EX-99.2 4 exhibit_99-2.htm EXHIBIT 99.2 Exhibit
Exhibit 99.2

PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
(In thousands, except shares and per share data)
 
September 30
 
September 30
 
 
2017
 
2016
 
2017
 
2016
Net Sales
 
$
261,921

 
$
200,134

 
$
723,771

 
$
596,826

Cost of Sales
 
157,317

 
114,839

 
434,877

 
338,740

Gross Profit
 
104,604

 
85,295

 
288,894

 
258,086

 
 
 
 
 
 
 
 
 
Operating Expense:
 
 
 
 
 
 
 
 
Research and Development Expense
 
7,907

 
8,418

 
24,239

 
24,712

Selling and Administrative Expense
 
85,651

 
60,623

 
247,067

 
187,315

Loss on Sale of Business
 
—

 
—

 
—

 
149

Total Operating Expense
 
93,558

 
69,041

 
271,306


212,176

Profit from Operations
 
11,046

 
16,254

 
17,588


45,910

 
 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
Interest Income
 
698

 
107

 
1,575

 
188

Interest Expense
 
(6,093
)
 
(329
)
 
(18,720
)
 
(919
)
Net Foreign Currency Transaction (Losses) Gains
 
(842
)
 
(149
)
 
(2,375
)
 
175

Other Expense, Net
 
(482
)
 
(10
)
 
(700
)
 
(360
)
Total Other Expense, Net
 
(6,719
)
 
(381
)
 
(20,220
)

(916
)
 
 
 
 
 
 
 
 
 
Profit (Loss) Before Income Taxes
 
4,327

 
15,873

 
(2,632
)

44,994

Income Tax Expense
 
731

 
4,396

 
385

 
13,750

Net Earnings (Loss) Including Noncontrolling Interest
 
3,596

 
11,477

 
(3,017
)
 
31,244

Net Earnings (Loss) Attributable to Noncontrolling Interest
 
37

 
—

 
(28
)
 
—

Net Earnings (Loss) Attributable to Tennant Company
 
$
3,559

 
$
11,477

 
$
(2,989
)

$
31,244

 
 
 
 
 
 
 
 
 
Net Earnings (Loss) Attributable to Tennant Company per Share:
 
 
 
 
 
 
 
 
Basic
 
$
0.20

 
$
0.66

 
$
(0.17
)
 
$
1.78

Diluted
 
$
0.20

 
$
0.64

 
$
(0.17
)
 
$
1.74

 
 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
 
 
 
 
 
Basic
 
17,729,857

 
17,498,808

 
17,673,656

 
17,516,941

Diluted
 
18,171,444

 
17,973,206

 
17,673,656

 
17,955,499

 
 
 
 
 
 
 
 
 
Cash Dividend Declared per Common Share
 
$
0.21

 
$
0.20

 
$
0.63

 
$
0.60


See accompanying Notes to the Condensed Consolidated Financial Statements.

1

TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
(In thousands)
September 30
 
September 30
 
2017
 
2016
 
2017
 
2016
Net Earnings (Loss) Including Noncontrolling Interest
$
3,596

 
$
11,477

 
$
(3,017
)
 
$
31,244

Other Comprehensive Income:
 

 
 

 
 
 
 
Foreign currency translation adjustments
9,033

 
381

 
25,073

 
4,380

Pension and retiree medical benefits
379

 
23

 
541

 
61

Cash flow hedge
(1,732
)
 
35

 
(6,311
)
 
(394
)
Income Taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
10

 
—

 
15

Pension and retiree medical benefits
(138
)
 
(9
)
 
(160
)
 
(23
)
Cash flow hedge
646

 
(13
)
 
2,354

 
147

Total Other Comprehensive Income, Net of Tax
8,188

 
427

 
21,497


4,186

 
 
 
 
 
 
 
 
Total Comprehensive Income Including Noncontrolling Interest
11,784

 
11,904

 
18,480

 
35,430

Comprehensive Income (Loss) Attributable to Noncontrolling Interest
37

 
—

 
(28
)
 
—

Comprehensive Income Attributable to Tennant Company
$
11,747

 
$
11,904

 
$
18,508

 
$
35,430

See accompanying Notes to the Condensed Consolidated Financial Statements.

2

TENNANT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
 
December 31,
(In thousands, except shares and per share data)
2017
 
2016
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
55,947

 
$
58,033

Restricted Cash
1,292

 
517

Accounts Receivable, less Allowances of $2,972 and $3,108, respectively
193,725

 
149,134

Inventories
141,519

 
78,622

Prepaid Expenses
26,281

 
9,204

Other Current Assets
4,909

 
2,412

Total Current Assets
423,673

 
297,922

Property, Plant and Equipment
389,391

 
298,500

Accumulated Depreciation
(207,882
)
 
(186,403
)
Property, Plant and Equipment, Net
181,509

 
112,097

Deferred Income Taxes
19,857

 
13,439

Goodwill
179,048

 
21,065

Intangible Assets, Net
175,752

 
6,460

Other Assets
22,959

 
19,054

Total Assets
$
1,002,798

 
$
470,037

LIABILITIES AND TOTAL EQUITY
 
 
 
Current Liabilities:
 
 
 
Short-Term Borrowings and Current Portion of Long-Term Debt
$
5,281

 
$
3,459

Accounts Payable
88,618

 
47,408

Employee Compensation and Benefits
35,085

 
35,997

Income Taxes Payable
10,599

 
2,348

Other Current Liabilities
63,327

 
43,617

Total Current Liabilities
202,910

 
132,829

Long-Term Liabilities:
 
 
 
Long-Term Debt
383,252

 
32,735

Employee-Related Benefits
25,247

 
21,134

Deferred Income Taxes
62,167

 
171

Other Liabilities
32,686

 
4,625

Total Long-Term Liabilities
503,352

 
58,665

Total Liabilities
706,262

 
191,494

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

Additional Paid-In Capital
12,062

 
3,653

Retained Earnings
303,987

 
318,180

Accumulated Other Comprehensive Loss
(28,426
)
 
(49,923
)
Total Tennant Company Shareholders' Equity
294,313

 
278,543

Noncontrolling Interest
2,223

 
—

Total Equity
296,536

 
278,543

Total Liabilities and Total Equity
$
1,002,798

 
$
470,037

See accompanying Notes to the Condensed Consolidated Financial Statements.

