ~~$323,~~$3,780, respectively.

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


Remaining 2017	$	5,635
2018	22,042
Remaining 2018			$	10,854
2019	21,398		21,206
2020	19,928		19,756
2021	18,315		18,165
2022			16,020
Thereafter	88,434		71,673
Total	$	175,752	$	157,674


8.	Debt

~~JPMorgan Credit Facility~~Financial Covenants

In ~~order to finance the acquisition of the IPC Group, on April 4,~~ 2017, the Company and certain of our foreign subsidiaries entered into a Credit Agreement (the ~~“2017~~"2017 Credit ~~Agreement”)~~Agreement) with JPMorgan, as administrative agent, Goldman Sachs Bank USA, as syndication agent, Wells Fargo, National Association, U.S. Bank National Association, and HSBC Bank USA, National Association, as co-documentation agents, and the lenders (including JPMorgan) from time to time party thereto. The 2017 Credit Agreement provides the company and certain of our foreign subsidiaries access to a senior secured credit facility until April 4, 2022, consisting of a multi-tranche term loan facility in an amount up to $400,000 and a revolving facility in an amount up to $200,000 with an option to expand the revolving facility by $150,000, with the consent of the lenders willing to provide additional borrowings in the form of increases to their revolving facility commitment or funding of incremental term loans. Borrowings may be denominated in U.S. dollars or certain other currencies.

The fee for committed funds under the revolving facility of the 2017 Credit Agreement ranges from an annual rate of 0.175% to 0.35%, depending on the company’s leverage ratio. Borrowings denominated in U.S. dollars under the 2017 Credit Agreement bear interest at a rate per annum equal to (a) the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) the adjusted LIBOR rate for a one month period, but in any case, not less than 0%, plus, in any such case, 1.00%, plus an additional spread of 0.075% to 0.90% for revolving loans and 0.25% to 1.25% for term loans, depending on the company’s leverage ratio, or (b) the LIBOR Rate, as adjusted for statutory reserve requirements for eurocurrency liabilities, but in any case, not less than 0%, plus an additional spread of 1.075% to 1.90% for revolving loans and 1.25% to 2.25% for term loans, depending on the company’s leverage ratio.

Upon entry into the 2017 Credit Agreement, the company repaid $45,000 in outstanding borrowings under our Amended and Restated Credit Agreement, as described in Note 9 of our annual report on Form 10-K for the year ended December 31, 2016, and terminated the Amended and Restated Credit Agreement.

The 2017 Credit Agreement contains customary representations, warranties and covenants, including, but not limited to, covenants restricting the company’s ability to incur indebtedness and liens and merge or consolidate with another entity. The 2017 Credit Agreement also contains financial covenants, requiring us to maintain a ratio of consolidated total indebtedness to consolidated earnings before income, taxes, depreciation and amortization, subject to certain adjustments ("Adjusted EBITDA") of not greater than ~~4.25~~4.00 to 1, as well as requiring us to maintain a ratio of consolidated Adjusted EBITDA to consolidated interest expense of no less than 3.50 to 1 for the quarter ended ~~September~~June 30, ~~2017.~~2018. The 2017 Credit Agreement also contains a financial covenant requiring us to maintain a senior secured net indebtedness to Adjusted EBITDA ratio of not greater than 3.50 to 1. These financial covenants may restrict our ability to pay dividends and purchase outstanding shares of our common stock. We were in compliance with our financial covenants at ~~September~~June 30, ~~2017.~~

2018.

We will be required to repay the senior credit agreement with 25% to 50% of our excess cash flow from the preceding fiscal year, as defined in the agreement, unless our net leverage ratio for such preceding fiscal year is less than or equal to 3.00 to 1, which will be first measured using our fiscal year ended December 31, 2018.

The full terms and conditions of the senior secured credit facility, including our financial covenants, are set forth in the 2017 Credit Agreement. A copy of the 2017 Credit Agreement was filed as Exhibit 10.1 to the company's Current Report on Form 8-K filed April 5, 2017, as amended on Form 8-K/A filed July 27, 2017.

~~Issuance of 5.625%~~Our Senior ~~Notes due 2025~~

On April 18, 2017, we issued and sold $300,000 in aggregate principal amount of our 5.625% Senior Notes due 2025 (the “Notes”), pursuant to an Indenture, dated as of April 18, 2017, among the company, the Guarantors (as defined therein), and Wells Fargo Bank, National Association, a national banking association, as trustee. The Notes are guaranteed by Tennant Coatings, Inc. and Tennant Sales and Service Company (collectively, the “Guarantors”), which are wholly owned subsidiaries of the company.

The Notes will mature on May 1, 2025. Interest on the Notes will accrue at the rate of 5.625% per annum and will be payable semiannually in cash on each May 1 and November 1, commencing on November 1, 2017.

The Notes and the guarantees constitute senior unsecured obligations of the company and the Guarantors, respectively. The Notes and the guarantees, respectively, are: (a) equal in right of payment with all of the company’s and the Guarantors’ senior debt, without giving effect to collateral arrangements; (b) senior in right of payment to all of the company’s and the Guarantors’ future subordinated debt, if any; (c) effectively subordinated in right of payment to all of the company’s and the Guarantors’ debt and obligations that are secured, including borrowings under the company’s senior secured credit facilities for so long as the senior secured credit facilities are secured, to the extent of the value of the assets securing such liens; and (d) structurally subordinated in right of payment to all liabilities (including trade payables) of the company’s and the Guarantors’ subsidiaries that do not guarantee the Notes. The Notes also contain ~~customary representations, warranties and covenants, and~~certain restrictions, which are generally less restrictive than those contained in the 2017 Credit Agreement.

We used the net proceeds from this offering to refinance a $300,000 term loan under our 2017 Credit Agreement that we borrowed as part of the financing for the acquisition of the IPC Group and to pay related fees and expenses.

~~The full terms and conditions of the Indenture are set forth in Exhibit 4.1 to the Company's Current Report on Form 8-K filed April 24, 2017.~~

Registration Rights Agreement

In connection with the issuance and sale of the Senior Notes, the company entered into a Registration Rights Agreement, dated April 18, 2017, among the company, the Guarantors and Goldman, Sachs & Co. and J.P. Morgan Securities LLC (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the company agreed (1) to use its commercially reasonable efforts to consummate an exchange offer to exchange the Senior Notes for new registered notes (the “Exchange Notes”), with terms substantially identical in all material respects with the Senior Notes (except that the Exchange Notes will not contain terms with respect to additional interest, registration rights or transfer restrictions) and (2) if required, to have a shelf registration statement declared effective with respect to resales of the Senior Notes. If

On January 22, 2018, we commenced the ~~company fails to satisfy its obligations under~~exchange offer required by the Registration Rights ~~Agreement within 360 days, it~~Agreement. The exchange offer closed on February 23, 2018. We will benot incur any additional indebtedness as a result of the exchange offer. As a result, we are not required to pay additional interest toon the ~~holders of the Notes under certain circumstances.~~Senior Notes.

~~The full terms and conditions of the the Registration Rights Agreement are set forth in Exhibit 4.2 to the company's Current Report on Form 8-K filed April 24, 2017.~~

Debt Outstanding

Debt outstanding at ~~September~~June 30, 2018 and December 31, 2017 ~~is summarized as follows:~~consisted of the following:

September 30,
2017 December 31,
2016
Long-Term Debt:
Senior Unsecured Notes $ 300,000
$ —
Credit Facility Borrowings 95,000
36,143
Capital Lease Obligations 671
51
Total Long-Term Debt 395,671
36,194
Less: Unamortized Debt Issuance Costs (7,138 ) —
Less: Current Maturities of Credit Facility Borrowings, Net of Debt Issuance Costs⁽¹⁾
(4,887 ) (3,459 )
Less: Current Maturities of Capital Lease Obligations⁽¹⁾
(394 ) —
Long-Term Portion, Net $ 383,252
$ 32,735



	June 30, 2018			December 31, 2017
Long-Term Debt:
Senior unsecured notes	$	300,000		$	300,000
Credit facility borrowings	62,000			80,000
Capital lease obligations	3,110			3,279
Total Long-Term Debt	365,110			383,279
Less: unamortized debt issuance costs	(5,442		)	(6,440		)
Less: current maturities of credit facility borrowings, net of debt issuance costs⁽¹⁾	(29,611		)	(29,413		)
Less: current maturities of capital lease obligations⁽¹⁾	(1,358		)	(1,470		)
Long-term portion	$	328,699		$	345,956


⁽¹⁾	Current maturities of long-term debt include ~~$5,000~~$30,000 of current maturities, less ~~$113~~$389 of unamortized debt issuance costs, under our 2017 Credit Agreement and ~~$394~~$1,358 of current maturities of capital lease obligations.

As of ~~September~~June 30, ~~2017,~~2018, we had outstanding borrowings under our Senior Unsecured Notes of $300,000. We had outstanding borrowings under our 2017 Credit Agreement, totaling ~~$75,000~~$42,000 under our term loan facility and $20,000 under our revolving facility, leaving $180,000 of unused borrowing capacity on our revolving facility. ~~There were $300,000 in outstanding borrowings under~~Although we are only required to make a minimum principal payment of $5,625 during the ~~Notes~~next year, we have both the intent and the ability to pay an additional $24,375 during the next year on our term loan facility. As such, we have classified $30,000 as current maturities of ~~September 30, 2017.~~long-term debt. In addition, we had ~~stand alone~~ letters of credit and bank guarantees outstanding in the amount of ~~$4,721.~~$5,929, leaving approximately $174,071 of unused borrowing capacity on our revolving facility. Commitment fees on unused lines of credit for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 were ~~$353.~~$302. The overall weighted average cost of debt is approximately ~~5.0%~~5.2% and, net of a related cross-currency swap instrument, is approximately ~~4.2%~~4.4%. Further details regarding the cross-currency swap instrument are discussed in Note 10.

~~Prudential Investment Management, Inc.~~

In March 2017, we repaid $11,143 of debt evidenced by the notes issued under our Private Shelf Agreement, as described in Note 9 of our annual report on Form 10-K for the year ended December 31, 2016, and terminated the Private Shelf Agreement.

~~The aggregate maturities of our outstanding debt, including capital lease obligations as of September 30, 2017, are as follows:~~

Remaining 2017 $ 1,348
2018 5,386
2019 7,062
2020 9,375
2021 11,875
Thereafter 360,625
Total aggregate maturities $ 395,671


9.	Warranty

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 sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. Warranty terms on machines generally range from one to four years. However, the majority of our claims are paid out within the first six to nine months following a sale. The majority of the liability for estimated warranty claims represents amounts to be paid out in the near term for qualified warranty issues, with immaterial amounts reserved to be paid for older equipment warranty issues.

The changes in warranty reserves for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 were as follows:


	Nine Months Ended						Six Months Ended
	September 30						June 30
	2017			2016			2018			2017
Beginning balance	$	10,960		$	10,093		$	12,676		$	10,960
Additions charged to expense	8,879			8,888			7,227			5,815
Acquired warranty obligations	384			—			—			384
Foreign currency fluctuations	225			85			(153		)	154
Claims paid	(8,912		)	(8,707		)	(6,491		)	(5,872		)
Ending balance	$	11,536		$	10,359		$	13,259		$	11,441


10.	Derivatives

Hedge Accounting and Hedging Programs

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

Balance Sheet Hedging

Hedges of Foreign Currency Assets and Liabilities

We hedge portions of our net recognized foreign currency denominated assets and liabilities with foreign exchange forward contracts to reduce the risk that the value of these assets and liabilities will be adversely affected by changes in exchange rates. At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were ~~$67,672~~$51,067 and ~~$42,866,~~$60,858, respectively.

During the first quarter of 2017, in connection with our acquisition of IPC Group, we entered into a foreign currency option contract not designated as a hedging instrument for a notional amount of €180,000. The option contract has since expired and there were no outstanding foreign currency option contracts not designated as hedging instruments as of September 30, 2017 and December 31, 2016.

Cash Flow Hedging

Hedges of Forecasted Foreign Currency Transactions

In countries outside the ~~United States,~~U.S., we transact business in U.S. dollars and in various other currencies. We may use foreign exchange option contracts or forward contracts to hedge certain cash flow exposures resulting from changes in these foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities of up to one year. We enter into these foreign exchange contracts to hedge a portion of our forecasted foreign currency denominated revenue in the normal course of business, and accordingly, they are not speculative in nature. The notional amounts of outstanding foreign currency forward contracts designated as cash flow hedges were ~~$3,033~~$2,444 and ~~$2,127~~$2,928 as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. The notional amounts of outstanding foreign currency option contracts designated as cash flow hedges were ~~$8,870~~$8,851 and ~~$8,522~~$8,619 as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Foreign Currency Derivatives

We use foreign currency exchange rate derivatives to hedge our exposure to fluctuations in exchange rates for anticipated intercompany cash transactions between Tennant Company and its subsidiaries. ~~During the second quarter of 2017 we~~We entered into Euro to U.S. dollar foreign exchange cross currency swaps for all of the anticipated cash flows associated with an intercompany loan from a ~~wholly-owned~~wholly owned European subsidiary. We ~~entered~~enter into these foreign exchange cross currency swaps to hedge the foreign currency denominated cash flows associated with this intercompany loan, and accordingly, they are not speculative in nature. ~~We designated these~~These cross currency swaps are designated as cash flow hedges. The hedged cash flows as of ~~September~~June 30, 2018 and December 31, 2017 included ~~€183,000~~€177,600 and €181,200 of total notional ~~value.~~values, respectively. As of ~~September~~June 30, ~~2017,~~2018 the aggregate scheduled interest payments over the course of the loan and related swaps amounted to ~~€33,000.~~€27,600. The scheduled maturity and principal payment of the loan and related swaps of €150,000 are due in April 2022. ~~There were no cross currency swaps designated as cash flow hedges as of December 31, 2016.~~

The fair value of derivative instruments on our Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows:


	September 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
	Fair Value Asset Derivatives		Fair Value Liability Derivatives		Fair Value Asset Derivatives		Fair Value Liability Derivatives		Fair Value Asset Derivatives		Fair Value Liability Derivatives		Fair Value Asset Derivatives		Fair Value Liability Derivatives
Derivatives designated as hedging instruments:
Foreign currency option contracts⁽¹⁾	$	67	$	—	$	184	$	—	$	212	$	—	$	86	$	—
Foreign currency forward contracts⁽¹⁾	8,346		31,921		—		13		7,108		31,189		7,218		34,961
Derivatives not designated as hedging instruments:
Foreign currency option contracts	—		—		—		—
Foreign currency forward contracts⁽¹⁾	$	539	$	2,010	$	12	$	162	$	909	$	136	$	442	$	425

⁽¹⁾

Contracts that mature within the next 12 months are included in Other Current Assets and Other Current Liabilities for asset derivatives and liability derivatives, respectively, on our Condensed Consolidated Balance Sheets. Contracts with maturities greater than 12 months are included in Other Assets and Other Liabilities for asset derivatives and liability derivatives, respectively, onin our Condensed Consolidated Balance Sheets. Amounts included in our Condensed Consolidated Balance Sheets are recorded net where a right of offset exists with the same derivative counterparty.

As of ~~September~~June 30, ~~2017,~~2018, we anticipate reclassifying approximately ~~$2,004~~$2,177 of gains from Accumulated Other Comprehensive Loss to net earnings during the next 12 months.

