Condensed Financial Statements | 22. Separate Financial Information of Guarantor Subsidiaries The following condensed consolidating guarantor financial information is presented to comply with the requirements of Rule 3-10 of Regulation S-X. 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 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 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 following condensed consolidated financial information presents the Condensed Consolidated Statements of Earnings, Comprehensive Income and Cash Flows for each of the years in the three-year period ended December 31, 2017 , and the related Condensed Consolidated Balance Sheets as of December 31, 2017 and 2016 , of Tennant Company ("Parent"), the Guarantor Subsidiaries on a combined basis, the Non-Guarantor Subsidiaries on a combined basis and elimination entries necessary to consolidated 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 note is an integral part. Condensed Consolidated Statement of Earnings For the year ended December 31, 2017 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Tennant Company Net Sales $ 454,703 $ 594,405 $ 471,559 $ (517,601 ) $ 1,003,066 Cost of Sales 311,897 488,972 317,151 (519,375 ) 598,645 Gross Profit 142,806 105,433 154,408 1,774 404,421 Operating Expense: Research and Development Expense 27,219 315 4,479 — 32,013 Selling and Administrative Expense 116,388 78,516 150,460 — 345,364 Total Operating Expense 143,607 78,831 154,939 — 377,377 (Loss) Profit from Operations (801 ) 26,602 (531 ) 1,774 27,044 Other Income (Expense): Equity in Earnings of Affiliates 12,754 2,004 28,855 (43,613 ) — Interest Expense, Net (22,659 ) — (299 ) (31 ) (22,989 ) Intercompany Interest Income (Expense) 12,519 (5,776 ) (6,743 ) — — Net Foreign Currency Transaction Gains (Losses) 857 — (4,244 ) — (3,387 ) Other (Expense) Income, Net (3,962 ) (736 ) 2,841 (103 ) (1,960 ) Total Other (Expense) Income, Net (491 ) (4,508 ) 20,410 (43,747 ) (28,336 ) (Loss) Profit Before Income Taxes (1,292 ) 22,094 19,879 (41,973 ) (1,292 ) Income Tax Expense (Benefit) 4,913 8,070 (98 ) (7,972 ) 4,913 Net (Loss) Earnings Including Noncontrolling Interest (6,205 ) 14,024 19,977 (34,001 ) (6,205 ) Net Loss Attributable to Noncontrolling Interest (10 ) — (10 ) 10 (10 ) Net (Loss) Earnings Attributable to Tennant Company $ (6,195 ) $ 14,024 $ 19,987 $ (34,011 ) $ (6,195 ) Condensed Consolidated Statement of Earnings For the year ended December 31, 2016 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Tennant Company Net Sales $ 455,375 $ 587,815 $ 290,349 $ (524,967 ) $ 808,572 Cost of Sales 299,459 483,075 199,336 (524,893 ) 456,977 Gross Profit 155,916 104,740 91,013 (74 ) 351,595 Operating Expense: Research and Development Expense 32,378 429 1,931 — 34,738 Selling and Administrative Expense 95,189 74,643 78,378 — — 248,210 (Gain) Loss on Sale of Business (82 ) — 231 — 149 Total Operating Expense 127,485 75,072 80,540 — 283,097 Profit from Operations 28,431 29,668 10,473 (74 ) 68,498 Other Income (Expense): Equity in Earnings of Affiliates 34,068 2,192 — (36,260 ) — Interest (Expense) Income, Net (1,204 ) — 255 — (949 ) Intercompany Interest Income (Expense) 7,157 (5,570 ) (1,587 ) — — Net Foreign Currency Transaction Gains (Losses) 648 (652 ) (388 ) — (392 ) Other (Expense) Income, Net (2,609 ) (573 ) 2,516 — (666 ) Total Other Income (Expense), Net 38,060 (4,603 ) 796 (36,260 ) (2,007 ) Profit Before Income Taxes 66,491 25,065 11,269 (36,334 ) 66,491 Income Tax Expense 19,877 9,443 2,427 (11,870 ) 19,877 Net Earnings $ 46,614 $ 15,622 $ 8,842 $ (24,464 ) $ 46,614 Condensed Consolidated Statement of Earnings For the year ended December 31, 2015 