3

TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
(In thousands)
September 30
 
2017
 
2016
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:
 
 
 
Depreciation
18,515

 
13,150

Amortization of Intangible Assets
11,430

 
323

Amortization of Debt Issuance Costs
896

 
—

Debt Issuance Cost Charges Related to Short-Term Financing
6,200

 
—

Fair Value Step-Up Adjustment to Acquired Inventory
8,445

 
—

Deferred Income Taxes
(4,848
)
 
(676
)
Share-Based Compensation Expense
4,915

 
5,747

Allowance for Doubtful Accounts and Returns
983

 
779

Loss on Sale of Business
—

 
149

Other, Net
175

 
(418
)
Changes in Operating Assets and Liabilities:
 
 
 
Receivables
(524
)
 
5,752

Inventories
(9,866
)
 
(4,873
)
Accounts Payable
5,747

 
(6,415
)
Employee Compensation and Benefits
(9,462
)
 
(5,448
)
Other Current Liabilities
10,019

 
(3,097
)
Income Taxes
4,149

 
2,248

Other Assets and Liabilities
(11,634
)
 
(5,183
)
Net Cash Provided by Operating Activities
32,123

 
33,282

INVESTING ACTIVITIES
 
 
 
Purchases of Property, Plant and Equipment
(16,239
)
 
(22,499
)
Proceeds from Disposals of Property, Plant and Equipment
2,456

 
559

Proceeds from Principal Payments Received on Long-Term Note Receivable
500

 
—

Issuance of Long-Term Note Receivable
(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

Net Cash Used in Investing Activities
(371,489
)
 
(33,897
)
FINANCING ACTIVITIES
 
 
 
Proceeds from Short-Term Debt
300,000

 
—

Repayments of Short-Term Debt
(300,000
)
 
—

Proceeds from Issuance of Long-Term Debt
440,000

 
15,000

Payments of Long-Term Debt
(81,262
)
 
(3,452
)
Payments of Debt Issuance Costs
(16,465
)
 
—

Purchases of Common Stock
—

 
(12,762
)
Proceeds from Issuances of Common Stock
4,728

 
2,893

Excess Tax Benefit on Stock Plans
—

 
447

Dividends Paid
(11,204
)
 
(10,583
)
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

 
 
 
 

4

Supplemental Disclosure of Cash Flow Information:
 
 
 
Cash Paid for Income Taxes
$
8,127

 
$
11,329

Cash Paid for Interest
$
3,741

 
$
796

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

See accompanying Notes to the Condensed Consolidated Financial Statements.

5

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. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
Equity Method Investment – Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and 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. The details regarding our equity method investment 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 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 further details regarding the implementation of this ASU and the impact on our financial statements, see 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. 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
On March 30, 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-09, Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification ("ASC") Topic 718, Compensation – Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the Condensed Consolidated Statements of Cash Flows. Under the new standard, 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, 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.
We have adopted ASU 2016-09 effective January 1, 2017 on a prospective basis where permitted by the new standard. As a result of this adoption:
•
For the three and nine months ended September 30, 2017, we recognized discrete tax benefits of $5 and $1,149, respectively, 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.

6

•
We excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the three 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 of Other Expense, Net on the Condensed Consolidated Statements of Operations.
As of September 30, 2017, the carrying value of the company's investment in the joint venture was $66. In March 2017, we issued a $1,500 loan to the joint venture and, as a result, recorded a long-term note receivable in Other Assets on the Condensed Consolidated Balance Sheets.
4.
Management Action
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") and Asia Pacific ("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 costs will be incurred related to this restructuring action.
A reconciliation to the ending liability balance of severance and related costs as of September 30, 2017 is as follows:
 
 
Severance and Related Costs
Q1 2017 restructuring action
 
$
7,057

   Cash payments
 
(5,792
)
   Foreign currency adjustments
 
164

September 30, 2017 balance
 
$
1,429

5.
Acquisitions
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, net of cash acquired of $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 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. Further details regarding our acquisition financing arrangements are discussed in Note 8.

7

The following table summarizes the preliminary fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:
ASSETS
 
 
Restricted Cash
 
$
538

Receivables
 
40,067

Inventories
 
54,256

Other Current Assets
 
4,362

Assets Held for Sale
 
2,247

Property, Plant and Equipment
 
63,256

Intangible Assets Subject to Amortization:
 
 
Trade Name
 
26,753

Customer Lists
 
123,061

Technology
 
9,631

Other Assets
 
4,168

Total Identifiable Assets Acquired
 
328,339

LIABILITIES
 
 
Accounts Payable
 
31,529

Accrued Expenses
 
15,756

Deferred Income Taxes
 
61,694

Other Liabilities
 
6,967

Total Identifiable Liabilities Assumed
 
115,946

Net Identifiable Assets Acquired
 
212,393

Noncontrolling Interest
 
(2,266
)
Goodwill
 
143,642

Total Estimated 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 ended September 30, 2017, we included net sales of $115,184 and 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 selling 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.

8

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 return on the group of assets than would be expected on the separate assets as determined during the valuation process. Based on preliminary fair value measurement of the assets acquired and liabilities assumed, we allocated $143,642 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 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.
The preliminary 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.
The following unaudited pro forma financial information presents the combined results of operations of Tennant Company as if the acquisition of 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 the future results of operations of the combined company.
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.