The effect of foreign currency derivative instruments designated as cash flow hedges and of foreign currency derivative instruments not designated as hedges in our Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended					Six Months Ended
	September 30, 2017						September 30, 2017						June 30, 2018					June 30, 2018
	Foreign Currency Option Contracts			Foreign Currency Forward Contracts			Foreign Currency Option Contracts			Foreign Currency Forward Contracts			Foreign Currency Option Contracts			Foreign Currency Forward Contracts		Foreign Currency Option Contracts			Foreign Currency Forward Contracts
Derivatives in cash flow hedging relationships:
Net loss recognized in Other Comprehensive Income, net of tax⁽¹⁾	$	(40	)	$	(4,492	)	$	(177	)	$	(14,026	)
Net gain recognized in Other Comprehensive (Loss) Income, net of tax⁽¹⁾													$	33		$	9,373	$	49		$	3,676
Net (loss) gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Sales	(141		)	26			(140		)	(76		)	(43		)	13		(84		)	(1		)
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Interest Income	—			374			—			823			—			467		—			858
Net loss reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction (Losses) Gains	—			(3,705		)	—			(10,853		)
Net (loss) gain recognized in earnings⁽²⁾	(7		)	3			(12		)	8
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction Losses													—			7,912		—			3,985
Net gain recognized in earnings⁽²⁾													1			3		8			6
Derivatives not designated as hedging instruments:
Net loss recognized in earnings⁽³⁾	$	—		$	(2,062	)	$	(1,132	)	$	(7,369	)
Net gain recognized in earnings⁽³⁾													$	—		$	3,210	$	—		$	1,832


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30, 2016						September 30, 2016						June 30, 2017						June 30, 2017
	Foreign Currency Option Contracts			Foreign Currency Forward Contracts			Foreign Currency Option Contracts			Foreign Currency Forward Contracts			Foreign Currency Option Contracts			Foreign Currency Forward Contracts			Foreign Currency Option Contracts			Foreign Currency Forward Contracts
Derivatives in cash flow hedging relationships:
Net loss recognized in Other Comprehensive Income, net of tax⁽¹⁾	$	(20	)	$	(9	)	$	(250	)	$	(74	)
Net (loss) gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Sales	(88		)	37			(88		)	11
Net loss recognized in Other Comprehensive Income (Loss), net of tax⁽¹⁾													$	(47	)	$	(9,517	)	$	(137	)	$	(9,534	)
Net gain (loss) reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Sales													43			(83		)	1			(102		)
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Interest Income													—			449			—			449
Net loss reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction Losses													—			(7,148		)	—			(7,148		)
Net (loss) gain recognized in earnings⁽²⁾	(11		)	1			(17		)	1			(4		)	3			(5		)	5
Derivatives not designated as hedging instruments:
Net loss recognized in earnings⁽³⁾	$	—		$	(330	)	$	—		$	(2,392	)	$	—		$	(3,939	)	$	(1,132	)	$	(5,307	)


⁽¹⁾	Net change in the fair value of the effective portion classified in Other Comprehensive (Loss) Income.


⁽²⁾	Ineffective portion and amount excluded from effectiveness testing classified in Net Foreign Currency Transaction ~~(Losses) Gains.~~Losses.


⁽³⁾	Classified in Net Foreign Currency Transaction ~~(Losses) Gains.~~Losses.


11.	Fair Value Measurements

Estimates of fair value for financial assets and financial liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework 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 framework 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.

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 population of assets and liabilities subject to fair value measurements ~~on a recurring basis~~ at ~~September~~June 30, ~~2017~~2018 is as follows:


	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Assets:
Foreign currency forward exchange contracts	$	8,885	$	—	$	8,885	$	—	$	8,017	$	—	$	8,017	$	—
Foreign currency option contracts	67		—		67		—		212		—		212		—
Total Assets	$	8,952	$	—	$	8,952	$	—	$	8,229	$	—	$	8,229	$	—
Liabilities:
Foreign currency forward exchange contracts	$	33,931	$	—	$	33,931	$	—	$	31,325	$	—	$	31,325	$	—
Foreign currency option contracts	$	—	—		—		—
Total Liabilities	$	33,931	$	—	$	33,931	$	—	$	31,325	$	—	$	31,325	$	—

Our population of assets and liabilities subject to fair value measurements at December 31, 2017 is as follows:



	Fair Value		Level 1		Level 2		Level 3
Assets:
Foreign currency forward exchange contracts	$	7,660	$	—	$	7,660	$	—
Foreign currency option contracts	86		—		86		—
Total Assets	$	7,746	$	—	$	7,746	$	—
Liabilities:
Foreign currency forward exchange contracts	$	35,386	$	—	$	35,386	$	—
Total Liabilities	$	35,386	$	—	$	35,386	$	—

Our foreign currency forward exchange and option ~~exchange~~ contracts are valued using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present value amount. Further details regarding our foreign currency forward exchange and option contracts are discussed in Note 10.

The carrying amounts reported in the Condensed Consolidated Balance Sheets for Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Other Current Assets, Accounts Payable and Other Current Liabilities approximate fair value due to their short-term nature.

The fair market value of our Long-Term Debt approximates cost based on the borrowing rates currently available to us for bank loans with similar terms and remaining maturities.

From time to time, we measure certain assets at fair value on a non-recurring basis, including evaluation of long-lived assets, goodwill and other intangible assets, as part of a business acquisition. These assets are measured and recognized at amounts equal to the fair value determined as of the date of acquisition. Fair value valuations are based on the information available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by us. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of assets ~~acquired~~ and liabilities assumed as part of a business acquisition are based on valuations involving significant unobservable inputs, or Level 3, in the fair value hierarchy.

These assets are also subject to periodic impairment testing by comparing the respective carrying value of each asset to the estimated fair value of the reporting unit or asset group in which they reside. In the event we determine these assets to be impaired, we would recognize an impairment loss equal to the amount by which the carrying value of the reporting unit, ~~impaired~~impairment asset or asset group exceeds its estimated fair value. These periodic impairment tests utilize company-specific assumptions involving ~~significant~~ unobservable inputs, or Level 3, in the fair value hierarchy.


12.	Retirement Benefit Plans

Our defined benefit pension plans and postretirement medical plan are described in Note 13 of our annual report on Form 10-K for the year ended December 31, ~~2016.~~2017. We have contributed ~~$145~~$37 and ~~$198~~$287 during the ~~third~~second quarter of ~~2017~~2018 and ~~$410~~$151 and ~~$493~~$556 during the first ~~nine~~six months of ~~2017~~2018 to our pension plans and postretirement medical plan, respectively.

The components of the net ~~periodic (benefit)~~benefit cost for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 were as follows:


	Three Months Ended																Three Months Ended
	September 30																June 30
	Pension Benefits												Postretirement				Pension Benefits											Postretirement
	U.S. Plans						Non-U.S. Plans						Medical Benefits				U.S. Plans					Non-U.S. Plans						Medical Benefits
	2017			2016			2017			2016			2017		2016		2018		2017			2018			2017			2018		2017
Service cost	$	—		$	88		$	124		$	32		$	6	$	25	$	—	$	—		$	35		$	24		$	14	$	20
Interest cost	373			414			96			96			91		99		11		390			87			129			75		90
Expected return on plan assets	(581		)	(599		)	(101		)	(89		)	—		—		—		(586		)	(82		)	(101		)	—		—
Amortization of net actuarial loss	12			13			—			—			—		—		11		11			—			—			—		—
Amortization of prior service cost	—			10			50			29			—		—		—		—			32			49			—		—
Foreign currency	—			—			135			(57		)	—		—		—		—			(23		)	234			—		—
Net periodic (benefit) cost	$	(196	)	$	(74	)	$	304		$	11		$	97	$	124
Net periodic cost (credit)																	22		(185		)	49			335			89		110
Settlement charge																	—		205			—			—			—		—
Net benefit cost																	$	22	$	20		$	49		$	335		$	89	$	110


	Nine Months Ended																Six Months Ended
	September 30																June 30
	Pension Benefits												Postretirement				Pension Benefits											Postretirement
	U.S. Plans						Non-U.S. Plans						Medical Benefits				U.S. Plans					Non-U.S. Plans						Medical Benefits
	2017			2016			2017			2016			2017		2016		2018		2017			2018			2017			2018		2017
Service cost	$	—		$	265		$	172		$	104		$	46	$	73	$	—	$	—		$	72		$	48		$	28	$	40
Interest cost	1,153			1,244			315			304			272		298		22		780			158			219			150		181
Expected return on plan assets	(1,752		)	(1,799		)	(298		)	(283		)	—		—		—		(1,171		)	(191		)	(197		)	—		—
Amortization of net actuarial loss	33			30			—			—			—		—		24		21			—			—			—		—
Amortization of prior service cost	—			31			146			93			—		—		—		—			106			96			—		—
Foreign currency																	—		—			(94		)	229			—		—
Net periodic cost (credit)																	46		(370		)	51			395			178		221
Settlement charge	205			—			—			—			—		—		50		205			—			—			—		—
Foreign currency	—			—			364			(33		)	—		—
Net periodic (benefit) cost	$	(361	)	$	(229	)	$	699		$	185		$	318	$	371
Net benefit cost (credit)																	$	96	$	(165	)	$	51		$	395		$	178	$	221


13.	Commitments and Contingencies

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. As of ~~September~~June 30, ~~2017,~~2018, of those leases that contain residual value guarantees, the aggregate residual value at lease expiration was ~~$14,630,~~$13,790, of which we have guaranteed ~~$11,820.~~$10,866. As of ~~September~~June 30, ~~2017,~~2018, we have recorded a liability for the estimated end of term loss related to this residual value guarantee of ~~$458~~$428 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.

~~The minimum rentals for aggregate lease commitments as of September 30, 2017 are as follows:~~

Remaining 2017 $ 4,033
2018 11,835
2019 7,828
2020 4,826
2021 2,710
Thereafter 4,360
Total $ 35,592


14.	Accumulated Other Comprehensive Loss

Components of Accumulated Other Comprehensive Loss, net of tax, within the Condensed Consolidated Balance Sheets, are as follows:


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Foreign currency translation adjustments	$	(19,371	)	$	(44,444	)	$	(26,626	)	$	(15,778	)
Pension and retiree medical benefits	(5,010		)	(5,391		)	(1,671		)	(1,610		)
Cash flow hedge	(4,045		)	(88		)	(7,094		)	(4,935		)
Total Accumulated Other Comprehensive Loss	$	(28,426	)	$	(49,923	)	$	(35,391	)	$	(22,323	)

The changes in components of Accumulated Other Comprehensive Loss, net of tax, are as follows:

Foreign Currency Translation Adjustments Pension and Post Retirement Benefits Cash Flow Hedge Total
December 31, 2016 $ (44,444 ) $ (5,391 ) $ (88 ) $ (49,923 )
Other comprehensive income (loss) before reclassifications 25,073
361
(14,203 ) 11,231
Amounts reclassified from Accumulated Other Comprehensive Loss —
20
10,246
10,266
Net current period other comprehensive income (loss) $ 25,073
$ 381
$ (3,957 ) $ 21,497
September 30, 2017 $ (19,371 ) $ (5,010 ) $ (4,045 ) $ (28,426 )



	Foreign Currency Translation Adjustments			Pension and Post Retirement Benefits			Cash Flow Hedge			Total
December 31, 2017	$	(15,778	)	$	(1,610	)	$	(4,935	)	$	(22,323	)
Other comprehensive (loss) income before reclassifications	(10,848		)	19			3,725			(7,104		)
Amounts reclassified from Accumulated Other Comprehensive Loss	—			57			(4,758		)	(4,701		)
Adjustments to Accumulated Other Comprehensive Loss for disproportionate income tax effects recognized from the adoption of ASU 2018-02	—			(137		)	(1,126		)	(1,263		)
Net current period other comprehensive loss	(10,848		)	(61		)	(2,159		)	(13,068		)
June 30, 2018	$	(26,626	)	$	(1,671	)	$	(7,094	)	$	(35,391	)


15.	Income Taxes

We and our subsidiaries 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 2014 and, with limited exceptions, state and foreign income tax examinations for taxable years before ~~2012.~~2013.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in Income Tax ~~Expense.~~Expense (Benefit). In addition to the liability of ~~$2,475~~$6,628 for unrecognized tax benefits as of ~~September~~June 30, ~~2017,~~2018, there was approximately ~~$426~~$965 for accrued interest and penalties. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of ~~September~~June 30, ~~2017~~2018 was ~~$2,130.~~$6,374. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be revised and reflected as an adjustment of the Income Tax ~~Expense.~~

Unrecognized tax benefits were reduced by $688 during the first nine months of 2017 as a result of the expiration of the statute of limitations in various jurisdictions and settlement with tax authorities.Expense (Benefit).

We are currently under examination by the Internal Revenue Service for the 2015 tax year. Although the outcome of this matter cannot currently be determined, we believe adequate provision has been made for any potential unfavorable financial statement impact. We are currently undergoing income tax examinations in various state and foreign jurisdictions covering 2014 to 2016. Although the final outcome of these examinations cannot be currently determined, we believe that we have adequate reserves with respect to these examinations.

On December 22, 2017, the Tax Act was signed into law. The Tax Act made broad and complex changes to the U.S. tax code which includes a lowering of the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, accelerated expensing of qualified capital investments for a specific period, limitations of the deductibility of interest expense and executive compensation, and a transition from a worldwide to a territorial tax system, which requires companies to pay a one-time transition tax on certain unrepatriated earnings from foreign subsidiaries.

ASC 740, Income Taxes, requires a company to record the effects of a tax law change in the period of enactment. ASU 2018-05 allows a company to record a provisional amount when it does not have the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.

We recorded income tax expense of $363 during the second quarter of 2018, or 2.8% of earnings before income taxes. During the first six months of 2018, we recorded income tax expense of $1,440, or 8.2% of earnings before income taxes. This amount primarily reflects two items: (1) The Tax Act resulted in a lower tax rate beginning in the first quarter of 2018. This includes the estimated impacts of requiring a current inclusion in U.S. federal income of certain earnings of controlled foreign corporations, allowing a domestic corporation an immediate deduction in the U.S. taxable income for a portion of its foreign-derived intangible income, the base erosion anti-abuse tax, and limitations on the deductibility of executive compensation. These estimates had an immaterial impact on our effective income tax rate for 2018. (2) During the second quarter of 2018, we realized two discrete tax benefits, totaling $3,295 resulting from the exercise during the quarter of soon-to-expire stock options and a favorable tax ruling from Italian tax authorities related to the deductibility of interest expense in Italy. We will continue to monitor and evaluate guidance and clarifications from the Internal Revenue Service as it relates to the Tax Act and will refine these estimates as necessary.


16.	Share-Based Compensation

Our share-based compensation plans are described in Note 17 of our annual report on Form 10-K for the year ended December 31, ~~2016.~~2017. During the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, we recognized total Share-Based Compensation Expense of ~~$1,293~~$1,367 and ~~$1,321,~~$1,049, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, we recognized total Share-Based Compensation Expense of ~~$4,915~~$4,115 and ~~$5,747,~~$3,622, respectively. The total excess tax benefit recognized for share-based compensation arrangements during the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 was $1,827 and ~~2016 was $1,149 and $447,~~$1,144, respectively.

