Thank you for participating in Tennant Company’s Second Quarter 2012 Earnings Conference Call. This call is being recorded. If you do not wish to participate you may disconnect at this time. After the speakers’ remarks there will be a question and answer session. [Operator Instructions] Beginning today’s meeting is Thomas J. Paulson, Vice President and Chief Financial Officer for Tennant Company. Mr. Paulson you may begin.

Welcome to Tennant Company’s second quarter 2012 earnings conference call. First of all I’d like to apologize for the slight delay, we did have some technical difficulties so we will move right forward. I’m Thomas Paulson, Vice President and Chief Financial Officer of Tennant Company. With me on the call today are Chris Killingstad, Tennant’s President and CEO, Pat O’Neill, our Treasurer, and Karen Durant, our Vice President and Controller. Our agenda today is to review Tennant’s performance during the 2012 second quarter and first 6 months and our outlook for the remainder of 2012. First Chris will brief you on our operations and then I’ll cover the financials. After that we’ll 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 and the documents we file with the Securities & Exchange Commission. We encourage you to review those documents particularly our Safe Harbor statements for a description of risks and uncertainties that may affect our results. Additionally, on this conference call we will discuss non-GAAP measures that include or exclude special or non-recurring items. For each non-GAAP measure we’ll also provide the most directly comparable GAAP measure. There were special non-GAAP items in the 2011 second quarter and no such items in the 2012 first 6 months. Our 2012 second quarter earnings release also includes a reconciliation of full year 2011 non-GAAP diluted earnings per share to our 2011 GAAP earnings per share. Our earnings release was issued this morning via business wire and is also posted on the investor section of our website at www.TennantCo.com. At this point I’ll turn the call over to Chris.

In what continues to be a challenging economic environment, Tennant delivered a solid second quarter with revenues of $199.5 million coming in just shy of last year’s record breaking results and we are very pleased to report a record operating profit of $21.6 million, and higher earnings. Net earnings rose to $13.7 million or $0.71 per diluted share up from adjusted net earnings of $10.9 million or $0.56 per diluted share in the second quarter of last year. This performance was driven by our ongoing focus on leveraging our cost structure and improving margins. We are successfully executing our strategies and controlling what we can control. Let’s take a closer look at Tennant’s sales. Although Tennant’s growth in the second quarter was constrained by global economic headwinds especially in EMEA and Asia Pacific the company’s organic sales rose about 3%. We are very pleased with the 7% organic sales increase in our largest market, North America, as well as continued steady growth in priority emerging markets such as Brazil and China. Strategic accounts remain a key driver for our business and we posted a record second quarter for strategic account sales. We continue to add large national retailers and building service contractors, and to fill orders for strategic accounts that we’ve won over the past couple of years. In addition, 2 of our environmentally friendly offerings contributed significantly to Tennant’s sales in the 2012 second quarter. These included our industrial rider scrubbers equipped with EC Water, and the lithium ion battery powered Green Machines 500ZE city cleaning sweepers. As you know EC Water technology converts water into an innovative cleaning solution that cleans effectively, saves money, improves safety, and reduces environmental impact compared to daily cleaning floor chemicals. The Green Machines 500ZE city cleaning sweepers offer 0 carbon emissions with…

In my comments today all references to earnings per share are on a fully diluted basis. Also, please note as I go through the results I will generally not comment on the year-to-date financials as those were detailed in the earnings release. In reviewing our second quarter results I think it will be helpful to put them in context. As we recovered from the recession throughout 2010 and the first half of 2011, Tennant had achieved on average organic sales growth of about 13% in each of those 6 quarters. We estimated at the beginning of the 2011 third quarter that we were back to pre-recession sales levels and we anticipated organic revenue growth going forward to return to our traditional range of mid to high single digits. This has generally been the case as we have been lapping those very high growth quarters. The organic sales growth of approximately 1.6% in the 2012 first quarter was lower than anticipated primarily due to order timing in the Americas as well as the impact from the increased tightening of credit in Europe. Now in the 2012 second quarter organic sales growth was approximately 2.6% with about 6.8% growth in the Americas which more than offset the decline in EMEA and Asia Pacific. Based on the ongoing economic uncertainty, primarily in Europe and larger than anticipated unfavorable foreign exchange impact on sales, we are lowering our 2012 full year net sales to a range of $770 million to $785 million. This is the expected result in our organic sales growth for the 2012 full year in our traditional range of mid to high single digits. Due to our demonstrated improvement in profitability we are maintaining our earnings guidance and still expect 2012 full year earnings per share to be in the range…

[Operator Instructions] Your first question comes from Scott Graham, Jefferies & Company, Inc.

I just wanted to ask you about the goal, the 12% margin goal. When we started this thing it was a lot of SG&A leverage being the primary tenet of this, no pun, and I would just tell you from what I heard in the last couple of quarters it sounds to me as if there’s going to be a fair amount more balance between cost reductions potentially hitting the gross margin line as well as some mix aiding the gross margin line. Can you kind of comment on where you were in your thinking when you first announced this last year versus what’s kind of going on now where it seems to be a lot more cost reduction oriented.