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Tennant Company Net Sales $ 480,418 $ 586,154 $ 306,506 $ (561,279 ) $ 811,799 Cost of Sales 320,620 489,203 213,085 (560,169 ) 462,739 Gross Profit 159,798 96,951 93,421 (1,110 ) 349,060 Operating Expense: Research and Development Expense 29,888 389 2,138 — 32,415 Selling and Administrative Expense 97,301 72,954 82,015 — 252,270 Impairment of Long-Lived Assets — — 11,199 — 11,199 Total Operating Expense 127,189 73,343 95,352 — 295,884 Profit (Loss) from Operations 32,609 23,608 (1,931 ) (1,110 ) 53,176 Other Income (Expense): Equity in Earnings of Affiliates 14,766 2,122 — (16,888 ) — Interest (Expense) Income, Net (1,221 ) — 80 — (1,141 ) Intercompany Interest Income (Expense) 7,368 (5,400 ) (1,968 ) — — Net Foreign Currency Transaction Gains (Losses) 535 (777 ) (712 ) — (954 ) Other (Expense) Income, Net (3,633 ) (422 ) 3,398 — (657 ) Total Other Income (Expense), Net 17,815 (4,477 ) 798 (16,888 ) (2,752 ) Profit (Loss) Before Income Taxes 50,424 19,131 (1,133 ) (17,998 ) 50,424 Income Tax Expense 18,336 4,619 1,630 (6,249 ) 18,336 Net Earnings (Loss) $ 32,088 $ 14,512 $ (2,763 ) $ (11,749 ) $ 32,088 Condensed Consolidated Statement of Comprehensive Income For the year ended December 31, 2017 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Tennant Company Net Earnings $ (6,205 ) $ 14,024 $ 19,977 $ (34,001 ) $ (6,205 ) Other Comprehensive Income (Loss): Foreign currency translation adjustments 28,356 1,215 2,960 (4,175 ) 28,356 Pension and retiree medical benefits 5,868 — 538 (538 ) 5,868 Cash flow hedge (7,731 ) — — — (7,731 ) Income Taxes: Foreign currency translation adjustments 310 — 310 (310 ) 310 Pension and retiree medical benefits (2,087 ) — (99 ) 99 (2,087 ) Cash flow hedge 2,884 — — — 2,884 Total Other Comprehensive (Loss) Income, net of tax 27,600 1,215 3,709 (4,924 ) 27,600 Total Comprehensive Income Including Noncontrolling Interest 21,395 15,239 23,686 (38,925 ) 21,395 Comprehensive Loss Attributable to Noncontrolling Interest (10 ) — (10 ) 10 (10 ) Comprehensive Income Attributable to Tennant Company $ 21,405 $ 15,239 $ 23,696 $ (38,935 ) $ 21,405 Condensed Consolidated Statement of Comprehensive Income For the year ended December 31, 2016 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Tennant Company Net Earnings $ 46,614 $ 15,622 $ 8,842 $ (24,464 ) $ 46,614 Other Comprehensive Income (Loss): Foreign currency translation adjustments 109 270 3,534 (3,804 ) 109 Pension and retiree medical benefits (2,248 ) — (1,691 ) 1,691 (2,248 ) Cash flow hedge (305 ) — — — (305 ) Income Taxes: Foreign currency translation adjustments 32 — 32 (32 ) 32 Pension and retiree medical benefits 504 — 296 (296 ) 504 Cash flow hedge 114 — — — 114 Total Other Comprehensive (Loss) Income, net of tax (1,794 ) 270 2,171 (2,441 ) (1,794 ) Comprehensive Income $ 44,820 $ 15,892 $ 11,013 $ (26,905 ) $ 44,820 Condensed Consolidated Statement of Comprehensive Income For the year ended December 31, 2015 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Tennant Company Net Earnings $ 32,088 $ 14,512 $ (2,763 ) $ (11,749 ) $ 32,088 Other Comprehensive (Loss) Income: Foreign currency translation adjustments (12,520 ) (1,082 ) (12,903 ) 13,985 (12,520 ) Pension and retiree medical benefits 4,121 — 1,571 (1,571 ) 4,121 Cash flow hedge 164 — — — 164 Income Taxes: Foreign currency translation adjustments 25 — 25 (25 ) 25 Pension and retiree medical benefits (1,265 ) — (314 ) 314 (1,265 ) Cash flow hedge (61 ) — — — (61 ) Total Other Comprehensive Loss, net of tax (9,536 ) (1,082 ) (11,621 ) 12,703 (9,536 ) Comprehensive Income (Loss) $ 22,552 $ 13,430 $ (14,384 ) $ 954 $ 22,552 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 Balance Sheet