During the first ~~nine~~six months of ~~2017,~~2018, we ~~granted 19,971~~issued 16,377 restricted shares. The weighted average grant date fair value of each share awarded was ~~$73.16.~~$67.70. Restricted share awards generally have a three year vesting period from the effective date of the grant. The total fair value of shares vested during the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 was $863 and ~~2016 was $1,295 and $1,835,~~$1,250, respectively.


17.	Earnings (Loss) Attributable to Tennant Company Per Share

The computations of Basic and Diluted Earnings (Loss) ~~Attributable to Tennant Company~~ per Share were as follows:


	Three Months Ended				Nine Months Ended					Three Months Ended					Six Months Ended
	September 30				September 30					June 30					June 30
	2017		2016		2017			2016		2018		2017			2018		2017
Numerator:
Net Earnings (Loss) Attributable to Tennant Company	$	3,559	$	11,477	$	(2,989	)	$	31,244	$	12,744	$	(2,591	)	$	16,018	$	(6,548	)
Denominator:
Basic - Weighted Average Shares Outstanding	17,729,857		17,498,808		17,673,656			17,516,941		17,943,450		17,693,102			17,867,641		17,645,090
Effect of Dilutive Securities:
Share-Based Compensation Plans	441,587		474,398		—			438,558
Effect of dilutive securities:
Share-based compensation plans										428,088		—			436,319		—
Diluted - Weighted Average Shares Outstanding	18,171,444		17,973,206		17,673,656			17,955,499		18,371,538		17,693,102			18,303,960		17,645,090
Basic Earnings (Loss) per Share	$	0.20	$	0.66	$	(0.17	)	$	1.78	$	0.71	$	(0.15	)	$	0.90	$	(0.37	)
Diluted Earnings (Loss) per Share	$	0.20	$	0.64	$	(0.17	)	$	1.74	$	0.69	$	(0.15	)	$	0.88	$	(0.37	)

Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of ~~340,239~~186,833 and ~~313,711~~735,377 shares of common stock during the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of ~~714,687~~311,907 and ~~382,075~~716,401 shares of common stock during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. These exclusions were made if the exercise prices of the options are greater than the average market price of our common stock for the period, if the number of shares we can repurchase under the treasury stock method exceeds the weighted average shares outstanding in the options or if we have a net loss, as these effects are anti-dilutive.


18.	Segment Reporting

We are organized into four operating segments: North ~~America,~~America; Latin ~~America, EMEA~~America; EMEA; and APAC. We combine our North America and Latin America operating segments into the “Americas” for reporting Net Sales by geographic area. In accordance with the objective and basic principles of the applicable accounting guidance, we aggregate our operating segments into one reportable segment that consists of the design, manufacture and sale of products used primarily in the maintenance of nonresidential surfaces.

~~Net Sales attributed to each~~Further disclosures regarding our net sales by geographic area ~~for the three and nine months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~ ~~were as follows:~~ are discussed in Note 3.

Three Months Ended Nine Months Ended
September 30 September 30
2017 2016 2017 2016
Americas $ 161,037
$ 152,294
$ 472,953
$ 449,704
EMEA 78,851
29,309
189,483
94,433
APAC 22,033
18,531
61,335
52,689
Total $ 261,921
$ 200,134
$ 723,771
$ 596,826

~~Net Sales are attributed to each geographic area based on the end user country and are net of intercompany sales.~~


19.	~~Related Party Transactions~~Separate Financial Information of Guarantor Subsidiaries

~~During~~The following condensed consolidated guarantor financial information is presented to comply with the ~~first quarter~~requirements of ~~2008,~~Rule 3-10 of Regulation S-X.

In 2017, we ~~acquired Sociedade Alfa Ltda.~~issued and ~~entered into lease agreements~~sold $300,000 in aggregate principal amount of our 5.625% Senior Notes due 2025 (the "Notes), pursuant to an Indenture, dated as of April 18, 2017, among the company, the Guarantors (as defined below), and Wells Fargo Bank, National Association, a national banking association, as trustee. The Notes are unconditionally and jointly and severally guaranteed by Tennant Coatings, Inc. and Tennant Sales and Service Company (collectively, the "Guarantors"), which are wholly owned subsidiaries of the company.

The Notes and the guarantees constitute senior unsecured obligations of the company and the Guarantors, respectively. The Notes and the guarantees, respectively, are: (a) equal in right of payment with all of the company’s and the Guarantors’ senior debt, without giving effect to collateral arrangements; (b) senior in right of payment to all of the company’s and the Guarantors’ future subordinated debt, if any; (c) effectively subordinated in right of payment to all of the company’s and the Guarantors’ debt and obligations that are secured, including borrowings under the company’s senior secured credit facilities for ~~certain properties owned by or partially owned by~~so long as the ~~former owners~~senior secured credit facilities are secured, to the extent of the value of the assets securing such liens; and (d) structurally subordinated in right of payment to all liabilities (including trade payables) of the company’s and the Guarantors’ subsidiaries that do not guarantee the Notes.

The following condensed consolidated financial information presents the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Comprehensive (Loss) Income for each of the three and six months ended June 30, 2018 and June 30, 2017, the related Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017, and the related Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and June 30, 2017, of Tennant Company ("Parent"), the Guarantor Subsidiaries on a combined basis, the Non-Guarantor Subsidiaries on a combined basis and elimination entries necessary to consolidate the Parent with the Guarantor and Non-Guarantor Subsidiaries. The following condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the company and notes thereto of which this ~~entity. Some~~note is an integral part.



Condensed Consolidated Statement of Operations
For the three months ended June 30, 2018
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Sales	$	126,293		$	163,865		$	151,074		$	(149,035	)	$	292,197
Cost of Sales	85,053			137,144			100,255			(149,054		)	173,398
Gross Profit	41,240			26,721			50,819			19			118,799

Operating Expense:
Research and Development Expense	6,422			342			1,142			—			7,906
Selling and Administrative Expense	28,625			19,343			43,896			—			91,864
Total Operating Expense	35,047			19,685			45,038			—			99,770
Profit from Operations	6,193			7,036			5,781			19			19,029

Other Income (Expense):
Equity in Earnings of Affiliates	10,026			588			1,382			(11,996		)	—
Interest (Expense) Income, Net	(5,388		)	—			345			(10		)	(5,053		)
Intercompany Interest Income (Expense)	3,643			(1,436		)	(2,207		)	—			—
Net Foreign Currency Transaction (Losses) Gains	(639		)	(5		)	307			—			(337		)
Other (Expense) Income, Net	(706		)	(546		)	778			(36		)	(510		)
Total Other Income (Expense), Net	6,936			(1,399		)	605			(12,042		)	(5,900		)

Profit Before Income Taxes	13,129			5,637			6,386			(12,023		)	13,129
Income Tax Expense (Benefit)	363			1,391			(19		)	(1,372		)	363
Net Earnings Including Noncontrolling Interest	12,766			4,246			6,405			(10,651		)	12,766
Net Earnings Attributable to Noncontrolling Interest	22			—			22			(22		)	22
Net Earnings Attributable to Tennant Company	$	12,744		$	4,246		$	6,383		$	(10,629	)	$	12,744



Condensed Consolidated Statement of Operations
For the six months ended June 30, 2018
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Sales	$	239,983		$	312,298		$	291,469		$	(278,706	)	$	565,044
Cost of Sales	162,284			260,269			190,500			(277,445		)	335,608
Gross Profit	77,699			52,029			100,969			(1,261		)	229,436

Operating Expense:
Research and Development Expense	12,529			546			2,827			—			15,902
Selling and Administrative Expense	57,713			39,060			87,360			—			184,133
Total Operating Expense	70,242			39,606			90,187			—			200,035
Profit from Operations	7,457			12,423			10,782			(1,261		)	29,401

Other Income (Expense):
Equity in Earnings of Affiliates	14,401			1,094			4,029			(19,524		)	—
Interest (Expense) Income, Net	(10,496		)	—			466			(19		)	(10,049		)
Intercompany Interest Income (Expense)	7,368			(2,858		)	(4,510		)	—			—
Net Foreign Currency Transaction (Losses) Gains	(285		)	(6		)	(795		)	—			(1,086		)
Other (Expense) Income, Net	(939		)	(1,137		)	1,376			(60		)	(760		)
Total Other Income (Expense), Net	10,049			(2,907		)	566			(19,603		)	(11,895		)

Profit Before Income Taxes	17,506			9,516			11,348			(20,864		)	17,506
Income Tax Expense	1,440			2,290			1,570			(3,860		)	1,440
Net Earnings Including Noncontrolling Interest	16,066			7,226			9,778			(17,004		)	16,066
Net Earnings Attributable to Noncontrolling Interest	48			—			48			(48		)	48
Net Earnings Attributable to Tennant Company	$	16,018		$	7,226		$	9,730		$	(16,956	)	$	16,018



Condensed Consolidated Statement of Operations
For the three months ended June 30, 2017
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Sales	$	120,153		$	156,515		$	131,201		$	(137,078	)	$	270,791
Cost of Sales	82,182			129,779			91,844			(137,568		)	166,237
Gross Profit	37,971			26,736			39,357			490			104,554

Operating Expense:
Research and Development Expense	6,579			73			1,234			—			7,886
Selling and Administrative Expense	30,135			19,734			37,457			—			87,326
Total Operating Expense	36,714			19,807			38,691			—			95,212
Profit from Operations	1,257			6,929			666			490			9,342

Other Income (Expense):
Equity in Earnings of Affiliates	3,145			796			—			(3,941		)	—
Interest (Expense) Income, Net	(10,827		)	—			(201		)	(12		)	(11,040		)
Intercompany Interest Income (Expense)	3,499			(1,441		)	(2,058		)	—			—
Net Foreign Currency Transaction Gains (Losses)	1,033			(4		)	(1,365		)	—			(336		)
Other (Expense) Income, Net	(525		)	(150		)	326			(35		)	(384		)
Total Other Expense, Net	(3,675		)	(799		)	(3,298		)	(3,988		)	(11,760		)

(Loss) Profit Before Income Taxes	(2,418		)	6,130			(2,632		)	(3,498		)	(2,418		)
Income Tax Expense	238			1,898			3,622			(5,520		)	238
Net (Loss) Earnings Including Noncontrolling Interest	(2,656		)	4,232			(6,254		)	2,022			(2,656		)
Net Loss Attributable to Noncontrolling Interest	(65		)	—			(65		)	65			(65		)
Net (Loss) Earnings Attributable to Tennant Company	$	(2,591	)	$	4,232		$	(6,189	)	$	1,957		$	(2,591	)



Condensed Consolidated Statement of Operations
For the six months ended June 30, 2017
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Sales	$	225,858		$	295,595		$	200,035		$	(259,638	)	$	461,850
Cost of Sales	153,779			242,511			140,426			(259,156		)	277,560
Gross Profit	72,079			53,084			59,609			(482		)	184,290

Operating Expense:
Research and Development Expense	14,525			160			1,647			—			16,332
Selling and Administrative Expense	62,199			39,806			59,277			—			161,282
Total Operating Expense	76,724			39,966			60,924			—			177,614
(Loss) Profit from Operations	(4,645		)	13,118			(1,315		)	(482		)	6,676

Other Income (Expense):
Equity in Earnings of Affiliates	4,795			1,125			—			(5,920		)	—
Interest Expense, Net	(11,591		)	—			(147		)	(12		)	(11,750		)
Intercompany Interest Income (Expense)	4,968			(2,869		)	(2,099		)	—			—
Net Foreign Currency Transaction Gains (Losses)	196			(2		)	(1,727		)	—			(1,533		)
Other (Expense) Income, Net	(682		)	(225		)	590			(35		)	(352		)
Total Other Expense, Net	(2,314		)	(1,971		)	(3,383		)	(5,967		)	(13,635		)

(Loss) Profit Before Income Taxes	(6,959		)	11,147			(4,698		)	(6,449		)	(6,959		)
Income Tax (Benefit) Expense	(346		)	3,469			2,598			(6,067		)	(346		)
Net (Loss) Earnings Including Noncontrolling Interest	(6,613		)	7,678			(7,296		)	(382		)	(6,613		)
Net Loss Attributable to Noncontrolling Interest	(65		)	—			(65		)	65			(65		)
Net (Loss) Earnings Attributable to Tennant Company	$	(6,548	)	$	7,678		$	(7,231	)	$	(447	)	$	(6,548	)



Condensed Consolidated Statement of Comprehensive (Loss) Income
For the three months ended June 30, 2018
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Earnings Including Noncontrolling Interest	$	12,766		$	4,246		$	6,405		$	(10,651	)	$	12,766
Other Comprehensive Loss:
Foreign currency translation adjustments	(19,473		)	(326		)	(24,292		)	24,618			(19,473		)
Pension and retiree medical benefits	11			—			—			—			11
Cash flow hedge	1,376			—			—			—			1,376
Income Taxes:
Foreign currency translation adjustments	261			—			260			(260		)	261
Pension and retiree medical benefits	(3		)	—			—			—			(3		)
Cash flow hedge	(319		)	—			—			—			(319		)
Total Other Comprehensive Loss, net of tax	(18,147		)	(326		)	(24,032		)	24,358			(18,147		)

Total Comprehensive (Loss) Income Including Noncontrolling Interest	(5,381		)	3,920			(17,627		)	13,707			(5,381		)
Comprehensive Income Attributable to Noncontrolling Interest	22			—			22			(22		)	22
Comprehensive (Loss) Income Attributable to Tennant Company	$	(5,403	)	$	3,920		$	(17,649	)	$	13,729		$	(5,403	)



Condensed Consolidated Statement of Comprehensive (Loss) Income
For the six months ended June 30, 2018
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Earnings Including Noncontrolling Interest	$	16,066		$	7,226		$	9,778		$	(17,004	)	$	16,066
Other Comprehensive Loss:
Foreign currency translation adjustments	(11,092		)	(490		)	(16,439		)	16,929			(11,092		)
Pension and retiree medical benefits	93			—			19			(19		)	93
Cash flow hedge	(1,339		)	—			—			—			(1,339		)
Income Taxes:
Foreign currency translation adjustments	244			—			244			(244		)	244
Pension and retiree medical benefits	(154		)	—			—			—			(154		)
Cash flow hedge	(820		)	—			—			—			(820		)
Total Other Comprehensive Loss, net of tax	(13,068		)	(490		)	(16,176		)	16,666			(13,068		)

Total Comprehensive Income (Loss) Including Noncontrolling Interest	2,998			6,736			(6,398		)	(338		)	2,998
Comprehensive Income Attributable to Noncontrolling Interest	48			—			48			(48		)	48
Comprehensive Income (Loss) Attributable to Tennant Company	$	2,950		$	6,736		$	(6,446	)	$	(290	)	$	2,950



Condensed Consolidated Statement of Comprehensive (Loss) Income
For the three months ended June 30, 2017
(in thousands)	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net (Loss) Earnings Including Noncontrolling Interest	$	(2,656	)	$	4,232	$	(6,254	)	$	2,022		$	(2,656	)
Other Comprehensive Income (Loss):
Foreign currency translation adjustments	13,640			303		11,276			(11,579		)	13,640
Pension and retiree medical benefits	152			—		141			(141		)	152
Cash flow hedge	(4,506		)	—		—			—			(4,506		)
Income Taxes:
Foreign currency translation adjustments	—			—		—			—			—
Pension and retiree medical benefits	(4		)	—		—			—			(4		)
Cash flow hedge	1,681			—		—			—			1,681
Total Other Comprehensive Income, net of tax	10,963			303		11,417			(11,720		)	10,963

