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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995. COMMISSION FILE NUMBER 0-4804
TENNANT COMPANY
INCORPORATED IN THE EMPLOYER IDENTIFICATION
STATE OF MINNESOTA NUMBER 41-0572550
701 NORTH LILAC DRIVE, P.O. BOX 1452, MINNEAPOLIS, MINNESOTA 55440
TELEPHONE NUMBER 612-540-1208
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
COMMON STOCK, PAR VALUE $.375 PER SHARE
AND
PREFERRED SHARE PURCHASE RIGHTS
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ X ]
$133,451,688 is aggregate market value of common stock held by non-
affiliates as of March 4, 1996.
9,988,450 shares outstanding at March 4, 1996
DOCUMENTS INCORPORATED BY REFERENCE
1995 Annual Report to Shareholders - Part I (Partial), Part II (Partial), and
Part IV (Partial)
1996 Proxy - Part III (Partial)
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TENNANT COMPANY
1995
ANNUAL REPORT
FORM 10-K
(PURSUANT TO SECURITIES EXCHANGE ACT OF 1934)
PART I
Part I is included in the Tennant Company 1995 Annual Report to Shareholders (to
the extent specific pages are referred to on the Cross Reference Sheet) and is
incorporated in this Form 10-K Annual Report by reference, except Item 3 -
"Legal Proceedings," of which there were no material legal proceedings pending,
and Item 4 - "Submission of Matters to a Vote of Security Holders" during the
fourth quarter, of which there were none.
GENERAL DEVELOPMENT OF BUSINESS
Tennant Company, a Minnesota corporation incorporated in 1909, is a Minneapolis-
based company that specializes in the design, manufacture, and sale of non-
residential floor maintenance equipment and related products. On February 1,
1994, the Company acquired the business and assets of Castex Industries, Inc., a
privately owned manufacturer of commercial floor maintenance equipment.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS, AND EXPORT SALES
The Company, as described under "General Development of Business," has one
business segment. The Company sells its products domestically and
internationally. Appropriate financial information is provided in the Company's
1995 Annual Report to Shareholders, page 24, footnote 3. Nearly all of the
Company's foreign investment in assets reside within Australia, Canada, Japan,
Spain, The Netherlands, the United Kingdom, and Germany. While subject to
increases or decreases in value over time due to foreign exchange rate
movements, these investments are considered to be of low business risk.
PRINCIPAL PRODUCTS, MARKETS, AND DISTRIBUTION
Products consisting mainly of motorized cleaning equipment and related products,
including floor cleaning and preservation products, are sold through a direct
sales organization and independent distributors in North America, primarily
through a direct sales organization in Australia, France, Spain, The
Netherlands, Germany, and the United Kingdom, and through independent
distributors in more than 60 foreign countries. Additional information
pertaining to products and marketing methods is included in the 1995 Annual
Report to Shareholders, pages 4, 5, 8, 10 and 12.
RAW MATERIALS AND PURCHASED COMPONENTS
The Company has not experienced any significant or unusual problems in the
purchase of raw materials or other product components and is not
disproportionately dependent upon any single vendor or source of supply.
PATENTS AND TRADEMARKS
The Company applies for and is granted United States and foreign patents and
trademarks in the ordinary course of business, no one of which is of material
importance in relation to the business as a whole.
SEASONALITY
Although the Company's business is not seasonal in the traditional sense,
revenues and earnings tend to concentrate in the fourth quarter of each year
reflecting the tendency of customers to increase capital spending during such
quarter, and the Company's efforts to close orders and reduce order backlogs.
WORKING CAPITAL PRACTICES
The Company's working capital practices are described in the 1995 Annual Report
to Shareholders, Management's Financial Discussion and Analysis, Financial
Position section on pages 16 and 17.
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MAJOR CUSTOMERS
The Company sells its products to a wide variety of customers, no one of which
is of material importance in relation to the business as a whole.
BACKLOG
The Company routinely fills orders within 30 days on the average. Consequently,
order backlogs are not indicative of future sales levels.
COMPETITIVE POSITION
While there is no industry association or industry data, the Company believes,
through its own market research, that it is a world-leading manufacturer of
floor maintenance equipment. Active competition exists in most geographic areas;
however, it tends to originate from different sources in each area, and the
Company's market share is believed to exceed that of the leading competitor in
many areas. The Company competes primarily on the basis of offering a broad line
of high-quality, innovative products supported by an extensive sales/service
network in major markets.
PRODUCT RESEARCH AND DEVELOPMENT
The Company regularly commits what is believed to be an above-average amount of
resources to product research and development. These amounts are reported on the
Company's 1995 Annual Report to Shareholders, page 24, footnote 2. A description
of product development is included in the 1995 Annual Report to Shareholders on
pages 4, 5, 8, 10 and 12.
ENVIRONMENTAL PROTECTION
Compliance with federal, state and local provisions regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, has not had, and is not expected to have, a material effect upon
the Company's capital expenditures, earnings or competitive position.
EMPLOYMENT
Year-end employment is reported in the 1995 Annual Report to Shareholders on
page 30.
EXECUTIVE OFFICERS OF THE REGISTRANT
Richard M. Adams, Vice President
Richard M. Adams (48) joined the Company in 1974. Mr. Adams was elected
Assistant Controller in 1983 and was named Corporate Controller in 1986,
and Vice President in 1993. Mr. Adams is a Certified Public Accountant. The
President and Chief Executive Officer of the Company, Roger L. Hale, is the
first cousin of Mr. Adams. Mr. Adams is a director of Tennant Maintenance
Systems, Ltd., Tennant Holding B.V., Tennant Europe B.V., Tennant Japan,
Castex Incorporated, and Eagle Floor Care, Incorporated.
Bruce J. Borgerding, Deputy General Counsel and Corporate Secretary
Bruce J. Borgerding (45) joined the Company in 1988 as Assistant General
Counsel. He was named Deputy General Counsel and Corporate Secretary in
1995. Mr. Borgerding is a director of Tennant Maintenance Systems, Ltd.,
Tennant Holding B.V., Tennant Europe B.V., Tennant N.V., Tennant Japan, and
an officer of Eagle Floor Care, Incorporated.
Paul E. Brunelle, Vice President
Paul E. Brunelle (55) joined the Company in 1965. In 1987 he was elected
Vice President of Personnel Resources. Prior to joining the
Personnel Resources Department in 1985, he was General Manager of the
Company's former Brazilian operations. Mr. Brunelle is the President of the
Tennant Company Foundation and a director of Tennant N.V.
Janet M. Dolan, Senior Vice President and General Counsel
Janet M. Dolan (46) joined the Company in 1986. Ms. Dolan was appointed
General Counsel and Secretary in 1987, Vice President in 1990, and Senior
Vice President in 1995. She is a director of Castex Incorporated.
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Roger L. Hale, President and Chief Executive Officer
Roger L. Hale (61) joined the Company in 1961. Mr. Hale was named Vice
President in 1969 and elected a director in 1969. Mr. Hale was named
President and Chief Operating Officer in 1975, and subsequently named Chief
Executive Officer in 1976. He also is a director of Dayton Hudson
Corporation and First Bank System, Inc.
Douglas R. Hoelscher, Senior Vice President
Douglas R. Hoelscher (57) joined the Company in 1973. He was named Vice
President in 1978 and Senior Vice President in 1995. He is a Registered
Professional Engineer.
Mahedi A. Jiwani, Corporate Controller and Principal Accounting Officer
Mahedi A. Jiwani (47) joined the Company in 1983 as a Financial Analyst. He
was named Manager of Planning and Analysis in 1987, Assistant Controller in
1989, Corporate Controller in 1994, and Principal Accounting Officer in
1995. Mr. Jiwani is a Certified Public Accountant. He is a director of
Castex Incorporated.
Keith D. Payden, Vice President
Keith D. Payden (48) joined the Company in 1981. He was named Director,
Information Services in 1987, Chief Information Officer in 1992, and Vice
President in 1993.
Richard A. Snyder, Vice President, Treasurer and Chief Financial Officer
Richard A. Snyder (56) joined the Company in 1981 as Controller. He was
elected Treasurer and Chief Financial Officer in 1982 and named Vice
President in 1985. Mr. Snyder is a Certified Public Accountant and a
director of Tennant N.V.
William R. Strang, Vice President
William R. Strang (60) joined the Company in 1969. He was named Director,
Corporate Marketing in 1987 and Vice President, Corporate Marketing in
1992. Mr. Strang is a director of Tennant Europe B.V., Tennant Holding
B.V., and Tennant Japan.
PART II
Part II is included in the Tennant Company 1995 Annual Report to Shareholders
(to the extent specific pages are referred to on the Cross Reference Sheet) and
is incorporated in this Form 10-K Annual Report by reference, except Item 9,
"Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure," of which there were none.
PART III
Part III is included in the Tennant Company 1996 Proxy (to the extent specific
pages are referred to on the Cross Reference Sheet) and is incorporated in this
Form 10-K Annual Report by reference, except Item 13 - "Certain Relationships
and Related Transactions," of which there were none, and Item 10 - "Directors
and Executive Officers of the Registrant" as it relates to executive officers.
Identification of executive officers is included in Part I of this Form 10-K
Annual Report.
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
A. The following documents are filed as a part of this report:
1. Financial Statements
The following consolidated financial statements and independent
auditors' report are included on pages 18 through 29 of the Tennant
Company 1995 Annual Report to Shareholders and are incorporated in
this Form 10-K Annual Report by reference:
a. Consolidated Statements of Earnings for each of the years in
the three-year period ended December 31, 1995 - page 18.
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b. Consolidated Balance Sheets as of December 31, 1995 and 1994
- page 19.
c. Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 31, 1995 - page 20.
d. Consolidated Statements of Shareholders' Equity for each of
the years in the three-year period ended December 31, 1995 -
page 21.
e. Independent Auditors' Report of KPMG Peat Marwick LLP - page
22.
f. Notes to Consolidated Financial Statements - pages 23
through 29.
2. Financial Statement Schedules
All schedules are omitted as the required information is inapplicable or
because the required information is presented in the Consolidated
Financial Statements in the Tennant Company 1995 Annual Report
to Shareholders.
3. Exhibits
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<CAPTION>
Item # Description Method of Filing
- - ------ ----------- ----------------
<S> <C> <C>
3i Articles of Incorporation Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement No. 33-62003, Form S-8, dated August 22, 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.
10.1 Tennant Company 1988 Stock Incentive Plan Incorporated by reference to Exhibit b.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
10.2 Tennant Company 1992 Stock Incentive Plan Incorporated by reference to Exhibit 4.4 to the Company's Registration
Statement No. 33-59054, Form S-8 dated March 2, 1993.
10.3 Tennant Company Restricted Stock Plan Incorporated by reference to Exhibit 4.5 to the Company's Registration
for Nonemployee Directors Statement No. 33-59054, Form S-8, dated March 2, 1993.
10.4 Tennant Company 1995 Stock Incentive Plan Incorporated by reference to Exhibit 4.4 to the Company's Registration
Statement No. 33-62003, Form S-8, dated August 22, 1995.
10.5 Tennant Company Restricted Stock Plan for Incorporated by reference to Exhibit 10.2 to the Company's 1995 Second
Nonemployee Directors, as amended and Quarter 10-Q filing dated August 8, 1995.
restated effective January 1, 1995
10.6 Tennant Company Excess Benefit Plan, Incorporated by reference to Exhibit 10.4 to the Company's Annual Report
as amended and restated effective on Form 10-K for the fiscal year ended December 31, 1994.
January 1, 1994
10.7 Management Agreement with Richard M. Adams Incorporated by reference to Exhibit 10.6 to the Company's Annual Report
dated December 10, 1993 on Form 10-K for the fiscal year ended December 31, 1993.
10.8 Management Agreement with Paul E. Brunelle Incorporated by reference to Exhibit 10.7 to the Company's Annual Report
dated December 8, 1987 on Form 10-K for the fiscal year ended December 31, 1993.
</TABLE>
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10.9 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.8 to the Company's Annual Report
Paul E. Brunelle dated June 21, 1989 on Form 10-K for the fiscal year ended December 31, 1993.
10.10 1993 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.9 to the Company's Annual Report
Paul E. Brunelle dated December 10, 1993 on Form 10-K for the fiscal year ended December 31, 1993.
10.11 Management Agreement with Janet M. Dolan Incorporated by reference to Exhibit b.5 to the Company's Annual Report
dated June 21, 1989 on Form 10-K for the fiscal year ended December 31, 1992.
10.12 1993 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.11 to the Company's Annual
Janet M. Dolan dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993.
10.13 Management Agreement with Roger L. Hale Incorporated by reference to Exhibit b.8 to the Company's Annual Report
dated March 10, 1987 on Form 10-K for the fiscal year ended December 31, 1992.
10.14 Amendment to Management Agreement with Incorporated by reference to Exhibit b.9 to the Company's Annual Report
Roger L. Hale dated June 21, 1989 on Form 10-K for the fiscal year ended December 31, 1992.
10.15 1993 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.14 to the Company's Annual
Roger L. Hale dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993.
10.16 Management Agreement with Douglas R. Incorporated by reference to Exhibit b.10 to the Company's Annual Report
Hoelscher dated March 10, 1987 on Form 10-K for the fiscal year ended December 31, 1992.
10.17 Amendment to Management Agreement with Incorporated by reference to Exhibit b.11 to the Company's Annual Report
Douglas R. Hoelscher dated June 21, 1989 on Form 10-K for the fiscal year ended December 31, 1992.
10.18 1993 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.18 to the Company's Annual
Douglas R. Hoelscher dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993.
10.19 Management Agreement with Keith D. Payden Incorporated by reference to Exhibit 10.19 to the Company's Annual
dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993.
10.20 Management Agreement with Richard A. Snyder Incorporated by reference to Exhibit b.12 to the Company's Annual Report
dated March 10, 1987 on Form 10-K for the fiscal year ended December 31, 1992.
10.21 Amendment to Management Agreement with Incorporated by reference to Exhibit b.13 to the Company's Annual Report
Richard A. Snyder dated June 22, 1989 on Form 10-K for the fiscal year ended December 31, 1992.
10.22 1993 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.22 to the Company's Annual
Richard A. Snyder dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993.
10.23 Management Agreement with William R. Strang Incorporated by reference to Exhibit 10.23 to the Company's Annual
dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993.
</TABLE>
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<S> <C> <C>
10.24 Asset Purchase Agreement dated January 27, Incorporated by reference to Exhibit 2.1 to the Company's Current Report
1994, between Tennant Company, Castex on Form 8-K dated February 15, 1994.
Industries, Inc., Wayne Investment Corp.
and Wayne A. Streuer
13.1 Portions of 1995 Annual Report to Filed herewith electronically.
Shareholders
21.1 Subsidiaries of the Registrant
Tennant Company has the following
subsidiaries:
Tennant Holding B.V. is a wholly owned
subsidiary organized under the laws of
the Netherlands in 1991. A legal
reorganization occurred in 1991 whereby
Tennant N.V. became a participating
interest of Tennant Holding B.V. Tennant
N.V. had previously been a wholly owned
subsidiary organized under the laws of
the Netherlands in 1970. Tennant
Maintenance systems, Limited, was a
wholly owned subsidiary, organized
under the laws of the United Kingdom
until October 29, 1992, at which
time Tennant Holding B.V. acquired 100%
of its stock from Tennant Company.