9

The unaudited pro forma financial information above gives effect to the following:
•
Incremental 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.
•
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.
•
Incremental interest expense related to additional debt used to finance the acquisition.
•
Exclusion of non-recurring acquisition-related transaction and financing costs.
•
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 important 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


10

6.
Inventories
Inventories are valued at the lower of cost or market. Inventories at September 30, 2017 and December 31, 2016 consisted of the following:
 
September 30,
2017
 
December 31,
2016
Inventories carried at LIFO:
 
 
 
Finished goods
$
47,734

 
$
39,142

Raw materials, production parts and work-in-process
24,275

 
23,980

LIFO reserve
(28,190
)
 
(28,190
)
Total LIFO inventories
43,819

 
34,932

Inventories carried at FIFO:
 

 
 

Finished goods
56,477

 
31,044

Raw materials, production parts and work-in-process
41,223

 
12,646

Total FIFO inventories
97,700

 
43,690

Total inventories
$
141,519

 
$
78,622

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 for the nine months ended September 30, 2017 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

The balances of acquired intangible assets, excluding goodwill, as of September 30, 2017 and December 31, 2016, were as follows:
 
Customer Lists
 
Trade Names
 
Technology
 
Total
Balance as of September 30, 2017
 
 
 
 
 
 
 
Original cost
$
147,582

 
$
31,515

 
$
14,425

 
$
193,522

Accumulated amortization
(13,492
)
 
(1,631
)
 
(2,647
)
 
(17,770
)
Carrying value
$
134,090

 
$
29,884

 
$
11,778

 
$
175,752

Weighted average original life (in years)
15

 
10

 
11

 
 

 
 
 
 
 
 
 
 
Balance as of December 31, 2016
 

 
 
 
 

 
 

Original cost
$
8,016

 
$
2,000

 
$
5,136

 
$
15,152

Accumulated amortization
(5,948
)
 
—

 
(2,744
)
 
(8,692
)
Carrying value
$
2,068

 
$
2,000

 
$
2,392

 
$
6,460

Weighted average original life (in years)
15

 
15

 
13

 
 

The additions to goodwill during the first nine months of 2017 were based on the preliminary purchase price allocation of our acquisition of the IPC Group, as described further in Note 5.
As part 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.

11

As part of the formation of the i-team North America B.V. joint venture, we purchased the distribution rights to sell the i-mop in North America for $2,500. The distribution rights were recorded in intangible assets, net as a customer list on the Condensed Consolidated Balance Sheets as of September 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.
Amortization expense on intangible assets for the three and nine months ended September 30, 2017 was $7,650 and $11,430, respectively. Amortization expense on intangible assets for the three and nine months ended September 30, 2016 was $99 and $323, respectively.
Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets for each of the five succeeding years and thereafter is as follows:
Remaining 2017
$
5,635

2018
22,042

2019
21,398

2020
19,928

2021
18,315

Thereafter
88,434

Total
$
175,752

8.
Debt
JPMorgan Credit Facility
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 $400,000 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 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.

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.


12

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% 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 are 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 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 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.

13

Debt outstanding at September 30, 2017 is summarized as follows:
 
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

(1) 
Current maturities of long-term debt include $5,000 of current maturities, less $113 of unamortized debt issuance costs, under our 2017 Credit Agreement and $394 of current maturities of capital lease obligations.
As of September 30, 2017, we had outstanding borrowings under our 2017 Credit Agreement, totaling $75,000 under our term loan facility and $20,000 under our revolving facility. There were $300,000 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 $4,721. Commitment fees on unused lines of credit for the nine months ended September 30, 2017 were $353. 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.
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.

14

The changes in warranty reserves for the nine months ended September 30, 2017 and 2016 were as follows:
 
Nine Months Ended
 
September 30
 
2017
 
2016
Beginning balance
$
10,960

 
$
10,093

Additions charged to expense
8,879

 
8,888

Acquired warranty obligations
384

 
—

Foreign currency fluctuations
225

 
85

Claims paid
(8,912
)
 
(8,707
)
Ending balance
$
11,536

 
$
10,359

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 30, 2017 and December 31, 2016, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $67,672 and $42,866, 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, 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 and $2,127 as of September 30, 2017 and December 31, 2016, respectively. The notional amounts of outstanding foreign currency option contracts designated as cash flow hedges were $8,870 and $8,522 as of September 30, 2017 and December 31, 2016, 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 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 European subsidiary. We entered 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 cross currency swaps as cash flow hedges. The hedged cash flows as of September 30, 2017 included €183,000 of total notional value. As of September 30, 2017, the aggregate scheduled interest payments over the course of the loan and related swaps amounted to €33,000. 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.

15

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

 
$
—

Foreign currency forward contracts(1)
 
8,346

 
31,921

 
—

 
13

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Foreign currency option contracts
 
—

 
—

 
—

 
—

Foreign currency forward contracts(1)
 
$
539

 
$
2,010

 
$
12

 
$
162

(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, on 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 30, 2017, we anticipate reclassifying approximately $2,004 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 months ended September 30, 2017 was as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30, 2017
 
September 30, 2017
 
 
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 (loss) gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Sales
 
(141
)
 
26

 
(140
)
 
(76
)
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Interest Income
 
—

 
374

 
—

 
823

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

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Net loss recognized in earnings(3)
 
$
—

 
$
(2,062
)
 
$
(1,132
)
 
$
(7,369
)

16

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 Operations for the three and nine months ended September 30, 2016 was as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30, 2016
 
September 30, 2016
 
 
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) gain recognized in earnings(2)
 
(11
)
 
1

 
(17
)
 
1

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Net loss recognized in earnings(3)
 