Total Comprehensive Income Including Noncontrolling Interest	8,307			4,535		5,163			(9,698		)	8,307
Comprehensive (Loss) Income Attributable to Noncontrolling Interest	(65		)	—		65			(65		)	(65		)
Comprehensive Income Attributable to Tennant Company	$	8,372		$	4,535	$	5,098		$	(9,633	)	$	8,372



Condensed Consolidated Statement of Comprehensive (Loss) Income
For the six months ended June 30, 2017
(in thousands)	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net (Loss) Earnings Including Noncontrolling Interest	$	(6,613	)	$	7,678	$	(7,296	)	$	(382	)	$	(6,613	)
Other Comprehensive Income (Loss):
Foreign currency translation adjustments	16,040			404		(9,421		)	9,017			16,040
Pension and retiree medical benefits	162			—		141			(141		)	162
Cash flow hedge	(4,579		)	—		—			—			(4,579		)
Income Taxes:
Foreign currency translation adjustments	—			—		—			—			—
Pension and retiree medical benefits	(22		)	—		(14		)	14			(22		)
Cash flow hedge	1,708			—		—			—			1,708
Total Other Comprehensive Income (Loss), net of tax	13,309			404		(9,294		)	8,890			13,309

Total Comprehensive Income (Loss) Including Noncontrolling Interest	6,696			8,082		(16,590		)	8,508			6,696
Comprehensive (Loss) Income Attributable to Noncontrolling Interest	(65		)	—		65			(65		)	(65		)
Comprehensive Income (Loss) Attributable to Tennant Company	$	6,761		$	8,082	$	(16,655	)	$	8,573		$	6,761



Condensed Consolidated Balance Sheet
As of June 30, 2018
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
ASSETS
Current Assets:
Cash and Cash Equivalents	$	18,998		$	1,858		$	33,045		$	—		$	53,901
Restricted Cash	—			—			543			—			543
Net Receivables	763			92,295			122,265			—			215,323
Intercompany Receivables	38,717			134,113			—			(172,830		)	—
Inventories	37,145			16,372			96,099			(10,210		)	139,406
Prepaid Expenses	16,567			677			10,138			—			27,382
Other Current Assets	4,790			333			3,584			—			8,707
Total Current Assets	116,980			245,648			265,674			(183,040		)	445,262
Property, Plant and Equipment	226,599			12,581			142,427			—			381,607
Accumulated Depreciation	(153,143		)	(6,280		)	(53,202		)	—			(212,625		)
Property, Plant and Equipment, Net	73,456			6,301			89,225			—			168,982
Deferred Income Taxes	1,970			3,236			8,515			—			13,721
Investment in Affiliates	398,205			11,674			18,732			(428,611		)	—
Intercompany Loans	304,630			—			3,490			(308,120		)	—
Goodwill	12,869			1,739			171,107			—			185,715
Intangible Assets, Net	2,842			2,791			152,041			—			157,674
Other Assets	4,872			—			9,858			—			14,730
Total Assets	$	915,824		$	271,389		$	718,642		$	(919,771	)	$	986,084
LIABILITIES AND TOTAL EQUITY
Current Liabilities:
Current Portion of Long-Term Debt	$	29,611		$	—		$	1,358		$	—		$	30,969
Accounts Payable	43,558			4,248			55,796			—			103,602
Intercompany Payables	134,113			2,311			36,406			(172,830		)	—
Employee Compensation and Benefits	12,399			11,553			17,337			—			41,289
Income Taxes Payable	347			—			2,462			—			2,809
Other Current Liabilities	22,317			13,174			31,262			—			66,753
Total Current Liabilities	242,345			31,286			144,621			(172,830		)	245,422
Long-Term Liabilities:
Long-Term Debt	326,948			—			1,751			—			328,699
Intercompany Loans	3,490			128,000			176,630			(308,120		)	—
Employee-Related Benefits	12,197			1,972			8,414			—			22,583
Deferred Income Taxes	—			—			50,444			—			50,444
Other Liabilities	28,647			2,715			5,377			—			36,739
Total Long-Term Liabilities	371,282			132,687			242,616			(308,120		)	438,465
Total Liabilities	613,627			163,973			387,237			(480,950		)	683,887
Equity:
Common Stock	6,778			—			11,131			(11,131		)	6,778
Additional Paid-In Capital	22,273			77,551			384,460			(462,011		)	22,273
Retained Earnings	306,667			31,024			(11,489		)	(19,535		)	306,667
Accumulated Other Comprehensive Loss	(35,391		)	(1,159		)	(54,567		)	55,726			(35,391		)
Total Tennant Company Shareholders' Equity	300,327			107,416			329,535			(436,951		)	300,327
Noncontrolling Interest	1,870			—			1,870			(1,870		)	1,870
Total Equity	302,197			107,416			331,405			(438,821		)	302,197
Total Liabilities and Total Equity	$	915,824		$	271,389		$	718,642		$	(919,771	)	$	986,084



Condensed Consolidated Balance Sheet
As of December 31, 2017
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
ASSETS
Current Assets:
Cash and Cash Equivalents	$	18,469		$	507		$	39,422		$	—		$	58,398
Restricted Cash	—			—			653			—			653
Net Receivables	683			88,629			120,204			—			209,516
Intercompany Receivables	53,444			133,778			—			(187,222		)	—
Inventories	29,450			12,695			94,542			(8,993		)	127,694
Prepaid Expenses	8,774			1,172			9,405			—			19,351
Other Current Assets	4,030			—			3,473			—			7,503
Total Current Assets	114,850			236,781			267,699			(196,215		)	423,115
Property, Plant and Equipment	225,064			12,155			145,549			—			382,768
Accumulated Depreciation	(146,320		)	(6,333		)	(50,097		)	—			(202,750		)
Property, Plant and Equipment, Net	78,744			5,822			95,452			—			180,018
Deferred Income Taxes	1,308			2,669			7,157			—			11,134
Investment in Affiliates	392,486			11,273			20,811			(424,570		)	—
Intercompany Loans	304,822			—			4,983			(309,805		)	—
Goodwill	12,869			1,739			171,436			—			186,044
Intangible Assets, Net	2,105			2,898			167,344			—			172,347
Other Assets	10,363			—			10,956			—			21,319
Total Assets	$	917,547		$	261,182		$	745,838		$	(930,590	)	$	993,977
LIABILITIES AND TOTAL EQUITY
Current Liabilities:
Current Portion of Long-Term Debt	$	29,413		$	—		$	1,470		$	—		$	30,883
Accounts Payable	39,927			3,018			53,137			—			96,082
Intercompany Payables	133,778			1,963			51,481			(187,222		)	—
Employee Compensation and Benefits	8,311			10,355			18,591			—			37,257
Income Taxes Payable	366			—			2,472			—			2,838
Other Current Liabilities	20,183			15,760			33,504			—			69,447
Total Current Liabilities	231,978			31,096			160,655			(187,222		)	236,507
Long-Term Liabilities:
Long-Term Debt	344,147			—			1,809			—			345,956
Intercompany Loans	—			128,000			181,805			(309,805		)	—
Employee-Related Benefits	11,160			3,992			8,715			—			23,867
Deferred Income Taxes	—			—			53,225			—			53,225
Other Liabilities	31,788			2,483			1,677			—			35,948
Total Long-Term Liabilities	387,095			134,475			247,231			(309,805		)	458,996
Total Liabilities	619,073			165,571			407,886			(497,027		)	695,503
Equity:
Common Stock	6,705			—			11,131			(11,131		)	6,705
Additional Paid-In Capital	15,089			72,483			384,460			(456,943		)	15,089
Retained Earnings	297,032			23,797			(21,219		)	(2,578		)	297,032
Accumulated Other Comprehensive Loss	(22,323		)	(669		)	(38,391		)	39,060			(22,323		)
Total Tennant Company Shareholders' Equity	296,503			95,611			335,981			(431,592		)	296,503
Noncontrolling Interest	1,971			—			1,971			(1,971		)	1,971
Total Equity	298,474			95,611			337,952			(433,563		)	298,474
Total Liabilities and Total Equity	$	917,547		$	261,182		$	745,838		$	(930,590	)	$	993,977



Condensed Consolidated Statement of Cash Flows
For the six months ended June 30, 2018
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
OPERATING ACTIVITIES
Net Cash Provided by (Used in) Operating Activities	$	26,960		$	1,409		$	(2,405	)	$	—		$	25,964
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment	(2,288		)	(58		)	(5,380		)	—			(7,726		)
Proceeds from Disposals of Property, Plant and Equipment	17			—			85			—			102
Proceeds from Principal Payments Received on Long-Term Note Receivable	—			—			706			—			706
Purchase of Intangible Assets	(1,000		)	—			(195		)	—			(1,195		)
Loan Payments from Parent	—			—			1,493			(1,493		)	—
Net Cash Used in Investing Activities	(3,271		)	(58		)	(3,291		)	(1,493		)	(8,113		)
FINANCING ACTIVITIES
Loan Payments to Subsidiaries	(1,493		)	—			—			1,493			—
Payments of Long-Term Debt	(18,000		)	—			(133		)	—			(18,133		)
Change in Capital Lease Obligations	—			—			59			—			59
Proceeds from Issuances of Common Stock	3,724			—			—			—			3,724
Dividends Paid	(7,553		)	—			—			—			(7,553		)
Net Cash (Used in) Provided by Financing Activities	(23,322		)	—			(74		)	1,493			(21,903		)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	162			—			(717		)	—			(555		)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	529			1,351			(6,487		)	—			(4,607		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	18,469			507			40,075			—			59,051
Cash, Cash Equivalents and Restricted Cash at End of Period	$	18,998		$	1,858		$	33,588		$	—		$	54,444



Condensed Consolidated Statement of Cash Flows
For the six months ended June 30, 2017
(in thousands)	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
OPERATING ACTIVITIES
Net Cash (Used in) Provided by Operating Activities	$	(29,401	)	$	188	$	26,718		$	—		$	(2,495	)
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment	(4,639		)	—		(4,506		)	—			(9,145		)
Proceeds from Disposals of Property, Plant and Equipment	14			—		2,414			—			2,428
Issuance of Long-Term Note Receivable	—			—		(1,500		)	—			(1,500		)
Acquisition of Businesses, Net of Cash Acquired	(304		)	—		(353,231		)	—			(353,535		)
Purchase of Intangible Asset	(2,500		)	—		—			—			(2,500		)
Change in Investments in Subsidiaries	(193,639		)	—		—			193,639			—
Loan Payments to Subsidiaries and Parent	(159,780		)	—		(1,771		)	161,551			—
Net Cash Used in Investing Activities	(360,848		)	—		(358,594		)	355,190			(364,252		)
FINANCING ACTIVITIES
Proceeds from Short-Term Debt	300,000			—		—			—			300,000
Repayments of Short-Term Debt	(300,000		)	—		—			—			(300,000		)
Loan Borrowings from Subsidiaries and Parent	1,771			—		159,780			(161,551		)	—
Change in Subsidiary Equity	—			—		193,639			(193,639		)	—
Proceeds from Issuance of Long-Term Debt	440,000			—		—			—			440,000
Payments of Long-Term Debt	(58,393		)	—		(78		)	—			(58,471		)
Payments of Debt Issuance Costs	(16,039		)	—		—			—			(16,039		)
Proceeds from Issuance of Common Stock	3,843			—		—			—			3,843
Dividends Paid	(7,463		)	—		—			—			(7,463		)
Net Cash Provided by Financing Activities	363,719			—		353,341			(355,190		)	361,870
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	(176		)	—		1,051			—			875
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash	(26,706		)	188		22,516			—			(4,002		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	38,484			226		19,840			—			58,550
Cash, Cash Equivalents and Restricted Cash at End of Period	$	11,778		$	414	$	42,356		$	—		$	54,548


20.	Subsequent Event

On July 31, 2018, we sold assets of ~~these individuals are current employees of Tennant. Lease payments made under these lease agreements are not~~our subsidiary, Water Star, Inc., for $4,000. The sale had no material toimpact on our ~~financial position or~~ results of operations.


Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

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

Historical Results

The following table compares the historical results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017, respectively, and as a percentage of Net Sales (in thousands, except per share data and percentages):


	Three Months Ended										Nine Months Ended										Three Months Ended										Six Months Ended
	September 30										September 30										June 30										June 30
	2017			%		2016			%		2017			%		2016			%		2018			%		2017			%		2018			%		2017			%
Net Sales	$	261,921		100.0		$	200,134		100.0		$	723,771		100.0		$	596,826		100.0		$	292,197		100.0		$	270,791		100.0		$	565,044		100.0		$	461,850		100.0
Cost of Sales	157,317			60.1		114,839			57.4		434,877			60.1		338,740			56.8		173,398			59.3		166,237			61.4		335,608			59.4		277,560			60.1
Gross Profit	104,604			39.9		85,295			42.6		288,894			39.9		258,086			43.2		118,799			40.7		104,554			38.6		229,436			40.6		184,290			39.9
Operating Expense:
Research and Development Expense	7,907			3.0		8,418			4.2		24,239			3.3		24,712			4.1		7,906			2.7		7,886			2.9		15,902			2.8		16,332			3.5
Selling and Administrative Expense	85,651			32.7		60,623			30.3		247,067			34.1		187,315			31.4		91,864			31.4		87,326			32.2		184,133			32.6		161,282			34.9
Loss on Sale of Business	—			—		—			—		—			—		149			—
Total Operating Expense	93,558			35.7		69,041			34.5		271,306			37.5		212,176			35.6		99,770			34.1		95,212			35.2		200,035			35.4		177,614			38.5
Profit from Operations	11,046			4.2		16,254			8.1		17,588			2.4		45,910			7.7		19,029			6.5		9,342			3.4		29,401			5.2		6,676			1.4
Other Income (Expense):
Interest Income	698			0.3		107			0.1		1,575			0.2		188			—		952			0.3		793			0.3		1,701			0.3		877			0.2
Interest Expense	(6,093		)	(2.3	)	(329		)	(0.2	)	(18,720		)	(2.6	)	(919		)	(0.2	)	(6,005		)	(2.1	)	(11,833		)	(4.4	)	(11,750		)	(2.1	)	(12,627		)	(2.7	)
Net Foreign Currency Transaction (Losses) Gains	(842		)	(0.3	)	(149		)	(0.1	)	(2,375		)	(0.3	)	175			—
Net Foreign Currency Transaction Losses																					(337		)	(0.1	)	(336		)	(0.1	)	(1,086		)	(0.2	)	(1,533		)	(0.3	)
Other Expense, Net	(482		)	(0.2	)	(10		)	—		(700		)	(0.1	)	(360		)	(0.1	)	(510		)	(0.2	)	(384		)	(0.1	)	(760		)	(0.1	)	(352		)	(0.1	)
Total Other Expense, Net	(6,719		)	(2.6	)	(381		)	(0.2	)	(20,220		)	(2.8	)	(916		)	(0.2	)	(5,900		)	(2.0	)	(11,760		)	(4.3	)	(11,895		)	(2.1	)	(13,635		)	(3.0	)
Profit (Loss) Before Income Taxes	4,327			1.7		15,873			7.9		(2,632		)	(0.4	)	44,994			7.5		13,129			4.5		(2,418		)	(0.9	)	17,506			3.1		(6,959		)	(1.5	)
Income Tax Expense	731			0.3		4,396			2.2		385			0.1		13,750			2.3
Income Tax Expense (Benefit)																					363			0.1		238			0.1		1,440			0.3		(346		)	(0.1	)
Net Earnings (Loss) Including Noncontrolling Interest	3,596			1.4		11,477			5.7		(3,017		)	(0.4	)	31,244			5.2		12,766			4.4		(2,656		)	(1.0	)	16,066			2.8		(6,613		)	(1.4	)
Net Earnings (Loss) Attributable to Noncontrolling Interest	37			—		—			—		(28		)	—		—			—		22			—		(65		)	—		48			—		(65		)	—
Net Earnings (Loss) Attributable to Tennant Company	$	3,559		1.4		$	11,477		5.7		$	(2,989	)	(0.4	)	$	31,244		5.2		$	12,744		4.4		$	(2,591	)	(1.0	)	$	16,018		2.8		$	(6,548	)	(1.4	)
Net Earnings (Loss) Attributable to Tennant Company per Diluted Share	$	0.20				$	0.64				$	(0.17	)			$	1.74
Net Earnings (Loss) Attributable to Tennant Company per Share																					$	0.69				$	(0.15	)			$	0.88				$	(0.37	)

Net Sales

Consolidated Net Sales for the ~~third~~second quarter of ~~2017~~2018 totaled ~~$261.9~~$292.2 million, a ~~30.9%~~7.9% increase as compared to consolidated Net Sales of ~~$200.1~~$270.8 million in the ~~third~~second quarter of ~~2016~~2017. Consolidated Net Sales for the first ~~nine~~six months of ~~2017~~2018 totaled ~~$723.8~~$565.0 million, a ~~21.3%~~22.3% increase as compared to consolidated Net Sales of ~~$596.8~~$461.9 million ~~for~~ the first ~~nine~~six months of ~~2016.~~2017.

