<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 September 30, 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 September 30, 1995, was 9,934,882 (after adjustment for two-for one
stock split effective April 26, 1995).
<PAGE>
Page 2 of 8
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 NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------ ------------------
EARNINGS (note 1) 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $77,761 $71,309 $234,702 $200,534
Less:
Cost of sales (note 2) 44,279 41,501 133,934 116,154
Selling and administrative (note 2) 26,208 23,570 80,103 67,783
------- ------- -------- --------
Profit from operations 7,274 6,238 20,665 16,597
Other income (expense)
Net foreign currency gain (loss) (199) 21 (78) (161)
Interest income 1,045 952 3,109 2,829
Interest expense (715) (572) (1,853) (1,180)
Miscellaneous income (expense), net (411) (558) (1,142) (1,478)
------- ------- -------- --------
Total other income (expense) (280) (157) 36 10
------- ------- -------- --------
Earnings before income taxes 6,994 6,081 20,701 16,607
Taxes on Income 2,360 2,179 6,920 5,820
------- ------- -------- --------
Net earnings $ 4,634 $ 3,902 $ 13,781 $ 10,787
PER SHARE
Net earnings $ .47 $ .40 $ 1.39 $ 1.10
Dividends $ .17 $ .16 $ .51 $ .48
Average number of shares 9,923,200 9,819,800 9,907,900 9,823,600
</TABLE>
<PAGE>
Page 3 of 8
TENNANT COMPANY
Quarterly Report - Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS (continued)
TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS
- ----------------------------------------------------------
(Dollars in thousands)
BALANCE SHEET
<TABLE>
<CAPTION>
(CONDENSED FROM AUDITED
(UNAUDITED) FINANCIAL STATEMENTS)
ASSETS SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ ----------------------
<S> <C> <C>
Cash and cash equivalents $ 1,826 $ 1,851
Receivables 66,111 63,411
Less deferred income from sales finance charges (1,768) (1,592)
Less allowance for doubtful accounts (2,791) (2,609)
-------- --------
Net receivables 61,552 59,210
Inventories (note 3) 42,206 30,985
Prepaid expenses 1,237 696
Deferred income taxes, current portion 6,384 6,068
-------- --------
Total current assets 113,205 98,810
Property, plant, and equipment 133,635 122,384
Less allowance for depreciation (71,294) (65,832)
-------- --------
Net property, plant, and equipment 62,341 56,552
Net noncurrent installment accounts receivable 7,185 6,353
Deferred income taxes, long-term portion 944 944
Intangible assets 18,417 19,287
Other assets 677 888
-------- --------
Total assets $202,769 $182,834
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES & SHAREHOLDERS' EQUITY
(CONDENSED FROM AUDITED
(UNAUDITED) FINANCIAL STATEMENTS)
LIABILITIES SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ ----------------------
<S> <C> <C>
Current debt $ 13,819 $ 23,008
Accounts payable 18,479 17,925
Accrued expenses 25,293 25,132
-------- --------
Total current liabilities 57,591 66,065
Long-term debt 22,071 6,300
Employee retirement-related benefits 14,431 13,460
Other long-term liabilities 570 760
-------- --------
Total liabilities 94,663 86,585
SHAREHOLDERS' EQUITY
Common stock (note 5) 3,726 3,690
Additional paid-in capital (note 5) 2,756 396
Equity adjustment from foreign currency translation 3,231 2,743
Common stock subscribed 0 525
Unearned restricted shares (404) (424)
Retained earnings 112,009 103,281
Receivable from ESOP (13,212) (13,962)
-------- --------
Total shareholders' equity 108,106 96,249
-------- --------
Total liabilities and shareholders' equity $202,769 $182,834
-------- --------
-------- --------
</TABLE>
<PAGE>
Page 4 of 8
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) NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1995 1994
---- ----
<S> <C> <C>
Net cash flow related to operating activities $12,280 $17,140
Cash flow related to investing activities:
Acquisition of property, plant, and equipment (16,048) (13,230)
Acquisition of Castex and Eagle (1,126) (27,610)
Proceeds from disposals of property, plant, and equipment 2,685 1,068
Settlement of foreign currency hedging contracts (691) (465)
------- -------
Net cash flow related to investing activities (15,180) (40,237)
Cash flow related to financing activities:
Net changes in current debt (9,322) 28,961
Issuance of long-term debt 15,727 --
Principal payment from ESOP 450 409
Proceeds from employee stock issues 1,249 1,120
Repurchase of common stock 0 (1,760)
Dividends paid (5,052) (4,715)
-------- -------
Net cash flow related to financing activities 3,052 24,015
Effect of exchange rate changes on cash (177) (131)
-------- -------
Net increase (decrease) in cash and cash equivalents (25) 787
Cash and cash equivalents at beginning of year 1,851 2,675
-------- -------
Cash and cash equivalents at end of third quarter $ 1,826 $ 3,462
-------- -------
-------- -------
</TABLE>
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Page 5 of 8
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 and nine months
ended September 30, 1995 and 1994, as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Engineering, research and development $3,146 $2,670 $9,193 $8,319
------ ------ ------ ------
------ ------ ------ ------
Bad debts $ 84 $ 141 $ 591 $ 548
------ ------ ------ ------
------ ------ ------ ------
</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.
1995 Engineering, Research and Development restated to
exclude warranty administration expense, consistent with
previous years.