$
—

 
$
(330
)
 
$
—

 
$
(2,392
)
(1) 
Net change in the fair value of the effective portion classified in Other Comprehensive Income.
(2) 
Ineffective portion and amount excluded from effectiveness testing classified in Net Foreign Currency Transaction (Losses) Gains.
(3) 
Classified in Net Foreign Currency Transaction (Losses) Gains.
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 30, 2017 is as follows:
 
Fair
Value
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Foreign currency forward exchange contracts
$
8,885

 
$
—

 
$
8,885

 
$
—

Foreign currency option contracts
67

 
—

 
67

 
—

Total Assets
$
8,952

 
$
—

 
$
8,952

 
$
—

Liabilities:
 

 
 

 
 

 
 

Foreign currency forward exchange contracts
$
33,931

 
$
—

 
$
33,931

 
$
—

Foreign currency option contracts
$
—

 
—

 
—

 
—

Total Liabilities
$
33,931

 
$
—

 
$
33,931

 
$
—

Our foreign currency forward 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.

17

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 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 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. We have contributed $145 and $198 during the third quarter of 2017 and $410 and $493 during the first nine months of 2017 to our pension plans and postretirement medical plan, respectively.
The components of the net periodic (benefit) cost for the three and nine months ended September 30, 2017 and 2016 were as follows:
 
 
Three Months Ended
 
 
September 30
 
 
Pension Benefits
 
Postretirement
 
 
U.S. Plans
 
Non-U.S. Plans
 
Medical Benefits
 
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost
 
$
—

 
$
88

 
$
124

 
$
32

 
$
6

 
$
25

Interest cost
 
373

 
414

 
96

 
96

 
91

 
99

Expected return on plan assets
 
(581
)
 
(599
)
 
(101
)
 
(89
)
 
—

 
—

Amortization of net actuarial loss
 
12

 
13

 
—

 
—

 
—

 
—

Amortization of prior service cost
 
—

 
10

 
50

 
29

 
—

 
—

Foreign currency
 
—

 
—

 
135

 
(57
)
 
—

 
—

Net periodic (benefit) cost
 
$
(196
)
 
$
(74
)
 
$
304

 
$
11

 
$
97

 
$
124


18

 
 
Nine Months Ended
 
 
September 30
 
 
Pension Benefits
 
Postretirement
 
 
U.S. Plans
 
Non-U.S. Plans
 
Medical Benefits
 
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost
 
$
—

 
$
265

 
$
172

 
$
104

 
$
46

 
$
73

Interest cost
 
1,153

 
1,244

 
315

 
304

 
272

 
298

Expected return on plan assets
 
(1,752
)
 
(1,799
)
 
(298
)
 
(283
)
 
—

 
—

Amortization of net actuarial loss
 
33

 
30

 
—

 
—

 
—

 
—

Amortization of prior service cost
 
—

 
31

 
146

 
93

 
—

 
—

Settlement charge
 
205

 
—

 
—

 
—

 
—

 
—

Foreign currency
 
—

 
—

 
364

 
(33
)
 
—

 
—

Net periodic (benefit) cost
 
$
(361
)
 
$
(229
)
 
$
699

 
$
185

 
$
318

 
$
371

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 30, 2017, of those leases that contain residual value guarantees, the aggregate residual value at lease expiration was $14,630, of which we have guaranteed $11,820. As of September 30, 2017, we have recorded a liability for the estimated end of term loss related to this residual value guarantee of $458 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
Foreign currency translation adjustments
$
(19,371
)
 
$
(44,444
)
Pension and retiree medical benefits
(5,010
)
 
(5,391
)
Cash flow hedge
(4,045
)
 
(88
)
Total Accumulated Other Comprehensive Loss
$
(28,426
)
 
$
(49,923
)

19

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
)
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.
We recognize potential accrued interest and penalties related to unrecognized tax benefits in Income Tax Expense. In addition to the liability of $2,475 for unrecognized tax benefits as of September 30, 2017, there was approximately $426 for accrued interest and penalties. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of September 30, 2017 was $2,130. 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.
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.
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. During the three months ended September 30, 2017 and 2016, we recognized total Share-Based Compensation Expense of $1,293 and $1,321, respectively. During the nine months ended September 30, 2017 and 2016, we recognized total Share-Based Compensation Expense of $4,915 and $5,747, respectively. The total excess tax benefit recognized for share-based compensation arrangements during the nine months ended September 30, 2017 and 2016 was $1,149 and $447, respectively.
During the first nine months of 2017, we granted 19,971 restricted shares. The weighted average grant date fair value of each share awarded was $73.16. 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 months ended September 30, 2017 and 2016 was $1,295 and $1,835, respectively.

20

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
 
September 30
 
September 30
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Net Earnings (Loss) Attributable to Tennant Company
$
3,559

 
$
11,477

 
$
(2,989
)
 
$
31,244

Denominator:
 
 
 
 
 
 
 
Basic - Weighted Average Shares Outstanding
17,729,857

 
17,498,808

 
17,673,656

 
17,516,941

Effect of Dilutive Securities:
 
 
 
 
 
 
 
Share-Based Compensation Plans
441,587

 
474,398

 
—

 
438,558

Diluted - Weighted Average Shares Outstanding
18,171,444

 
17,973,206

 
17,673,656

 
17,955,499

Basic Earnings (Loss) per Share
$
0.20

 
$
0.66

 
$
(0.17
)
 
$
1.78

Diluted Earnings (Loss) per Share
$
0.20

 
$
0.64

 
$
(0.17
)
 
$
1.74

 
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 and 313,711 shares of common stock during the three months ended September 30, 2017 and 2016, 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 and 382,075 shares of common stock during the nine months ended September 30, 2017 and 2016, 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, Latin 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 geographic area for the three and nine months ended September 30, 2017 and 2016 were as follows: 
 
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
During the first quarter of 2008, we acquired Sociedade Alfa Ltda. and entered into lease agreements for certain properties owned by or partially owned by the former owners of this entity. Some of these individuals are current employees of Tennant. Lease payments made under these lease agreements are not material to our financial position or results of operations.