Contract Applications, Inc., a wholly
owned subsidiary organized under the
laws of the state of Minnesota, was
incorporated on November 15, 1984,
became operational in January 1985,
and was dissolved in 1993. Castex,
Incorporated, is a wholly owned
subsidiary organized under the laws
of the state of Michigan. The results
of these operations have been
consolidated into the financial
statements, as indicated therein.
23.1 Independent Auditors' Consent Filed herewith electronically.
27.1 Financial Data Schedule Filed herewith electronically.
</TABLE>
B. Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended December
31, 1995.
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CROSS REFERENCE SHEET
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<CAPTION>
Form 10-K Referenced Location
- - --------- ---------- --------
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Part I, Item 1 - Business 1995 Annual Report to Shareholders Exhibit 13.1
a. General Pages 2, 3, 4, 5, 6, 8, 10 and 12
b. Lines of business, industry segments Page 24, footnote 3
and foreign and domestic operations
c. Working capital practices Pages 16 and 17
d. Product research and development Pages 4, 5, 8, 10 and 12
Page 24, footnote 2
e. Employment Page 30
Part I, Item 2 - Properties 1995 Annual Report to Shareholders Exhibit 13.1
Page 25, footnote 7
Page 26, footnote 9
Inside back cover
Part II, Item 5 - Market for 1995 Annual Report to Shareholders Exhibit 13.1
the Registrant's Common a. Principal market Inside back cover
Equity and Related b. Quarterly data Page 24, footnote 4
Shareholder Matters Inside back cover
c. Number of shareholders Inside back cover
d. Dividends Page 24, footnote 4
Inside back cover
Part II, Item 6 - Selected 1995 Annual Report to Shareholders Exhibit 13.1
Financial Data Pages 30 and 31
Part II, Item 7 - Management's 1995 Annual Report to Shareholders Exhibit 13.1
Discussion and Analysis of Pages 14 to 17
Financial Condition and
Results of Operations
Part II, Item 8 - Financial 1995 Annual Report to Shareholders Exhibit 13.1
Statements and Supplementary Pages 18 to 29
Data
Part III, Item 10 - Directors 1996 Proxy Pages 4 to 6
and Executive Officers of the
Registrant
Part III, Item 11 - Executive 1996 Proxy Pages 7 to 14
Compensation
Part III, Item 12 - Security 1996 Proxy Pages 2 and 4
Ownership of Certain
Beneficial Owners and
Management
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By - /s/ Roger L. Hale
Roger L. Hale, President,
Chief Executive Officer,
and Board of Directors
Date - March 26, 1996
By - /s/ Richard A. Snyder
Richard A. Snyder
Vice President, Treasurer, and
Chief Financial Officer
Date - March 26, 1996
By - /s/ Mahedi A. Jiwani
Mahedi A. Jiwani
Corporate Controller and
Principal Accounting Officer
Date - March 26, 1996
By - /s/ Arthur D. Collins, Jr.
Arthur D. Collins, Jr.
Board of Directors
Date - March 26, 1996
By - /s/ David C. Cox
David C. Cox
Board of Directors
Date - March 26, 1996
By - /s/ Andrew P. Czajkowski
Andrew P. Czajkowski
Board of Directors
Date - March 26, 1996
By - /s/ William A. Hodder
William A. Hodder
Board of Directors
Date - March 26, 1996
By - /s/ Delbert W. Johnson
Delbert W. Johnson
Board of Directors
Date - March 26, 1996
By - /s/ William I. Miller
William I. Miller
Board of Directors
Date - March 26, 1996
By - /s/ Arthur R. Schulze, Jr.
Arthur R. Schulze, Jr.
Board of Directors
Date - March 26, 1996
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TO OUR SHAREHOLDERS
We finished 1995 with our ninth consecutive quarter of record sales and
earnings. Full year return on beginning shareholders' equity of 20.4% reached
our profit goal, and 16% sales growth allowed us to surpass our long-term growth
goal. While we are showing good progress towards achievement of our strategic
mission--to be the preeminent company in nonresidential floor maintenance
equipment, floor coatings, and related product offerings--we recognize that
there is still some distance to go.
Our success to date results in part from the emphasis our three businesses
have placed on developing partnerships with their customers. This approach is
highlighted by the quotes from customers included in our report. However, in
order to reach the objective of industry preeminence, we must intensify this
effort and approach it as a total company. That is what this report is about.
[PHOTO]
Roger Hale, President and CEO, Tennant; Duane Collins, President and CEO, Parker
Hannifin Corporation; and Don Zito, President, Fluid Connectors Group, Parker
Hannifin Corporation
PROFITABILITY IMPROVEMENT ON RECORD EARNINGS AND SALES
Net earnings for 1995 of $19.7 million, or $1.98 per share, were up 25% from
the prior year's $15.7 million, or $1.60 per share. The increase in earnings was
due to strong sales gains and an improvement in operating margin.
Net sales of $325 million increased 16%. About one-third of the gain was due
to the operations acquired in 1994 being included for a full year and the weaker
U.S. dollar in 1995. We estimate that foreign currency rate changes increased
sales by $6.1 million, and net earnings by $0.8 million, or 8 cents per share.
Profit from operations of $30.2 million increased 25% from 1994, resulting in
an operating margin of 9.3% of sales. This compares to a margin of 8.6% for the
prior year. The primary reasons for the improvements were strong sales gains,
the weaker U.S. dollar, and elimination of expenses related to discontinued
operations.
SOLID FINANCIAL CONDITION
Tennant's financial position remained strong throughout 1995. Debt at year-
end increased to 26% of total capitalization from 23% the prior year due to an
unusual increase in working capital and a planned increase in capital spending.
The increase in working capital was primarily due to a high level of sales in
the latter part of the fourth quarter and previously reported operating problems
in Europe. Our European subsidiary encountered difficulties in the second half
of the year related to the installation of a major new software system which,
among other things, temporarily affected receivable and inventory levels.
Capital spending in 1995 increased primarily because of our commitment to a
broader use of information technology. (See pages 8 and 16 for further comments
on this subject.) While capital spending in 1996 will be somewhat higher than in
1995, we expect to improve our working capital position. This should allow for a
reduction in debt as a percent of total capitalization by the end of 1996.
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STOCK SPLIT AND DIVIDEND INCREASE
In April 1995, we implemented a two-for-one stock split. This doubling of
shares outstanding was done to improve our stock's liquidity and to make the
price more attractive to individual investors.
Our 1995 cash dividend totaled 68 cents per share, an increase of 5% from the
prior year. This was our 24th consecutive annual increase, a record very few
public companies can match.
COMPANYWIDE PROGRESS ON GROWTH STRATEGIES
Our record performance was the result of making good progress on our growth
strategies during the year.
Sales of INDUSTRIAL FLOOR MAINTENANCE EQUIPMENT, which represented 73% of
consolidated revenues, were up 12% for 1995. About one-third of this increase
came from acquisitions and currency translation effects.The introduction of our
new line of technologically advanced walk-behind scrubbers went very well. This
line, a recently introduced outdoor sweeper, and a combination sweeper/scrubber
made strong contributions to the overall sales gain. Aftermarket sales in North
America also were up nicely. We have been steadily expanding our service force,
and our installed base of equipment requiring aftermarket items has been
growing.
Internationally, products sold through distributors were up strongly in
several Latin American and Pacific Rim countries. Our weakest sales results
occurred in Germany and Japan, where we believe slow economic growth was a
contributing factor in our performance.
Our COMMERCIAL FLOOR MAINTENANCE EQUIPMENT sales, which represented 20% of
consolidated revenues, increased 28% on a worldwide basis. While about one-half
of the increase was due to acquisitions and currency translation effects,
significant market share gains were achieved in key areas. We introduced a
number of products during the year, and the propane burnisher models that
entered the line due to an acquisition in late 1994 were well received. The
operational problems Castex encountered early in the year, due mainly to rapid
growth, getting settled into a new facility, and parts shortages, were
substantially corrected by mid-year. Castex's profitability has improved
steadily since, and we expect to see further improvement in 1996.
Our FLOOR COATINGS sales, which represented 7% of consolidated revenues, were
up 16% for the year. This is the second year of solid growth since we
restructured this business several years ago, and profitability has been fully
restored. The primary reasons for our recent successes are the development and
expansion of a network of independent contractors and new products, including
resurfacers and a unique line of environmentally safe coatings
(Eco-Coatings-TM-) and preparation process (Eco-Prep-TM-).
OUTLOOK FOR 1996
Our financial results in 1996 will be influenced by a number of activities.
These include:
- - - The increased emphasis on product development over the past several years has
produced a steady flow of new and updated products. That trend will continue
in 1996.
- - - Our subsidiaries, Tennant Holding B.V. in Europe and Castex Incorporated in
North America, have substantially corrected the operating challenges
encountered last year. Both are expected to produce a steady improvement in
profitability.
We have started the year on a somewhat cautious note due to reports of
weakening economic conditions. However, based on the current consensus economic
forecast of soft conditions early in the year and a resumption of growth by mid-
year, we believe Tennant can show steady sales and earnings gains in 1996.
/S/Roger L. Hale
-------------
Roger L. Hale
President, Chief Executive Officer
March 22, 1996
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TENNANT AT A GLANCE
Tennant's vision is to work for a cleaner and safer world. Our strategic
mission is to be the preeminent company in nonresidential floor maintenance
equipment, floor coatings, and related product offerings.
As shown below, Tennant offers a broad product line in the nonresidential
floor maintenance industry. The competitive strengths and growth strategies in
place for each of our three product lines are focused on reaching our goal:
being the preeminent company in our industry.
- - --------------------------------------------------------------------------------
PRODUCT LINES
INDUSTRIAL
FLOOR MAINTENANCE
EQUIPMENT
[PHOTO OF INDUSTRIAL FLOOR MAINTENANCE EQUIPMENT]
PRODUCTS
Products to clean surfaces with vehicle and heavy foot traffic such as:
- - - factories, warehouses, stadiums, airport hangars, parking garages, and
outside areas.
- - - sweepers and scrubbers:
- walk-behinds
- indoor riders
- outdoor vehicles
- - --------------------------------------------------------------------------------
PRODUCTS LINES
COMMERCIAL
FLOOR MAINTENANCE
EQUIPMENT
[PHOTO OF COMMERCIAL FLOOR MAINTENANCE EQUIPMENT]
PRODUCTS
Products to clean surfaces with foot traffic such as:
- - - office buildings, super-markets, retail outlets, airport terminals, and
hospitals.
- - - walk-behind scrubbers and sweepers, carpet extractors, burnishers, buffers,
polishers, and other specialized equipment.
- - --------------------------------------------------------------------------------
PRODUCT LINES
FLOOR COATINGS
[PHOTO OF FACTORY FLOOR]
PRODUCTS
Products that treat, repair, and upgrade concrete and wood floors. Specialty
products are available for areas with chemical exposure or odor-sensitivity.
Used in factories and warehouses, and available for other applications.
Applied by customer or authorized contractor.
- - --------------------------------------------------------------------------------
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[PIE CHART]
Pie chart showing breakdown of 1995 sales into Europe (17%) World Export (10%),
and North America Sales (73%). North America Sales are broken out further into
Commercial (18%), Industrial (49%), and Flooring Coatings (6%). Europe Sales
are broken out into Commercial (2%), and Industrial (15%). World Export Sales
are broken out into Commercial (1%) and Industrial (9%).
MARKETS
World market for equipment and aftermarket estimated at about $700 million.
Market share greater than 50% in segments such as manufacturing, warehousing,
distribution, and government.
SALES/SERVICE
Direct sales/service in the United States, Australia, Canada, France, Germany,
The Netherlands, Spain, and the United Kingdom.
Well-established, full-service distributor network in 45 other countries
including Japan.
COMPETITIVE STRENGTHS
Market leadership worldwide.
Broadest line of quality products resulting from industry-leading commitment to
engineering.
Strong sales/service support on a worldwide basis.
Manufacturing facilities in the United States and Europe.
GROWTH STRATEGIES
Emphasize customer partnerships (see pages 6 and 7).
Maintain product leadership--steady flow of updated and new products.
Focus on nontraditional market niches.
- - --------------------------------------------------------------------------------
MARKETS
World market for equipment and aftermarket estimated at over $2 billion.
Sold under Castex, Nobles, Eagle, and Tennant brand names, depending on the
product and geographic area.
Among the leaders in North America; rapidly growing positions internationally.
SALES/SERVICE
Broad geographic coverage in North America through a full-service distributor
network.
Full-service distributor network is being established internationally.
COMPETITIVE STRENGTHS
Strong position in North American market.
Complete line of quality products with a reputation for innovation.
Reputation for high level of distributor support.
GROWTH STRATEGIES
Emphasize customer partnerships (see pages 6 and 7).
Maintain product leadership with a continued focus on innovation.
Expand internationally.
- - --------------------------------------------------------------------------------
MARKETS
North American market for industrial sealers, resurfacers, and coatings
estimated at over $150 million, excluding application labor.
Market share estimated at about 15% of total market, but higher in coatings
segment.
SALES/SERVICE
Sold by Tennant's direct sales force in North America as a complementary product
to industrial floor maintenance equipment.
Also sold by independent contractors' network.
COMPETITIVE STRENGTHS
Broad line of sealers, resurfacers, and coatings including environmentally safe
floor coating system (Eco-Coatings-TM- and Eco-Prep-TM-).
In-house chemistry lab that formulates products and oversees their production
and application.
GROWTH STRATEGIES
Emphasize customer partnerships (see pages 6 and 7).
Maintain product leadership with emphasis on Eco-Coatings-TM- line.
Expand contractor network.
- - --------------------------------------------------------------------------------
5
<PAGE>
PARTNERSHIPS FOR GROWTH
Tennant's vision is to work for a cleaner and safer world. Our strategic
mission is to be the preeminent company in nonresidential floor maintenance
equipment, floor coatings and related product offerings. Each of our three
businesses are successfully executing growth strategies to achieve this.
However, we recently decided to look beyond individual growth strategies and
began considering the kind of TOTAL company Tennant needs to be to
reach preeminence.
We concluded that the best approach would be to put greater emphasis on
customer and channel partnerships and to do so from a total company perspective.
This builds on an infrastructure already in place: extensive global
sales/service network, "800" customer service line in key parts of the business,
excellent relationships with our independent floor coatings contractors and
equipment distributors, and complementary product lines that we are bringing
together to best serve the customer.
At the same time, we will continue to update and broaden our lines and offer
the most innovative, highest quality products, with the strongest warranties in
our industry. These form the foundation of a close relationship with customers.
CUSTOMER PARTNERSHIPS AT TENNANT
By customer partnerships, we mean developing long-term relationships with the
end-users for our products, as well as the independent floor coatings
contractors and equipment distributors that are integral parts of our
distribution channels. By understanding customers' needs and working with them
to develop total cleaning solutions, we add value to our product offerings. This
allows us to become a part of each customer's team, and lets customers focus
more on their core business activities. This kind of partnership makes both
parties stronger.
What will customer partnerships look like at Tennant?
- - - Sales and service people will listen closely to customer comments on
current products and the types of features and services they would like.
