Good morning and thank you for participating in today's Tennant Company second quarter earnings conference call. This call is being recorded. If you do not wish to participate, you may disconnect at this time. (Operator instructions) Beginning today's meeting is Tom Paulson, Vice President and Chief Financial Officer for Tennant Company. Mr. Paulson, you may begin your conference.

Thanks, Sakiya. Good morning, everyone, and welcome to Tennant Company's second quarter 2008 earnings conference call. I'm Tom Paulson, Vice President and Chief Financial Officer of Tennant Company. With me on the call today are Chris Killingstad, the Tennant's President and CEO, Pat O'Neill, our Treasurer, and Karen Durant, our Corporate Controller. Our agenda this morning is to review Tennant's performance during the quarter and first six months and discuss our revised outlook for the remainder of 2008. First, I'll review the financials, then Chris will update you on our operations. After that, we will open up the call for your questions. Before we begin, please be advised that our remarks this morning and our answers to questions may contain forward-looking statements regarding the Company's expectations of future performance. Such statements are subject to risks and uncertainties and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today's news release in the documents we file with the Securities and Exchange Commission. We encourage you to review these documents, particularly our Safe Harbor statement, for a description of the risks and uncertainties that may affect our results. Our earnings release was issued this morning via Business Wire and is also posted on the investors section of our website at tennantco.com. Before I review the financials, let me start by stating that we at Tennant are very disappointed with our second quarter earnings and the need to revise our full-year outlook for 2008. We stated in our first quarter conference call that our 2008 outlook was predicated on a modest US economic recovery in the second half of 2008. At this point, we are less confident that we will see any economic recovery in the US in the second half and we…

Thanks, Tom, and thank you all for joining us this morning. Let me begin by saying that the lower second quarter earnings and the lower 2008 guidance obviously is not the news we wanted to share with you today. We are disappointed with this short-term setback, but not in Tennant's strategic direction or long-term future. Know that we are intensely focused on addressing the factors within our control. Clearly the second quarter sales and profit margins did not meet our expectations, and the economic climate, especially in North America and in Europe, is very challenging. We originally forecasted a modest economic recovery in North America in the back half of this year, and planned that Europe would not be impacted by economic weakness. At present, the most significant risks to our performance this year are rising commodity costs and continued economic uncertainty, both in North America and the potential for the downturn in the US economy to adversely impact other regions. We continue to execute against our contingency plans. Our approach during this period of uncertainty is one of making selective and highly disciplined investments in the business that are balanced against our current rate of growth, and protect our overall profitability. There were, however, a number of bright spots in the second quarter. These included second quarter revenue growth despite a difficult macroeconomic environment; Tennant's ability to maintain gross margins through selling price increases and our lean and low-cost sourcing efforts in the face of inflationary commodity pressures and lower volume; on track execution of our integration plans for Applied and Alfa acquisitions; volume gains in emerging markets, and the successful introduction of several important new products. I'll touch on these highlights in more detail as I review results from our three business regions. I'll also discuss our cost…

Thanks, Chris. As we noted in the release, we're lowering our 2008 full-year outlook due to a combination of factors that impacted our second quarter results and our expectations for the last six months of the year. Tennant's current outlook assumes no second half economic recovery in North America, as well as slower growth in the European economy during the last six months of the year than in the first six months of 2008. As a result, we now expect full-year 2008 organic net sales growth to be at the low end of or slightly below our targeted range of 5% to 9%. Our revised 2008 expectations are based on achieving sales gains in the second half in North America and in EMEA similar to what we experienced in the first half. In our other international markets, we anticipate double-digit sales gains for all of 2008. As we’ve said, the company expects to realize savings of between $9 million and $12 million in 2008 from global low cost sourcing and lean manufacturing initiatives. We continue to target an operating profit margin of 9.5% in the fourth quarter 2008, also as noted earlier. This outlook assumes the Applied and Alfa acquisitions will be modestly dilutive for the year. The base tax rate for 2008 is still expected to be in the range of 36.5% to 38.5% and discrete tax items are anticipated to be insignificant for the full-year. Given these assumptions, we now anticipate 2008 full-year dilutive earnings per share to be in the range of $1.85 to $2.10 versus the 2007 reported earnings per share of $2.08. This does represent an increase of 3% and 17% compared to 2007 adjusted earnings per diluted share of $1.79. This includes the onetime tax benefit of $0.19 recorded in the third quarter of…

(Operator instructions) Your first question comes from Ted Kundtz. Ted Kundtz – Needham & Company: Hello, everyone.