(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 September 30, 1995, and December 31, 1994, is
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1995 1994
------------ -----------
(In Thousands)
<S> <C> <C>
FIFO Inventories:
Finished Goods $27,995 $21,491
All Other 32,363 26,174
LIFO Adjustment (18,152) (16,680)
------- -------
LIFO Inventories $42,206 $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.
<PAGE>
Page 6 of 8
TENNANT COMPANY
Quarterly Report - Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Cash Flow
Income taxes paid during the nine months ended September 30,
1995 and 1994, were $8,316,000 and $4,092,000, respectively.
Interest costs paid during the nine months ended September
30, 1995 and 1994, were $2,048,000 and $1,092,000,
respectively.
(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 OPERATIONS
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 Nine Months Ended September 30, 1995, and is
incorporated in this Form 10-Q by reference.
<PAGE>
Page 7 of 8
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 3i to the Company's
Registration Statement No.
000-04804, 1995 Second
Quarter 10Q Filing, dated
August 8, 1995.
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 to Filed herewith electronically.
Shareholders for the Nine
Months Ended September 30,
1995
27.1 Financial Data Schedule Filed herewith electronically.
(b) Reports on Form 8-K
A Form S-8 was filed August 22, 1995, reporting 1995 Stock Incentive Plan.
<PAGE>
Page 8 of 8
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: 11-9-95 /s/ RICHARD A. SNYDER
--------------------------- -------------------------------
Richard A. Snyder
Vice President, Treasurer and
Principal Financial Officer
Date: 11-9-95 /s/ MAHEDI A. JIWANI
--------------------------- -------------------------------
Mahedi A. Jiwani
Corporate Controller and
Principal Accounting Officer
<PAGE>
TO OUR SHAREHOLDERS
SALES AND EARNINGS INCREASE
Third quarter earnings of $4.6 million, or 47 cents per share, were up 19
percent from last year. Sales of $77.8 million increased 9 percent.
Nine-month earnings of $13.8 million, or $1.39 per share, were up 28 percent
and sales of $234.7 million increased 17 percent. (A weak dollar increased
year-to-date sales by $5.1 million.) Both sales and earnings established
record highs for the quarter and year-to-date period.
THIRD QUARTER CHALLENGES
The third quarter proved to be more of a challenge than expected. Early in
the period, we experienced a weakening of incoming industrial machine orders
after a strong first half. The situation began to show improvement in
September, and the firming trend is continuing. Considering the overall
condition of the industrial economy in key markets, our year-to-date orders
look reasonable, and we are expecting a strong finish to the year.
An additional challenge occurred in Europe. Our subsidiary encountered
start-up problems with a major new software system being installed. This
inhibited shipments and caused operating inefficiencies. Operations are now
returning to normal, and we expect financial results to show steady
improvement.
Our floor coatings and commercial cleaning equipment lines continue to see
double-digit sales increases, and North American industrial aftermarket
products are performing quite well. In addition, the recent strengthening of
the dollar against the yen added to earnings for the quarter, due to forward
exchange contracts obtained earlier in the year to hedge future business. We
estimate the change in the value of the dollar from the same period last year
for our key currencies added about $0.5 million, or 5 cents per share, to net
earnings for the quarter and year-to-date.
Net cash flow related to operating activities of $12.3 million year-to-date
is down from the same period last year. The primary reasons for the decrease
are higher-than-normal inventory levels on relatively low sales for the third
quarter and a planned step-up in capital spending.
1995 OUTLOOK: RECORD SALES AND EARNINGS EXPECTED
In spite of the third quarter challenges, we were able to produce a 9.4
percent operating margin, which raised the year-to-date margin to 8.8 percent
versus 8.3 last year. Our outlook for the year is for an even higher
operating margin, assuming economic conditions in key markets continue to
improve. On this basis, we believe the next three months should produce our
ninth consecutive quarter of record sales and earnings and a full-year return
on equity close to our goal of 20 percent.
Roger L. Hale
CHIEF EXECUTIVE OFFICER
October 16, 1995
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:
<PAGE>
- - 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
Contract-cleaning businesses like Commercial Sweeping of Crowne Point,
Indiana, are part of the ever-expanding Tennant customer base. Thirty-two
Tennant machines contribute to Commercial's cleaning fleet including nine
rider-scrubbers, eight rider-sweepers, seven walk-behind scrubbers, and three
walk-behind sweepers. Joe Granger, President of Commercial, has full
confidence in Tennant: "We feel as if we've got the best equipment we can get
working for us. What's more, so do our customers. They're well-aware of
Tennant equipment and its reliability." Adds Granger, "We like the close
relationship we've been able to build with Tennant's service organization."
That commitment to service and reliability is what's made Tennant the first
name in floor care.
(Picture)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,826
<SECURITIES> 0
<RECEIVABLES> 64,343
<ALLOWANCES> 2,791
<INVENTORY> 42,206
<CURRENT-ASSETS> 113,205
<PP&E> 133,635
<DEPRECIATION> 71,294
<TOTAL-ASSETS> 202,769
<CURRENT-LIABILITIES> 57,591
<BONDS> 22,071
<COMMON> 3,726
0
0
<OTHER-SE> 104,380
<TOTAL-LIABILITY-AND-EQUITY> 202,769
<SALES> 234,702
<TOTAL-REVENUES> 234,702
<CGS> 133,934
<TOTAL-COSTS> 133,934
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 591
<INTEREST-EXPENSE> 1,853
<INCOME-PRETAX> 20,701
<INCOME-TAX> 6,920
<INCOME-CONTINUING> 13,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,781
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
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