21

20.
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 Operations and the Condensed Consolidated Statements of Comprehensive Income for each of the three and nine months ended September 30, 2017 and September 30, 2016, the related Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, and the related Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and September 30, 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.

22

Condensed Consolidated Statement of Operations
For the nine months ended September 30, 2017
(in thousands)
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Tennant Company
Net Sales
$
337,034

 
$
442,090

 
$
331,491

 
$
(386,844
)
 
$
723,771

Cost of Sales
230,753

 
363,034

 
228,838

 
(387,748
)
 
434,877

Gross Profit
106,281

 
79,056

 
102,653

 
904

 
288,894

 
 

 
 

 
 

 
 
 
 
Operating Expense:
 
 
 
 
 
 
 
 
 
Research and Development Expense
20,838

 
245

 
3,156

 
—

 
24,239

Selling and Administrative Expense
85,608

 
58,881

 
102,578

 
—

 
247,067

Total Operating Expense
106,446

 
59,126

 
105,734

 
—

 
271,306

(Loss) Profit from Operations
(165
)
 
19,930

 
(3,081
)
 
904

 
17,588

 
 

 
 

 
 

 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
 
Equity in Earnings of Affiliates
7,493

 
1,500

 
—

 
(8,993
)
 
—

Interest Expense, Net
(16,866
)
 
—

 
(257
)
 
(22
)
 
(17,145
)
Intercompany Interest Income (Expense)
8,742

 
(4,323
)
 
(4,419
)
 
—

 
—

Net Foreign Currency Transaction Gains (Losses)
553

 
—

 
(2,928
)
 
—

 
(2,375
)
Other (Expense) Income, Net
(2,389
)
 
(430
)
 
2,177

 
(58
)
 
(700
)
Total Other Expense, Net
(2,467
)
 
(3,253
)
 
(5,427
)
 
(9,073
)
 
(20,220
)
 
 
 
 
 
 
 
 
 
 
(Loss) Profit Before Income Taxes
(2,632
)
 
16,677

 
(8,508
)
 
(8,169
)
 
(2,632
)
Income Tax Expense
385

 
5,993

 
5,481

 
(11,474
)
 
385

Net Earnings (Loss) Including Noncontrolling Interest
(3,017
)
 
10,684

 
(13,989
)
 
3,305

 
(3,017
)
Net Loss Attributable to Noncontrolling Interest
(28
)
 
—

 
(28
)
 
28

 
(28
)
Net (Loss) Earnings Attributable to Tennant Company
$
(2,989
)
 
$
10,684

 
$
(13,961
)
 
$
3,277

 
$
(2,989
)

23

Condensed Consolidated Statement of Operations
For the three months ended September 30, 2017
(in thousands)
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Tennant Company
Net Sales
$
111,835

 
$
146,495

 
$
131,457

 
$
(127,866
)
 
$
261,921

Cost of Sales
76,974

 
120,523

 
88,411

 
(128,591
)
 
157,317

Gross Profit
34,861

 
25,972

 
43,046

 
725

 
104,604

 
 

 
 

 
 

 
 
 
 
Operating Expense:
 
 
 
 
 
 
 
 
 
Research and Development Expense
6,312

 
86

 
1,509

 
—

 
7,907

Selling and Administrative Expense
23,393

 
19,074

 
43,184

 
—

 
85,651

Total Operating Expense
29,705

 
19,160

 
44,693

 
—

 
93,558

Profit (Loss) from Operations
5,156

 
6,812

 
(1,647
)
 
725

 
11,046

 
 

 
 

 
 

 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
 
Equity in Earnings of Affiliates
2,039

 
376

 
—

 
(2,415
)
 
—

Interest Expense, Net
(5,275
)
 
—

 
(111
)
 
(9
)
 
(5,395
)
Intercompany Interest Income (Expense)
3,774

 
(1,455
)
 
(2,319
)
 
—

 
—

Net Foreign Currency Transaction Gains (Losses)
357

 
2

 
(1,201
)
 
—

 
(842
)
Other (Expense) Income, Net
(1,724
)
 
(204
)
 
1,469

 
(23
)
 
(482
)
Total Other Expense, Net
(829
)
 
(1,281
)
 
(2,162
)
 
(2,447
)
 
(6,719
)
 
 
 
 
 
 
 
 
 
 
Profit (Loss) Before Income Taxes
4,327

 
5,531

 
(3,809
)
 
(1,722
)
 
4,327

Income Tax Expense
731

 
2,034

 
2,819

 
(4,853
)
 
731

Net Earnings (Loss) Including Noncontrolling Interest
3,596

 
3,497

 
(6,628
)
 
3,131

 
3,596

Net Earnings Attributable to Noncontrolling Interest
37

 
—

 
37

 
(37
)
 
37

Net Earnings (Loss) Attributable to Tennant Company
$
3,559

 
$
3,497

 
$
(6,665
)
 
$
3,168

 
$
3,559


24

Condensed Consolidated Statement of Operations
For the nine months ended September 30, 2016
(in thousands)
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Tennant Company
Net Sales
$
340,344

 
$
436,046

 
$
212,143

 
$
(391,707
)
 
$
596,826

Cost of Sales
225,253

 
356,862

 
148,362

 
(391,737
)
 
338,740

Gross Profit
115,091

 
79,184

 
63,781

 
30

 
258,086

 
 

 
 

 
 

 
 
 
 
Operating Expense:
 
 
 
 
 
 
 
 
 