First of all, we set our targeted range of gross margins when we marched down the path of hitting 12% to be 42% to 43% hoping that we might have the opportunity to do better than that. So we had that expectation going in but in all honesty we thought it was real important to change some things in our organization to put more pressure on getting tougher on managing operating expenses. We’ve been successful in both fronts we believe. We do believe now that we potentially have the opportunity to stay above our 43% gross margin range and some of that is due to circumstances today around commodity costs, and mix, and just a great management of our supply chain. We’d also say that we are starting to see some of our indirect spending benefits that we thought would primarily benefit the operating expenses flowing through the gross margin line. So that is driving some of our gross margin improvement. We still see room for improvement in our operating expenses so I would acknowledge probably we’ll eventually adjust our targets a bit, not the 12% but the mix between the pieces might be adjusted. We’re not ready to formally do that yet but I’d say on par we are a bit more balanced in our approach.

Your next question comes from Joseph Maxa, Dougherty & Company, LLC.

I just want to talk about the mix in the back half as far as the quarterly revenues. You did talk about Q4 being stronger than Q3 but given the uncertainties in Europe and your holidays should we be thinking that Q3 you may see a little more of a decline than you did a year ago sequentially from Q2?

I would say it should be potentially a little bit more. I think that would be fair to say, Joe, on an absolute dollar basis how we think about it is that the typical mix in the back half would be we would typically do about 2% more revenue as a percent of the total in Q4 than we do at Q3. That would kind of be the historical mix and 2percentage points difference is a pretty big number. I would say it could even skew a little bit more that the percent of total year revenue might even be a bit higher than 2% higher than Q3 and Q4. But your sequential comment is directionally correct also.

On the gross margin front slightly above 43% seems a little bit conservative given what you accomplished in the first half.

Yes, and part of that depends upon what you determine slightly is. But yes, we remain conservative in our approach to gross margins. We would tell you that that is prudent in the world of commodities and how fast things can move on you. We have to always remember we have historically seen significant inflation and that can shift very quickly on us. But based on our performance it’s a fair comment to say that we’re being pretty conservative there.

Lastly, I just wanted to maybe get a little more color on your strategic account focus. You’ve been focusing here for a while having some success. Is there significant opportunity still in those accounts?

Absolutely. You saw that we had the strongest strategic account quarter ever in the second quarter and we continue to win national strategic accounts and we’re making great progress on the global strategic accounts that we’re focusing on. We expect that to continue and if you look at the back half of this year, strategic accounts will continue to be a growth driver, North America will continue to be a growth driver, emerging markets, as well as EC Water. But we’ve been on a long strong run with those strategic accounts and we still think the best is yet to come.

[Operator Instructions] Your next question comes from Andrew Gadlin, CJS Securities, Inc.

I was wondering if you could elaborate a little bit more on the China and Brazil growth? Obviously, there’s been some news out about weakness in China and if you can give us more detail there as well as kind of the trend within the quarter? Did it exit the quarter as strong as it started it?

There certainly is GDP forecast in both those geographies that are slower than they’ve been if you look backwards. We would tell you that in both instances, particularly China, that our respective shares are so low and that we just don’t think a GDP differential of a few percentage points whether it’s 7% or 9% will impact the momentum we have in our business. Our business is really about in a country like China is really about the mechanization of cleaning and it’s replacing Lever, and it’s driving economical improvements so we don’t see the economy having a material impact on our business. We had constant demand in the quarter and we expect to see minimally a consistent back half that we saw in Q2 from a growth perspective. We see really nice strength in Brazil also and so we remain extremely bullish on both of those economies.

It’s important to note that we had stronger sales in China in the second quarter than we did in the first. As a matter of fact, growth rates were about double.

Are the comps in the back half of the year more difficult or similar to the first half?

They’re a little bit more difficult in China but they’re not all that much different. We did finish the year pretty well in Q4 in China but they’re not materially different.

You had a pricing increase that you put in this quarter, has that stuck?

We actually took it at the very beginning of the quarter in the Americas and the answer is we did get about 1.5% of pricing benefit in Q2 and that’s lapping a quarter where we took pricing about half way through the quarter last year. Year-to-date our pricing benefit is around 2% and we expect to see pricing benefits for the rest of the year in the 1.5% to 2% range. We always like to remind people, we did go through a period of significant inflation and while we’re seeing costs moderating now we think the pricing was warranted and we think it will continue to stick in the market.

One of the machines that you mentioned was the Green Machine city sweeper?

The 500ZE.

I believe that’s a largely European product or that the majority of the sales are to Europe. Is that right?

Yes.

So obviously it must have been pretty strong but it would suggest that the rest of the European business was down significantly given - I think it was -12% generally so if that was strong. The other pieces of the business must have been weaker. Are people waiting for some of the more large equipment product launches in 2013?