- - - Then we will do whatever it takes to offer our customers a TOTAL solution
to their floor maintenance needs--from developing new products and
services, to advice and training on floor maintenance practices, to
training for distributors and contractors on how to sell, service, and/or
apply our products.
- - - We will provide the systems and technologies to easily capture and use
customer information. This includes enabling customer service
representatives to immediately respond to customer inquiries. Through use
of technology in this and other ways, Tennant will become a more efficient
and effective organization.
CUSTOMER PARTNERSHIPS WILL DIFFERENTIATE TENNANT
We believe Tennant is well positioned to accomplish this. Most of our
competitors focus on one product line--they cannot offer the total cleaning
solution of Tennant's industrial, commercial, and floor coatings product lines.
In addition, Tennant provides its products and services through a variety of
channels. This gives us the flexibility to best serve each market group and
customer. None of our competitors are able to do this.
In all areas of our business, we already have a great many long-term
partnerships with customers based on excellent sales and service, and overall
responsiveness. (Several of these relationships are outlined in this report.)
Now, with our recently expanded floor coatings contractor relationships, our
powerful equipment distributor network, and rapidly improving process and
systems infrastructure, we will strengthen a solid franchise and reach the goal
of industry preeminence. By doing this, we will offer greater opportunities for
our employees and expect to achieve an above-average return on investment for
shareholders over time. And just as important for a 126-year-old company, we
will keep Tennant competitive in the next century.
Tom Cripe, Parker Hannifin Sales; and
Rich Carlson, Tennant Purchasing
6
<PAGE>
[BAR GRAPH]
<TABLE>
<CAPTION>
Industrial Sales in Millions
Year North America Overseas Total
<S> <C> <C> <C>
1990 120 58 178
1991 112 58 170
1992 120 63 183
1993 130 60 190
1994 147 64 211
1995 158 79 237
</TABLE>
INDUSTRIAL FLOOR MAINTENANCE EQUIPMENT
UP-TO-DATE, BROAD PRODUCT LINE
Tennant works with a wide range of customers: from the city of Mecca in Saudi
Arabia, to railroad stations in Frankfurt, to San Diego's convention center, to
factories and warehouses just about everywhere.
Our industrial floor maintenance equipment is designed to clean surfaces with
vehicle or heavy foot traffic. We offer the broadest line of products available
with prices that range from $2,000 for walk-behind units, to $85,000 for an
outdoor sweeper:
- - - Sweepers that remove wet or dry debris with excellent dust control.
- - - Scrubbers that apply a cleaning solution, scrub the surface clean, and then
remove virtually all of the solution, all in one operation.
- - - Combination sweeper/scrubber that can sweep most types of debris while
simultaneously doing an effective scrubbing job.
One reason Tennant can offer all these products is that we typically invest
4-5% of annual sales in product engineering--about twice that of most
manufacturers. The quality and reliability of our products allow Tennant
to offer the longest and most comprehensive warranties in the industry. (Our
North American and European operations both have ISO 9001
quality certification.)
Tennant also has a very extensive after-sales support and service business
that supplies replacement parts, labor, detergent and brushes to customers.This
aftermarket business provides about one-third of industrial equipment revenues.
LEADERSHIP IN A LARGE MARKET
We estimate that annual sales for the global industrial equipment market
are about $700 million and that unit volumes are growing at a 3-4% rate. Two
trends are driving growth in the industrial market: more companies understanding
that quality and productivity improvement begin with a clean floor, and more
countries becoming prosperous--and interested in providing a cleaner, safer
environment.
Tennant is the world market leader. We hold better than a 50% share of
industrial market segments in North America such as manufacturing,
warehousing/distribution, and transportation, as well as the government
segment. Tennant's international market share is less overall, but is highest
for larger products and in certain markets such as Australia.
EXTENSIVE SALES/SERVICE NETWORK GIVES COMPETITIVE EDGE
One of Tennant's greatest competitive advantages is an eight-country direct
sales and service network--in the U.S., Australia, Canada, France, Germany, The
Netherlands, Spain and the United Kingdom--that generates 85% of worldwide
sales. In addition, we have a well-established full-service distributor network
in 45 other countries including Japan. Competitors are unable to match Tennant's
ability for global sales and service.
GROWTH STRATEGIES
Strategies for reaching our goal of industry preeminence, in addition to
emphasizing long-term customer partnerships on a companywide basis (described on
pages 6 and 7), include:
- - - PRODUCT LEADERSHIP. We will continue to introduce a steady stream of
updated and new, differentiated products that offer greater value.
- - - NONTRADITIONAL MARKETS. While our products are well established in many
markets, niches such as the contract cleaner segment offer opportunity for
Tennant.
- - - EFFICIENCY AND EFFECTIVENESS. In 1995, we increased our commitment to the
use of information technology, including systems that enhance our ability
to serve customers and improve the effectiveness of our sales operations.
This commitment will be expanded to other functions and activities in 1996
and beyond.
Bengt Carlsson and Soren Persson, TENNAB;
Franco Selar, Volvo; and Dennis Kortsha, Tennant
8
<PAGE>
[BAR GRAPH]
<TABLE>
<CAPTION>
Commercial Sales in Millions
Year North America Overseas Total
<S> <C> <C> <C>
1990 9.5 9.5
1991 12.0 12.0
1992 13.0 1.0 14.0
1993 13.0 3.5 16.5
1994 47.0 5.0 52.0
1995 57.5 9.0 66.5
</TABLE>
COMMERCIAL FLOOR MAINTENANCE EQUIPMENT
BROAD PRODUCT LINE FOR CARPETED AND HARD FLOOR SURFACES
Hospitals, offices, schools and shopping malls, among others, use our
products to clean floors. We offer one of the most complete lines of commercial
floor maintenance equipment available from one source, with prices that range
from $300 for small, upright vacuum cleaners, to over $7,000 for walk-
behind scrubbers:
- - - WALK-BEHIND SCRUBBERS that remove grease and grime from hard floors--
including grouted tile. These machines remove virtually all of the cleaning
solution used on the floors and are easy to maneuver in tight spaces.
- - - CARPET EXTRACTORS that clean carpets by applying a cleaning solution,
scrubbing it, and then removing the solution.
- - - BURNISHERS AND FLOOR MACHINES that give scrubbed floors a shiny, high-gloss
appearance.
- - - SWEEPERS AND VACUUMS that sweep, vacuum and remove debris or water from
virtually any surface.
Substantially all of these products are manufactured by Castex, a Tennant
subsidiary since February 1994, in a new facility located in Holland, Michigan.
Products are sold in North America, primarily by independent distributors, under
the Castex brand name for carpet care and under the Nobles and Eagle names for
hard floor care. Products are also sold internationally, but under the Nobles
and Tennant brand names, depending on the geographic area.
FAST-GROWING OPERATION IN LARGE MARKET
We estimate that worldwide revenues for the global commercial floor
maintenance equipment market are $2 billion, with unit volumes growing at a 4-5%
rate. North America generates about 40% of these revenues, and both the North
American and international segments are growing at about the same rate. Market
expansion is being driven by several trends: growth in the service sector of the
economy, consumer preference for clean environments, potential liability issues
related to wet or dirty public places, and the need for increased productivity
in the workplace.
Castex is one of the leading commercial equipment suppliers in the U.S.
Products also are sold internationally, where rapid annual growth is being
achieved from a smaller base. As a result, commercial equipment is Tennant's
fastest growing product line.
GROWTH STRATEGIES
Strategies for reaching our goal of global industry preeminence, in
addition to emphasizing long-term customer partnerships on a company-wide basis
(described on pages 6 and 7), include:
- - - PRODUCT LEADERSHIP. In late 1994, we acquired the Eagle Floor Care company
in order to expand our burnisher product line. In 1995, we introduced a
number of products including extractors and a scrubber, and additional
products are planned for 1996.
- - - INTERNATIONAL GROWTH. We believe international markets, which represent
over 50% of the commercial floor maintenance equipment industry, offer an
excellent growth opportunity. Our objective is to rapidly expand
distribution, and we are already doing so in several key markets. However,
our base is small, and therefore, acquisitions or alliances will be
considered as an alternative to internal growth in selected markets.
Bryan Speet and Neeraj Gupta, ServiceMaster;
and Mark Wierda, Castex
10
<PAGE>
[BAR GRAPH]
<TABLE>
<CAPTION>
Floor Coating Sales in Millions
Year North America Overseas Total
<S> <C> <C> <C>
1990 14.3 14.3
1991 13.0 13.0
1992 14.6 14.6
1993 14.8 14.8
1994 18.2 18.2
1995 20.7 0.6 21.3
</TABLE>
FLOOR COATINGS
BROAD LINE FEATURING ENVIRONMENTALLY SAFE PRODUCTS
Floor coatings are widely used in industry because of the many benefits of
a coated floor. Floor coatings protect concrete from chemicals and wear, and
make maintenance easier. Coated floors help to produce a clean, high-quality
working environment that improves employee morale and enhances company image.
Tennant offers a complete line, assuring the best solution for concrete and wood
floor areas:
- - - DURABLE COATINGS for main traffic aisles and loading docks.
- - - CHEMICAL-RESISTANT coatings for areas with chemical exposure.
- - - EPOXY RESURFACERS for damaged floors needing restoration.
- - - ENVIRONMENTALLY SAFE COATINGS for odor-sensitive applications.
Tennant formulates its products and oversees their production and
application.
UNIQUE ECO-COATINGS-TM- PRODUCTS
Our unique Eco-Coatings-TM- product line combines high durability with low
to no solvent content. When combined with our exclusive Eco-Prep-TM- process,
which is solvent-free, Eco-Coatings-TM- provide the ideal solution for odor-
sensitive applications.
NORTH AMERICAN MARKET LEADER
Tennant is the industry leader in sales for the North American floor
coatings market. Coatings are sold by the same direct sales force that sells our
industrial equipment. This is successful due to the complementary nature of the
two product lines. In addition to direct sales, Tennant floor coatings are also
sold and applied by a national network of independent contractors. We estimate
Tennant has about a 15% share in a market of at least $150 million in annual
sales.
GROWTH STRATEGIES
Strategies for reaching our goal of industry preeminence, in addition to
emphasizing long-term customer partnerships on a companywide basis (described on
pages 6 and 7), include:
- - - PRODUCT LEADERSHIP. We will maintain our commitment to product leadership
with emphasis on environmentally safe products such as the Eco-Prep-TM-
process. During 1995, a number of products were introduced including
decorative quartz flooring, a static dissipative system, a power trowel
resurfacer, and Eco-Hard-N-Seal-TM---an addition to the Eco-Coatings-TM-
line.
- - - LEADING THE INDUSTRY IN SERVICE. Tennant provides the best service and
support in the floor coatings industry. This service is varied and is
offered in many ways. Floor coatings applicators are supported through on-
site assistance and a toll-free number with extended coverage hours.
Contractor support includes application training, business planning, and
overall support. Service and support is also extended to the contractor
network through our marketing efforts, business development, and
involvement of the contractor in product development. The combination of
this support infrastructure and national coverage by direct sales is the
key to our leadership position.
- - - BENEFITING FROM SYNERGIES WITH TENNANT'S OTHER BUSINESSES: No other floor
coatings supplier has the ability to provide such a wide range of floor
maintenance products to every customer it serves. This represents an
important competitive advantage that we are working to fully develop.
Tennant's unique Eco-Prep-TM- Machine and Floor
Coatings Products help ensure superior results.
Jim Ernst, Advantage Coatings;
and Steve Nelson, Tennant
12
<PAGE>
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SELECTED INDICATORS OF GROWTH AND PROFITABILITY
<TABLE>
<CAPTION>
CURRENT ECONOMIC CYCLE(a) PREVIOUS ECONOMIC CYCLE(a)
CURRENT CYCLE LAST HALF FULL
YEAR TO DATE OF CYCLE CYCLE
1995 1991-1995 1987-1990 1982-1990
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Return on Beginning Shareholders' Equity(c) 20.4 17.0 16.6 14.9
Compound Annual Growth (%):
Sales -- Nominal +16 +9 +9 +8
-- Real(b) +8 +6 +4 +3
Net Earnings(c) +25 +9 +10 +3
Cash Dividends Per Share +5 +3 +6 +6
Net Operating Assets +23 +13 +4 +5
Growth Period (From-To) 1994-1995 1990-1995 1986-1990 1981-1990
</TABLE>
(a) The Company's long-term growth and profitability goals are presented
at the end of this section. Growth is measured over a full economic
cycle. For purposes of this table, 1991 is considered to have marked
the beginning of the current cycle (growth measured from 1990). The
previous cycle covered the years 1982 through 1990 (growth measured
from 1981).
(b) Real sales are determined by adjusting annual reported (nominal) sales
for the estimated effects of changes in product pricing, foreign
currency exchange rate moves, and applicable accounting changes.
(c) Based on reported earnings before extraordinary gain and cumulative
effect of accounting change except for 1993, 1992, 1990 and 1989 which
have been adjusted to eliminate unusual items, net of income taxes, as
described in the Historical Progress Review, footnotes (a) through
(d).
FINANCIAL RESULTS OF OPERATIONS
EARNINGS: For 1995, net earnings were $19.7 million, or $1.98 per share, up
25% from the prior year. Return on sales was 6.0%, and return on beginning
shareholders' equity was 20.4%. Key causes for the improvement in earnings and
profitability were strong sales gains and improvement in operating margin (both
causes are explained below).
For 1994, net earnings were $15.7 million, or $1.60 per share (adjusted for
April 1995 stock split; see "Notes to Consolidated Financial Statements," note
14), up 72% from 1993. Return on sales was 5.6%, and return on beginning
shareholders' equity was 18.7%. Key causes for the improvement in earnings and
profitability were strong sales gains and the successful integration of the
February 1994 Castex acquisition (see "Notes to Consolidated Financial
Statements," note 16), and the effect of restructuring charges on 1993 earnings.
For 1996, the Company is somewhat cautious in its short-term outlook
because of reports of weakening economic conditions in North America and Europe.
However, the consensus economic forecast indicates soft conditions at worst
early in the year, followed by a resumption of growth. Based on this outlook,
the Company believes it can show steady sales and earnings gains in 1996 due to
the significant number of new and updated products
14
<PAGE>
introduced in the past several years, and the improved profitability of its two
major subsidiaries.
SALES: For 1995, net sales of $325 million increased 16% from the prior
year. About one-third of the increase was due to the operations acquired in 1994
being included for a full year and the weaker U.S. dollar in 1995. In total,
foreign currency rate changes increased full year sales by $6 million, and
backlogs declined by $2 million.
North American sales of $236 million in 1995 were up 13% on generally
favorable economic conditions early in the year, except for Mexico, and weaker
conditions late in the year, especially in the industrial sector by year-end.
Commercial equipment sales increased 25%; about one-half of the increase was due
to the prior year's acquisitions. Floor coatings sales increased 14% due to new
product sales and continued development of the independent contractor network.
Industrial equipment sales increased 7% due to strong sales of recently
introduced machines, and aftermarket products.
Overseas sales of $89 million in 1995, representing 27% of consolidated
revenues, increased 24%. About one-half of the increase was due to the prior
year's acquisitions and the foreign currency rate changes in 1995. The strongest
gains came from commercial equipment sales in Europe and Japan. Industrial
equipment sales were up overall on strong sales gains in Latin America, the
Pacific Rim, and several European countries, including France and Spain.