Hi, Ted.

Hi, Ted. Ted Kundtz – Needham & Company: Could you guys talk a little bit about the – given this environment, a little weaker environment, could you talk about the competitive situations, and any kind of price pressure you're seeing from your competition, or from your customers as the case may be that are putting pressure on you to lower prices?

I think we're probably seeing a little more price pressure than we would normally do. I don't think that our competitors are acting any differently than they have historically. Most of us, we basically have list prices and offer our salespeople the opportunity to discount within a limited range. And they have probably taken that opportunity a little bit more then they normally do and we see that probably in the case of our competition as well. But the price gap between us – we're the price leaders, especially in North America. The price gap between us and the competition has not changed. Ted Kundtz – Needham & Company: Okay, and nor do you think the market shares have changed any – in any significant way?

I mean I can't tell you definitively. We know that our market share has changed because of the two acquisitions that we just made. Ted Kundtz – Needham & Company: Right, ex-that.

But organically, we don't have good enough information in real time to be able to measure that. I think we once a year can step back and figure out what progress we've made from a market share standpoint. But what I will tell you is that most of the deals that we're involved in are being postponed. We're not losing deals. We said this in the first quarter, and that's the same thing that we experienced in the second quarter. Ted Kundtz – Needham & Company: Okay.

As a matter of fact I think that with our ech2o technology, we're probably winning more than our fair share of deals, as we did with the one major retailer, which I can't name, but it's a significant one. And the fact that they mandated the exclusive use of ech2o to clean all of their stores is a huge win for us, something we can use to market ech2o with other national accounts, both in North America and around the world.

I'd add one thing, Ted. I mean we did pricing that we took in the first quarter was an important part of holding onto margins. That was even more successful in Q2. And really based on all the data we have, we just don’t – we believe our pricing can hold up for the rest of the year. So, we aren't seeing that we're losing deals due to price. Ted Kundtz – Needham & Company: Okay. Are there any more price increases scheduled for the balance of the year to reflect the inflationary environment?

We will continue to evaluate that. The one thing we're doing is in selected areas within Europe, we are in the process of implementing a price increase due to some of the pricing pressures we’ve have seen there, but – and we will evaluate pricing in other geographies as we continue to go forward. Ted Kundtz – Needham & Company: Okay. Chris, just going back to the ech2o outlook, do you expect to see – maybe you could talk a little bit more about the reception to that product line. You mentioned that one large retailer coming on with the– kind of exclusively with this technology. Are you seeing other people thinking that way, or do you think this would be kind of a slower take-up given the environment, what is kind of your outlook for that?

I’d say even though we're in a tough environment, it's meeting our expectations. We haven't divulged what the sales are yet for competitive reasons, but it is meeting our expectations. And we are in discussions with many national accounts around the world regarding ech2o. And our hope is and our anticipation is that we will win some of that business. I mean it is being received extremely favorably across the board. We have not gotten a negative reaction from any customer that we're talking to that's important to our business, important to our future. Ted Kundtz – Needham & Company: Okay. Now it is currently on six machines, is that correct?

It's currently on six machines, yes. Ted Kundtz – Needham & Company: And you plan to expand that?

We'll expand that to some of our ride-on equipment as we go into 2009, a strong [ph] walk-behind scrubbers now. Ted Kundtz – Needham & Company: Okay. And then just one final question and I'll get back in queue there. The gross margin outlook going forward, given the environment, do you expect to be able to see any increase in gross margin from the current levels?

I think that probably the safer way to characterize the back half of the year is we believe we will continue to see flat gross margin relative to the prior year. Ted Kundtz – Needham & Company: Okay.

And that's really all about – we believe we can hold onto pricing. The offset to that is we're going to – our forecast would say that we're going to see higher inflationary costs from commodities, and we believe that we can offset that through our cost savings initiatives and our pricing. But I think it would be overly aggressive for us to assume we can expand margins of any significance in the back half. I would say flat margins would be a better way to think. Ted Kundtz – Needham & Company: Which would be down from where you currently are? The gross margins in the second half of last year were 41.4 and 42.4, so you expect them to be down?

We would expect them to be – Ted Kundtz – Needham & Company: Be down from – I'm sorry, down from the current quarter.

Right. Down, but flat to modestly above prior year. I would say flat relative to prior year is a better way to think about it. Ted Kundtz – Needham & Company: Okay, thank you.