The components of the consolidated Net Sales change for the three and six ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2018 as compared to the same periods in ~~2016~~2017 were as follows:


	2017 v. 2016		2018 v. 2017
	Three Months Ended	Nine Months Ended	Three Months Ended	Six Months Ended
	September 30	September 30	June 30	June 30
Organic Growth:
Volume	0.3%	0.1%	3.7%	4.3%
Price	1.0%	1.0%	1.5%	1.5%
Organic Growth	1.3%	1.1%	5.2%	5.8%
Foreign Currency	1.2%	0.1%	2.7%	2.8%
Acquisitions & Divestiture	28.4%	20.1%
Acquisitions			—%	13.7%
Total	30.9%	21.3%	7.9%	22.3%

The ~~30.9%~~ 7.9% increase in consolidated Net Sales in the ~~third~~second quarter of ~~2017~~2018 as compared to the same period in ~~2016~~2017 was driven by:

~~28.4% from the April 2017 acquisition of the IPC Group and the expansion of our commercial floor coatings business through the August 2016 acquisition of the Florock® brand.~~

~~A favorable direct foreign currency translation exchange impact of approximately 1.2%.~~

An organic sales increase of approximately ~~1.3%~~5.2%, which excludes the effects of foreign currency exchange and acquisitions, ~~and divestitures, due to~~resulting from an approximate ~~1.0% price~~3.7% volume increase and a ~~0.3%~~1.5% price increase. The volume ~~increase.~~increase was primarily due to broad-based equipment sales growth in the Americas and increased sales of commercial equipment in the EMEA region, mostly attributed to strong sales through strategic accounts in these regions. These regions also experienced increased sales of parts and consumables as well as higher service sales. Sales of new products introduced within the past three years totaled 35% of equipment revenue for the second quarter of 2018, compared to 49% in the 2017 second quarter. The price increase was the result of selling price increases, ~~typically in the range of 2% to 4%~~which averaged 3% in most geographies, with an effective date of February 1, ~~2017.~~2018. We expect the increase in selling prices to increase Net Sales in the range of 1% to 2% for the ~~2017~~2018 full year. The impact to gross margin is estimated to be minimal as these selling price increases were taken to offset inflation.

A favorable impact from foreign currency exchange of approximately 2.7%.

The 22.3% increase in consolidated Net Sales in the first six months of 2018 as compared to the same period in 2017 was driven by:

13.7% from the second quarter 2017 acquisition of the IPC Group.

An organic sales increase of approximately 5.8%, which excludes the effects of foreign currency exchange and acquisitions, resulting from an approximate 4.3% volume increase and a 1.5% price increase. The volume increase was primarily due to increased sales of commercial equipment in the Americas and EMEA ~~partially offset by volume decreases~~regions, mostly attributed to strong sales through strategic accounts in ~~the APAC region.~~these regions. These regions also experienced increased sales of parts and consumables as well as higher service sales. Sales of new products introduced within the past three years totaled ~~52% of equipment revenue~~39% for the ~~third quarter~~first six months of 2018, compared to 45% for the first six months of 2017. ~~This compares~~The price increase was the result of selling price increases, which averaged 3% in most geographies, with an effective date of February 1, 2018. We expect the increase in selling prices to ~~40% of equipment revenue in the 2016 third quarter from sales of new products introduced within the past three years.~~

~~The 21.3%~~ increase ~~in consolidated~~ Net Sales in the ~~first nine months~~range of ~~2017 as compared~~1% to 2% for the ~~same period in 2016 was driven by:~~

20.1% from the April 2017 acquisition of the IPC Group and the expansion of our commercial floor coatings business through the August 2016 acquisition of the Florock® brand, partially offset by the sale of our Green Machines outdoor city cleaning line in January 2016.

An organic sales increase of approximately 1.1% which excludes the effects of foreign currency exchange and acquisitions and divestitures, due to an approximate 1.0% price increase and a 0.1% volume increase.2018 full year. The impact to gross margin is estimated to be minimal as these selling price increases were taken to offset inflation. The volume increase was primarily due to increased sales in the EMEA region, partially offset by volume decreases in the Americas and APAC regions. Sales of new products introduced within the past three years totaled 47% of equipment revenue for the first nine months of 2017. This compares to 37% of equipment revenue in the first nine months of 2016 from sales of new products introduced within the past three years.

A favorable ~~direct~~impact from foreign currency ~~translation~~ exchange ~~impact~~ of approximately ~~0.1%~~2.8%.

The following table sets forth the Net Sales by geographic area for the three and six ~~months and nine~~ months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 and the percentage change from the prior year (in thousands, except percentages):


	Three Months Ended					Nine Months Ended					Three Months Ended					Six Months Ended
	September 30					September 30					June 30					June 30
	2017		2016		%	2017		2016		%	2018		2017		%	2018		2017		%
Americas	$	161,037	$	152,294	5.7	$	472,953	$	449,704	5.2	$	178,752	$	169,146	5.7	$	341,390	$	311,916	9.4
Europe, Middle East and Africa	78,851		29,309		169.0	189,483		94,433		100.7	87,410		77,356		13.0	176,226		110,632		59.3
Asia Pacific	22,033		18,531		18.9	61,335		52,689		16.4	26,035		24,289		7.2	47,428		39,302		20.7
Total	$	261,921	$	200,134	30.9	$	723,771	$	596,826	21.3	$	292,197	$	270,791	7.9	$	565,044	$	461,850	22.3

Americas

Net Sales in the Americas were ~~$161.0~~$178.8 million for the ~~third~~second quarter of ~~2017,~~2018, an increase of 5.7% from the ~~third~~second quarter of ~~2016. Organic sales in the third quarter decreased approximately 0.2%, excluding the~~2017. An unfavorable direct ~~impacts~~impact of ~~the IPC Group and Florock acquisitions of 5.5% and favorable~~ foreign currency translation exchange effects within the Americas impacted Net Sales by approximately 0.3% in the second quarter of ~~approximately 0.4%. Strong~~2018. As a result, organic sales growth in ~~Latin America, particularly Mexico,~~the Americas favorably impacted Net Sales ~~however this was more than offset~~ by ~~lower~~approximately 6.0% due to strong equipment sales in North America ~~driven by lower volume~~resulting from increased sales to the strategic account ~~channel.~~and distribution channels, increased parts and service sales, primarily a result of improved productivity in our service organization, increased industrial equipment sales in South America and continued broad-based strength in Brazil.

Net Sales in the Americas were ~~$473.0~~$341.4 million for the first ~~nine~~six months of ~~2017,~~2018, an increase of ~~5.2%~~9.4% from the first ~~nine~~six months of ~~2016. Organic sales in~~2017. The direct impact of the ~~first nine months increased approximately 0.3%, excluding the direct impacts~~second quarter 2017 acquisition of the IPC Group ~~and Florock acquisitions~~favorably impacted Net Sales by approximately 2.5%. In addition, an unfavorable impact of ~~4.5% and favorable~~ foreign currency translation exchange effects within the Americas impacted Net Sales by approximately 0.1% in the first six months of 2018. As a result, organic sales growth in the Americas favorably impacted Net Sales by approximately ~~0.4%.~~7.0% due ~~Solid sales performance in Latin America was partially offset by lower~~to strong equipment sales in North America ~~where~~resulting from increased sales ~~through our direct and distribution~~to all sales channels, ~~were more than offset by~~and broad based sales ~~declines through strategic accounts.~~growth in Brazil. The Americas also experienced increased parts and service sales in the first six months of 2018, primarily a result of improved productivity in our service organization.

Europe, Middle East and Africa

EMEA Net Sales ~~in EMEA~~ were ~~$78.9~~$87.4 million for the ~~third~~second quarter of ~~2017,~~2018, an increase of ~~169.0%~~13.0% from the ~~third~~second quarter of ~~2016. Organic sales in the third quarter increased approximately 14.6%, excluding the direct impacts~~2017. A favorable impact of ~~the IPC Group acquisition of 148.7% and the favorable~~ foreign currency translation exchange effects within EMEA impacted Net Sales by approximately 9.4% in the second quarter of 2018. As a result, organic sales growth in EMEA favorably impacted Net Sales by approximately ~~5.7%. Solid~~3.6% due to strong sales ~~performance~~growth in ~~Western European countries driven by volume~~the France, Germany and Iberian markets from strong demand in the strategic account channel ~~was partially offset by sales declines in the Central Eastern Europe, Middle East~~ and ~~Africa ("CEEMEA") markets.~~

strong scrubber and sweeper sales. Net Sales ~~in EMEA were $189.5 million~~ for the ~~first nine months~~second quarter of 2017, an increase of 100.7% from the first nine months of 2016. Organic sales in the first nine months increased approximately 7.5%, excluding the direct impacts of the April 2017 IPC Group acquisition and the divestiture of our Green Machines outdoor city cleaning line in January 2016 that had a net favorable effect of 94.5% and unfavorable foreign currency translation exchange effects of approximately 1.3%. Strong sales growth in most European countries2018 were partially offset by lower sales in ~~the UK.~~

~~Asia Pacific~~Italy.

EMEA Net Sales ~~in the APAC region~~ were ~~$22.0~~$176.2 million for the ~~third quarter~~first six months of ~~2017,~~2018, an increase of ~~18.9%~~59.3% from the ~~third~~first six months of 2017. The direct impact of the second quarter ~~of 2016. Organic sales in the third quarter decreased approximately 8.5%, excluding the direct impacts~~2017 acquisition of the IPC Group ~~acquisition~~favorably impacted Net Sales by approximately 45.1%. In addition, a favorable impact of ~~27.0% and the favorable~~ foreign currency translation exchange effects ofwithin EMEA impacted Net Sales by approximately ~~0.4%.~~ ~~Sales~~11.1% in the ~~APAC region reflected declines primarily driven by Korea, China and the Southeast Asia regions.~~firs

t six months of 2018. As a result, organic sales growth in EMEA favorably impacted Net Sales by approximately 3.1% due to strong sales growth in the France, Germany and Iberian markets from strong demand in both the direct and strategic account channels and sales growth in The Netherlands from strong demand in both the direct and distribution channels. Net Sales for the first six months of 2018 were partially offset by lower sales in Italy and lower distribution sales in the Central and Eastern Europe/Middle East and Africa geographies.

Asia Pacific

APAC ~~region~~Net Sales were ~~$61.3~~$26.0 million for the ~~first nine months~~second quarter of ~~2017,~~2018, an increase of ~~16.4%~~7.2% from the ~~first nine months~~second quarter of ~~2016. Organic sales in the first nine months decreased approximately 3.2%, excluding the direct impacts~~2017. A favorable direct impact of ~~the IPC Group acquisition of 19.9% and unfavorable~~ foreign currency translation exchange effects within APAC impacted Net Sales by approximately 2.1% in the second quarter of ~~approximately 0.3%. Sales~~2018. As a result, organic sales growth in ~~China and Korea was more than offset~~APAC favorably impacted Net Sales by approximately 5.1% due to sales ~~declines~~growth in Australia from strong sales through the strategic account channel.

APAC Net Sales were $47.4 million for the first six months of 2018, an increase of 20.7% from the first six months of 2017. The direct impact of the second quarter 2017 acquisition of the IPC Group favorably impacted Net Sales by approximately 14.2%. In addition, a favorable direct impact of foreign currency translation exchange effects within APAC impacted Net Sales by approximately 3.0% in the first six months of 2018. As a result, organic sales growth in APAC favorably impacted Net Sales by approximately 3.5% due to sales growth in Australia from strong sales through the direct and ~~Southeast Asia.~~strategic account channels.

Gross Profit

Gross Profit margin of 40.7% was 210 basis points higher in the ~~third~~second quarter of ~~2017~~2018 compared to the second quarter of 2017. Gross Profit margin was ~~$104.6~~favorably impacted by a $6.2 million, or 39.9% of net sales, as compared to $85.3 million, or 42.6% of net sales, in the third quarter of 2016. Gross margin was 270 basis points lower in the third quarter of 2017 due primarily to the $2.2 million, or 86approximately 230 basis points, fair value inventory step-up flow through related to our acquisition of the IPC Group ~~a 68 basis point dilutive impact~~in the second quarter of 2017 that did not repeat in the ~~IPC acquisition, 32~~second quarter of 2018. In addition, Gross Profit margin was favorably impacted by improved operational performance in both manufacturing and service resulting from our operational effectiveness strategies. These favorable Gross Profit margin impacts were partially offset by robust strategic account sales impacting our mix and manufacturing productivity issues associated with raw material and labor shortages as well as higher freight and logistics costs.

Gross Profit margin of 40.6% was 70 basis points ~~from a~~ higher ~~mix~~in the first six months of ~~EMEA region sales, which are ordinarily lower margin, raw material inflation, which reduced gross margins by 26 basis points, and continued field service productivity challenges related~~2018 compared to ~~organization changes from~~ the ~~restructuring and the near-term unfavorable impact from investments in manufacturing automation initiatives.~~

first six months of 2017. Gross Profit ~~in the first nine months of 2017 was $288.9 million, or 39.9% of net sales, as compared to $258.1 million, or 43.2% of net sales in the first nine months of 2016. Gross~~ margin was ~~330 basis points lower in the first nine months of 2017 due primarily to the $8.4~~favorably impacted by a $6.2 million, or approximately ~~120~~130 basis points, fair value inventory step-up flow through related to our acquisition of the IPC Group ~~field service~~in first six months of 2017 that did not repeat in the first six months of 2018. In addition, Gross Profit margin was favorably impacted by improved operational performance in both manufacturing and service. These favorable Gross Profit margin impacts were partially offset by robust strategic account sales impacting our mix, manufacturing productivity ~~challenges~~issues associated with raw material and labor shortages and an inventory write down related to ~~organizational changes from~~our Coatings business.