However, economic weakness in Germany and Japan contributed to a sales decline
in these markets.
For 1994, net sales of $282 million increased 27% from 1993. Sales were
affected by the February 1994 Castex acquisition (see "Notes to Consolidated
Financial Statements," note 16). Foreign currency rate changes increased
reported sales by $0.8 million, and backlogs increased by $3 million.
North American sales of $210 million in 1994 were up 33% on a strong
economy that benefited all product lines. Commercial floor maintenance equipment
sales more than tripled from the prior year due to the acquisition and
marketplace acceptance of the new Castex. Industrial floor maintenance equipment
sales increased 12% on the strength of several new products. Floor coatings
sales were up 23% due to expansion of the authorized contractor network and
several innovative products.
Overseas sales of $72 million in 1994, representing 25% of consolidated
revenues, increased 13%. Excluding the effect of a 1993 change in fiscal year-
end for the European operations and a weaker U.S. dollar, local currency sales
increased 19%. Economic conditions in Europe began to recover, and strong
results were obtained in other areas with new products being a factor.
PROFIT FROM OPERATIONS: For 1995, profit from operations of $30.2 million,
or 9.3% of sales, was up 25% from the prior year. Factory capacity use is
estimated to have been in the low 70% range for the year.
The improvement in operating margin was due to better gross margin, which
rose to 42.9% of sales from 42.4% the prior year. The improvement in gross
margin was primarily due to the strong sales gains and the effect of generally
favorable foreign currency rate changes, especially the weakness of the U.S.
dollar relative to the guilder, mark and yen.
Selling and administrative expenses, as a percent of sales, improved to
33.7% from 33.8% the prior year. This expense rate improvement was primarily due
to the elimination of expenses related to operations discontinued in 1994. This
and other expense efficiencies were partially offset by increased expenses
related to information technology projects, and unusual expenses primarily
related to operational challenges encountered in European operations that are
described elsewhere in this report.
For 1994, profit from operations of $24.1 million, or 8.6% of sales, was up
56% from 1993's operating profit before restructuring charges. Key causes of the
improvement were the strong sales gains and the successful integration of the
Castex
15
<PAGE>
acquisition. Factory capacity use is estimated to have been about 70% for the
year.
OTHER INCOME AND EXPENSE: For 1995, other net expense of $747,000 increased
from the prior year's $43,000 due to an increase in interest expense on higher
debt and interest rates, and an increase in the Company's contribution to the
Tennant Foundation. The Company's primary source of interest income is from
financing-type leases to industrial customers. Of the $4.1 million in interest
income reported in 1995, $2.2 million is from financing-type leases to
customers, and $1.6 million is from the Company's Employee Stock Ownership Plan
(ESOP). (The ESOP interest income was partially offset by $0.8 million of
ESOP expense that is included in "miscellaneous expense.")
INCOME TAXES: For 1995, the effective tax rate of 33.2% declined from the
prior year's rate of 34.7% primarily due to tax losses in several high tax
countries in Europe and a relative increase in tax credits.
For 1996, the Company expects an effective tax rate of about 35%. However,
if the U.S. tax law providing tax credits related to research and development
activities that expired during 1995 is reinstated, 1996's effective rate could
be 2 to 3 percentage points lower, assuming the reinstatement is retroactively
applied.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong throughout 1995. While
debt at year-end increased to $40 million from $29 million, at 26% of
capitalization, it was within stated objectives. The increase in debt was due to
increases in working capital and capital spending, both of which are commented
on below.
For 1996, debt, as a percent of total capitalization, is expected to
decline by year-end based on an improved working capital position.
FINANCIAL POSITION: Cash and cash equivalents finished 1995 at $4.2
million, up slightly from the prior year. Cash is being managed at a relatively
low level by using any accumulation to pay-down short-term debt.
Year-end 1995 adjusted working capital (i.e., current assets less current
liabilities, excluding cash and current debt) increased $20 million, or 36% over
prior year-end because of increases in receivables and inventories. Somewhat
more than one-half of the increase resulted from the higher level of sales, a
higher-than-normal proportion of fourth quarter sales occurring late in the
quarter, and the effects of foreign currency rate changes. The remaining portion
of the increase was primarily caused by operating problems in Europe related to
the installation of a major software system. These difficulties were
substantially eliminated by year-end, and a steady reduction in inventory and
receivables is expected in 1996.
Property, plant, and equipment, net of accumulated depreciation, increased
by $7 million. Capital spending, net of disposals, was $19 million. Capital
spending, in order of magnitude, included information technology hardware and
software, factory equipment, vehicles, and product tooling. (Vehicles tend to
represent a large category of investment for the Company due to the Company's
direct sales and service approach in key markets.)
For 1996, the Company expects capital spending, net of disposals, of $21
million, and depreciation expense of $15.5 million. The level of capital
spending reflects the Company's commitment to the increasing use of information
technology to enhance its competitive position by better serving customers and
improving operating efficiency (see pages 6 and 7).
DIVIDENDS AND COMMON STOCK: Cash dividends of $0.68 per share increased 5%,
resulting in the 24th consecutive year of increase.
Common stock outstanding, adjusted for the April 1995 stock split, averaged
9,915,900 shares in 1995, up slightly from the prior year. Beginning in 1996,
the Company may repurchase and retire its common stock, in an amount not
expected to exceed 200,000 shares annually, in order to maintain shares
outstanding at about 9.9 million.
16
<PAGE>
On February 16, 1995, the Company announced a 2-for-1 stock split effective
April 26, 1995, for shareholders of record April 12, 1995 (see "Notes to
Consolidated Financial Statements," note 14).
IMPACT OF INFLATION: Inflation has not been a significant factor for the
Company for several years. For 1995, it is estimated that effective product
pricing was somewhat below inflation on costs and expenses. This did not have a
material affect on results of operations. For 1996, the Company expects that
product pricing will be about equal to inflation.
The relatively high inflation of the 1970s and early 1980s continues to be
reflected in the Company's historical cost financial statements in the following
ways:
- - - Inventories do not reflect current replacement cost as they are principally
stated on a last-in, first-out basis. (See "Notes to Consolidated Financial
Statements," note 1, for amounts involved.)
- - - Property, plant, and equipment is stated at historical cost which is below
current replacement value for older assets.
These shortcomings of historical cost financial statements are managed by
establishing return-on-investment objectives based on current values for assets.
In addition, price indexes are used to calculate real, inflation-adjusted sales
which allow for more meaningful measurements of growth over extended periods of
time.
IMPACT OF CHANGING VALUE OF THE U.S. DOLLAR: The Company operates
internationally with 34% of sales occurring outside of the United States.
For 1995, the ten largest international markets for the Company, based on end-
user sales value, were Australia, Belgium, Canada, France, Germany, Japan,
Malaysia, The Netherlands, Spain, and the United Kingdom. The Company's products
are sold directly or through independent distributors in over 50 countries.
For a number of years, the world's key currencies have experienced
significant changes in relative value, sometimes over short periods of time, as
they did in 1994 and 1995. For the Company, a weaker dollar relative to all
currencies, and a weaker guilder relative to other European currencies,
is generally advantageous because it lowers the foreign currency cost of
exported products, and increases the value of sales and earnings denominated in
other currencies.
It is not possible to determine the true impact of changes in relative
value of currencies; however, the direct effect on sales and earnings can be
estimated. For 1995, the U.S. dollar weakened considerably against the guilder,
mark and yen early in the year, but then strengthened considerably against the
yen by year-end. In Europe, the guilder strengthened considerably early in the
year against several currencies including the peseta and pound. For 1995, the
estimated net effect of foreign currency rate changes was an increase in net
sales of $6.1 million and net earnings of $0.8 million, or 8 cents per share.
For 1994, the net effect of foreign currency rate changes was not significant.
FINANCIAL GOALS AND POLICIES
The Company's financial mission is to provide an above-average total return
to shareholders. Goals and policies that support this mission are:
- - - Growth - 5% real (inflation-adjusted). To be achieved over a full economic
cycle; measured from cycle peak to peak.
- - - Profitability - 20% return on beginning shareholders' equity. To be
achieved in the growth years of an economic cycle.
- - - Financial Policies - Consistent annual dividend increases and maintenance
of a sound capital structure with financing debt generally not in excess of
30% of capitalization.
Summaries of the Company's financial performance relative to the stated
goals are presented in the various graphs and tables included in this report.
17
<PAGE>
TENNANT COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS Years ended December 31
OF EARNINGS 1995 1994 1993
- - -------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Percent Percent Percent
------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . $325,368 100.0 $281,685 100.0 $221,002 100.0
Less:
Cost of sales. . . . . . . . . . . . . . . 185,668 57.1 162,360 57.6 126,071 57.0
Selling and administrative expenses. . . . 109,518 33.7 95,201 33.8 79,508 36.0
Restructuring charges. . . . . . . . . . . -- -- -- -- 4,090 1.9
-------- ----- -------- ----- -------- -----
Profit from operations . . . . . . . . . . . 30,182 9.3 24,124 8.6 11,333 5.1
Other income and (expense):
Net foreign currency transaction (loss). . (128) -- (371) (.1) (415) (.2)
Interest income. . . . . . . . . . . . . . 4,132 1.3 3,807 1.3 3,583 1.6
Interest (expense) . . . . . . . . . . . . (2,640) (.8) (1,677) (.6) (509) (.2)
Miscellaneous income (expense), net. . . . (2,111) (.6) (1,802) (.6) (1,064) (.5)
-------- ----- -------- ----- -------- -----
Total other income (expense) . . . . . . (747) (.2) (43) -- 1,595 .7
-------- ----- -------- ----- -------- -----
Profit before income taxes . . . . . . . . . 29,435 9.0 24,081 8.6 12,928 5.8
Income tax expense . . . . . . . . . . . . . 9,773 3.0 8,346 3.0 3,802 1.7
-------- ----- -------- ----- -------- -----
Net earnings . . . . . . . . . . . . . . . . $ 19,662 6.0 $ 15,735 5.6 $ 9,126 4.1
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
Net earnings per share . . . . . . . . . . . $ 1.98 $ 1.60 $ .93
-------- -------- --------
-------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
<PAGE>
TENNANT COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
CONSOLIDATED BALANCE SHEETS 1995 1994
- - ------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 4,247 $ 1,851
Receivables:
Trade, less allowance for doubtful accounts
($2,285 in 1995 and $2,294 in 1994). . . . . . . . . . 63,066 51,350
Installment accounts receivable, net of deferred
income from sales finance charges and less
allowance for doubtful accounts ($326 in 1995 and
$315 in 1994). . . . . . . . . . . . . . . . . . . . . 7,147 6,036
Sundry . . . . . . . . . . . . . . . . . . . . . . . . . 2,298 1,824
-------- --------
Net receivables. . . . . . . . . . . . . . . . . . . . 72,511 59,210
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 40,702 30,985
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . 944 696
Deferred income taxes, current portion . . . . . . . . . . 5,104 5,712
-------- --------
Total current assets . . . . . . . . . . . . . . . . . 123,508 98,454
Property, plant, and equipment, net of
accumulated depreciation . . . . . . . . . . . . . . . . . 63,724 56,552
Installment accounts receivable due after one year,
net of deferred income from sales finance charges. . . . . 7,510 6,353
Deferred income taxes, long-term portion . . . . . . . . . . 1,545 1,300
Intangible assets. . . . . . . . . . . . . . . . . . . . . . 18,859 19,287
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 604 888
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . $215,750 $182,834
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current debt . . . . . . . . . . . . . . . . . . . . . . . $ 17,349 $ 23,008
Accounts payable and accrued expenses. . . . . . . . . . . 43,754 39,017
Income taxes payable . . . . . . . . . . . . . . . . . . . 620 2,942
-------- --------
Total current liabilities. . . . . . . . . . . . . . . 61,723 64,967
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 23,149 6,300
Long-term employee-related benefits. . . . . . . . . . . . . 16,177 14,558
Other long-term liabilities. . . . . . . . . . . . . . . . . 570 760
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . 101,619 86,585
Commitments (note 9) . . . . . . . . . . . . . . . . . . . . -- --
Shareholders' equity:
Preferred stock of $.02 par value per share. . . . . . . . -- --
Common stock of $.375 par value per share. . . . . . . . . 3,732 3,690
Additional paid-in capital . . . . . . . . . . . . . . . . 3,166 396
Common stock subscribed. . . . . . . . . . . . . . . . . . 694 525
Unearned restricted shares . . . . . . . . . . . . . . . . (276) (424)
Retained earnings. . . . . . . . . . . . . . . . . . . . . 116,396 103,281
Cumulative translation adjustment. . . . . . . . . . . . . 3,532 2,743
Receivable from ESOP . . . . . . . . . . . . . . . . . . . (13,113) (13,962)
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . 114,131 96,249
-------- --------
Total liabilities and shareholders' equity . . . . . . $215,750 $182,834
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
<PAGE>
TENNANT COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31
CONSOLIDATED STATEMENTS OF CASH FLOWS 1995 1994 1993
- - ---------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW RELATED TO OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $19,662 $15,735 $ 9,126
Adjustments to accrual earnings to arrive at operating
cash flow:
Depreciation and amortization. . . . . . . . . . . . . . 14,090 13,121 10,987
Provision for bad debts. . . . . . . . . . . . . . . . . 803 1,088 701
Provision for stock plans. . . . . . . . . . . . . . . . 1,068 1,730 854
(Gain) loss on sale of property, net . . . . . . . . . . (531) 83 (571)
Provision for deferred taxes . . . . . . . . . . . . . . 588 325 (1,646)
Increase in receivables. . . . . . . . . . . . . . . . . (14,515) (13,997) (4,262)
(Increase) decrease in inventories . . . . . . . . . . . (9,024) (2,241) 1,112
Increase in accounts payable, accrued expenses
and other long-term liabilities. . . . . . . . . . . . 5,610 7,530 2,610
Increase in long-term employee-related benefits. . . . . 1,568 1,919 1,989
Increase (decrease) in income taxes payable. . . . . . . (2,359) 1,841 835
Increase in other assets . . . . . . . . . . . . . . . . (604) (440) (62)
Other, net . . . . . . . . . . . . . . . . . . . . . . . 396 60 249
-------- ------- --------
Net cash flow related to operating activities. . . . . . . 16,752 26,754 21,922
CASH FLOW RELATED TO INVESTING ACTIVITIES:
Acquisition of Castex and Eagle, net of cash received. . (1,126) (28,180) --
Acquisition of property, plant, and equipment. . . . . . (25,222) (23,303) (16,863)
Acquisition of intangible assets . . . . . . . . . . . . -- -- (1,076)
Proceeds from disposals of property, plant,
and equipment. . . . . . . . . . . . . . . . . . . . . 6,105 4,433 3,986