No. I mean, our city cleaning business has performed extremely well in the first half versus again, remember, a very weak 2011. It’s really the strongest part of our business in Europe and you’re absolutely right, if you look at our organic sales decline in Europe which was 3.6%, that means that the indoor business is not performing quite as well. But it’s not because of our strategies or how we’re executing, it’s based on the economic conditions. What we’re seeing is, as we’ve mentioned, tight credit means our customers can’t get financing. We’re working on that, we have a couple of partners where we’re in depth discussions with and we’re hoping to have that resolved relatively quickly. A lot of our customers have not cancelled orders but what we’re seeing is they are beginning to delay some of them, or that they are ordering fewer machines than what they initially had anticipated and delaying the rest of the order to the back half of this year.

Final question just on how would you compare where Europe is today versus your expectations say 3 months ago?

It’s deteriorated a bit. I mean, we commented on that after we released Q1 that we didn’t expect any improvement in Europe for the rest of the year and maybe even into next year and in fact, we could even see things getting a little bit worse. I’d say they are a bit worse than we anticipated in Q2 than in Q1 and we continue to expect that it’s going to be rocky the rest of the year. But it did come in a little lower than we would have anticipated when we gave our guidance back in after Q1.

But it doesn’t sound like it’s a drastic change?

Not dramatic. I mean, it’s obviously our number one concern right now as it is with any other companies. We think we’re doing a great job of managing it, our margins are getting better, we’re focused on the right things, but it is the number one concern on our list and I think everything in our control is being aggressively managed. We’re not assuming things are getting better and we’re managing accordingly.

Your next question comes from Scott Graham, Jefferies & Company, Inc.

I think very simply I was just kind of wondering a little bit about capital allocation. I know that you guys have made a living on keeping your balance sheet really clean but I’m just curious is there anything out there beyond share repurchases - I’m obviously talking about M&A, that might be of interest right now with maybe asset prices maybe a little bit lower in Europe, the dollar stronger? Is there anything internationally where you guys might be focused on going forward to kind of spread the Tennant brand out a little bit?

I wouldn’t say that anything has changed in a meaningful way from how we’re looking at things just because the economy is a bit weaker, maybe prices are a bit lower. We are continuing to look at possible acquisitions and they’d really be focused in 2 areas. One would be a technology deal similar to the Water Star acquisition we made a year ago where we could accelerate our innovation platform particularly around water based technologies. So we’re aggressively looking at things that could drive our innovation agenda. That is our number one priority from an acquisition standpoint or partnership standpoint. Number two, would be things outside of North America and they would be acquisitions that would allow us to expand our sales and service coverage and aggressively move faster in again, market similar to what we did with the Alfa acquisition in Brazil. There are deals we're interested in other parts of the world and I can’t be specific there but we’ll continue to look at those and those are always tricky and tactical but if the opportunity presented itself we wouldn’t hesitate to look at a deal like that and accelerate our growth patterns.

Could you also maybe elaborate on the large equipment launch next year? Kind of when, where, what’s the target, the market? Maybe just give us a little bit more of what’s going on with that?

What we’ve done is we’ve really pretty much fully reinvented, or are in the process of reinventing our large equipment portfolio. They’re being redesigned, and they are going to be built on a modular basis. So we’re taking common components of the operator compartment, engines, water recovery systems, steering, braking systems that are common across most of the line and ensuring that we can plug and play those modules in as needed on the manufacturing line itself which will help us reduce cost, the cost of manufacturing the products. We are maintaining and in many cases enhancing the performance of these machines and lowering the total cost of ownership to our customers. This is a big initiative for us. We built this company based on our large industrial equipment. It represents still today around 40% of our sales. It has been a little bit soft over the last number of year’s part of it because of the economy and part of it is that we have aging products. The first new product will be launched in the first quarter of next year and because we’re building these off of platforms our expectation is that once we launch the first one we should be able to follow up on a more regular cadence over the next several years as we really replace the entire line. But it’s not the only thing we’re doing, as you said, we have the most robust new product and technology pipeline in the company’s history. We started executing against that in the fourth quarter of this year. It is both industrial products as I just talked about, it’s also some interesting new commercial products, and for really the first time we’re working on some underlying technologies that we can plug and play into these products as they launch that we also think will add tremendous value to our customers and help us grow sales. So over the next 3 plus years we’re pretty excited about what we’re doing on the new product side in our core business and then on top of that you have what we’re doing in sustainable water based technologies as well.

As there are no further questions in the queue I turn the call back over to the presenters for any closing comments.

We remain bullish about Tennant’s future and we are committed to achieving our strategic vision which is to become a global leader in water based and other sustainable cleaning technologies. We plan to continue to grow sales through innovating in our core equipment business and advancing our water based technologies. At the same time we’re focused on controlling spending across the organization, building a scalable business model with improved global processes and achieving further operating leverage and enhanced profitability. Thanks for your time today and for your questions. We look forward to updating you on our 2012 third quarter results in October. Take care, everybody.

Ladies and gentlemen, thank you for your participation in today’s conference call. You may now disconnect.