We expect the ~~restructuring, the near-term unfavorable impact from investments in manufacturing automation initiatives, and raw material cost inflation.~~full year Gross Profit margin to be approximately 41.0% of net sales.

Operating Expense

Research & Development Expense

~~R&D Expense for the~~ ~~third~~ ~~quarter of~~ ~~2017~~ ~~was $7.9 million, a decrease of 6.1% from $8.4 million in the~~ ~~third~~ ~~quarter of~~ ~~2016. R&D Expense as a percentage of Net Sales was 3.0% for the~~ ~~third~~ ~~quarter of~~ ~~2017~~ ~~and 4.2% for the~~ ~~third~~ ~~quarter of~~ ~~2016. The decrease in R&D spending was primarily due to~~ ~~headcount reduction related to the first quarter 2017 restructuring action.~~

R&D Expense for the first nine months of 2017 was $24.2 million, a decrease of 1.9% from $24.7 million in the first nine months of 2016. R&D Expense as a percentage of Net Sales was 3.3% for the first nine months of 2017 and 4.1% for the first nine months of 2016. The decrease in R&D spending was primarily due to ~~headcount reduction related to the first quarter 2017 restructuring action.~~

We continue to invest in developing innovative ~~new~~ products and technologies and the advancement of detergent-free products, fleet management and other sustainable technologies. New products ~~are a key driver of sales growth. There were 32 new products~~ and product variants launched in the first ~~nine~~six months of ~~2017 consisting~~2018 included the T600 series of scrubbers. Later in 2018, we plan to introduce our first autonomous floor care machine.

Research and Development ("R&D") Expense was $7.9 million, or 2.7% as a ~~new family~~percentage of ~~T500 commercial walk-behind scrubbers,~~Net Sales, for the ~~enhanced IRIS~~second quarter of 2018, a decrease of 20 basis points compared to the second quarter of 2017. R&D Expense was $15.9 million, or 2.8% as a percentage of Net Sales, for the ^®first six ~~Web Based Fleet Management System,~~months of 2018, a decrease of 70 basis points compared to the ~~i-mop,~~first six months of 2017.

The decrease in R&D as a percentage of sales reflects the ~~V3e compact dry canister vacuum, the T350 stand-on commercial scrubber~~impact of 2018 higher revenue and the ~~A140 micro-scrubber.~~timing of anticipated project spend in 2018, including investment in our strategic relationship with Brain Corp., to accelerate development of our autonomous floor cleaning technology. We expect the full year spending for R&D to be approximately 3.0% of net sales.

Selling & Administrative Expense

Selling and Administrative Expense ("S&A Expense") was $91.9 million, an increase of $4.5 million, or 5.2%, compared to the second quarter of 2017. As a percentage of Net Sales, S&A Expense for the second quarter of 2018 decreased 80 basis points to 31.4% from 32.2% in the ~~third~~second quarter of 2017.

The decrease in S&A Expense as a percentage of Net Sales for the second quarter of 2018 compared to the same period in the prior year was primarily due to $4.7 million of acquisition and integration costs, or approximately 170 basis points, related to our acquisition of the IPC Group in the second quarter of 2017 ~~increased 41.3%~~that were higher than the $2.8 million of acquisition and integration costs, or approximately 100 basis points, related to ~~$85.7~~the IPC Group recorded in the second quarter of 2018.

The favorable impact from these costs was partially offset by the unfavorable impact resulting from an increase in amortization expense related to our acquisition of the IPC Group of $2.4 million, asor approximately 80 basis points, for the second quarter of 2018 compared to ~~$60.6 million in~~ the ~~third~~second quarter of ~~2016.~~2017.

Excluding these costs, S&A Expense as a percentage of Net Sales was 32.7% for the third quarter of 2017, an increase of 240 basis points from 30.3% in the third quarter of 2016. S&A Expense in the 2017 third quarter was unfavorably impacted by $7.3 million, or 280 basis points, and $0.9 million, or 30 basis points, of amortization expense and acquisition costs, respectively, related to our acquisition of the IPC Group. The 2017 third quarter amortization expense includes a catch-up adjustment of $2.0 million to reflect an accelerated amortization method used by the company as a result of an adjustment to our preliminary valuation of intangible assets as part of our acquisition of the IPC Group. Excluding these costs, S&A Expense was 7090 basis points lower in the ~~third~~second quarter of 2018 compared to the second quarter of 2017 ~~compared to the same period in 2016~~ due primarily to ~~the lower relative IPC S&A Expense to revenue percentage and~~ our continued balance of disciplined spending control with investments in key growth initiatives.

S&A Expense for the first ~~nine~~six months of ~~2017~~2018 increased ~~31.9% to $247.1~~by $22.9 million, asor 14.2%, compared to ~~$187.3~~the first six months of 2017. As a percentage of Net Sales, S&A Expense for the first six months of 2018 decreased 230 basis points to 32.6% from 34.9% in the first six months of 2017.

The decrease in S&A Expense as a percentage of Net Sales for the first six months of 2018 compared to the same period in the prior year was primarily due to an $8.0 million restructuring charge, or approximately 170 basis points, that did not repeat in the first six months of 2018. In addition, included in S&A Expense for the first six months of 2017 was $7.6 million of acquisition and integration costs, or approximately 160 basis points, related to our acquisition of the IPC Group that were higher than the $3.8 million of acquisition and integration costs, or approximately 70 basis points, related to our acquisition of the IPC Group recorded in the first six months of 2018.

The favorable impact from these costs was partially offset by the unfavorable impact resulting from an increase in amortization expense related to our acquisition of the IPC Group of $7.9 million, or approximately 140 basis points, in the first six months of 2018 compared to the first six months of 2017. S&A Expense was also unfavorably impacted by expenses incurred of $1.6 million for non-operational professional service fees, or 30 basis points, in the first ~~nine~~six months of ~~2016.~~2018.

Excluding these costs, S&A Expense as a percentage of Net Sales was 34.1% for the first nine months of 2017, an increase of 270 basis points from 31.4% in the first nine months of 2016. S&A Expense in the first nine months of 2017 was unfavorably impacted by $10.4 million, or 140 basis points ~~and $8.4 million, or 120 basis points, of amortization expense and acquisition costs, respectively, related to our acquisition of~~lower in the ~~IPC Group and an $8.0 million, or 110 basis points, restructuring charge taken in our 2017~~ first ~~quarter to better align our global resources and expense structure with a lower growth global economic environment. Excluding these costs, S&A Expense was 100 basis points lower for the first nine~~six months of ~~2017~~2018 compared to the ~~same period in 2016~~first six months of 2017 due primarily to ~~the lower relative IPC S&A Expense to revenue percentage and~~ our continued balance of disciplined spending control with investments in key growth initiatives.

Profit from Operations

Operating Profit for the ~~third~~second quarter of ~~2017~~2018 was ~~$11.0~~$19.0 million, or ~~4.2%~~6.5% of Net Sales, as compared to Operating Profit of ~~$16.3~~$9.3 million, or ~~8.1%~~3.4% of Net Sales, in the ~~third~~second quarter of ~~2016.~~2017. The ~~third~~second quarter ~~2017~~of 2018 Operating Profit was ~~$5.3~~$9.7 million ~~lower~~higher than the ~~third~~Operating Profit recorded in the second quarter of ~~2016 Operating Profit due~~2017 primarily ~~to $7.3~~driven by $21.4 million of ~~amortization expense related to IPC intangible assets, the $2.2 million fair value inventory step-up flow through~~higher net sales and ~~$0.9 million of acquisition costs, all related to our acquisition of the IPC Group.~~ ~~These decreases were~~improved gross margin rate, partially offset by ~~Operating Profit obtained from the IPC acquisition and reduced expenses resulting from our first quarter 2017 restructuring charge.~~

higher S&A Expense.

Operating Profit for the first ~~nine~~six months of ~~2017~~2018 was ~~$17.6~~$29.4 million, or ~~2.4%~~5.2% of Net Sales, as compared to Operating Profit of ~~$45.9~~$6.7 million, or ~~7.7%~~1.4% of Net Sales, in the first ~~nine~~six months of ~~2016. The~~ 2017. Operating Profit for the first ~~nine~~six months of ~~2017~~2018 was $22.7 million higher than the Operating Profit ~~was $28.3 million lower than~~recorded in the first ~~nine~~six months of ~~2016 Operating Profit~~2017 due primarily to ~~$10.4~~a $103.2 million of amortization expense related to IPC intangible assets, the $8.4 million fair value inventory step-up flow through and $8.4 million of acquisition costs, all related to our acquisition of the IPC Group. We also recordedincrease in net sales as well as an ~~$8.0 million restructuring charge in the first nine months of 2017 to better align our global resources and expense structure with a lower growth global economic environment.These decreases were~~improved gross margin rate, partially offset by ~~Operating Profit obtained from the IPC acquisition and reduced expenses resulting from our first quarter 2017 restructuring charge.~~higher S&A Expense.

Total Other Expense, Net

Interest Income

Interest Income ~~in the third quarter of 2017~~ was ~~$0.7 million, as compared to $0.1~~$1.0 million in the ~~third~~second quarter of ~~2016.~~2018, relatively flat compared to Interest Income ~~in the first nine months~~ of ~~2017 was $1.6 million, as compared to $0.2~~$0.8 million in the second quarter of 2017. For the first ~~nine~~six months of ~~2016. The higher~~2018, Interest Income was $1.7 million compared to Interest Income of $0.9 million in the ~~third quarter and~~ first ~~nine~~six months of ~~2017 as compared to the same periods~~2017. The increase in ~~2016~~Interest Income was primarily due to interest income related to foreign currency swap activities.

Interest Expense

Interest Expense was $6.0 million in the second quarter of 2018 compared to Interest Expense of $11.8 million in the second quarter of 2017. For the first six months of 2018, Interest Expense was $11.8 million compared to Interest Expense of $12.6 million in the first six months of 2017. The lower Interest Expense in the ~~third~~second quarter and first six months of ~~2017 was $6.1 million, as compared to $0.3 million in the third quarter of 2016. The higher Interest Expense in the third quarter of 2017 as~~2018 compared to the same ~~period~~periods in ~~2016~~2017 was primarily due to ~~carrying a higher level of debt on our Condensed Consolidated Balance Sheets related to our acquisition activities.~~

Interest Expense in the first nine months of 2017 was $18.7 million, as compared to $0.9 million in the first nine months of 2016. The higher Interest Expense in the first nine months of 2017 as compared to the same period in 2016 was primarily due to carrying a higher level of debt on our Condensed Consolidated Balance Sheets related to our acquisition activities as well as a $6.2 million charge to expense the debt issuance costs for loans which were refinanced or repaid ~~as further described~~ in the ~~Liquidity and Capital Resources section~~second quarter of 2017 that ~~follows.~~did not repeat in 2018, partially offset by carrying a higher level of debt on our Condensed Consolidated Balance Sheets throughout the first six months of 2018 compared to the same period in 2017.

Net Foreign Currency Transaction ~~(Losses) Gains~~Losses

Net Foreign Currency Transaction Losses in the ~~third~~second quarter of 2018 and 2017 were ~~$0.8~~$0.3 million. For the first six months of 2018, Net Foreign Currency Transaction Losses were $1.1 million as compared to Net Foreign Currency Transaction Losses of ~~$0.1~~$1.5 million in the ~~third quarter~~first six months of ~~2016.~~2017. The ~~unfavorable~~favorable change in the impact from foreign currency transactions in the ~~third quarter of 2017 was primarily due to fluctuations in foreign currency rates, driven by changes in the Euro, and settlement of transactional hedging activity in the normal course of business.~~

~~Net Foreign Currency Transaction Losses in the~~ first ~~nine~~six months of 2017 were $2.4 million, as compared to Net Foreign Currency Transaction Gains of $0.2 million in the first nine months of 2016. The unfavorable change in the impact from foreign currency transactions in the first nine months of 20172018 was primarily due to a $1.1 million mark-to-market adjustment of a foreign exchange call option ~~an instrument~~ held in connection with our acquisition of ~~the~~ IPC Group onin April 6, 2017 ~~and also fluctuations~~that did not repeat in ~~foreign currency rates, specifically between the Euro and US dollar, and settlement of transactional hedging activity in the normal course of business.~~2018.

Other Expense, Net

~~There was no significant change in~~ Other Expense, Net was $0.5 million and $0.8 million in the ~~third~~second quarter and first ~~nine~~six months of ~~2017, as~~2018, respectively, relatively flat compared to the same periods in ~~2016.~~2017.

Profit (Loss) Before Income Taxes

Profit (Loss) Before Income Taxes for the second quarter of 2018 was $13.1 million, an increase of $15.5 million compared to the second quarter of 2017. Profit (Loss) Before Income Taxes for the first six months of 2018 was $17.5 million, an increase of $24.5 million compared to the first six months of 2017. The increase resulted primarily from higher Operating Profit in the second quarter and first six months of 2018 compared to the same periods in 2017.

Income Taxes

The effective tax rate in the ~~third~~second quarter of ~~2017~~2018 was ~~16.9%, as~~2.8% compared to the effective tax rate in the ~~third~~second quarter of the prior year of ~~27.7%~~(9.8%).

The tax expense for the second quarter of 2018 included a $0.7 million tax benefit associated with $2.8 million of acquisition and integration related costs associated with our acquisition of the IPC Group and a $0.1 million tax benefit associated with $0.3 million of costs related to non-operational professional service fees. These special items impacted the second quarter 2018 effective tax rate by (4.0%).

The effective tax rate in the second quarter of 2017 was (9.8%). The tax expense for the ~~third~~second quarter of 2017 included a ~~$0.6~~$2.3 million tax benefit associated with ~~$2.2~~$10.9 million of ~~expense~~acquisition costs and financing costs related to ~~inventory step-up amortization~~our acquisition of the IPC Group and a ~~$0.3~~$1.7 million tax benefit associated with ~~$0.9~~$6.2 million of ~~acquisition costs~~expense for the inventory step-up flow through related to our acquisition of the IPC ~~Group acquisition. Excluding these~~Group. These special items impacted the ~~third~~second quarter ~~2017 overall~~2018 effective tax rate ~~would have been 21.7%~~by (38.9%).

The decrease in the overall effective tax rate to 21.7% in the third quarter 2017 compared to 27.7% in the third quarter 2016, excluding the 2017 special items, was primarily related to mix of third quarter taxable earnings by country.

The year-to-date overall effective tax rate was (14.6%) for 2017 compared to 30.6% for 2016. The tax expense for the first nine months of 2017 included a $3.0 million tax benefit associated with $15.8 million of acquisition and financing costs related to the IPC Group acquisition, a $2.4 million tax benefit associated with $8.4 million of expense related to inventory step-up amortization and a $2.2 million tax benefit associated with an $8.0 million restructuring charge. Excluding ~~the effects of 2017~~these special items, the ~~2017 year-to-date overall effective tax~~ rate ~~would have been 26.9%.~~

~~The decrease in the overall effective tax rate to 26.9% in 2017 compared to 30.6% in 2016, excluding the 2017 special items, was~~decreased due primarily ~~related~~ to the mix in expected full year taxable earnings by country, discrete tax expense related to exercised stock options, a favorable tax ruling with the Italian tax authorities in connection with the acquisition of IPC Group and to the ~~implementation of Accounting Standards Update (“ASU”) 2016-09~~reduction in Q1the U.S. federal income tax rate in the Tax Act.