Your next question is Seaver Wang. Seaver Wang – Utendahl Capital Partners: I have a question on the product mix in different geographies, in terms of profitability. You had a pretty good – you had some favorable currency, the international volumes seem to be pretty good too. What's the difference between the profit margins there? And also I had a question on your Chinese plant. Is that profitable at this point?

Let me take the China piece first. We would say that if you just looked at China as an entity by itself, it’s still going to be modestly unprofitable. We don't think we're that far away from turning the corner to profits. So, in the grand scheme of things, it's not material. When you consider the level of sourcing savings that that factory is helping generate as a base, it's clearly profitable overall. But as an entity basis, it is slightly unprofitable. And I will comment partially on your other question, Seaver. I mean North America is a far more mature market than any of our other markets. It's got a significantly higher revenue base. We don't give out profitability numbers by geography, but it is somewhat more profitable than other areas, and clearly that's one of the things we're working against. As we have done acquisitions and expanded internationally, we want to create further leverage, and we're working toward enhancing the profitability in all of our geographies. But it is one of those things that has had somewhat of a negative impact on us this year as we haven't grown North America as highly as we have. We haven't generated some of the profits this year to fund some of our other markets. So, it is one of the things that is negatively affecting profitability right now. Seaver Wang – Utendahl Capital Partners: Can you – one last question, can you quantify the amount of discretionary expenses, kind of ballpark that you think you can kind of cut for the year?

Here's how I would think about it. I mean if you look at our operating expenses in the back half of the year, I would say that we should be able to be a percentage point to 1.5% lower than our operating expenses as a percent of revenue in the back half of the year. I think that's just for the back half of this year versus the back half of the prior year. I believe we can be about 1% to 1.5% lower. Seaver Wang – Utendahl Capital Partners: Okay. And R&D will stay at least above 3% –

Yes. The full-year R&D numbers will be – will certainly be within the 3% to 4% range. Seaver Wang – Utendahl Capital Partners: Right. Has– all these new product introductions, has that significantly increased the SG&A too?

It certainly did in the front part of the year. It was – one of the – the couple of things that we have not done is any of our longer-term strategic initiatives and all of our new product launches, we have not compromised any of our spending against those. And as you guys know, in the first quarter and in the second quarter, we didn't get the revenue growth we expected. Therefore, our expenses from – as we added people in marketing and sales and as we supported some launches, our spending was higher than we would like it to be with the revenue. We firmly believe we have corrected that in the back half of the year and it will be completely back in line with spending being at an appropriate level for the revenue expectation. Seaver Wang – Utendahl Capital Partners: Okay, thank you.

Your next question is from Rob Damron. Rob Damron – 21st Century Equities: Let’s see, I wanted to talk about the building service contractors here in the US. One assumption that has been discussed in the past was – as the building service contractors grow in importance or as a percentage of your sales, that would help mitigate any slowing in the overall economy. So I guess would you say that is playing out kind of as expected? Is it helping to mitigate the softness in the economy? And maybe you could give us a percent of the sales in North America now that goes through building service contractors.

We predicted that the next recession hit that the fact that building service contractors represent – it's our estimate, about 40% of all facilities cleaned in North America would help smooth out our sales. I think that has come to be true. We said in our statements that the one growing part of our business in North America is building service contractors. And where we're seeing the weakness is more direct sales of our bigger indoor and outdoor equipment. So I think that as building service contractors continue to grow, we said they represent 40% in North America, they represent about 70% in Europe, that's a good thing for us. And we're beginning to win more than our fair share of business against them and technologies like ech2o are spot on. Rob Damron – 21st Century Equities: Okay, that's helpful. And then –

So, we are not going to tell you what the split is internally within Tennant, but I did give you the split kind of externally within the market. Rob Damron – 21st Century Equities: Okay. And then just another unrelated question, just in terms of the acquisitions, the two acquisitions made recently this year. Maybe you would just give us how the integration of those acquisitions are going, and as they get more fully integrated into the business, would you anticipate better margins out of those businesses?

Yes, I'll comment on that, Rob. I mean, as we said in our prepared remarks, things are going very much according to plan from an integration standpoint. They're both very big and important deals to us. They actually each of them have a very senior level person, that's 100% of their job is to lead the overall integration of the businesses into the world of Tennant, and we also recognize what things we shouldn't change too but – and we are at the upfront stage. The biggest benefit we're seeing is we've fully deployed our sourcing team against sourcing where we can save money in both those acquisitions. That's going quite well, particularly on the Applied side. And we will see further integration as we go forward, and that will drive margin improvement from where we stand today.