As of December 31, 2016 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Tennant Company ASSETS Current Assets: Cash and Cash Equivalents $ 38,484 $ 226 $ 19,323 $ — $ 58,033 Restricted Cash — — 517 — 517 Net Receivables 209 85,219 63,706 — 149,134 Intercompany Receivables 50,437 123,289 2,251 (175,977 ) — Inventories 26,422 12,821 49,829 (10,450 ) 78,622 Prepaid Expenses 4,120 1,151 3,933 — 9,204 Other Current Assets 2,402 — 10 — 2,412 Total Current Assets 122,074 222,706 139,569 (186,427 ) 297,922 Property, Plant and Equipment 225,651 12,996 59,853 — 298,500 Accumulated Depreciation (144,281 ) (6,175 ) (35,947 ) — (186,403 ) Property, Plant and Equipment, Net 81,370 6,821 23,906 — 112,097 Deferred Income Taxes 3,048 3,281 7,110 — 13,439 Investment in Affiliates 157,004 9,021 — (166,025 ) — Intercompany Loans 130,000 — — (130,000 ) — Goodwill 12,869 1,439 6,757 — 21,065 Intangible Assets, Net — 3,200 3,260 — 6,460 Other Assets 10,189 27 8,838 — 19,054 Total Assets $ 516,554 $ 246,495 $ 189,440 $ (482,452 ) $ 470,037 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current Portion of Long-Term Debt $ 3,429 $ — $ 30 $ — $ 3,459 Accounts Payable 30,867 2,599 13,942 — 47,408 Intercompany Payables 125,540 1,249 49,188 (175,977 ) — Employee Compensation and Benefits 12,025 15,261 8,711 — 35,997 Income Taxes Payable 1,410 — 938 — 2,348 Other Current Liabilities 15,329 13,348 14,940 — 43,617 Total Current Liabilities 188,600 32,457 87,749 (175,977 ) 132,829 Long-Term Liabilities: Long-Term Debt 32,714 — 21 — 32,735 Intercompany Loans — 128,000 2,000 (130,000 ) — Employee-Related Benefits 14,291 3,704 3,139 — 21,134 Deferred Income Taxes — — 171 — 171 Other Liabilities 2,406 1,295 924 — 4,625 Total Long-Term Liabilities 49,411 132,999 6,255 (130,000 ) 58,665 Total Liabilities 238,011 165,456 94,004 (305,977 ) 191,494 Shareholders' Equity: Common Stock 6,633 — 11,131 (11,131 ) 6,633 Additional Paid-In Capital 3,653 72,483 158,592 (231,075 ) 3,653 Retained Earnings 318,180 9,771 (32,187 ) 22,416 318,180 Accumulated Other Comprehensive Loss (49,923 ) (1,215 ) (42,100 ) 43,315 (49,923 ) Total Shareholders’ Equity 278,543 81,039 95,436 (176,475 ) 278,543 Total Liabilities and Shareholders’ Equity $ 516,554 $ 246,495 $ 189,440 $ (482,452 ) $ 470,037 Condensed Consolidated Statement of Cash Flows For the year ended December 31, 2017 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Tennant Company OPERATING ACTIVITIES Net Cash Provided by Operating Activities $ 26,992 $ 280 $ 27,711 $ (809 ) $ 54,174 INVESTING ACTIVITIES Purchases of Property, Plant and Equipment (9,558 ) — (10,879 ) — (20,437 ) Proceeds from Disposals of Property, Plant and Equipment 23 1 2,487 — 2,511 Proceeds from Principal Payments Received on Long-Term Note Receivable — — 667 — 667 Issuance of Long-Term Note Receivable — — (1,500 ) — (1,500 ) Acquisition of Businesses, Net of Cash Acquired (304 ) — (353,769 ) — (354,073 ) Purchase of Intangible Asset (2,500 ) — — — (2,500 ) Change in Investments in Subsidiaries (199,028 ) — — 199,028 — Loan (Payments) Borrowings from Subsidiaries (159,780 ) — (4,983 ) 164,763 — Increase in Restricted Cash — — (92 ) — (92 ) Net Cash (Used in) Provided by Investing Activities (371,147 ) 1 (368,069 ) 363,791 (375,424 ) FINANCING ACTIVITIES Proceeds from Short-Term Debt 303,000 — — — 303,000 Repayments of Short-Term Debt (303,000 ) — — — (303,000 ) Loan Borrowings (Payments) from Parent 4,983 — 159,780 (164,763 ) — Change in Subsidiary Equity — — 199,028 (199,028 ) — Proceeds from Issuance of Long-Term Debt 440,000 — — — 440,000 Payments of Long-Term Debt (96,142 ) — (106 ) — (96,248 ) Payments of Debt Issuance Costs (16,482 ) — — — (16,482 ) Change in Capital Lease