The year-to-date overall effective tax rate was 8.2% for 2018 compared to 5.0% for 2017. ~~See Note 2~~The 2018 special items impacted the year-to-date overall effective tax rate by (3.8%). The 2017 special items impacted the year-to-date overall effective tax rate by (23.7%).

Excluding these special items, the rate decreased due primarily to the ~~Condensed Consolidated Financial Statements for further information regarding~~mix in expected full year taxable earnings by country, discrete tax expense related to the ~~implementation~~exercise of ~~ASU 2016-09.~~soon-to-expire stock options, favorable tax ruling from the Italian tax authorities related to the deductibility of interest expense in Italy and to the reduction in the U.S. federal income tax rate in the Tax Act.

~~We do not have any plans~~In general, it is our practice and intention to ~~repatriate~~permanently reinvest the ~~undistributed~~ earnings of ~~non-U.S. subsidiaries. Any repatriation from~~our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial and that position has not changed following incurring the transition tax under the Tax Act. No deferred taxes have been provided for withholding taxes or other taxes that would result ~~in incremental taxation is not being considered. We believe that reinvesting these earnings outside~~upon repatriation of our foreign investments to the ~~U.S. is the most efficient use of capital.~~United States.

Net Earnings (Loss) and Net Earnings (Loss) Per Share

Net Earnings ~~Attributable to Tennant Company~~(Loss) for the ~~third~~second quarter of ~~2017~~2018 were ~~$3.6~~$12.7 million, or ~~$0.20~~$0.69 per diluted share, as compared to ~~Net Earnings of $11.5~~$(2.6) million, or ~~$0.64~~$(0.15) per diluted share, for the second quarter of 2017. Net Earnings (Loss) were impacted by:

an increase in Net Sales of 7.9% in the ~~third~~second quarter of ~~2016. The third~~2018 compared to the second quarter ~~2017~~ of 2017;

gross profit margin improvement of 210 basis points in the second quarter of 2018 compared to the second quarter of 2017;

an 80 basis point decrease in S&A Expense as a percentage of Net Sales in the second quarter of 2018 compared to the second quarter of 2017; and

a favorable impact from a $5.8 million decrease in Interest Expense in the second quarter of 2018 compared to the second quarter of 2017.

Net Earnings Attributable to Tennant Company included $1.6 million, net of tax, or $0.09 per share, from the fair value inventory step-up flow through related to our acquisition of the IPC Group and $0.6 million, net of tax, or $0.03 per share, for acquisition costs related to our acquisition of the IPC Group. The decrease in earnings per share was driven by higher amortization expense related to the IPC acquisition and higher interest expense, partially offset by earnings from the recently acquired IPC Group.

~~Net Loss Attributable to Tennant Company~~(Loss) for the first ~~nine~~six months of ~~2017 was $3.0~~2018 were $16.0 million, or ~~$(0.17)~~$0.88 per diluted share, as compared to ~~Net Earnings of $31.2~~$(6.5) million, or ~~$1.74~~$(0.37) per diluted share, for the first six months of 2017. Net Earnings (Loss) were impacted by:

an increase in Net Sales of 22.3% in the first ~~nine~~six months of ~~2016. The~~ 2018 compared to the first ~~nine~~six months of ~~2017 Net Loss Attributable to Tennant Company included $8.1 million, net~~2017;

gross profit margin improvement of tax, or $0.47 per share, $7.5 million, net of tax, or $0.43 per share, $6.1 million, net of tax, or $0.34 per share, and $4.6 million, net of tax, or $0.26 per share, for acquisition costs, amortization expense,70 basis points in the ~~fair value inventory step-up flow through and financing costs, respectively, all related to our acquisition of the IPC Group. In addition, Net Loss Attributable to Tennant Company for the~~ first ~~nine~~six months of ~~2017 included~~ 2018 compared to the first six months of 2017; and

a ~~$5.8 million, net~~230 basis point decrease in S&A Expense as a percentage of ~~tax, or $0.32 per share, restructuring charge taken~~Net Sales in ~~our 2017~~ the first ~~quarter and a $0.2 million, net~~six months of ~~tax, or $0.01 per share, pension settlement charge.~~2018 compared to the first six months of 2017.

Liquidity and Capital Resources

Liquidity

Cash and Cash Equivalents totaled ~~$55.9~~$53.9 million at ~~September~~June 30, ~~2017,~~2018, as compared to ~~$58.0~~$58.4 million as of December 31, ~~2016~~2017. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 1.8 as of June 30, 2018and December 31, 2017, and our working capital was ~~2.1~~$199.8 million and ~~$220.8~~$186.6 million, ~~respectively, as of~~ ~~September 30, 2017~~ ~~compared to a current ratio and working capital of 2.2 and $165.1 million, respectively, as of~~ ~~December 31, 2016~~.respectively. Our debt-to-capital ratio was ~~56.9%~~54.5% as of ~~September~~June 30, ~~2017~~2018, compared to ~~11.5%~~56.0% as of December 31, ~~2016~~2017.~~. The increase in the debt-to-capital ratio was driven by the borrowings related to the IPC acquisition.~~

Cash Flow Summary

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


	Nine Months Ended						Six Months Ended
	September 30						June 30
	2017			2016			2018			2017
Operating Activities	$	32,123		$	33,282		$	25,964		$	(2,495	)
Investing Activities:
Purchases of Property, Plant and Equipment, Net of Disposals	(13,783		)	(21,940		)	(7,624		)	(6,717		)
Proceeds from Principal Payments Received on Long-Term Note Receivable	500			—			706			—
Issuance of Long-Term Note Receivable	(1,500		)	—			—			(1,500		)
Acquisition of Businesses, Net of Cash Acquired	(354,073		)	(12,358		)
Purchase of Intangible Asset	(2,500		)	—
Proceeds from Sale of Business	—			285
(Increase) Decrease in Restricted Cash	(133		)	116
Acquisition of Business, Net of Cash, Cash Equivalents and Restricted Cash Acquired							—			(353,535		)
Purchase of Intangible Assets							(1,195		)	(2,500		)
Financing Activities	335,797			(8,457		)	(21,903		)	361,870
Effect of Exchange Rate Changes on Cash and Cash Equivalents	1,483			55
Net Decrease in Cash and Cash Equivalents	$	(2,086	)	$	(9,017	)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash							(555		)	875
Net Decrease in Cash, Cash Equivalents and Restricted Cash							$	(4,607	)	$	(4,002	)

Operating Activities

Operating ~~activities~~Activities ~~provided$32.1 million~~pro of cash for the nine months ended September 30, 2017. Cash provided by operating activities was driven primarily by strong earnings, adding back non-cash items, partially offset by $9.9 million increase in inventory to support anticipated revenue growth.

~~Operating activities~~ ~~provided~~ ~~$33.3~~vided $26.0 million of cash for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2018. Cash provided by operating activities was driven primarily by cash inflows from ~~Net Earnings~~adjusted net earnings of ~~$31.2~~$42.8 million, an increase in Accounts Payable of $9.8 million resulting from timing of payments and a ~~decrease~~$4.1 million increase in ~~Accounts Receivable of $5.8 million from strong collections, partially~~Employee Compensation and Benefits liabilities. These cash inflows were offset by cash outflows resulting from an increase in Inventories of $17.0 million to support future sales growth and a $6.8 million increase in Accounts Receivable resulting from higher sales levels, the variety of payment terms offered and mix of business.

Operating Activities used $2.5 million of cash for the six months ended June 30, 2017. Cash used in operating activities was driven primarily by an increase in Inventories of $9.9 million to support future sales growth, a decrease in Employee Compensation and Benefits of $8.3 million due to payment of accrued employee incentives and a $6.0 million increase in Accounts Receivable resulting from higher sales levels, the variety of payment terms offered and mix of business. These cash outflows were partially offset by cash inflows resulting from adjusted net earnings of $19.4 million and an increase in Accounts Payable ~~due to the general~~of $6.2 million resulting from timing of ~~payments of $6.4 million.~~payments.

~~Management evaluates~~Two metrics used by management to evaluate how effectively we utilize ~~two of~~ our ~~key operating~~net assets ~~Accounts~~are "Accounts Receivable Days Sales Outstanding" ("DSO") and ~~Inventories, using Accounts Receivable “Days Sales Outstanding” (DSO) and “Days~~"Days Inventory on ~~Hand” (DIOH)~~Hand" ("DIOH"), on a ~~FIFO~~first-in, first-out ("FIFO") basis. The metrics are calculated on a rolling three month basis in order to more readily reflect changing trends in the business. These metrics for the quarters ended June 30, 2018 and December 31, 2017 were as follows (in days):


	September 30, 2017	December 31, 2016	June 30, 2018	December 31, 2017
DSO	66	59	64	63
DIOH	104	89	92	96

As of ~~September~~June 30, ~~2017,~~2018, DSO increased ~~7 days~~one day compared to December 31, ~~2016. The increase was~~ 2017 primarily due to ~~the variety of terms offered and~~ mix of business, ~~somewhat~~partially offset by the trend of continued proactive management of our receivables by enforcing tighter credit limits and continuing to successfully collect past due balances.

As of ~~September~~June 30, ~~2017,~~2018, DIOH ~~increased 15~~decreased four days as compared to December 31, ~~2016. The increase was~~2017 primarily due to ~~a lower level of sales than anticipated that resulted in higher levels of inventory, somewhat offset by~~ progress from inventory reduction ~~initiatives.~~initiatives, somewhat offset by increased levels of inventory in support of higher anticipated sales levels and launches of new products.

Investing Activities

Investing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 used ~~$371.5~~$8.1 million. We used ~~$354.1 million in relation to our acquisition of the IPC group and the final installment payment for the acquisition of the Florock brand and $13.8~~$7.6 million for net capital expenditures. Net capital expenditures included investments in information technology process improvement projects, tooling related to new product development and manufacturing equipment. We also used $1.2 million to purchase a technology license and other intangibles.

Investing activities during the six months ended June 30, 2017 used $364.3 million. We used $353.5 million in relation to our acquisition of the IPC Group and the final installment payment for the acquisition of the Florock brand. In addition, we used $6.7 million and $2.5 million for net capital expenditures and for the purchase of the distribution rights to sell the i-mop, respectively. Net capital expenditures included investments in information technology process improvement projects, tooling related to new product development and manufacturing equipment. We also used $1.5 million as a result of a loan to i-team North America B.V., a joint venture that operates as the distributor of the i-mop in North America. ~~The details regarding the joint venture and our distribution of the i-mop are described further~~

Financing Activities

Net cash used in ~~Note 3 to the Condensed Consolidated Financial Statements.~~

~~Investing~~financing activities was $21.9 million during the ~~nine~~first six months ~~ended September 30, 2016~~of 2018. Payments of Long-Term Debt used ~~$33.9 million. Net capital expenditures used $21.9~~$18.1 million and ~~our acquisition~~dividend payments used $7.6 million, partially offset by proceeds from the issuance of ~~the Florockbrand and the assets~~Common Stock of Dofesa Barrido Mecanizado, a long-time distributor based in central Mexico, used $12.4 million, net of cash acquired, as described further in Note 5. Capital expenditures included investments in information technology process improvement projects, tooling related to new product development, and manufacturing equipment.$3.7 million.

~~Financing Activities~~

Net cash provided by financing activities was ~~$335.8~~$361.9 million during the first ~~nine~~six months of 2017. Proceeds from the incurrence of Long-Term Debt ~~associated with the IPC acquisition~~ and the issuance of Common Stock provided $440.0 million and ~~$4.7~~$3.8 million, respectively. These cash inflows were partially offset by cash outflows resulting from ~~$81.3~~$58.5 million of Long-Term Debt payments, ~~$16.5~~$16.0 million related to payments of debt issuance costs and dividend payments of ~~$11.2~~$7.5 million.

Net cash used in financing activities was $8.5 million during the first nine months of 2016. The purchases of our Common Stock per our authorized repurchase program used $12.8 million, dividend payments used $10.6 million and the payments of Long-Term Debt used $3.5 million, partially offset by proceeds from the incurrence of Long-Term Debt of $15.0 million, the issuance of Common Stock of $2.9 million and the excess tax benefit on stock plans of $0.4 million.

~~Indebtedness~~

In order to finance the acquisition of the IPC Group, on April 4, 2017, the Company and certain of our foreign subsidiaries entered into a Credit Agreement (the “2017 Credit Agreement”) with JPMorgan, as administrative agent, Goldman Sachs Bank USA, as syndication agent, Wells Fargo, National Association, U.S. Bank National Association, and HSBC Bank USA, National Association, as co-documentation agents, and the lenders (including JPMorgan) from time to time party thereto. The 2017 Credit Agreement provides the company and certain of our foreign subsidiaries access to a senior secured credit facility until April 4, 2022, consisting of a multi-tranche term loan facility in an amount up to $400.0 million and a revolving facility in an amount up to $200.0 million with an option to expand the revolving facility by $150.0 million, with the consent of the lenders willing to provide additional borrowings in the form of increases to their revolving facility commitment or funding of incremental term loans. Borrowings may be denominated in U.S. dollars or certain other currencies.

Upon entry into the 2017 Credit Agreement, the company repaid $45.0 million in outstanding borrowings under our Amended and Restated Credit Agreement, as described in Note 9 of our annual report on Form 10-K for the year ended December 31, 2016, and terminated the Amended and Restated Credit Agreement.

The 2017 Credit Agreement contains customary representations, warranties and covenants, including, but not limited to, covenants restricting the company’s ability to incur indebtedness and liens and merge or consolidate with another entity. The 2017 Credit Agreement also contains financial covenants, requiring us to maintain a ratio of consolidated total indebtedness to consolidated earnings before income, taxes, depreciation and amortization, subject to certain adjustments ("Adjusted EBITDA") of not greater than 4.25 to 1, as well as requiring us to maintain a ratio of consolidated Adjusted EBITDA to consolidated interest expense of no less than 3.50 to 1 for the quarter ended September 30, 2017. The 2017 Credit Agreement also contains a financial covenant requiring us to maintain a senior secured net indebtedness to Adjusted EBITDA ratio of not greater than 3.50 to 1. These financial covenants may restrict our ability to pay dividends and purchase outstanding shares of our common stock. We were in compliance with our financial covenants at September 30, 2017.

~~Further details regarding our financing under the 2017 Credit Agreement are discussed in Note 8 to the Condensed Consolidated Financial Statements.~~

On April 18, 2017, we issued and sold $300.0 million in aggregate principal amount of our 5.625% Senior Notes due 2025 (the “Notes”), pursuant to an Indenture, dated as of April 18, 2017, among the company, the Guarantors (as defined therein), and Wells Fargo Bank, National Association, a national banking association, as trustee. The Notes are guaranteed by Tennant Coatings, Inc. and Tennant Sales and Service Company (collectively, the “Guarantors”), which are wholly owned subsidiaries of the company.

~~The Notes contain customary representations, warranties and covenants, and are less restrictive than those contained in the 2017 Credit Agreement.~~

We used the net proceeds from this offering to refinance a $300.0 million term loan under our 2017 Credit Agreement that we borrowed as part of the financing for the acquisition of the IPC Group and to pay related fees and expenses.

