<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1995
Commission File No. 04804
TENNANT COMPANY
Incorporated in Minnesota IRS Emp Id No. 410572550
701 North Lilac Drive
P.O. Box 1452
Minneapolis, Minnesota 55440
Telephone No. 612-540-1200
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding of Registrant's common stock, par value $.375,
on March 31, 1995, was 9,904,126 (after adjustment for two-for-one stock split
effective April 26, 1995).
<PAGE>
Page 1 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (Unaudited)
- ----------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
EARNINGS (note 1) 1995 1994
---- ----
<S> <C> <C>
Net sales $74,144 $58,441
Less:
Cost of sales (note 2) 42,761 33,557
Selling and administrative (note 2) 25,764 21,181
-------- --------
Profit from operations 5,619 3,703
Other income and (expense)
Net foreign currency gain (loss) 144 (84)
Interest income 997 903
Interest expense (570) (157)
Miscellaneous income (expense), net (408) (319)
-------- --------
Total other income (expense) 163 343
-------- --------
Earnings before income taxes 5,782 4,046
Taxes on income 1,913 1,386
-------- --------
Net earnings $ 3,869 $ 2,660
-------- --------
-------- --------
PER SHARE (note 5)
Net earnings $ .39 $ .27
Dividends $ .17 $ .16
Average number of shares 9,892,200 9,833,000
</TABLE>
<PAGE>
Page 2 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
Item 1 - Financial Statements (continued)
- -----------------------------------------
TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS
- ----------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
BALANCE SHEET
(Condensed from Audited
(Unaudited) Financial Statements)
ASSETS March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 2,113 $ 1,851
Receivables 62,549 63,411
Less deferred income from sales finance charges (1,603) (1,592)
Less allowance for doubtful accounts (3,230) (2,609)
-------- --------
Net receivables 57,716 59,210
Inventories (note 3) 36,132 30,985
Prepaid expenses 587 696
Deferred income taxes, current portion 6,535 6,068
-------- --------
Total current assets 103,083 98,810
Property, plant, and equipment 124,916 122,384
Less allowance for depreciation (67,827) (65,832)
-------- --------
Net property, plant, and equipment 57,089 56,552
Net noncurrent installment accounts receivable 6,405 6,353
Deferred income taxes, long-term portion 944 944
Intangible assets 18,999 19,287
Other assets 1,256 888
-------- --------
Total assets $187,776 $182,834
-------- --------
-------- --------
<CAPTION>
LIABILITIES & SHAREHOLDERS' EQUITY
(Condensed from Audited
(Unaudited) Financial Statements)
LIABILITIES March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Current debt $ 21,299 $ 23,008
Accounts payable 17,068 17,925
Accrued expenses 22,294 25,132
-------- --------
Total current liabilities 60,661 66,065
Long-term debt 12,654 6,300
Employee retirement-related benefits 13,759 13,460
Other long-term liabilities 570 760
-------- --------
Total liabilities 87,644 86,585
SHAREHOLDERS' EQUITY
Common stock (note 5) 3,714 3,690
Additional paid-in capital (note 5) 1,955 396
Equity adjustment from foreign currency translation 3,088 2,743
Common stock subscribed -- 525
Unearned restricted shares (683) (424)
Retained earnings 105,471 103,281
Receivable from ESOP (13,413) (13,962)
-------- --------
Total shareholders' equity 100,132 96,249
-------- --------
Total liabilities and shareholders' equity $187,776 $182,834
-------- --------
-------- --------
</TABLE>
<PAGE>
Page 3 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
Item 1 - Financial Statements (continued)
- -----------------------------------------
TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (note 4) Three Months Ended March 31
---------------------------
1995 1994
---- ----
<S> <C> <C>
Net cash flow related to operating activities $ 737 $ 5,907
Cash flow related to investing activities:
Acquisition of property, plant, and equipment (4,401) (2,003)
Acquisition of Castex and Eagle (925) (27,610)
Proceeds from disposals of property, plant, and equipment 1,825 206
Settlement of foreign currency hedging contracts (261) 14
-------- --------
Net cash flow related to investing activities (3,762) (29,393)
Cash flow related to financing activities:
Net changes in current debt (772) 24,057
Issuance of long-term debt 5,000 --
Principal payment from ESOP 450 409
Proceeds from employee stock issues 409 379
Repurchase of common stock -- (1,118)
Dividends paid (1,679) (1,572)
-------- --------
Net cash flow related to financing activities 3,408 22,155
Effect of exchange rate changes on cash (121) 5
-------- --------
Net increase (decrease) in cash and cash equivalents 262 (1,326)
Cash and cash equivalents at beginning of year 1,851 2,675
-------- --------
Cash and cash equivalents at end of first quarter $ 2,113 $ 1,349
-------- --------
-------- --------
</TABLE>
<PAGE>
Page 4 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
Item 1 - FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The Company's Summary of Significant Accounting Policies and other Related
Data and Summary of Stock Plans, Bonuses, and Profit Sharing is included in
the Company's 1994 Annual Report filed as Exhibit 13.1 to the Company's
annual filing on Form 10-K and is incorporated in this Form 10-Q by
reference.