Research and Development Expense
22,907

 
334

 
1,471

 
—

 
24,712

Selling and Administrative Expense
72,925

 
56,475

 
57,915

 
—

 
187,315

(Gain) Loss on Sale of Business
(220
)
 
—

 
369

 
—

 
149

Total Operating Expense
95,612

 
56,809

 
59,755

 
—

 
212,176

Profit from Operations
19,479

 
22,375

 
4,026

 
30

 
45,910

 
 

 
 

 
 

 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
 
Equity in Earnings of Affiliates
21,360

 
1,461

 
—

 
(22,821
)
 
—

Interest (Expense) Income, Net
(880
)
 
—

 
149

 
—

 
(731
)
Intercompany Interest Income (Expense)
5,355

 
(4,039
)
 
(1,316
)
 
—

 
—

Net Foreign Currency Transaction Gains (Losses)
1,003

 
(667
)
 
(161
)
 
—

 
175

Other (Expense) Income, Net
(1,323
)
 
(450
)
 
1,413

 
—

 
(360
)
Total Other Income (Expense), Net
25,515

 
(3,695
)
 
85

 
(22,821
)
 
(916
)
 
 
 
 
 
 
 
 
 
 
Profit Before Income Taxes
44,994

 
18,680

 
4,111

 
(22,791
)
 
44,994

Income Tax Expense
13,750

 
6,883

 
1,408

 
(8,291
)
 
13,750

Net Earnings
$
31,244

 
$
11,797

 
$
2,703

 
$
(14,500
)
 
$
31,244


25

Condensed Consolidated Statement of Operations
For the three months ended September 30, 2016
(in thousands)
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Tennant Company
Net Sales
$
115,130

 
$
147,035

 
$
69,531

 
$
(131,562
)
 
$
200,134

Cost of Sales
77,478

 
120,603

 
48,327

 
(131,569
)
 
114,839

Gross Profit
37,652

 
26,432

 
21,204

 
7

 
85,295

 
 

 
 

 
 

 
 
 
 
Operating Expense:
 
 
 
 
 
 
 
 
 
Research and Development Expense
7,832

 
69

 
517

 
—

 
8,418

Selling and Administrative Expense
22,680

 
18,623

 
19,320

 
—

 
60,623

Total Operating Expense
30,512

 
18,692

 
19,837

 
—

 
69,041

Profit from Operations
7,140

 
7,740

 
1,367

 
7

 
16,254

 
 

 
 

 
 

 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
 
Equity in Earnings of Affiliates
7,335

 
144

 
—

 
(7,479
)
 
—

Interest (Expense) Income, Net
(313
)
 
—

 
91

 
—

 
(222
)
Intercompany Interest Income (Expense)
1,787

 
(1,361
)
 
(426
)
 
—

 
—

Net Foreign Currency Transaction Gains (Losses)
246

 
(50
)
 
(345
)
 
—

 
(149
)
Other (Expense) Income, Net
(322
)
 
(146
)
 
458

 
—

 
(10
)
Total Other Income (Expense), Net
8,733

 
(1,413
)
 
(222
)
 
(7,479
)
 
(381
)
 
 
 
 
 
 
 
 
 
 
Profit Before Income Taxes
15,873

 
6,327

 
1,145

 
(7,472
)
 
15,873

Income Tax Expense
4,396

 
2,321

 
261

 
(2,582
)
 
4,396

Net Earnings
$
11,477

 
$
4,006

 
$
884

 
$
(4,890
)
 
$
11,477

Condensed Consolidated Statement of Comprehensive Income
For the nine months ended September 30, 2017
(in thousands)
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Tennant Company
Net Earnings (Loss) Including Noncontrolling Interest
$
(3,017
)
 
$
10,684

 
$
(13,989
)
 
$
3,305

 
$
(3,017
)
Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
25,073

 
693

 
1,330

 
(2,023
)
 
25,073

Pension and retiree medical benefits
541

 
—

 
151

 
(151
)
 
541

Cash flow hedge
(6,311
)
 
—

 
—

 
—

 
(6,311
)
Income Taxes:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
—

 
—

 
—

Pension and retiree medical benefits
(160
)
 
—

 
(15
)
 
15

 
(160
)
Cash flow hedge
2,354

 
—

 
—

 
—

 
2,354

Total Other Comprehensive Income, net of tax
21,497

 
693

 
1,466

 
(2,159
)
 
21,497

 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income (Loss) Including Noncontrolling Interest
18,480

 
11,377

 
(12,523
)
 
1,146

 
18,480

Comprehensive Loss Attributable to Noncontrolling Interest
(28
)
 
—

 
(28
)
 
28

 
(28
)
Comprehensive Income (Loss) Attributable to Tennant Company
$
18,508

 
$
11,377

 
$
(12,495
)
 
$
1,118

 
$
18,508



26

Condensed Consolidated Statement of Comprehensive Income
For the three months ended September 30, 2017
(in thousands)
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Tennant Company
Net Earnings (Loss) Including Noncontrolling Interest
$
3,596

 
$
3,497

 
$
(6,628
)
 
$
3,131

 
$
3,596

Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
9,033

 
289

 
9,221

 
(9,510
)
 
9,033

Pension and retiree medical benefits
379

 
—

 
10

 
(10
)
 
379

Cash flow hedge
(1,732
)
 
—

 
—

 
—

 
(1,732
)
Income Taxes:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
—

 
—

 
—

Pension and retiree medical benefits
(138
)
 
—

 
—

 
—

 
(138
)
Cash flow hedge
646

 
—

 
—

 
—

 
646

Total Other Comprehensive Income, net of tax
8,188

 
289

 
9,231

 
(9,520
)
 
8,188

 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income Including Noncontrolling Interest
11,784

 
3,786

 
2,603

 
(6,389
)
 