And I think we are on track to start producing the Applied machines out of Scotland and our Minneapolis facility early in 2009 for the North America market. Rob Damron – 21st Century Equities: Okay, that helpful. That's all I have. Thanks.

Thanks.

Your next question is from Robert Schenosky. Robert Schenosky – Jefferies & Company: Good morning.

Good morning.

Good morning, Robert. Robert Schenosky – Jefferies & Company: I have a couple questions here. First, you mentioned the FX benefit to top line and gross margin. Do you know with the net benefit is, if there is any, to operating income?

We haven't commented on that historically. I would – it’s – call it – it would be better to say we haven't commented on it historically. It's a tricky number, and that's – Tennant historically had commented on that, and when you start to get into that, it's a hard number to get at and show. So we've chosen to walk away from that. Robert Schenosky – Jefferies & Company: But is it fair to say that it wasn't meaningful?

Yes, I wouldn't say it's not a big – it’s not a big benefit overall. Robert Schenosky – Jefferies & Company: Okay. And given the new range that you – the new range that have given for the full-year, what macro assumptions do you have in place in terms of the low-end of your range versus the high-end, and do you have any FX delta assumptions in there as well?

We have not assumed any significant change in FX, so that would be one piece overall. We're not even close to good enough to forecast what's going on in foreign currency. And it would be hard for me to comment on the other broader macroeconomic trends, given the significant number of moving parts with North America, Europe, other international markets, commodities. So, I think we would stick with what we've talked about is basically North America is kind of more of the same from a growth perspective in the back half. In Europe, we expect to grow slightly lower in continuation of the trends in our other international markets, but we really don't want to get any more specific than that at this time. Robert Schenosky – Jefferies & Company: Okay. And then related to that, can you give us any additional color or any numbers related to the increase of raw material costs in the second half? You talked about that as a concern, and is it a function of increasingly difficult to pass through in the second half versus the first half? Is it changes in supply contracts? Or is it a function of the acquisition of the two companies and reworking contracts there, if you can give us a little bit more detail?

Nothing related to the acquisitions. In fact, that's probably an opportunity for us in the back half. But the biggest thing we're seeing is, one is, there's just more pressure, and it's constant and – we’d certainly hope it would start to lessen but it hasn't. The one area that's favorable for us is lead, but in all other fronts the pressure remains really tough. We managed to really push out the increases in many instances from our suppliers, and so we haven't seen the full effect coming through in the front part of the year. And therefore, we're going to see more of that come through in the back half as some of our contracts do run out, and we see the full impact of those price increases. But like I said, we still do believe that we can hold our gross margins flat to last year in the back part, which would be similar to what our gross margins were for the first full six months.

We even have suppliers telling us, yes, we know you have a valid contract, we don't care. We're going to take the price FX. Robert Schenosky – Jefferies & Company: No, I understand a lot of companies are in the same boat.

So it's either – it’s contracts expiring or suppliers basically saying we don't care what the contract says, we’ve got to take the prices up. Robert Schenosky – Jefferies & Company: Right, okay. Thanks for your time.

Welcome.

Your next question is from Beth Lilly. Beth Lilly – Gabelli: Good morning.

Hi, Beth. Beth Lilly – Gabelli: I wanted to just better understand these unusual items that you talked about, Tom, in terms of the Brazilian distributor, the legal settlements, there are legal issues, and then you said there were also some expenses related to a former board member and a terminated employee. Can you walk through those items again?

Sure. Do you want to ask specific questions, or you’d like me to walk through them, Beth? Beth Lilly – Gabelli: Why don't you walk through them? And then – I just want to better understand them. Can you go into a little bit more description of each issue?

Yes, and I'll let my colleagues here jump in too if I miss anything. But the first one, the Brazilian piece, we had an existing distributor in Brazil prior to the acquisition. Frankly, we felt that we could get better performance from a different distributor. We were in the process of looking at making that change. And as we brought on the Alfa acquisition, it became even more apparent that we just couldn't have the conflict that was impending there, and we just decided to move quickly and settled it outside of the court system, and allowed ourselves to firmly move forward. And we feel – we certainly don't like the expense we saw in the quarter, but we feel very strongly that was the right decision and will optimize what we're going to be able to do in that market with moving onto a far bigger distributor who has a lot more reach than our previous distributor had.