(2) Expenses
Engineering, research and development, and bad debt expenses were charged
to operations for the three months ended March 31, 1995 and 1994, as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Engineering, research and development $3,015 $2,695
------ ------
------ ------
Bad debts $ 494 $ 117
------ ------
------ ------
</TABLE>
The Company also makes accrual adjustments on a regular monthly basis for
bonus and profit sharing expenses which are settled at year-end. This
allows for a fair statement of the results for the interim periods
presented.
(3) Inventories
Inventories are valued at the lower of cost (principally on a last-in,
first-out basis) or market. The composition of inventories at March 31,
1995, and December 31, 1994, is as follows:
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
-------- -----------
(In Thousands)
<S> <C> <C>
FIFO Inventories:
Finished Goods $25,605 $21,491
All Other 28,679 26,174
LIFO Adjustment (18,152) (16,680)
-------- --------
LIFO Inventories $36,132 $30,985
-------- --------
-------- --------
</TABLE>
The category "All Other" includes production-related raw materials, parts
and supplies, and work-in-process. The Company's accounting system does
not permit a further breakdown of this category of inventories.
(4) Cash Flow
Income taxes paid during the three months ended March 31, 1995 and 1994,
were $1,323,000 and $301,000, respectively. Interest costs paid during the
three months ended March 31, 1995, and 1994, were $696,000 and $159,000,
respectively.
<PAGE>
Page 5 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
Item 1 - FINANCIAL STATEMENTS (continued)
- -----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Stock Split
On February 16, 1995, the Board of Directors declared a two-for-one stock
split effective April 26, 1995, for shareholders of record on April 12,
1995. For each share to be issued in connection with the stock split, an
amount equal to the par value of $.375 was transferred to the common stock
amount from additional paid-in capital retroactive to December 31, 1994.
All share and per share data in this report have been retroactively
adjusted to reflect this stock split.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Management's discussion and analysis of financial condition and results of
operations is included in Exhibit 13.1, attached, text portion of Report to
Shareholders for the Three Months Ended March 31, 1995, and is incorporated in
this Form 10-Q by reference.
<PAGE>
Page 6 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
PART II - OTHER INFORMATION
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item # Description Method of Filing
------ ----------- ----------------
3i Articles of Incorporation Incorporated by reference to
Exhibit 4.1 to the Company's
Registration Statement No. 33-
59054, Form S-8, dated March 2,
1993.
3ii By-Laws Incorporated by reference to
Exhibit 4.2 to the Company's
Registration Statement No. 33-
59054, Form S-8, dated March 2,
1993.
13.1 Text Portion of Report Filed herewith electronically.
to Shareholders for the
Three Months Ended
March 31, 1995.
27.1 Financial Data Schedule. Filed herewith electronically.
(b) Reports on Form 8-K
There were no reports filed on Form 8K filed for the quarter ended
March 31, 1995.
<PAGE>
Page 7 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TENNANT COMPANY
Date: April 26,1995 /s/ Richard A. Snyder
------------------------------ -------------------------------
Richard A. Snyder
Vice President, Treasurer and
Chief Financial Officer
Date: April 26,1995 /s/ Mahedi A. Jiwani
------------------------------ -------------------------------
Mahedi A. Jiwani
Corporate Controller and
Principal Accounting Officer
<PAGE>
TO OUR SHAREHOLDERS
Net sales of $74.1 million for the latest three months were up 27 percent
from the prior year's $58.4 million on strong order gains in all product lines,
the carryover effect of acquisitions made during 1994, and relatively high
backlogs at the start of the year. Sales increased 27 percent in both North
America and overseas. A weaker dollar added $1.8 million to consolidated sales.
Net earnings were $3.9 million, or 39 cents per share. This was 45 percent
higher than the $2.7 million, or 27 cents per share for last year's first
quarter. The increase resulted from higher sales combined with an improvement in
operating margin to 7.6 percent from 6.3 percent for the prior year's first
quarter. The margin improvement was primarily due to operating leverage on
strong sales gains in Floor Coatings and industrial equipment products in North
America.
STRONG OVERALL SALES GAIN
We finished last year with relatively high backlogs and good order momentum
which has carried through first quarter at the consolidated level. Floor
Coatings sales were up nearly 40 percent and Commercial Equipment also showed
strong gains.