11,784

Comprehensive Income Attributable to Noncontrolling Interest
37

 
—

 
37

 
(37
)
 
37

Comprehensive Income Attributable to Tennant Company
$
11,747

 
$
3,786

 
$
2,566

 
$
(6,352
)
 
$
11,747

Condensed Consolidated Statement of Comprehensive Income
For the nine months ended September 30, 2016
(in thousands)
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Tennant Company
Net Earnings (Loss)
$
31,244

 
$
11,797

 
$
2,703

 
$
(14,500
)
 
$
31,244

Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
4,380

 
650

 
7,496

 
(8,146
)
 
4,380

Pension and retiree medical benefits
61

 
—

 
—

 
—

 
61

Cash flow hedge
(394
)
 
—

 
—

 
—

 
(394
)
Income Taxes:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
15

 
—

 
15

 
(15
)
 
15

Pension and retiree medical benefits
(23
)
 
—

 
—

 
—

 
(23
)
Cash flow hedge
147

 
—

 
—

 
—

 
147

Total Other Comprehensive (Loss) Income, net of tax
4,186

 
650

 
7,511

 
(8,161
)
 
4,186

Comprehensive Income (Loss)
$
35,430

 
$
12,447

 
$
10,214

 
$
(22,661
)
 
$
35,430


27

Condensed Consolidated Statement of Comprehensive Income
For the three months ended September 30, 2016
(in thousands)
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Tennant Company
Net Earnings (Loss)
$
11,477

 
$
4,006

 
$
884

 
$
(4,890
)
 
$
11,477

Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
381

 
43

 
764

 
(807
)
 
381

Pension and retiree medical benefits
23

 
—

 
—

 
—

 
23

Cash flow hedge
35

 
—

 
—

 
—

 
35

Income Taxes:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
10

 
—

 
10

 
(10
)
 
10

Pension and retiree medical benefits
(9
)
 
—

 
—

 
—

 
(9
)
Cash flow hedge
(13
)
 
—

 
—

 
—

 
(13
)
Total Other Comprehensive (Loss) Income, net of tax
427

 
43

 
774

 
(817
)
 
427

Comprehensive Income (Loss)
$
11,904

 
$
4,049

 
$
1,658

 
$
(5,707
)
 
$
11,904


28

Condensed Consolidated Balance Sheet
As of September 30, 2017
(in thousands)
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Tennant Company
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
10,171

 
$
1,024

 
$
44,752

 
$
—

 
$
55,947

Restricted Cash
—

 
—

 
1,292

 
—

 
1,292

Net Receivables
194

 
79,978

 
113,553

 
—

 
193,725

Intercompany Receivables
71,221

 
129,405

 
4,013

 
(204,639
)
 
—

Inventories
32,929

 
15,219

 
103,829

 
(10,458
)
 
141,519

Prepaid Expenses
17,884

 
813

 
7,584

 
—

 
26,281

Other Current Assets
4,367

 
—

 
542

 
—

 
4,909

Total Current Assets
136,766

 
226,439

 
275,565

 
(215,097
)
 
423,673

Property, Plant and Equipment
233,464

 
13,013

 
142,914

 
—

 
389,391

Accumulated Depreciation
(153,364
)
 
(6,891
)
 
(47,627
)
 
—

 
(207,882
)
Property, Plant and Equipment, Net
80,100

 
6,122

 
95,287

 
—

 
181,509

Deferred Income Taxes
3,356

 
3,974

 
12,527

 
—

 
19,857

Investment in Affiliates
374,353

 
10,978

 
—

 
(385,331
)
 
—

Intercompany Loans
307,090

 
—

 
—

 
(307,090
)
 
—

Goodwill
12,869

 
1,739

 
164,440

 
—

 
179,048

Intangible Assets, Net
2,237

 
2,951

 
170,564

 
—

 
175,752

Other Assets
13,255

 
—

 
9,704

 
—

 
22,959

Total Assets
$
930,026

 
$
252,203

 
$
728,087

 
$
(907,518
)
 
$
1,002,798

LIABILITIES AND TOTAL EQUITY
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Current Portion of Long-Term Debt
$
4,887

 
$
—

 
$
394

 
$
—

 
$
5,281

Accounts Payable
36,777

 
2,557

 
49,284

 
—

 
88,618

Intercompany Payables
134,053

 
130

 
70,456

 
(204,639
)
 
—

Employee Compensation and Benefits
8,538

 
9,457

 
17,090

 
—

 
35,085

Income Taxes Payable
426

 
—

 
10,173

 
—

 
10,599

Other Current Liabilities
25,517

 
14,022

 
23,788

 
—

 
63,327

Total Current Liabilities
210,198

 
26,166

 
171,185

 
(204,639
)
 
202,910

Long-Term Liabilities:
 
 
 
 
 
 
 
 
 
Long-Term Debt
382,975

 
—

 
277

 
—

 
383,252

Intercompany Loans
—

 
128,000

 
179,090

 
(307,090
)
 
—

Employee-Related Benefits
12,329

 
3,775

 
9,143

 
—

 
25,247

Deferred Income Taxes
—

 
—

 
62,167

 
—

 
62,167

Other Liabilities
27,988

 
1,843

 
2,855

 
—

 
32,686

Total Long-Term Liabilities
423,292

 
133,618

 
253,532

 
(307,090
)
 
503,352

Total Liabilities
633,490

 
159,784

 
424,717

 
(511,729
)
 
706,262

Equity:
 
 
 
 
 
 
 
 
 
Preferred Stock
—

 
—

 
—

 
—

 
—

Common Stock
6,690

 
—

 
11,131

 
(11,131
)
 
6,690

Additional Paid-In Capital
12,062

 
72,483

 
352,262

 
(424,745
)
 
12,062

Retained Earnings
303,987

 
20,458

 
(46,147
)
 