Settlement of foreign currency hedging contracts . . . . (782) (881) 384
-------- ------- --------
Net cash flow related to investing activities. . . . . . . (21,025) (47,931) (13,569)
CASH FLOW RELATED TO FINANCING ACTIVITIES:
Net changes in current debt. . . . . . . . . . . . . . . (5,434) 20,438 (166)
Payments to settle long-term debt. . . . . . . . . . . . -- (40) (1,813)
Issuance of long-term debt . . . . . . . . . . . . . . . 16,782 6,300 --
Principal payment from ESOP. . . . . . . . . . . . . . . 450 409 371
Proceeds from employee stock issues. . . . . . . . . . . 1,665 1,484 1,510
Repurchase of common stock . . . . . . . . . . . . . . . -- (1,854) (2,858)
Dividends paid . . . . . . . . . . . . . . . . . . . . . (6,742) (6,386) (6,288)
-------- ------- --------
Net cash flow related to financing activities. . . . . . . 6,721 20,351 (9,244)
Effect of exchange rate changes on cash. . . . . . . . . . . (52) 2 54
-------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . 2,396 (824) (837)
Cash and cash equivalents at beginning of year . . . . . . . 1,851 2,675 3,512
-------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . $ 4,247 $ 1,851 $ 2,675
-------- ------- --------
-------- ------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
<PAGE>
TENNANT COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS Years ended December 31
OF SHAREHOLDERS' EQUITY 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SHARES AMOUNT Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK (A)
Beginning balance. . . . . . . . . . . . . 9,838,956 $ 3,690 4,912,663 $ 1,842 4,911,542 $ 1,842
Issue stock for employee benefit
plans and directors . . . . . . . . . . . 113,080 42 49,487 19 70,021 26
Purchase of common shares. . . . . . . . . -- -- (42,672) (16) (68,900) (26)
Stock split adjustment . . . . . . . . . . -- -- 4,919,478 1,845 -- --
--------- -------- --------- -------- --------- --------
Ending balance . . . . . . . . . . . . . 9,952,036 $ 3,732 9,838,956 $ 3,690 4,912,663 $ 1,842
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
ADDITIONAL PAID-IN CAPITAL (A)
Beginning balance. . . . . . . . . . . . . $ 396 $ 1,873 $ 1,752
Issue stock for employee benefit
plans and directors . . . . . . . . . . . 2,770 2,206 2,953
Purchase of common shares. . . . . . . . . -- (1,838) (2,832)
Stock split adjustment . . . . . . . . . . -- (1,845) --
-------- -------- --------
Ending balance . . . . . . . . . . . . . $ 3,166 $ 396 $ 1,873
-------- -------- --------
-------- -------- --------
COMMON STOCK SUBSCRIBED (A)
Beginning balance. . . . . . . . . . . . . 21,750 $ 525 -- $ -- 13,395 $ 574
Issue stock for employee benefit plans . . (21,750) (525) -- -- (13,395) (574)
Subscribe stock for employee benefit
plans . . . . . . . . . . . . . . . . . . 29,084 694 10,875 525 -- --
Stock split adjustment . . . . . . . . . . -- -- 10,875 -- -- --
--------- -------- --------- -------- --------- --------
Ending balance . . . . . . . . . . . . . 29,084 $ 694 21,750 $ 525 -- $ --
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
UNEARNED RESTRICTED SHARES
Beginning balance. . . . . . . . . . . . . $ (424) $ (312) $ (97)
Issue stock award plan grants, net . . . . 148 (112) (215)
-------- -------- --------
Ending balance . . . . . . . . . . . . . $ (276) $ (424) $ (312)
-------- -------- --------
-------- -------- --------
RETAINED EARNINGS
Beginning balance. . . . . . . . . . . . . $103,281 $ 93,733 $ 90,687
Net earnings . . . . . . . . . . . . . . . 19,662 15,735 9,126
Dividends paid, $.68, $.65, and $.64,
respectively, per common share. . . . . . (6,742) (6,386) (6,288)
Tax benefit on dividends on unallocated
ESOP shares . . . . . . . . . . . . . . . 195 199 208
-------- -------- --------
Ending balance . . . . . . . . . . . . . $116,396 $103,281 $ 93,733
-------- -------- --------
-------- -------- --------
CUMULATIVE TRANSLATION ADJUSTMENT
Beginning balance. . . . . . . . . . . . . $ 2,743 $ 1,773 $ 5,765
Net change for year in translation
adjustment. . . . . . . . . . . . . . . . 1,248 1,529 (4,022)
Gain (loss) on foreign currency hedges,
net of income taxes of $282, $342,
and $18, respectively . . . . . . . . . . (459) (559) 30
-------- -------- --------
Ending balance . . . . . . . . . . . . . $ 3,532 $ 2,743 $ 1,773
-------- -------- --------
-------- -------- --------
RECEIVABLE FROM ESOP
Beginning balance. . . . . . . . . . . . . $(13,962) $(14,816) $(15,673)
Principal payments . . . . . . . . . . . . 450 409 371
Shares allocated . . . . . . . . . . . . . 399 445 486
-------- -------- --------
Ending balance . . . . . . . . . . . . . $(13,113) $(13,962) $(14,816)
-------- -------- --------
-------- -------- --------
Total shareholders' equity . . . . . . . . $114,131 $ 96,249 $ 84,093
-------- -------- --------
-------- -------- --------
</TABLE>
The Company had 30,000,000 authorized shares of common stock as of
December 31, 1995.
The Company had 15,000,000 authorized shares of common stock as of
December 31, 1994 and 1993.
(a) Adjusted for two-for-one stock split effective April 26, 1995.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
<PAGE>
MANAGEMENT'S REPORT
The Company's management is responsible for the integrity and accuracy of the
financial statements. Management believes that the financial statements for the
three years ended December 31, 1995, have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances. In
preparing the financial statements, management makes informed judgments and
estimates where necessary to reflect the expected effects of events and
transactions that have not been completed.
In meeting its responsibility for the reliability of the financial statements,
management relies on a system of internal accounting control. This system is
designed to provide reasonable assurance that assets are safeguarded and
transactions are executed in accordance with management's authorization and
recorded properly to permit the preparation of financial statements in
accordance with generally accepted accounting principles. The design of this
system recognizes that errors or irregularities may occur and that estimates and
judgments are required to assess the relative cost and expected benefits of the
controls. Management believes that the Company's accounting controls provide
reasonable assurance that errors or irregularities that could be material to the
financial statements are prevented or would be detected within a timely period.
The Audit Committee of the Board of Directors, which is comprised solely of
Directors who are not employees of the Company, is responsible for monitoring
the Company's accounting and reporting practices. The Audit Committee meets
periodically with management and the independent auditors to discuss internal
accounting control, auditing, and financial reporting matters.
-----------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Tennant Company:
We have audited the accompanying consolidated balance sheets of Tennant Company
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tennant Company and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 7, 1996
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER RELATED DATA
CONSOLIDATION. The consolidated financial statements include the accounts of
Tennant Company and its wholly owned subsidiaries, Castex, Incorporated, Tennant
Holding B.V., and Contract Applications, Inc. The operations of Contract
Applications, Inc., are included through the time of its dissolution in 1993.
All material intercompany transactions and balances have been eliminated.
TRANSLATION OF NON-U.S. CURRENCY. Non-U.S. assets and liabilities have been
translated to U.S. dollars generally at year-end exchange rates, while income
and expense items are translated at exchange rates prevailing during the year.
Gains or losses resulting from translation are included as a separate component
of shareholders' equity. Transaction gains or losses are included in current
operations.
ECONOMIC HEDGE OF NET INVESTMENT IN TENNANT HOLDING B.V. The Company has elected
to treat certain forward exchange contracts as an economic hedge of its net
investment in Tennant Holding B.V. Accordingly, gains or losses on such
transactions net of their related tax effect are reported as a separate
component of shareholders' equity (see note 13).
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES. Inventories are valued at the lower of cost (principally on a last-
in, first-out basis) or market. Had all inventories been valued using the first-
in, first-out method of inventory accounting, inventories would have been
$17,850,000 and $16,680,000 higher than reported at December 31, 1995 and 1994,
respectively.
The composition of inventories at December 31 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
------- -------
<S> <C> <C>
FIFO inventories:
Finished goods . . . . . . . . . . . . . . $28,146 $21,491
All other. . . . . . . . . . . . . . . . . 30,406 26,174
LIFO adjustment. . . . . . . . . . . . . . . (17,850) (16,680)
------- -------
LIFO inventories . . . . . . . . . . . . . . $40,702 $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.
PROPERTY, PLANT, AND EQUIPMENT. Property, plant, and equipment is carried at
cost. Expenditures for improvements that add materially to the productive
capacity or extend the useful life of an asset are capitalized.
DEPRECIATION AND AMORTIZATION. The Company depreciates buildings and
improvements by the straight-line method over a 30-year life. Other property,
plant, and equipment is depreciated using the straight-line method based on
lives of 3 to 10 years.
Goodwill and other intangibles are amortized using the straight-line method
based on estimated useful lives ranging from 5 to 30 years.
WARRANTY. The Company charges to current operations a provision, based on
historical experience, for future warranty claims.
PENSION AND PROFIT SHARING PLANS. The Company has pension and profit sharing
plans covering substantially all of its employees. Pension plan costs are
accrued based on actuarial estimates with the pension cost funded annually.
POSTRETIREMENT BENEFITS. The company accounts for postretirement benefits under
Statement of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. Statement 106 requires an employer
to recognize the cost of retiree health benefits over the employees' period of
service.
INCOME TAXES. The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
U.S. income taxes are not provided on undistributed earnings of international
subsidiaries which are permanently reinvested. At December 31, 1995, earnings
permanently reinvested in international subsidiaries not subject to a U.S.
income tax provision were $6,256,000. If ever remitted to the Company in a
taxable distribution, U.S. income taxes would be substantially offset by
available foreign tax credits.
EARNINGS PER SHARE. Earnings per share are determined on the basis of the
weighted average number of shares outstanding during the period.
RECLASSIFICATIONS. Certain prior years' amounts have been reclassified to
conform with the current year presentation.
CASH EQUIVALENTS. The Company considers all highly liquid investments with
maturities of three months or less, when purchased, to be cash equivalents.
23
<PAGE>
(2) COSTS AND EXPENSES
Engineering, research and development, maintenance and repairs, and bad debt
expenses were charged to operations for the three years ended December 31, 1995,
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Engineering, research and
development. . . . . . . . . . . . . . . . $12,695 $11,674 $11,445
Maintenance and repairs. . . . . . . . . . . $ 5,239 $ 4,658 $ 4,366
Bad debts. . . . . . . . . . . . . . . . . . $ 803 $ 1,088 $ 701
</TABLE>
(3) SEGMENT REPORTING
The Company has one business segment which consists of the design, manufacture,
and sale of nonresidential floor maintenance equipment and related products.
The tables below set forth the information about North American and
International operations for the three years ended December 31, 1995:
<TABLE>
<CAPTION>
1995
-----------------------------------------------------
North Interna- Elimina- Consoli-
(IN THOUSANDS) American tional tions dated
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . $274,500 89,015 (38,147) $325,368
-------- ------ ------- --------
-------- ------ ------- --------
Profit from operations . . . . . . . . . . . $ 23,044 7,953 (815) $ 30,182
-------- ------ ------- --------
-------- ------ ------- --------
Profit before income
taxes. . . . . . . . . . . . . . . . . . . . $ 22,888 7,362 (815) $ 29,435
-------- ------ ------- --------
-------- ------ ------- --------
Net earnings . . . . . . . . . . . . . . . . $ 15,217 4,963 (518) $ 19,662
-------- ------ ------- --------
-------- ------ ------- --------
Identifiable assets. . . . . . . . . . . . . $193,084 48,943 (26,277) $215,750
-------- ------ ------- --------
-------- ------ ------- --------
<CAPTION>
1994
------------------------------------------------------
North Interna- Elimina- Consoli-
(IN THOUSANDS) American tional tions dated
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . $240,517 71,718 (30,550) $281,685
-------- ------ ------- --------
-------- ------ ------- --------
Profit from operations . . . . . . . . . . . $ 17,618 6,668 (162) $ 24,124
-------- ------ ------- --------
-------- ------ ------- --------
Profit before income
taxes. . . . . . . . . . . . . . . . . . . . $ 17,760 6,483 (162) $ 24,081
-------- ------ ------- --------
-------- ------ ------- --------
Net earnings . . . . . . . . . . . . . . . . $ 11,611 4,208 (84) $ 15,735
-------- ------ ------- --------
-------- ------ ------- --------
Identifiable assets. . . . . . . . . . . . . $169,045 32,623 (18,834) $182,834
-------- ------ ------- --------
-------- ------ ------- --------
<CAPTION>
1993
------------------------------------------------------
North Interna- Elimina- Consoli-
(IN THOUSANDS) American tional tions dated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . $180,524 63,398 (22,920) $221,002
-------- ------ ------- --------
-------- ------ ------- --------
Profit from operations . . . . . . . . . . . $ 7,247 3,743 343 $ 11,333
-------- ------ ------- --------
-------- ------ ------- --------
Profit before income
taxes. . . . . . . . . . . . . . . . . . . . $ 9,322 3,263 343 $ 12,928
-------- ------ ------- --------
-------- ------ ------- --------
Net earnings . . . . . . . . . . . . . . . . $ 6,689 2,236 201 $ 9,126
-------- ------ ------- --------
-------- ------ ------- --------
Identifiable assets. . . . . . . . . . . . . $120,541 26,744 (18,651) $128,634
-------- ------ ------- --------
-------- ------ ------- --------
</TABLE>
Included in North American sales are export sales of $38,147,000, $30,550,000,
and $22,920,000, for the years ended December 31, 1995, 1994, and 1993,
respectively. International operations does not include cost or asset
allocations from corporate overhead.
(4) CONSOLIDATED QUARTERLY DATA* (UNAUDITED)
<TABLE>
<CAPTION>
Net Sales Gross Profit**
--------------------------------------- ---------------------------------------
(000) (000)
--------------------------------------- ---------------------------------------
% %
Quarter 1995 1994 Change 1995 1994 Change
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
First. . . . . . . . . . . . . $ 74,144 $ 58,441 27 $ 31,498 $ 24,884 27
Second . . . . . . . . . . . . 82,797 70,784 17 35,788 29,688 21
Third. . . . . . . . . . . . . 77,761 71,309 9 33,482 29,808 12
Fourth . . . . . . . . . . . . 90,666 81,151 12 38,932 34,945 11
-------- -------- -------- --------
Year . . . . . . . . . . . . . $325,368 $281,685 16 $139,700 $119,325 17
-------- -------- -------- --------
-------- -------- -------- --------
<CAPTION>
Net Earnings
--------------------------------------------------------------------
(000) Per Share***
--------------------------------------- --------------------
%
Quarter 1995 1994 Change 1995 1994
-------- -------- ------ ----- -----
<S> <C> <C> <C> <C> <C>
First. . . . . . . . . . . . . $ 3,869 $ 2,660 45 $ .39 $ .27
Second . . . . . . . . . . . . 5,278 4,225 25 .53 .43
Third. . . . . . . . . . . . . 4,634 3,902 19 .47 .40
Fourth . . . . . . . . . . . . 5,881 4,948 19 .59 .50
-------- -------- ----- -----
Year . . . . . . . . . . . . . $ 19,662 $ 15,735 25 $1.98 $1.60
-------- -------- ----- -----
-------- -------- ----- -----
</TABLE>
* Regular quarterly dividends after stock split adjustment aggregated $.68
per share in 1995 ($.17 per share for all quarters) and $.65 per share in
1994 ($.16 per share for the first three quarters and $.17 for the fourth
quarter).