Our recently introduced line of industrial walk-behind scrubbers has been
very well received by customers. Other industrial equipment products, especially
the newer models, are doing quite well in North America and, generally speaking,
internationally with the primary exceptions being Japan and several key European
countries.
1995 OUTLOOK: PROFITABILITY IMPROVEMENT
The weaker dollar is a positive development for us, but we are not
benefiting fully at this time because of foreign currency hedges at higher
exchange rates on a portion of our exports to Japan and Europe.
Our primary profitability challenges for 1995 will be to improve results in
two areas, both of which were somewhat below expectations in the first quarter.
Commercial Equipment operating margin improved over first quarter last year on
strong sales gains, but not as much as expected due to somewhat higher
manufacturing costs. In Europe, we are dealing with the disruptive effects of a
strong guilder and weaker-than-expected orders in several direct-sales
countries.
We anticipate steady profit improvement in both areas over the remainder of
1995. In the meantime, the other three-fifths of our business--floor coatings
and industrial equipment other than Europe and Japan--is performing quite well
and is expected to continue doing so. This combination should result in an
improvement in full-year profitability on record sales and earnings.
/s/ Roger L. Hale
- -----------------------
Roger L. Hale
CHIEF EXECUTIVE OFFICER April 17, 1995
<PAGE>
TENNANT AT A GLANCE
Our vision is to work for a cleaner and safer world. That's why we are in
business. Clean work places and public places are safer and are more attractive
for both employees and customers. To be cleaner and safer is the mark of a
progressive company; to be cleaner and safer is the mark of an advanced country.
The world wants to be cleaner and safer.
Our mission is to be the preeminent company in non-residential floor
maintenance equipment, floor coatings, and related offerings. That is what we
do.
A second but equally important aspect of our mission is to create value for
our shareholders by providing an above-average total return. We expect to
accomplish this by achieving our long-term financial goals which call for 5%
real (inflation adjusted) sales growth and a 20% return on shareholders' equity.
Tennant offers a broad array of products in the non-residential floor
maintenance industry:
- - INDUSTRIAL FLOOR MAINTENANCE EQUIPMENT (75% of 1994 SALES): Cleans surfaces
with vehicle and heavy foot traffic such as factories, warehouses, stadiums
and parking garages. Tennant is recognized as the world-leading
manufacturer.
- - COMMERCIAL FLOOR MAINTENANCE EQUIPMENT (19% of 1994 SALES): Cleans surfaces
with foot traffic such as office buildings, retail outlets and hospitals.
Our newest and fastest growing business.
- - FLOOR COATINGS (6% of 1994 SALES): Broad line of sealers, resurfacers, and
urethane coatings including environmentally friendly Eco-Coatings-TM-. Now
on faster growth track after undergoing several years of restructuring.
The competitive strengths and growth strategies for each of the three
product lines are outlined in our 1994 Annual Report to Shareholders.
PRODUCTS FOR A CLEANER AND SAFER WORLD
Integrated solutions to help customers solve their floor care problems help
make Tennant...the first name in floor care. The large automotive parts
manufacturing plant shown in the photo is an example.
A new power trowelable resurfacer was used to repair eroded areas in the
main aisles. A superior abrasion-resistant urethane, Eco-HTS-TM-, was used as a
top coat to extend the life of the resurfacer. An assortment of Tennant
equipment is used to maintain the facility. Sweeping is done with a
high-capacity Model 385 Rider Sweeper that cleans a 60-inch path. A
high-capacity scrubber, the Model 550, patrols the main aisles and handles
scrubbing chores. In addition, three highly maneuverable Model 186 Walk-Behind
Sweepers are used for cleaning in areas not accessible to large rider equipment.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Earnings for the Three Months Ended March 31, 1995,
and the Consolidated Balance Sheet as of March 31, 1995, pages 1 and 2, and
footnote 2, page 4, of this Form 10-Q Quarterly Report, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,113
<SECURITIES> 0
<RECEIVABLES> 60,946
<ALLOWANCES> 3,230
<INVENTORY> 36,132
<CURRENT-ASSETS> 103,083
<PP&E> 124,916
<DEPRECIATION> 67,827
<TOTAL-ASSETS> 187,776
<CURRENT-LIABILITIES> 60,661
<BONDS> 12,654
<COMMON> 3,714
0
0
<OTHER-SE> 96,418
<TOTAL-LIABILITY-AND-EQUITY> 187,776
<SALES> 74,144
<TOTAL-REVENUES> 74,144
<CGS> 42,761
<TOTAL-COSTS> 42,761
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 494
<INTEREST-EXPENSE> 570
<INCOME-PRETAX> 5,782
<INCOME-TAX> 1,913
<INCOME-CONTINUING> 3,869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,869
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