25,689

 
303,987

Accumulated Other Comprehensive Loss
(28,426
)
 
(522
)
 
(16,099
)
 
16,621

 
(28,426
)
Total Tennant Company Shareholders' Equity
294,313

 
92,419

 
301,147

 
(393,566
)
 
294,313

Noncontrolling Interest
2,223

 
—

 
2,223

 
(2,223
)
 
2,223

Total Equity
296,536

 
92,419

 
303,370

 
(395,789
)
 
296,536

Total Liabilities and Total Equity
$
930,026

 
$
252,203

 
$
728,087

 
$
(907,518
)
 
$
1,002,798


29

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:
 
 
 
 
 
 
 
 
 
Preferred Stock
—

 
—

 
—

 
—

 
—

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



30

Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30, 2017
(in thousands)
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Tennant Company
OPERATING ACTIVITIES
 
 
 
 
 
 
 
 
 
Net Cash (Used in) Provided by Operating Activities
$
(555
)
 
$
798

 
$
31,880

 
$
—

 
$
32,123

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Purchases of Property, Plant and Equipment
(7,400
)
 
—

 
(8,839
)
 
—

 
(16,239
)
Proceeds from Disposals of Property, Plant and Equipment
17

 
—

 
2,439

 
—

 
2,456

Proceeds from Principal Payments Received on Long-Term Note Receivable
—

 
—

 
500

 
—

 
500

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
(193,639
)
 
—

 
—

 
193,639

 
—

Loan (Payments) Borrowings from Subsidiaries
(159,780
)
 
—

 
—

 
159,780

 
—

Increase in Restricted Cash
—

 
—

 
(133
)
 
—

 
(133
)
Net Cash (Used in) Provided by Investing Activities
(363,606
)
 
—

 
(361,302
)
 
353,419

 
(371,489
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Proceeds from Short-Term Debt
300,000

 
—

 
—

 
—

 
300,000

Repayments of Short-Term Debt
(300,000
)
 
—

 
—

 
—

 
(300,000
)
Loan Borrowings (Payments) from Parent
—

 
—

 
159,780

 
(159,780
)
 
—

Change in Subsidiary Equity
—

 
—

 
193,639

 
(193,639
)
 
—

Proceeds from Issuance of Long-Term Debt
440,000

 
—

 
—

 
—

 
440,000

Payments of Long-Term Debt
(81,143
)
 
—

 
(119
)
 
—

 
(81,262
)
Payments of Debt Issuance Costs
(16,465
)
 
—

 
—

 
—

 
(16,465
)
Proceeds from Issuances of Common Stock
4,728

 
—

 
—

 
—

 
4,728

Dividends Paid
(11,204
)
 
—

 
—

 
—

 
(11,204
)
Net Cash Provided by Financing Activities
335,916

 
—

 
353,300

 
(353,419
)
 
335,797

Effect of Exchange Rate Changes on Cash and Cash Equivalents
(68
)
 
—

 
1,551

 
—

 
1,483

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(28,313
)
 
798

 
25,429

 
—

 
(2,086
)
Cash and Cash Equivalents at Beginning of Year
38,484

 
226

 
19,323

 
—

 
58,033

CASH AND CASH EQUIVALENTS AT END OF YEAR
$
10,171

 
$
1,024

 
$
44,752

 
$
—

 
$
55,947



31

Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30, 2016
(in thousands)
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Total Tennant Company
OPERATING ACTIVITIES
 
 
 
 
 
 
 
 
 
Net Cash Provided by Operating Activities
$
22,414

 
$
473

 
$
10,395

 
$
—

 
$
33,282

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Purchases of Property, Plant and Equipment
(18,652
)
 
(13
)
 
(3,834
)
 
—

 
(22,499
)
Proceeds from Disposals of Property, Plant and Equipment
316

 
—

 
243

 
—

 
559

Acquisition of Businesses, Net of Cash Acquired
—

 
(10,964
)
 
(1,394
)
 
—

 
(12,358
)
Proceeds from Sale of Business
—

 
—

 
285

 
—

 
285

Change in Investments in Subsidiaries
(3,000
)
 
—

 
—

 
3,000

 
—

Loan (Payments) Borrowings from Subsidiaries
(7,964
)
 
—

 
—

 
7,964

 
—

Decrease in Restricted Cash
—

 
—

 
116

 
—

 
116

Net Cash Used in Investing Activities
(29,300
)
 
(10,977
)
 
(4,584
)
 
10,964

 
(33,897
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Loan Borrowings (Payments) from Parent
—

 
7,964

 
—

 
(7,964
)
 
—

Change in Subsidiary Equity
—

 
3,000

 
—

 
(3,000
)
 
—

Proceeds from Issuance of Long-Term Debt
15,000

 
—

 
—

 
—

 
15,000

Payments of Long-Term Debt
(3,429
)
 
—

 
(23
)
 
—

 
(3,452
)
Purchases of Common Stock
(12,762
)
 
—

 
—

 
—

 
(12,762
)
Proceeds from Issuances of Common Stock
2,893

 
—

 
—

 
—

 
2,893

Excess Tax Benefit on Stock Plans
447

 
—

 
—

 
—

 
447

Dividends Paid
(10,583
)
 
—

 
—

 
—

 
(10,583
)
Net Cash (Used in) Provided by Financing Activities
(8,434
)
 
10,964

 
(23
)
 
(10,964
)
 
(8,457
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(298
)
 
—

 
353

 
—

 
55

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(15,618
)
 
460

 
6,141

 
—

 
(9,017
)
Cash and Cash Equivalents at Beginning of Year
35,834

 
—

 
15,466

 
—

 
51,300

CASH AND CASH EQUIVALENTS AT END OF YEAR
$
20,216

 
$
460

 
$
21,607

 
$
—

 
$
42,283


32