Obligations — — 311 — 311 Proceeds from Issuances of Common Stock 6,875 — — — 6,875 Purchase of Noncontrolling Owner Interest — — (30 ) — (30 ) Dividends Paid (14,953 ) — (809 ) 809 (14,953 ) Net Cash Provided by Financing Activities 324,281 — 358,174 (362,982 ) 319,473 Effect of Exchange Rate Changes on Cash and Cash Equivalents (141 ) — 2,283 — 2,142 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (20,015 ) 281 20,099 — 365 Cash and Cash Equivalents at Beginning of Year 38,484 226 19,323 — 58,033 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 18,469 $ 507 $ 39,422 $ — $ 58,398 Condensed Consolidated Statement of Cash Flows For the year ended December 31, 2016 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Tennant Company OPERATING ACTIVITIES Net Cash Provided by Operating Activities $ 44,147 $ 239 $ 14,090 $ (598 ) $ 57,878 INVESTING ACTIVITIES Purchases of Property, Plant and Equipment (21,507 ) (13 ) (5,006 ) — (26,526 ) Proceeds from Disposals of Property, Plant and Equipment 377 — 238 — 615 Acquisition of Businesses, Net of Cash Acquired — (11,539 ) (1,394 ) — (12,933 ) Issuance of Long-Term Note Receivable — — (2,000 ) — (2,000 ) Proceeds from Sale of Business — — 285 — 285 Change in Investments in Subsidiaries (19,594 ) — — 19,594 — Loan Borrowings (Payments) from Subsidiaries 8,690 — — (8,690 ) — Decrease in Restricted Cash — — 116 — 116 Net Cash Used in Investing Activities (32,034 ) (11,552 ) (7,761 ) 10,904 (40,443 ) FINANCING ACTIVITIES Loan Borrowings (Payments) from Parent — 7,969 (16,659 ) 8,690 — Change in Subsidiary Equity — 3,570 16,024 (19,594 ) — Payments of Long-Term Debt (3,429 ) — (31 ) — (3,460 ) Proceeds from Issuance of Long-Term Debt 15,000 — — — 15,000 Purchases of Common Stock (12,762 ) — — — (12,762 ) Proceeds from Issuances of Common Stock 5,271 — — — 5,271 Excess Tax Benefit on Stock Plans 686 — — — 686 Dividends Paid (14,293 ) — (598 ) 598 (14,293 ) Net Cash (Used in) Provided by Financing Activities (9,527 ) 11,539 (1,264 ) (10,306 ) (9,558 ) Effect of Exchange Rate Changes on Cash and Cash Equivalents 64 — (1,208 ) — (1,144 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 2,650 226 3,857 — 6,733 Cash and Cash Equivalents at Beginning of Year 35,834 — 15,466 — 51,300 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 38,484 $ 226 $ 19,323 $ — $ 58,033 Condensed Consolidated Statement of Cash Flows For the year ended December 31, 2015 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Tennant Company OPERATING ACTIVITIES Net Cash Provided by Operating Activities $ 40,764 $ — $ 4,928 $ (460 ) $ 45,232 INVESTING ACTIVITIES Purchases of Property, Plant and Equipment (19,149 ) — (5,631 ) — (24,780 ) Proceeds from Disposals of Property, Plant and Equipment 32 — 304 — 336 Loan Borrowings (Payments) from Subsidiaries 268 — — (268 ) — Proceeds from Sale of Business — — 1,185 — 1,185 Increase in Restricted Cash — — (322 ) — (322 ) Net Cash Used in Investing Activities (18,849 ) — (4,464 ) (268 ) (23,581 ) FINANCING ACTIVITIES Loan (Payments) Borrowings from Parent — — (268 ) 268 — Payments of Long-Term Debt (3,435 ) — (10 ) — (3,445 ) Purchases of Common Stock (45,998 ) — — — (45,998 ) Proceeds from Issuances of Common Stock 1,677 — — — 1,677 Excess Tax Benefit on Stock Plans 859 — — — 859 Dividends Paid (14,498 ) — (460 ) 460 (14,498 ) Net Cash Used in Financing Activities (61,395 ) — (738 ) 728 (61,405 ) Effect of Exchange Rate Changes on Cash and Cash Equivalents 79 — (1,987 ) — (1,908 ) NET DECREASE IN CASH AND CASH EQUIVALENTS (39,401 ) — (2,261 ) — (41,662 ) Cash and Cash Equivalents at Beginning of Year 75,235 — 17,727 — 92,962 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 35,834 $ — $ 15,466 $ — $ 51,300 |