~~Further details regarding our financing under the Notes are discussed in Note 8 to the Condensed Consolidated Financial Statements.~~

In connection with the issuance and sale of the Notes, the company entered into a Registration Rights Agreement, dated April 18, 2017, among the company, the Guarantors and Goldman, Sachs & Co. and J.P. Morgan Securities LLC (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the company agreed (1) to use its commercially reasonable efforts to consummate an exchange offer to exchange the Notes for new registered notes (the “Exchange Notes”), with terms substantially identical in all material respects with the Notes (except that the Exchange Notes will not contain terms with respect to additional interest, registration rights or transfer restrictions) and (2) if required, to have a shelf registration statement declared effective with respect to resales of the Notes. If the Company fails to satisfy its obligations under the Registration Rights Agreement within 360 days, it will be required to pay additional interest to the holders of the Notes under certain circumstances.

~~The full terms and conditions of the Indenture are set forth in Exhibit 4.1 to the company's Current Report on Form 8-K filed April 24, 2017.~~

As of September 30, 2017, we had outstanding borrowings under our 2017 Credit Agreement, totaling $75.0 million under our term loan facility and $20.0 million under our revolving facility. There were $300.0 million in outstanding borrowings under the Notes as of September 30, 2017. In addition, we had stand alone letters of credit and bank guarantees outstanding in the amount of $4.7 million. Commitment fees on unused lines of credit for the nine months ended September 30, 2017 were $0.4 million. The overall weighted average cost of debt is approximately 5.0% and, net of a related cross-currency swap instrument, is approximately 4.2%. Further details regarding the cross-currency swap instrument are discussed in Note 10 to the Condensed Consolidated Financial Statements.

~~Prudential Investment Management, Inc.~~

In March 2017, we repaid $11.1 million of debt evidenced by the notes issued under our Private Shelf Agreement, as described in Note 9 of our annual report on Form 10-K for the year ended December 31, 2016, and terminated the Private Shelf Agreement.

~~Contractual Obligations~~

As of September 30, 2017, as a result of our acquisition of the IPC Group, there have been material changes in our contractual obligations related to our minimum rental payments for aggregate operating lease commitments as well as our long-term debt compared to our contractual obligations as disclosed in our annual report on Form 10-K for the year ended December 31, 2016. Further details regarding our contractual obligations related to our aggregate operating lease commitments and long-term debt are discussed in Notes 13 and 8, respectively, to the Condensed Consolidated Financial Statements.

Other than the contractual obligations identified above, there have been no material changes with respect to contractual obligations as disclosed in our annual report on Form 10-K for the year ended December 31, 2016.

Newly Issued Accounting Guidance

~~In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. This ASU will replace all existing revenue recognition standards and significantly expand the disclosure requirements for revenue arrangements. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. This guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers.

~~In August 2015, the FASB issued ASU No. 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date~~, which defers the effective date of the new revenue recognition standard by one year from the original effective date specified in ASU No. 2014-09. The guidance now permits us to apply the new revenue recognition standard to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which is our fiscal 2018.

Management will adopt the revenue recognition standard using the modified retrospective approach. Under this approach, the new standard would only be applied to new contracts and those contracts that are not yet complete at January 1, 2018, with a cumulative catch-up adjustment recorded to beginning retained earnings for existing contracts that still require performance. We are utilizing a comprehensive approach to assess the impact of the standard on the company by reviewing our current accounting policies and practices to identify potential difference that would result from applying the new requirements to our revenue contracts. We are finalizing our contract reviews and, at this time, we have not identified any impacts to our financial statements that we believe will be material in the year of adoption. We anticipate the primary impact of the standard to be the additional required disclosures around revenue recognition in the notes to the consolidated financial statements. We continue to develop accounting policies and assess changes to the relevant business processes and the control activities within them as a result of the provisions of this standard.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU changes current U.S. GAAP for lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. Under the new guidance, lessor accounting is largely unchanged. The amendments in this ASU are effective for annual periods beginning after December 15, 2018, including interim periods within that reporting period, which is our fiscal 2019. Early application is permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The transition approach would not require any transition accounting for leases that expired before the earliest comparative period presented. A full retrospective transition approach is prohibited for both lessees and lessors. We will adopt this ASU beginning in 2019. We are currently evaluating the impact of this amended guidance on our consolidated financial statements and related disclosures.

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business.~~ This ASU clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which is our fiscal 2018. We will apply this guidance to applicable transactions commencing in 2018.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,~~ which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019, which is our fiscal 2020. Early adoption of the standard is permitted for any interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We will apply this guidance to applicable goodwill impairment tests going forward.

~~In March 2017, the FASB issued ASU No. 2017-07,~~ ~~Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,~~ which requires employers to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost/credit are required to be presented in the income statement separately from the service cost component in nonoperating expenses. In addition, the line items used in the income statement to present the other components of net benefit cost/credit must be disclosed. The amendments also allow only the service cost component to be eligible for capitalization when applicable. This ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which is our fiscal 2018. We are currently evaluating the impact that this standard is expected to have on our consolidated financial statements and related disclosures.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, which better aligns accounting rules with a company's risk management activities, better reflects the economic results of hedging in financial statements and simplifies hedge accounting treatment. This ASU is effective for fiscal years beginning after after December 15, 2018, including interim periods within those fiscal years, which is our fiscal 2019. We are currently evaluating the impact that this standard is expected to have on our consolidated financial statements and related disclosures.

Cautionary Statement Relevant to Forward-Looking Information

This ~~Quarterly Report on~~ Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or similar words or the negative thereof. These statements do not relate to strictly historical or current facts and provide current expectations orof forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. Particular risks and uncertainties presently facing us include: geopolitical and economic uncertainty throughout the world; the competition in our business; our ability to attract, develop and retain key personnel; our ability to achieve operational efficiencies, including synergistic and other benefits of acquisitions; our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of any variable rate debt, and prevent us from meeting our covenant and payment obligations related to our debt instruments; our ability to effectively manage organizational changes; our ability to attract, retain and develop key personnel and create effective succession planning strategies; the competition in our business; fluctuations in the cost, quality, or availability of raw materials and purchased components; our ability to successfully upgrade ~~evolve~~ and ~~protect~~evolve our information technology systems; our ability to develop and commercialize new innovative products and services; ~~unforeseen product liability claims or product quality issues; fluctuations in~~our ability to integrate acquisitions, including IPC; our ability to generate sufficient cash to satisfy our debt obligations; geopolitical and economic uncertainty throughout the cost, quality, or availability of raw materials and purchased components; foreign currency exchange rate fluctuations, particularly the relative strength of the U.S. dollar against other major currencies;world; our ability to successfully protect our information technology systems from cyber security risks; the occurrence of a significant business interruption; our ability to comply with laws and regulations; the potential disruption of our business from actions of activist investors or others; the relative strength of the U.S. dollar, which affects the cost of our materials and ~~our ability to sufficiently remediate any material weaknesses~~products purchased and sold internationally; unforeseen product liability claims or ~~significant deficiencies in~~product quality issues; and our internal control over financial ~~reporting.~~

reporting risks resulting from our acquisition of the IPC Group. 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. Additional information about factors that could materially affect our results can be found in Part I, Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 31, ~~2016~~2017 and Part II, Item 1A of this Form 10-Q.

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


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our market risk since December 31, ~~2016.~~2017. For additional information, refer to Item 7A of our ~~2016~~2017 annual report on Form 10-K for the year ended December 31, ~~2016.~~2017.


Item 4.	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 period ended~~as of ~~September~~June 30, ~~2017~~2018 (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 ~~due to material weaknesses in internal control over financial reporting described in Part II, Item 9A of our 2016 annual report on Form 10-K for the year ended December 31, 2016,~~ our disclosure controls and procedures ~~were not~~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 SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and our principal financial officers, as ~~of September 30, 2017.~~appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

~~There~~We have completed the documentation, design and implementation of internal controls over financial reporting at our acquired entity, the IPC Group.

Other than the change described above, there were no changes in our internal controls 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, other than as described below.~~

~~Remediation Plan~~

~~We began implementing a remediation plan to address the control deficiencies that led to the material weaknesses mentioned above. The remediation plan includes the following:~~

~~Sponsoring ongoing training related to the COSO 2013 Framework best practices for personnel that are accountable for internal control over financing~~ reporting.

~~Performing a complete review of our accounting for revenue related to equipment maintenance and repair service to ensure the adequacy of the design and implementation of automated and manual controls.~~

~~Designing and implementing controls over the determination of technological feasibility and the capitalization of software development costs.~~

We are in the implementation phase of our remediation plan described above. The material weaknesses cannot be considered remediated until the controls have operated for a sufficient period of time and until management has concluded, through testing, that the control is operating effectively. Our goal is to remediate these material weaknesses by the end of 2017.

PART II – OTHER INFORMATION


Item 1.	Legal Proceedings

There are no material pending legal proceedings other than ordinary routine litigation incidental to our business.

Item 1A. Risk Factors

We documented our risk factors in Item 1A of Part I of our annual report on Form 10-K for the fiscal year ended December 31, ~~2016. Other than the risk factor identified below, there~~2017. There have been no material changes to our risk factors since the filing of that report.

We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

In April 2017, in connection with the acquisition of IPC Cleaning S.p.A., we entered into a new senior credit facility and indenture, and issued debt totaling approximately $400,000, consisting of a $100,000 term loan and $300,000 of senior notes, which funded the acquisition and replaced our current debt facility. The new senior credit facility also includes a revolving facility in an amount up to $200,000. We cannot provide assurance that our business will generate sufficient cash flow from operations to meet all our debt service requirements, to pay dividends, to repurchase shares of our common stock, and to fund our general corporate and capital requirements.

Our ability to satisfy our debt obligations will depend upon our future operating performance. We do not have complete control over our future operating performance because it is subject to prevailing economic conditions, and financial, business and other factors.

~~Our current and future debt service obligations and covenants could have important consequences. These consequences include, or may include, the following:~~

~~our ability to obtain financing for future working capital needs or acquisitions or other purposes may be limited;~~

our funds available for operations, expansions, dividends or other distributions, or stock repurchases may be reduced because we dedicate a significant portion of our cash flow from operations to the payment of principal and interest on our indebtedness;

~~our ability to conduct our business could be limited by restrictive covenants; and~~

~~our vulnerability to adverse economic conditions may be greater than less leveraged competitors and, thus, our ability to withstand competitive pressures may be limited.~~

Restrictive covenants in our senior credit facility and in our indenture place limits on our ability to conduct our business. Covenants in our senior credit facility and indenture include those that restrict our ability to make acquisitions, incur debt, encumber or sell assets, pay dividends, engage in mergers and consolidations, enter into transactions with affiliates, make investments and permit our subsidiaries to enter into certain restrictive agreements. The senior credit facility additionally contains certain financial covenants. We cannot provide assurance that we will be able to comply with these covenants in the future.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

On October 31, 2016, the Board of Directors authorized the repurchase of an additional 1,000,000 shares of our common stock. This is in addition to the ~~393,965~~392,892 shares remaining under our prior repurchase ~~program as of September 30, 2017.~~program. Share repurchases are made from time to time in the open market or through privately negotiated transactions, primarily to offset the dilutive effect of shares issued through our share-based compensation programs. As of ~~September~~June 30, ~~2017,~~2018, our 2017 Credit Agreement restricts the payment of dividends or repurchasing of stock if, after giving effect to such payments and assuming no default exists or would result from such payment, our leverage ratio is greater than 2.50 to 1, in such case limiting such payments to an amount ranging from $50.0 million to $75.0 million during any fiscal year based on our leverage ratio after giving effect to such ~~payments.~~payment. Our Senior Notes due 2025 also contain certain restrictions, which are generally less restrictive than those contained in the 2017 Credit Agreement.

For the Quarter Ended June 30, 2017
Total Number
of Shares
Purchased⁽¹⁾

Average Price
Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - 31, 2017 603
$ 74.95
—
1,393,965
August 1 - 31, 2017 101
65.70
—
1,393,965
September 1 - 30, 2017 176
60.40
—
1,393,965
Total 880
$ 70.98
—
1,393,965



For the Quarter Ended June 30, 2018	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 - 30, 2018	3,360	$	64.47	—	1,392,892
May 1 - 31, 2018	—	—		—	1,392,892
June 1 - 30, 2018	—	—		—	1,392,892
Total	3,360	$	64.47	—	1,392,892


⁽¹⁾	Includes ~~880~~3,360 shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by employees who exercised stock options or restricted stock under employee share-based compensation plans.


Item 6.	Exhibits



Item #	Description	Method of Filing
3i	Restated Articles of Incorporation	Incorporated by reference to Exhibit 3i to the Company’s report on Form 10-Q for the quarterly period ended June 30, 2006.
3ii	Amended and Restated By-Laws	Incorporated by reference to Exhibit 3iii to the Company’s ~~Current Report on~~ Form 8-K dated December 14, 2010.
~~4.1~~ 3iii	Articles of Amendment of Restated Articles of Incorporation of Tennant Company	Incorporated by reference to Exhibit 3iii to the Company's report on Form 10-Q for the quarterly period ended March 31, 2018.
4.1	Indenture dated as of April 18, 2017	Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed April 24, 2017.
~~4.2~~ 10.1	~~Registration Rights~~ Form of Tennant Company 2017 Stock Incentive Plan Non-Employee Director Restricted Stock Unit Agreement ~~dated April 18, 2017~~	~~Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed April 24, 2017.~~
~~31.1~~	~~Rule 13a-14(a)/15d-14(a) Certification of CEO~~	Filed herewith electronically.
~~31.2~~ 31.1	Rule 13a-14(a)/15d-14(a) Certification of ~~CFO~~CEO	Filed herewith electronically.
~~32.1~~ 31.2	~~Section 1350~~ Rule 13a-14(a)/15d-14(a) Certification of ~~CEO~~CFO	Filed herewith electronically.
~~32.2~~ 32.1	Section 1350 Certification of CEO	Filed herewith electronically.
32.2	Section 1350 Certification of CFO	Filed herewith electronically.
101	The following financial information from Tennant Company's Quarterly Report on Form 10-Q for the period ended ~~September~~June 30, ~~2017,~~2018, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016;~~2017; (ii) Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016;~~2017; (iii) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016;~~2017; (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016;~~2017; and (v) Notes to the Condensed Consolidated Financial ~~Statements~~Statements.	Filed herewith electronically.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		TENNANT COMPANY

Date:	~~November 9, 2017~~August 1, 2018	~~/s/~~/s/ H. Chris Killingstad
		H. Chris Killingstad President and Chief Executive Officer

Date:	~~November 9, 2017~~August 1, 2018	~~/s/~~/s/ Thomas Paulson
		Thomas Paulson Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

3847



Current Assets	$	5,949
Property, Plant and Equipment, net	4,112
Identified Intangible Assets	6,055
Goodwill	1,739
Other Assets	7
Total Assets Acquired	17,862
Current Liabilities	4,764
Other Liabilities	53
Total Liabilities Assumed	4,817
Net Assets Acquired	$	13,045



Remaining 2017	$	1,348
2018	5,386
2019	7,062
2020	9,375
2021	11,875
Thereafter	360,625
Total aggregate maturities	$	395,671



Remaining 2017	$	4,033
2018	11,835
2019	7,828
2020	4,826
2021	2,710
Thereafter	4,360
Total	$	35,592



For the Quarter Ended June 30, 2017	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - 31, 2017	603	$	74.95	—	1,393,965
August 1 - 31, 2017	101	65.70		—	1,393,965
September 1 - 30, 2017	176	60.40		—	1,393,965
Total	880	$	70.98	—	1,393,965