** Amounts differ from quarterly report due to the reclassification of
expenses.
*** Adjusted for two-for-one stock split effective April 26, 1995.
(5) Income Taxes
In 1995, 1994, and 1993 the Company recognized tax benefits of $195,000,
$199,000, and $208,000, respectively, relating to dividends paid on unallocated
shares held by the Company's ESOP and miscellaneous charges (credits) of
$(282,000), $(342,000), and $18,000, respectively, by direct allocations to
shareholders' equity.
Income tax expense for the three years ended December 31, 1995, is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) Current Deferred Total
------- -------- ------
<S> <C> <C> <C>
1995
Federal. . . . . . . . . . . . . . . . . . $7,323 $ 39 $7,362
Foreign. . . . . . . . . . . . . . . . . . 1,169 126 1,295
State. . . . . . . . . . . . . . . . . . . 992 124 1,116
------ ------- ------
$9,484 $ 289 $9,773
------ ------- ------
------ ------- ------
1994
Federal. . . . . . . . . . . . . . . . . . $6,324 $ (61) $6,263
Foreign. . . . . . . . . . . . . . . . . . 1,348 (16) 1,332
State. . . . . . . . . . . . . . . . . . . 716 35 751
------ ------- ------
$8,388 $ (42) $8,346
------ ------- ------
------ ------- ------
1993
Federal. . . . . . . . . . . . . . . . . . $3,603 $ (933) $2,670
Foreign. . . . . . . . . . . . . . . . . . 1,122 (304) 818
State. . . . . . . . . . . . . . . . . . . 482 (168) 314
------ ------- ------
$5,207 $(1,405) $3,802
------ ------- ------
------ ------- ------
</TABLE>
24
<PAGE>
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 35%, 35%, and 34.4%, respectively, as a result of
the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Tax at statutory rate. . . . . . . . . . . . $10,293 $8,417 $4,447
Increases (decreases) in taxes from:
State and local taxes, net of
federal benefit. . . . . . . . . . . . . 726 488 206
Effect of foreign taxes. . . . . . . . . . (78) 10 (223)
Research and development credit. . . . . . (344) (467) (463)
Effect of foreign sales corporation. . . . (737) (372) (223)
Other, net . . . . . . . . . . . . . . . . (87) 270 58
------ ------ ------
Income tax expense . . . . . . . . . . . . . $9,773 $8,346 $3,802
------ ------ ------
------ ------ ------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1995 and
1994, are presented below:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 and changes in
inventory reserves . . . . . . . . . . . . . . . . . . . $ 1,099 $ 1,417
Employee wages and benefits, principally due
to accruals for financial reporting purposes . . . . . . 8,894 7,843
Warranty reserves accrued for financial
reporting purposes . . . . . . . . . . . . . . . . . . . 659 522
Accounts receivable, principally due to
allowance for doubtful accounts and
change in tax accounting method
for equipment rentals. . . . . . . . . . . . . . . . . . 570 699
Restructuring reserves . . . . . . . . . . . . . . . . . . -- 145
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 866 693
------- -------
Total deferred tax assets . . . . . . . . . . . . . . . $12,088 $11,319
------- -------
------- -------
1995 1994
------- -------
Deferred tax liabilities:
Property, plant, and equipment, principally
due to differences in depreciation and
related gains. . . . . . . . . . . . . . . . . . . . . . $ 4,547 $ 4,119
Goodwill and other intangibles . . . . . . . . . . . . . . 663 142
Deferred gain, hedge of forward foreign
exchange contracts . . . . . . . . . . . . . . . . . . . 229 46
------- -------
Total deferred tax liabilities. . . . . . . . . . . . . $ 5,439 $ 4,307
------- -------
------- -------
Net deferred tax asset . . . . . . . . . . . . . . . . . . . $ 6,649 $ 7,012
------- -------
------- -------
</TABLE>
The Company has determined that a valuation allowance for the deferred tax
assets is not required since it is likely that they will be realized through
future reversals of existing taxable temporary differences and future
taxable income.
Income taxes paid were $11,256,000, $5,961,000, and $4,608,000, in 1995, 1994,
and 1993, respectively.
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
------- -------
<S> <C> <C>
Trade accounts payable . . . . . . . . . . . $18,280 $14,624
Employee profit sharing. . . . . . . . . . . 3,232 3,781
Wages, bonuses, and commissions. . . . . . . 12,240 11,478
Taxes, other than income taxes . . . . . . . 3,038 3,573
Restructuring. . . . . . . . . . . . . . . . 0 525
Other. . . . . . . . . . . . . . . . . . . . 6,964 5,036
------- -------
$43,754 $39,017
------- -------
------- -------
</TABLE>
During 1995 and 1994, the Company incurred severance payments and other
restructuring expenditures which were applied against the restructuring reserve.
(7) PROPERTY, PLANT, AND EQUIPMENT AND RELATED ACCUMULATED DEPRECIATION
Property, plant, and equipment and related accumulated depreciation at December
31 consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
--------- --------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . $ 3,274 $ 3,511
Buildings and improvements . . . . . . . . . 26,513 27,861
Machinery and equipment. . . . . . . . . . . 103,383 89,603
Construction in progress . . . . . . . . . . 4,043 1,409
--------- --------
Total property, plant, and equipment . . . . 137,213 122,384
Less accumulated depreciation. . . . . . . . (73,489) (65,832)
--------- --------
Net property, plant, and equipment . . . . $ 63,724 $ 56,552
--------- --------
--------- --------
</TABLE>
Buildings and improvements include office, warehouse, or manufacturing
facilities in suburban Minneapolis, Minnesota; Holland, Michigan; London,
England; and Uden, The Netherlands.
(8) INVESTMENTS AS LESSOR
The Company leases floor maintenance equipment to customers under sales-type and
operating leases. Noncancelable terms for sales-type leases range from six
months to five years, and terms for operating leases range from one month to
five years. All leases provide for minimum lease payments and require the
lessees to pay executory costs.
Minimum future lease payments to be received during the years ended December 31
are as follows:
<TABLE>
<CAPTION>
Sales-Type Operating
(IN THOUSANDS) Leases Leases
---------- ---------
<S> <C> <C>
1996 $ 7,676 $391
1997 5,285 78
1998 2,635 51
1999 724 --
2000 213 --
------- ----
Total $16,533 $520
------- ----
------- ----
</TABLE>
25
<PAGE>
The Company's investment in equipment related to operating leases as of
December 31 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
------ ------
<S> <C> <C>
Cost $3,775 $3,519
Less accumulated depreciation (1,071) (950)
------ ------
$2,704 $2,569
------ ------
------ ------
</TABLE>
The Company's net investment in sales-type leases at December 31 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
------- -------
<S> <C> <C>
Minimum lease payments receivable. . . . . . $16,533 $13,905
Less allowance for doubtful accounts . . . . (326) (315)
------- -------
Net minimum lease payments receivable. . . . 16,207 13,590
Estimated unguaranteed residual value. . . . 1,253 1,295
Less deferred income . . . . . . . . . . . . (3,187) (2,763)
------- -------
Net investment in sales-type leases. . . . . $14,273 $12,122
------- -------
------- -------
</TABLE>
(9) COMMITMENTS
The Company leases office and warehouse facilities in all major geographic areas
it serves under operating lease agreements which include both monthly and
longer-term arrangements. Leases with initial terms of one year or more expire
at various dates through 2006 and generally provide for extension options.
Rentals under the leasing agreements (exclusive of real estate taxes, insurance,
and other expenses payable under the leases) amounted to $2,656,000, $2,447,000,
and $2,080,000, in 1995, 1994, and 1993, respectively.
The aggregate lease commitments with initial terms of one year or more at
December 31, 1995, were $6,596,000 with minimum rentals for the periods as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996 $2,259
1997 1,711
1998 1,031
1999 435
2000 285
2001 and beyond 875
------
Total $6,596
------
------
</TABLE>
(10) SHORT-TERM BORROWINGS
Short-term bank borrowings at December 31, 1995 and 1994, were $17,349,000 and
$21,552,000, respectively. In addition to the short-term bank borrowings,
current debt includes the current portion of long-term debt and mortgages
associated with the relocation of employees.
The weighted average interest rates on the above short-term bank borrowings at
December 31, 1995 and 1994, were 6.5% and 5.7%, respectively. The interest rate
represents the weighted average rate for the respective period and is calculated
using the actual interest costs, exclusive of commitment fees, and month-end
average outstanding debt.
The Company has available lines of credit with banks in the amount of
$41,478,000 which includes a $33,000,000 line of credit requiring the Company to
pay .2% per year commitment fee on the line of credit. This fee is recorded by
the Company as interest expense. The Company had borrowings under these
arrangements at December 31, 1995 and 1994, of $15,964,000 and
$24,057,000, respectively.
In addition, the Company has outstanding letters of credit with banks in the
amount of $3,200,000 at December 31, 1995.
(11) LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
------- ------
<S> <C> <C>
Bank loan at 9.5%, due in 1995 . . . . . . . $ -- $ 569
Bank loan at 9.6%, due in 1995 . . . . . . . -- 637
Bank loan at 8.68% due in 1997 . . . . . . . -- 1,300
Bank loan at 4.8%, due in 1997 . . . . . . . 692 --
Bank loan at 8.8%, due in 1997 . . . . . . . 1,402 --
Bank loan at 8.9%, due in 2000 . . . . . . . 1,055 --
Note at 8.09%, due in 2000 . . . . . . . . . 5,000 --
Notes at 8.56%, due in 2001. . . . . . . . . 5,000 5,000
Note at 7.21%, due in 2003 . . . . . . . . . 5,000 --
Note at 7.84%, due in 2005 . . . . . . . . . 5,000 --
------- ------
Less:
Current portion. . . . . . . . . . . . . . -- (1,206)
------- ------
$23,149 $6,300
------- ------
------- ------
</TABLE>
The notes were issued in 1994 and 1995 under an agreement the Company has with
Prudential Insurance Company of America.
The aggregate principal payments of long-term debt for the next five years and
beyond are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996 $ --
1997 2,094
1998 --
1999 --
2000 6,055
2001 and beyond 15,000
-------
$23,149
-------
-------
</TABLE>
The fair market value of the long-term debt approximates cost as of December 31,
1995.
During 1995, 1994, and 1993, the Company paid total long-term and short-term
interest costs of $2,657,000, $1,557,000, and $509,000, respectively.
(12) POSTRETIREMENT BENEFITS
The Company provides certain health care benefits for substantially all of its
U.S. retired employees. Eligibility for those benefits is based upon a
combination of years of service with the Company and age upon retirement from
the Company.
26
<PAGE>
The periodic postretirement benefit cost under SFAS 106 for the three years
ended December 31, 1995, is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service costs. . . . . . . . . . . . . $205 $315 $219
Interest costs . . . . . . . . . . . . 645 638 566
Amortization and deferrals . . . . . . 0 18 --
---- ---- ----
Net postretirement
costs . . . . . . . . . . . . . . . . $850 $971 $785
---- ---- ----
---- ---- ----
</TABLE>
The actuarial present value of benefit obligations at December 31 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
------ ------
<S> <C> <C>
Retirees eligible for
benefits. . . . . . . . . . . . . . . . . . . . $2,677 $2,339
Dependents of retirees
eligible for benefits . . . . . . . . . . . . . 1,908 1,674
Active employees
fully eligible. . . . . . . . . . . . . . . . . 907 721
Active employees not
fully eligible. . . . . . . . . . . . . . . . . 5,476 4,119
Unrecognized net loss. . . . . . . . . . . . . . (1,783) (75)
------ ------
Accrued postretirement
benefit cost. . . . . . . . . . . . . . . . . . $9,185 $8,778
------ ------
------ ------
</TABLE>
The assumed annual rate of future increases in per capita cost of health care
benefits was 9.5% for 1996, declining gradually to 5.5% in 2021 and after.
Increasing the health care cost trend rate by 1% in each year would increase the
accumulated benefit obligation by $315,000 as of December 31, 1995, and the
aggregate of the service and interest costs by $30,000. The discount rates used
in determining the accumulated benefit obligation in 1995, 1994, and 1993, were
7.0%, 8.0%, and 7.0%, respectively.
(13) FOREIGN CURRENCY CONTRACTS
The Company has entered into several guilder forward exchange contracts for the
purpose of hedging the net investment in Tennant Holding B.V. As of December 31,
1995, there were six outstanding contacts totaling $7,523,000. These contracts
will mature in 1996 and bear rates ranging from 1.5215 to 1.6491 guilders per
dollar.
The Company also entered into yen foreign currency option contracts to hedge
anticipated sales transactions. Gains and losses on contracts are recognized in
income on a current basis over the term of the contracts.As of December 31,
1995, there were four outstanding yen contracts totaling $4,000,000. These
contracts will mature in 1996 and bear rates ranging from 84.40 to 90.26 yen per
dollar.
The Company also had four outstanding forward hedging contracts totaling
$5,435,000 as of December 31, 1995, relating to some of the Company's other
foreign operations. Gains and losses on contracts are recognized in income on a
current basis over the term of the contracts.
(14) COMMON AND PREFERRED STOCK AND ADDITIONAL PAID-IN CAPITAL
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 issued in connection with the stock split, an amount equal to the par
value of $.375 was transferred to the common stock account from additional paid-
in capital retroactive to December 31, 1994. This transfer was reflected in the
consolidated statements of shareholders' equity as a stock split adjustment in
1994. All share and per share data in this report have been retroactively
adjusted to reflect this stock split.
Also on February 16, 1995, the Board of Directors approved (effective April 26,
1995) that the Company was authorized to issue an aggregate of 31,000,000
shares; 30,000,000 were designated as Common Stock, having a par value of $.375
per share, and 1,000,000 were designated as Preferred Stock, having a par value
of $.02 per share. None were issued as of December 31, 1995. The Board of
Directors was authorized to establish one or more series of Preferred Stock,
setting forth the designation of each such series, and fixing the relative
rights and preferences of each such series.
Each share of the Company's outstanding common stock is accompanied by one
preferred share purchase right. Each right entitles the registered holder to
purchase from the Company one-twentieth of a share of junior participating
preferred stock, $.02 par value, for $75.00. The rights are not exercisable or
transferable apart from the common stock until a person or group has acquired
20% or more, or makes a tender offer to acquire 20% or more, of the Company's
outstanding common stock. If, in certain circumstances, the Company is acquired
in a merger or other business combination transaction, or if an acquiring person
purchases at least 20% of the Company's common stock, each right will entitle
the holder (except, in certain circumstances, an acquiring person) to receive,
upon exercise, common stock of either the Company or the acquiring person having
a value equal to two times the exercise price of the right. At no time do the
rights have any voting power. The rights may be redeemed by the Company for $.05
per right at any time prior to (and, in certain circumstances, within twenty
days after) a person or group acquiring 20% or more of the common stock. The 20%
thresholds do not apply to stock ownership by or on behalf of employee benefit
plans. Under certain circumstances, the Board of Directors may exchange the
rights for the Company's common stock or reduce the 20% thresholds to not less
than 10%. The rights expire on December 23, 1996.