Obviously as you know, the distributor we managed to sign up, they're called Somoff [ph], and they're I think the biggest I think Caterpillar distributor in Brazil. So they have unbelievable reach in the markets that we're trying to penetrate. Beth Lilly – Gabelli: So the problem was you had a contract with this existing distributor in terms of guaranteed amounts?

I mean the issue is – listen, we're an American company operating in Brazil, right? We decided that if we were to take this to court, the chances that they would side with the local distributor and against us were very high. And the expense related to that and the time and effort we decided wasn't worth it, so we just bit the bullet and settled upfront. Beth Lilly – Gabelli: Okay, so –

One of the things the courts are pretty famous for in that part of the world are just the time that things would take. And we heard numbers in excess of 10 years that a case could take to get resolved, and we just couldn't afford that. And we felt it was and still feel very strongly it was the right decision to move outside the legal system and settle and move forward. Beth Lilly – Gabelli: So, you paid them over $1 million, right?

Less than $1 million. Beth Lilly – Gabelli: Less than $1 million.

That was more in the vicinity of – all parts of the settlement were more in the vicinity of $700,000 or so, roughly. Beth Lilly – Gabelli: Okay, because I took the $0.06 a share times 18.8 million shares. That's how I got over $1 million.

Yes. There's other components to that legal settlement. That's just one piece of it. So the other major piece of that was the settlement we talked about in France, and that was really related to, as we started down our path of integration of our existing organization in France and the Applied organization, we made some changes. It's – France is a tough market when it comes to what you need to pay in severance costs, and we again decided that it was the best thing for us was to settle that and move forward. And it's not completely settled yet, so it's still – we've made an accrual for the expense that we expect for that to cost us in the quarter. Beth Lilly – Gabelli: Okay.

We expect to be able to move forward positively. Beth Lilly – Gabelli: Okay. And then there were a couple other issues, one was the expenses related to curtailed acquisition initiatives?

And that was – we had two different transactions which is the price we're going to – we hope it doesn't happen frequently, but we had some activities on two different transactions that we were very excited about. We went pretty deep into them. We got into due diligence and determined that the things that we found in due diligence were – we needed to walk away from them. So we made – as interested as we were, we found things that dictated that we should walk away and we had to eat that expense. Beth Lilly – Gabelli: Okay. And two other – then you said something about a former board member and a terminated employee. Can you talk about that?

Yes, terminated employee, I would say is immaterial. It's just honestly – it's a normal part of doing business, it just happened to be slightly expensive. But I wouldn't say at the time, we could share any more details on that. On the case of the board member, we had determined that we hadn't done as good of a job as we could have in ensuring that – related to some ensuring the people cashed some stock options. And we had – we decided to settle that disagreement and settle that outside of – going forward with any kind of legal action. And we recognized that in the quarter also and took care of that action Beth Lilly – Gabelli: Okay, so there was issues with their options?

There were issues with whether we had appropriately communicated when those options should have been cashed. And they – Beth Lilly – Gabelli: Okay.

There were some mistakes made, and they were honest mistakes that had to be dealt with. It is now behind us, it is settled, and it is settled to the satisfaction of both parties involved. Beth Lilly – Gabelli: Okay. So as you go forward and you look out to let's say a more normal environment, whatever that is, are you comfortable that this business can grow 5% to 9%?

Yes.

Absolutely. What I would say and as I said, we remain very bullish about the long-term prospects for this business and for the value creation potential. I mean if you step back and you look at our strategic direction, it remains spot on. And we're making very significant progress against all of our key strategies and all of our key initiatives. We're getting good traction. So we – we anticipate that we will be in very strong shape as we come out of this economic environment, and so the 5% to 9% organically remains our commitment. Beth Lilly – Gabelli: Okay, great. All right, thanks for that.

Nothing has changed from that perspective. Beth Lilly – Gabelli: Okay, great.

There are no further questions at this time.

All right, then. Well, thank you for your time today and for your questions. We continue to make solid progress in all of our key strategies and initiatives, and we remain firmly committed to the long-term strategic direction that we have established. We believe a continued focus on our strategies of international market expansion, new products and operating efficiency gains, coupled with strong cost controls positions us for long-term success. And we look forward to keeping you posted on our progress. Thank you all.

This concludes today's conference call. You may now disconnect.