(15) STOCK PLANS, BONUSES, PENSIONS, AND PROFIT SHARING
The Company has two Stock Incentive Plans under which stock-based grants are
awarded each year to designated employees (management and senior managerial
personnel) and directors. Under these plans, restricted shares are awarded
annually with a two-year or three-year restriction period. Performance-related
shares are also awarded annually and are payable if the Company achieves certain
business performance goals within a four-year period. In 1995, 1994, and 1993,
respectively, expenses of $2,310,000, $2,432,000, and $199,000, were charged to
operations for restricted and performance-related awards.
27
<PAGE>
The 1995 Stock Incentive Plan allows for the granting of options to purchase
common shares at an exercise price not less than 100% of the fair market value
on the date of the grant. Outstanding options as of December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
Total Exercise
Year shares Options Options Outstanding price
of grant granted expired exercised options per share
- - -------- ------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1995 101,000 0 0 101,000 $23.6875
</TABLE>
Options are exercisable on a cumulative basis at a rate of 25% per year.
The Company also has a matching contribution program available to all employees
who make Individual Shelter Contributions. Under this program, the Company makes
matching contributions up to a maximum of 4% of an employee's earnings. For
1995, 1994, and 1993, employee contributions that were invested in Company
common stock were matched at the rate of 35%, and contributions not invested in
Company common stock were matched at the rate of 15%. Expenses related to
matching contributions were $635,000, $544,000, and $471,000 in 1995, 1994, and
1993, respectively.
The Company has a Defined Benefit Pension Plan (available to most U.S.
employees). Plan benefits are based on the employee's years of service and
compensation during the highest five consecutive years of service of the final
ten years of employment. The Company's policy has been to fund this plan to the
maximum allowed by ERISA rules. Contributions are intended to provide not only
for benefits attributed to service to date, but also for service-related
benefits expected to be earned in the future.
A curtailment to the Defined Benefit Pension Plan occurred as a result of
closing Tennant Trend in 1994. The reduction in employment produced a pretax
gain of $751,000 ($496,000 net of taxes).
Net pension expense for the three years ended December 31, 1995, is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost . . . . . . . . . . . $1,245 $1,359 $1,539
Interest cost . . . . . . . . . . 884 756 866
Actual return on plan assets
(increase) decrease . . . . . . (5,521) 180 (1,811)
Deferred gain (loss) . . . . . . . 3,932 (1,495) 694
Amortization of transition
asset . . . . . . . . . . . . . (46) (46) (46)
Less Tennant Trend
curtailment gain . . . . . . . . -- (751) -
------ ------ ------
Net periodic pension
expense . . . . . . . . . . . $ 494 $ 3 $1,242
------ ------ ------
------ ------ ------
</TABLE>
The assumptions used in determining the actuarial present value of the projected
benefit obligation at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Weighted average discount
rate . . . . . . . . . . . . . . 7.0% 8.0% 7.0%
Rate of increase in future
compensation . . . . . . . . . . 5.5% 6.5% 5.5%
</TABLE>
The expected long-term rate of return on plan assets in 1995, 1994, and 1993 was
10.0%, 11.0%, and 10.0%, respectively.
The funded status of the plan and the amount recognized at December 31 are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits. . . . . . . . . . . . . . . . . . . $ 6,876 $ 4,512
Nonvested benefits . . . . . . . . . . . . . . . . . 289 210
------- -------
Accumulated benefit obligation . . . . . . . . . . . . 7,165 4,722
Effect of projected future compensation
increases. . . . . . . . . . . . . . . . . . . . . . 7,271 6,120
------- -------
Projected benefit obligation . . . . . . . . . . . . . 14,436 10,842
Plan assets, primarily listed equity securities,
at fair value using the market-related
value method . . . . . . . . . . . . . . . . . . . . (17,501) (12,132)
------- -------
Plan assets in excess of projected benefit
obligation . . . . . . . . . . . . . . . . . . . . . (3,065) (1,290)
Unrecognized prior service cost. . . . . . . . . . . . (331) (354)
Unrecognized net gain. . . . . . . . . . . . . . . . . 7,268 4,978
Unrecognized transition asset. . . . . . . . . . . . . 633 679
------- -------
Net pension obligation . . . . . . . . . . . . . . . . $ 4,505 $ 4,013
------- -------
------- -------
</TABLE>
Retirement benefits for eligible employees in foreign locations are funded
principally through either annuity or government programs.
During 1990, the Company established a leveraged Employee Stock Ownership Plan
(ESOP) by amending its Profit Sharing Plan to add ESOP features. The ESOP covers
substantially all domestic employees following completion of one year of
service. The shares required for the Company's matching contribution program, as
well as the Company's Profit Sharing Plan, are provided principally by the
Company's ESOP, supplemented as needed by newly issued shares. The Company makes
annual contributions to the ESOP equal to the ESOP's debt service less dividends
received by the ESOP. All dividends received by the ESOP are used to pay debt
service. The ESOP shares initially were pledged as collateral for its debt. As
the debt is repaid, shares are released from collateral and allocated to
employees who made 401(k) contributions that year, as well as to profit sharing
participants, based on the proportion of debt service paid in the year. The
Company accounts for the ESOP in accordance with EITF Issue 89-8. Accordingly,
the shares pledged as collateral are reported as unearned ESOP shares in the
consolidated balance sheets. As shares are released from collateral, the Company
reports compensation expense equal to the cost of the shares to ESOP. Allocated
and unallocated ESOP shares are considered outstanding in EPS computations.
Dividends on allocated and unallocated shares are recorded as a reduction of
retained earnings.
The Company's cash contribution to the ESOP during 1995, 1994, and 1993 was
$1,307,000, $1,349,000, and $1,362,000, respectively. Accrued expenses in excess
of benefits provided to employees through the ESOP, which were charged to
miscellaneous expense, were $778,000, $908,000, and $874,000 in 1995, 1994, and
1993, respectively. Interest earned and received on the Company loan to the ESOP
was $1,598,000, $1,642,000, and $1,682,000 in 1995, 1994, and 1993,
respectively. Dividends on the Company shares held by the ESOP used for debt
service were $738,000, $703,000, and $697,000 in 1995, 1994, and 1993,
respectively. At December 31, 1995, the ESOP indebtedness to the Company,
28
<PAGE>
which bears an interest rate of 10.05% and is due December 31, 2009, was
$15,791,000.
The ESOP shares as of December 31, after adjustment for the two-for-one stock
split, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Allocated shares . . . . . . . . . . . . . . . 229,578 179,262 128,618
Shares released for allocation . . . . . . . . 40,781 41,540 42,654
Unreleased shares. . . . . . . . . . . . . . . 698,707 748,264 797,794
------- ------- -------
Total ESOP shares. . . . . . . . . . . . . . . 969,066 969,066 969,066
------- ------- -------
------- ------- -------
</TABLE>
For the years ended December 31, 1995, 1994, and 1993, the Company charged to
operations $9,567,000, $9,821,000, and $4,759,000, respectively, for expense of
all stock, bonus, pension, and profit sharing plans.
(16) ACQUISITIONS
On February 1, 1994, the Company acquired the business and net assets of Castex
Industries, Inc. ("Castex"), a private corporation, for an aggregate
consideration of $26,800,000. Castex manufactures carpet cleaning equipment and
small, hard-floor cleaning equipment in Holland, Michigan.
The purchase price was allocated to the acquired assets and assumed obligations
based on their fair market values. The purchase price and related acquisition
costs exceeded fair market values by $17,469,000. This amount has been recorded
as goodwill and is being amortized on a straight-line basis over 30 years. In
addition, Tennant acquired land and improvements for $597,000 in cash and
entered into a five-year noncompetition agreement for $950,000, payable in five
annual installments in arrears, and a ten-year confidentiality agreement for
$50,000 in cash. These agreements are being amortized on a straight-line basis
over the contract lives. The transaction has been accounted for using the
purchase method of accounting, and as such, the Company's 1994 results of
operations include Castex earnings since the acquisition date.
Listed below are unaudited pro forma results for the years ended December 31,
1994 and 1993, assuming the transaction was consummated at the beginning of each
of the respective fiscal years (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . $284,092 $252,123
Net earnings . . . . . . . . . . . . . . . . . . . $ 15,793 $ 10,227
Net earnings per share . . . . . . . . . . . . . . $ 1.61 $ 1.04
</TABLE>
On December 29, 1994, the Company acquired the business and net assets of Eagle
Floor Care, Inc. ("Eagle"), a privately owned manufacturer of commercial floor
maintenance equipment in Adairsville, Georgia. The acquisition did not have a
material impact on operations.
29
<PAGE>
TENNANT COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
HISTORICAL PROGRESS REVIEW (PRESENTS 10 YEARS OF DATA FOR LONG-TERM GROWTH MEASUREMENT.)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993
---------- ------------- -------------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . $ 325,368 281,685 221,002
Cost of sales. . . . . . . . . . . . . . . . . . $ 185,668 162,360 126,071
Gross margin -- %. . . . . . . . . . . . . . . . 42.9 42.4 43.0
Selling and administrative expenses. . . . . . . $ 109,518 95,201 79,508
% of net sales. . . . . . . . . . . . . . . . 33.7 33.8 36.0
Profit from operations . . . . . . . . . . . . . $ 30,182 24,124 11,333(a)
% of net sales. . . . . . . . . . . . . . . . 9.3 8.6 5.1
Other income and (expense) . . . . . . . . . . . $ (747) (43) 1,595
Income tax expense . . . . . . . . . . . . . . . $ 9,773 8,346 3,802
% of earnings before income taxes . . . . . . 33.2 34.7 29.4
Earnings before extraordinary gain and
cumulative effect of accounting change. . . . . $ 19,662 15,735 9,126(a)
% of net sales . . . . . . . . . . . . . . 6.0 5.6 4.1
Return on beginning shareholders'
equity -- % . . . . . . . . . . . . . . . 20.4 18.7 10.8(a)
Net earnings . . . . . . . . . . . . . . . . . . $ 19,662 15,735 9,126
PER SHARE DATA(f)
Earnings before extraordinary gain and
cumulative effect of accounting change. . . . . $ 1.98 1.60 .93(a)
Net earnings . . . . . . . . . . . . . . . . . . $ 1.98 1.60 .93
Cash dividends . . . . . . . . . . . . . . . . . $ .68 .65 .64
Shareholders' equity (ending). . . . . . . . . . $ 11.47 9.78 8.56
YEAR-END FINANCIAL POSITION
Cash and cash equivalents. . . . . . . . . . . . $ 4,247 1,851 2,675
Total current assets . . . . . . . . . . . . . . $ 123,508 98,454 73,752
Property, plant, and equipment, net. . . . . . . $ 63,724 56,552 46,622
Total assets . . . . . . . . . . . . . . . . . . $ 215,750 182,834 128,634
Current liabilities excluding current debt . . . $ 44,374 41,959 29,657
Current ratio excluding current debt . . . . . . 2.8 2.3 2.5
Long-term liabilities excluding long-term debt . $ 16,747 15,318 12,591
Financing debt
Current . . . . . . . . . . . . . . . . . . . $ 17,349 23,008 1,190
Long-term . . . . . . . . . . . . . . . . . . $ 23,149 6,300 1,103
Total as % of total capital. . . . . . . . 26.2 23.3 2.7
Shareholders' equity . . . . . . . . . . . . . . $ 114,131 96,249 84,093
CASH FLOW(e) Increase (Decrease)
Related to operating activities. . . . . . . . . $ 15,442 25,419 20,440
Related to investing activities. . . . . . . . . $ (19,715) (46,596) (12,087)
Related to financing activities. . . . . . . . . $ 6,721 20,351 (9,244)
OTHER DATA
Interest income. . . . . . . . . . . . . . . . . $ 4,132 3,807 3,583
Interest expense . . . . . . . . . . . . . . . . $ 2,640 1,677 509
Depreciation and amortization expense. . . . . . $ 14,090 13,121 10,987
Net expenditures for property, plant, and
equipment . . . . . . . . . . . . . . . . . . . $ 19,117 18,870 12,877
Number of employees at year-end. . . . . . . . . 1,997 1,916 1,707
Total direct compensation. . . . . . . . . . . . $ 86,263 76,225 71,507
Profit sharing and all other employee benefits . $ 21,887 21,116 18,149
Average shares outstanding(f). . . . . . . . . . 9,916 9,826 9,836
Closing share price at year-end(f) . . . . . . . $ 23 7/8 24 1/8 23 1/2
Common stock price range during year(f). . . . . $ 22 1/4-29 20 15/32-24 1/4 19 3/4-24 1/4
Closing price/earnings ratio(g). . . . . . . . . 12.1 15.1 19.7
</TABLE>
(a) 1993 includes pretax restructuring charges of $4,090,000 ($2,536,000
net of taxes).
(b) 1992 includes income tax reduction of $1,040,000 due to completion of
examinations by tax authorities.
(c) 1990 includes income tax reduction of $2,650,000 related to the merger
of a subsidiary with the Company.
(d) 1989 includes net gain related to sale of land of $1,247,000.
(e) Comparable cash flow data is not available prior to 1986 due to a
change in reporting requirements.
(f) Adjusted retroactively for two-for-one stock split effective April 26,
1995.
(g) Closing price/earnings ratio is based on closing share price and
earnings before extraordinary gain and cumulative
effect of accounting change, and adjusted for unusual items
referenced in the above footnotes.
30
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 1992 1991 1990
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . 214,863 198,575 211,503
Cost of sales. . . . . . . . . . . . . . . . . . 121,792 112,147 121,598
Gross margin -- %. . . . . . . . . . . . . . . . 43.3 43.5 42.5
Selling and administrative expenses. . . . . . . 76,942 69,707 70,401
% of net sales. . . . . . . . . . . . . . . . 35.8 35.1 33.3
Profit from operations . . . . . . . . . . . . . 16,129 16,721 19,504
% of net sales. . . . . . . . . . . . . . . . 7.5 8.4 9.2
Other income and (expense) . . . . . . . . . . . 1,864 1,800 374
Income tax expense . . . . . . . . . . . . . . . 4,803 6,529 4,257
% of earnings before income taxes . . . . . . 26.7 35.3 21.4
Earnings before extraordinary gain and
cumulative effect of accounting change. . . . . 13,190(b) 11,992 15,621(c)
% of net sales . . . . . . . . . . . . . . 6.1 6.0 7.4
Return on beginning shareholders'
equity -- % . . . . . . . . . . . . . . . 17.2(b) 16.4 21.1(c)
Net earnings . . . . . . . . . . . . . . . . . . 9,229 11,992 18,256
PER SHARE DATA(f)
Earnings before extraordinary gain and
cumulative effect of accounting change. . . . . 1.34(b) 1.21 1.59(c)
Net earnings . . . . . . . . . . . . . . . . . . .94 1.21 1.85
Cash dividends . . . . . . . . . . . . . . . . . .61 .60 .59
Shareholders' equity (ending). . . . . . . . . . 8.64 7.87 7.43
YEAR-END FINANCIAL POSITION
Cash and cash equivalents. . . . . . . . . . . . 3,512 2,349 1,412
Total current assets . . . . . . . . . . . . . . 74,741 66,028 67,065
Property, plant, and equipment, net. . . . . . . 45,430 40,730 42,588
Total assets . . . . . . . . . . . . . . . . . . 128,988 111,644 114,590
Current liabilities excluding current debt . . . 28,848 30,700 30,982
Current ratio excluding current debt . . . . . . 2.6 2.2 2.2
Long-term liabilities excluding long-term debt . 10,691 2,281 1,463
Financing debt
Current . . . . . . . . . . . . . . . . . . . 1,492 197 6,986
Long-term . . . . . . . . . . . . . . . . . . 3,107 1,853 1,995
Total as % of total capital. . . . . . . . 5.1 2.6 10.9
Shareholders' equity . . . . . . . . . . . . . . 84,850 76,613 73,164
CASH FLOW(e) Increase (Decrease)
Related to operating activities. . . . . . . . . 19,298 22,409 24,848
Related to investing activities. . . . . . . . . (14,900) (6,104) (8,951)
Related to financing activities. . . . . . . . . (3,346) (15,336) (17,746)
OTHER DATA
Interest income. . . . . . . . . . . . . . . . . 3,619 3,828 2,672
Interest expense . . . . . . . . . . . . . . . . 540 568 1,019
Depreciation and amortization expense. . . . . . 10,241 8,730 8,652
Net expenditures for property, plant, and
equipment . . . . . . . . . . . . . . . . . . . 12,315 8,063 8,071
Number of employees at year-end. . . . . . . . . 1,758 1,738 1,800
Total direct compensation. . . . . . . . . . . . 69,240 65,324 66,364
Profit sharing and all other employee benefits . 19,547 17,917 19,316
Average shares outstanding(f). . . . . . . . . . 9,832 9,892 9,842
Closing share price at year-end(f) . . . . . . . 21 7/16 18 17 1/2
Common stock price range during year(f). . . . . 17 1/4-24 3/8 16 1/4-21 1/4 13 7/8-22 1/8
Closing price/earnings ratio(g). . . . . . . . . 17.4 14.9 13.3
<CAPTION>
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 1989 1988 1987
---------- ------------- -------------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . 197,078 183,888 166,924
Cost of sales. . . . . . . . . . . . . . . . . . 112,511 105,991 95,015
Gross margin -- %. . . . . . . . . . . . . . . . 42.9 42.4 43.1
Selling and administrative expenses. . . . . . . 64,518 59,646 55,352
% of net sales. . . . . . . . . . . . . . . . 32.7 32.4 33.2
Profit from operations . . . . . . . . . . . . . 20,049 18,251 16,557
% of net sales. . . . . . . . . . . . . . . . 10.2 9.9 9.9
Other income and (expense) . . . . . . . . . . . 3,755 1,449 953
Income tax expense . . . . . . . . . . . . . . . 9,052 8,126 7,692
% of earnings before income taxes . . . . . . 38.0 41.2 43.9
Earnings before extraordinary gain and
cumulative effect of accounting change. . . . . 14,752(d) 11,574 9,818
% of net sales . . . . . . . . . . . . . . 7.5 6.3 5.9
Return on beginning shareholders'
equity -- % . . . . . . . . . . . . . . . 18.9(d) 16.6 15.0
Net earnings . . . . . . . . . . . . . . . . . . 14,752 13,263 9,818
PER SHARE DATA(f)
Earnings before extraordinary gain and
cumulative effect of accounting change. . . . . 1.44(d) 1.09 .92
Net earnings . . . . . . . . . . . . . . . . . . 1.44 1.25 .92
Cash dividends . . . . . . . . . . . . . . . . . .55 .49 .48
Shareholders' equity (ending). . . . . . . . . . 7.52 7.37 6.60
YEAR-END FINANCIAL POSITION
Cash and cash equivalents. . . . . . . . . . . . 3,175 7,016 3,564
Total current assets . . . . . . . . . . . . . . 70,325 76,402 65,960
Property, plant, and equipment, net. . . . . . . 40,949 35,616 35,583
Total assets . . . . . . . . . . . . . . . . . . 116,179 117,013 105,273
Current liabilities excluding current debt . . . 35,408 29,836 25,206
Current ratio excluding current debt . . . . . . 2.0 2.6 2.6
Long-term liabilities excluding long-term debt . 4,022 3,757 3,130
Financing debt
Current . . . . . . . . . . . . . . . . . . . 588 1,722 2,280
Long-term . . . . . . . . . . . . . . . . . . 2,111 2,234 2,421
Total as % of total capital. . . . . . . . 3.5 4.8 6.3
Shareholders' equity . . . . . . . . . . . . . . 74,050 77,998 69,516
CASH FLOW(e) Increase (Decrease)
Related to operating activities. . . . . . . . . 25,685 18,614 15,651
Related to investing activities. . . . . . . . . (8,916) (9,140) (7,156)
Related to financing activities. . . . . . . . . (20,310) (5,730) (5,861)
OTHER DATA
Interest income. . . . . . . . . . . . . . . . . 2,033 2,023 2,196
Interest expense . . . . . . . . . . . . . . . . 597 401 1,017
Depreciation and amortization expense. . . . . . 8,027 7,900 7,162
Net expenditures for property, plant, and
equipment . . . . . . . . . . . . . . . . . . . 9,135 9,121 7,007
Number of employees at year-end. . . . . . . . . 1,789 1,726 1,727
Total direct compensation. . . . . . . . . . . . 62,401 58,637 54,721
Profit sharing and all other employee benefits . 17,233 15,245 14,437
Average shares outstanding(f). . . . . . . . . . 10,268 10,592 10,640
Closing share price at year-end(f) . . . . . . . 17 1/2 13 1/8 11 3/4
Common stock price range during year(f). . . . . 12 5/8-18 1/4 11 1/4-16 3/8 8-16 1/2
Closing price/earnings ratio(g). . . . . . . . . 13.3 12.0 12.7
<CAPTION>
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 1986 1985
---------- -------------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . 151,497 136,512
Cost of sales. . . . . . . . . . . . . . . . . . 85,977 78,385
Gross margin -- %. . . . . . . . . . . . . . . . 43.2 42.6
Selling and administrative expenses. . . . . . . 50,145 44,687
% of net sales. . . . . . . . . . . . . . . . 33.1 32.7
Profit from operations . . . . . . . . . . . . . 15,375 13,440
% of net sales. . . . . . . . . . . . . . . . 10.1 9.8
Other income and (expense) . . . . . . . . . . . 1,433 1,709
Income tax expense . . . . . . . . . . . . . . . 7,992 6,427
% of earnings before income taxes . . . . . . 47.5 42.4
Earnings before extraordinary gain and
cumulative effect of accounting change. . . . . 8,816 8,722
% of net sales . . . . . . . . . . . . . . 5.8 6.4
Return on beginning shareholders'
equity -- % . . . . . . . . . . . . . . . 14.7 15.3
Net earnings . . . . . . . . . . . . . . . . . . 8,816 8,722
PER SHARE DATA(f)
Earnings before extraordinary gain and
cumulative effect of accounting change. . . . . .83 .82
Net earnings . . . . . . . . . . . . . . . . . . .83 .82
Cash dividends . . . . . . . . . . . . . . . . . .46 .46
Shareholders' equity (ending). . . . . . . . . . 6.15 5.62
YEAR-END FINANCIAL POSITION
Cash and cash equivalents. . . . . . . . . . . . 947 2,660
Total current assets . . . . . . . . . . . . . . 55,627 52,782
Property, plant, and equipment, net. . . . . . . 35,037 32,350
Total assets . . . . . . . . . . . . . . . . . . 94,506 89,419
Current liabilities excluding current debt . . . 17,742 16,835
Current ratio excluding current debt . . . . . . 3.1 3.1
Long-term liabilities excluding long-term debt . 2,744 2,346
Financing debt
Current . . . . . . . . . . . . . . . . . . . 1,209 3,447
Long-term . . . . . . . . . . . . . . . . . . 2,766 3,208
Total as % of total capital. . . . . . . . 5.7 10.0
Shareholders' equity . . . . . . . . . . . . . . 65,356 59,912
CASH FLOW(e) Increase (Decrease)
Related to operating activities. . . . . . . . . 15,177 --
Related to investing activities. . . . . . . . . (8,543) --
Related to financing activities. . . . . . . . . (8,446) --
OTHER DATA
Interest income. . . . . . . . . . . . . . . . . 2,061 2,141
Interest expense . . . . . . . . . . . . . . . . 705 687
Depreciation and amortization expense. . . . . . 6,611 5,901
Net expenditures for property, plant, and
equipment . . . . . . . . . . . . . . . . . . . 8,543 12,196
Number of employees at year-end. . . . . . . . . 1,728 1,658
Total direct compensation. . . . . . . . . . . . 49,819 43,472
Profit sharing and all other employee benefits . 11,299 9,981
Average shares outstanding(f). . . . . . . . . . 10,658 10,672
Closing share price at year-end(f) . . . . . . . 12 1/8 11 3/4
Common stock price range during year(f). . . . . 10 9/16-13 1/4 9 3/4-12 1/2
Closing price/earnings ratio(g). . . . . . . . . 14.7 14.4
</TABLE>
31
<PAGE>
INVESTOR INFORMATION
ANNUAL MEETING
The annual meeting of Tennant Company will be held at 10:30 a.m. on Thursday,
May 2, at the Company's corporate headquarters, 701 North Lilac Drive, Golden
Valley, Minnesota.
STOCK MARKET INFORMATION
Tennant common stock is traded in the National Market System of NASDAQ over-the-
counter market, under the ticker symbol TANT.
As of December 31, 1995, there were approximately 3,300 shareholders of record.
QUARTERLY PRICE RANGE (UNAUDITED)
The accompanying chart shows the quarterly price range of the Company's shares
over the past five years after adjustment for the two-for-one stock split:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1991 $16.50-20.00 $17.50-21.25 $16.75-18.50 $16.25-18.38
1992 17.25-22.00 20.00-24.38 21.25-23.75 20.50-23.25
1993 20.13-24.25 19.75-22.00 20.75-22.75 20.88-24.25
1994 20.63-24.25 20.47-22.00 21.00-23.38 21.50-24.13
1995 23.13-25.00 23.00-29.00 25.00-27.25 22.25-27.25
</TABLE>
DIVIDEND INFORMATION
Cash dividends on Tennant's common stock have been paid for 52 consecutive
years, and the Company has increased dividends in each of the last 24 years.
Dividends generally are declared each quarter. Following are the record dates
anticipated for the next 12 months:
May 31, 1996
August 30, 1996
December 16, 1996
March 3, 1997
TRANSFER AGENT AND REGISTRAR
Shareholders with a change of address or questions about their account may
contact:
Norwest Bank Minnesota, N. A.
161 North Concord Exchange
P.O. Box 738
St. Paul, MN 55075-0738
612-450-4064 - 1-800-468-9716
10-K OFFER AND OTHER INVESTOR INFORMATION
A copy of Tennant's 1995 10-K annual report filed with the Securities and
Exchange Commission (which contains no material information not found in this
report), and other financial information may be obtained by writing Richard
A. Snyder, Treasurer, Tennant Company, P.O. Box 1452, Minneapolis, MN 55440,
or calling (612) 540-1209.
DIRECTORS
ROGER L. HALE, PRESIDENT, CHIEF EXECUTIVE OFFICER
ARTHUR D. COLLINS, JR., PRESIDENT,
CHIEF OPERATING OFFICER MEDTRONIC, INC., MINNEAPOLIS, MINNESOTA
DAVID C. COX, PRESIDENT, CHIEF EXECUTIVE OFFICER
COWLES MEDIA COMPANY, MINNEAPOLIS, MINNESOTA
ANDREW P. CZAJKOWSKI, PRESIDENT, CHIEF EXECUTIVE OFFICER
BLUE CROSS &BLUE SHIELD OF MINNESOTA, ST. PAUL, MINNESOTA
WILLIAM A. HODDER, CHAIRMAN, CHIEF EXECUTIVE OFFICER
DONALDSON COMPANY, INC., MINNEAPOLIS, MINNESOTA
DELBERT W. JOHNSON, CHAIRMAN, CHIEF EXECUTIVE OFFICER
PIONEER METAL FINISHING, MINNEAPOLIS, MINNESOTA
WILLIAM I. MILLER, CHAIRMAN
IRWIN FINANCIAL CORPORATION, COLUMBUS, INDIANA
ARTHUR R. SCHULZE, JR., RETIRED VICE CHAIRMAN OF THE BOARD
GENERAL MILLS, INC., MINNEAPOLIS, MINNESOTA
OFFICERS
ROGER L. HALE, PRESIDENT, CHIEF EXECUTIVE OFFICER
JANET M. DOLAN, SENIOR VICE PRESIDENT AND GENERAL COUNSEL
DOUGLAS R. HOELSCHER, SENIOR VICE PRESIDENT
RICHARD M. ADAMS, VICE PRESIDENT
PAUL E. BRUNELLE, VICE PRESIDENT
KEITH D. PAYDEN, VICE PRESIDENT
RICHARD A. SNYDER, VICE PRESIDENT, TREASURER, AND
CHIEF FINANCIAL OFFICER
WILLIAM R. STRANG, VICE PRESIDENT
BRUCE J. BORGERDING, DEPUTY GENERAL COUNSEL AND
CORPORATE SECRETARY
MAHEDI A. JIWANI, CORPORATE CONTROLLER AND PRINCIPAL
ACCOUNTING OFFICER
MAJOR UNITS
CASTEX INCORPORATED, HOLLAND, MICHIGAN
Thomas J. Vander Bie, PRESIDENT
Local business phone -- (616) 786-2330
TENNANT HOLDING B.V., UDEN, THE NETHERLANDS
Jan 't Hart, MANAGING DIRECTOR
Local business phone -- 4132-41241
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Tennant Company:
We consent to incorporation by reference in Registration Statements No. 2-86844
on Form S-8, relating to the Tennant Company Profit Sharing and Employee Stock
Ownership Plan and No. 33-59054 on Form S-8 relating to the Tennant Company 1992
Stock Incentive Plan and the Tennant Company Restricted Stock Plan for
Nonemployee Directors and No. 33-62003 on Form S-8 relating to the Tennant
Company 1995 Stock Incentive Plan of our report dated February 7, 1996, relating
to the consolidated balance sheets of Tennant Company and subsidiaries as of
December 31, 1995 and 1994 and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995, which report is incorporated by reference in the
December 31, 1995 annual report on Form 10-K of Tennant Company.
/s/ KPMG Peat Marwick LLP
March 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Earnings for the year ended Dec. 31, 1995, and the
Consolidated Balance Sheet as of Dec. 31, 1995, pages 18-19, and fn 2,
page 24, and fn 7, page 25, of the Company's 1995 Annual Report to
Shareholders, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4247
<SECURITIES> 0
<RECEIVABLES> 75122
<ALLOWANCES> 2611
<INVENTORY> 40702
<CURRENT-ASSETS> 123508
<PP&E> 137213
<DEPRECIATION> 73489
<TOTAL-ASSETS> 215750
<CURRENT-LIABILITIES> 61723
<BONDS> 23149
0
0
<COMMON> 3732
<OTHER-SE> 110399
<TOTAL-LIABILITY-AND-EQUITY> 215750
<SALES> 325368
<TOTAL-REVENUES> 325368
<CGS> 185668
<TOTAL-COSTS> 185668
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 803
<INTEREST-EXPENSE> 2640
<INCOME-PRETAX> 29435
<INCOME-TAX> 9773
<INCOME-CONTINUING> 19662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19662
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.98
</TABLE>
